Christopher Ryan - Chief Executive Officer Teri Hunt - Chief Financial Officer.

David King - ROTH Capital Partners Alex Fuhrman - Craig-Hallum Capital Group Geoffrey Scott - Scott Asset Management.

Good afternoon and welcome to Lakeland Fourth Quarter 2018 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Safe Harbor statements under the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve risks, uncertainties, and assumptions as described from time-to-time in press releases and forms 8-K, registration statements, quarterly and annual reports and other reports and filing filled with Securities & Exchange Commission or made by management are statements other than statements of historical facts which address Lakeland's expectations of sources or uses for capital or which express the company's expectation for the future with respect to financial performance, operating strategies can be identified as forward-looking statements.

As a result, there can be no assurance that Lakeland's future is results will not be materially different from those described herein as believed, projected, planned, intended, anticipated, estimated, or expected or other words which reflect the current view of the company with respect to these results.

We caution readers that these forward-looking statements speak only as of the date hereof.

The company hereby expressly disclaims any obligation or undertaking to release publicly any update or revisions to any such statement to reflect any change in the company's expectations or any changes in events conditions or circumstances on which such statement is based. Please note that this event is being recorded.

I would now like to turn the conference over to Chris Ryan, CEO. Please go ahead..

increased production capacity; new products targeted at underserved vertical markets; entry into and scaling of new geographic markets; hiring of additional sales people; Amazon distribution platforms; and ERP and MIS systems deployment.

Increased production is needed as we are nearing the end of our available capacity within our current operating footprint. With the proceeds from the equity raised we will be able to deploy capital to begin opening up manufacturing facilities in India and Vietnam.

Once fully operational, these locations will provide us with lower cost production as compared with China and Mexico. This is an element of our forward-looking profitability enhancement initiatives that I will discuss in more detail on today's call. New products front underserved vertical markets include our FR apparels sold into the utility industry.

We have secured marquee customers and we believe a lot more headway can be made. New geographic markets [indiscernible] to our growth strategy. Here, we are targeting emerging and undeveloped regions where there is limited competition. Within our more established market as well as for our newer operating regions, we have been adding sales people.

Five sales people have been added within the past 12 months, as well as in some cases from Resonate [ph] we see from experience people at some of our larger competitors. As I have outlined, we've been investing in our growth much of which has not yet had an impact on our top-line but has already been realized on our expense lines.

Operating expenses increased in the fourth quarter and full year. This included the hiring of new sales associates developing new higher margin products and rolling out our Amazon distribution platform in the U.S. Distribution on the Amazon platform will be rolling out in Australia, Canada and the UK in fiscal 2019.

With the new production facilities in India and Vietnam we've added personnel and intend to leverage these locations as a regional presence to focus on local and international sales with accommodating trade regulations to reduce tariff, shipping and relating costs.

While spending more, particularly in the fourth quarter, our operating expansions as a person of revenues for all of fiscal 2018 remained essentially flat as compared with 2017. Fiscal 2018 was a year of considerable progress which truly was a team effort.

I'd like to acknowledge the dedication of our global workforce, our executive management and our Board of Directors who collectively have led us to this point. We have a talented and deep bench. I'd also like to express our appreciation of the support of our expanded shareholder base.

As we look forward to the year ahead, we are very encouraged by our solid financial position and the growth prospects that are within reach given our diversified business lines, our optimized supply chains and indications of continued global economic strength.

Lakeland Industries is increasingly the partner of choice in the global workforce protection market. That concludes my remarks. I will now pass the call over to our CFO, Teri Hunt, to provide a more thorough review of the company's financial statements..

Thank you, Chris. The following addresses my review of the fourth quarter and fiscal 2018 ended January 31, 2018. Net sales increased to $25.2 million for the three months ended January 31, 2018 compared to $20.3 million for the three months ended January 31, 2017 an increase of 24%.

On a consolidated basis, for the fourth quarter of 2018 domestic sales were $4.3 million or 49% of total revenues and international sales were $12.9 million or 51% of the sales. This compares with domestic sales of $11 million or 56% and international sales of $9 million or 44% in the same period of fiscal 2017.

We continue to be well diversified while growing in both segments. Among the company's larger international operations, sales in China and to the Asia Pacific Rim increased 54% as compared to the prior year period.

This growth is attributable to higher overall volumes which increased intercompany sales, increased industrial activity and the activity of several larger customers that began to replace depleted inventories and as the company worked through a large backlog. Canada sales increased 58% as that country continues to experience an oil and gas turnaround.

UK sales increased by 31% as new distributors placed stocking orders. Amid continuously improving economies within Latin America, sales increased by 27% from the prior year.

Favorable foreign exchange currency translations for sales in China, Canada, Mexico, the UK and Chile as reported in USD also contributed to the Company's consolidated revenue growth. For the full year, net sales increased to $96 million compared to $86.2 million for the prior year an increase of 11%.

On a consolidated basis, domestic sales were 53% and international sales were 47% of total revenues as compared to the prior year 54% domestic and 46% international. Gross profit increased 27% to $9.9 million for the three months ended January 31, 2018, from $7.8 million in the prior year.

The fourth quarter's revenue and gross profit reached the highest level since FY16 Q2 [ph] when we benefited greatly from higher margin sales relating to the Ebola crisis. Now there were no special circumstances impacting our sales or gross margins in fiscal 2018.

The gross margin is positively influenced by revenue mix which contained a greater concentration of higher margin chemical suits and FR products that was offset by higher labor costs in China. Gross profit for fiscal 2018 $36.2 million, an increase of 14.4% from $31.6 million in 2017.

Gross margin as a percent of net sales in fiscal 2018 was 37.7%, up from 36.7% in 2017. Operating expenses of $8.7 million in the fourth quarter increased $2.8 million from $5.9 million last year and as compared with $6.4 million in the third quarter.

Operating expense as a percent of net sales was 34.8% in the fourth quarter from 29.1% in the prior year and 26.7% for the third quarter.

These expenses include increases to freight and commissions related to the sale of volume increase in the quarter as well as the one-time noncash expense related to the write down to the assets held-for-sale and one-time significant increased for accounting and legal fees associated with additional work performed due to our change in filer status and the change of the U.S.

tax credit. As in the second and third quarter for this year we have committed to spending as part of the building out process of sales and marketing related infrastructure for some of our faster growing international operations and have been adding manufacturing, warehousing, and other support personnel for our expanded geographic reach.

Operating expenses of $27.7 million in fiscal 2018 increased approximately 12% from $24.8 million in 2017 while remaining at approximately 29% of sales in both years.

As explained in the quarter results, these expenses include increases to freight and commissions related to the sales volume increase in the year as well as the one-time noncash expense related to the write down to the assets held-for-sale and one-time significant increase of accounting and legal fees associated with additional work performed due to our change in filer status and the change to the U.S.

tax credit. Operating income of $1.2 million for Q4 FY18 compared to $1.9 million for the prior year and $2.7 million in Q3 FY18 and includes the one-time charge as previously defined.

Operating income in fiscal 2018 of $8.5 million benefited from sales growth, margin improvements and operating leverage throughout the year with an increase of 24% from $6.8 million in 2017.

Net loss for the three months ended January 31, 2018 was $4.9 million or $0.61 per share, as compared to net income of $0.9 million or $0.13 per share in the same period of 2017.

Net loss for the fourth quarter of 2018 includes one-time items and operating expenses and a non-cash tax charge of $5.1 million as a result of the changes enacted in the year in the U.S. tax credits. On December 22, 2017 the United States passed the 2017 Tax Cut and Jobs Act or Tax Act effective January 1, 2018.

The Tax Act requires Lakeland to recognize the effect of the tax law changes in the period of enactment such as determining the transition tax, re-measuring in the U.S. deferred tax assets as well as reassessing the net realizability of deferred tax assets.

This resulted in a reduction of the Company's net deferred tax assets to $7.6 million with a corresponding income tax expense of $5.1 million in fiscal 2018. Income tax expense for the fourth quarter of fiscal 2018 were $6.1 million compared with $0.8 million in income tax expense for the prior year period.

Net income for fiscal 2018 was $0.4 million or $0.06 per share compared to net income of $3.9 million or $0.54 per share in 2017. EBITDA, a non-GAAP measure adjusted for the exclusion of the real effect write down in stock based compensations were $2.2 million in FY18 Q4 as compared to $2.4 million in FY17 Q4.

Adjusted EBITDA for all of fiscal 2018 was $10.4 million up from $9 million in fiscal 2017. Lakeland's cash balance at the end of fiscal 2018 increase by 52% to $15.8 million.

This includes free cash flow generated during the year and the proceeds from the equity raised in the third quarter partially offset by cash used for debt reduction in inventory ramping. Total debt was reduced by 71% to $1.7 million at year end.

Cash used for inventory was necessitated to address current demand and in anticipation of continued growth and resulting in an increase of $7.4 million at January 31, 2018 as compared to the prior year end. The company with this increase should be able to cover seasonal demand when utilities perform their turnover to expand maintenance.

On the balance sheet cash and equivalents at the end of the fourth quarter of fiscal 2018 increased to $15.8 million from $10.4 million at the beginning of the fiscal year.

Cash and cash equivalents increased 52% from the beginning of the fiscal year which included $10.1 million from the net proceeds of the common stock offering in the third quarter as well as tax from operations following offset by increased inventory at the end of the fourth quarter.

Fiscal 2018 working capital increased by $18.3 million to $66.1 million at January 31, 2018 an improvement of 38% from the end of the prior fiscal year. Free cash flow was $0.9 million in Q4 FY18 as compared to $1.4 million in the prior year period.

Adjusted free cash flow the fourth quarter, a non-GAAP measure which is adjusted EBITDA less cash paid for foreign taxes and CapEx was $1.6 million in the fourth quarter of FY17 and '18. Free cash flow for year was $7.5 million up 11.3% as compared to $6.8 million in fiscal 2017.

Full year adjusted free cash flow was $8.3 million in fiscal 2018 as compared to $6.9 million in fiscal 2017. At January 31, 2018 the balance of borrowings under our revolving credit facility stood at zero down from $4.9 million at the beginning of the fiscal year.

Total debt outstanding at January 31, 2018 was $1.7 million down from $2.8 million on October 31, 2017, $5.8 million at January 31, 2017 and $13.4 million at January 31, 2016. The company incurred CapEx of approximately $0.3 million during the fourth quarter of fiscal 2018.

As in prior quarters four quarter capital expenses principally relate to the addition of equipment in China and for new manufacturing facilities in India and Vietnam.

Total capital expenditures for the fiscal year was $0.9 million, this under our budget of approximately $1.2 million simply due to timing and as compared with $0.4 million in fiscal 2017.

We expect CapEx for fiscal 2019 to be in the $2.0 million to $2.5 million range which includes the cost for a phased global rollout of a new Enterprise Resource Planning or ERP system. With this implementation, management will be in a position to increase efficiency by accelerating all core business processes with one business management solution.

We will gang this ability across the business with real-time information assisting in management decision-making and supply chain and inventory management. That concludes my remarks. I will turn the call back to management for closing remarks. Sorry, for the Q&A session..

Yes, we will now open the floor to questions..

[Operator Instructions] The first question comes from Dave King with ROTH Capital Partners..

Thank you. Good afternoon everyone. I guess first off congratulations on the nice sales growth and gross margin expansion. I guess my question is on the expenses in the quarter. I'm just trying to get a sense of how much of that is one-time.

Obviously there is [indiscernible] write-down and then it sounds like there was some outside accounting legal fees for the filing status and tax cut changes, I guess, how much – how significant were those charges what's the number there? And then more importantly, how should we be thinking about the kind of SG&A run rate as we look out into the year ahead? Thanks..

Yes, the one-time charges that are included in operating expenses includes the write down to the asset held-for-sale, something that was not obviously anticipated but was required as on interim analysis was conducted by management. So that's about 5% that we won't see again.

In addition, the professional fees associated with our change in filer [ph] status in July 31, we wanted to accelerate filer status, there was a significant amount of work that had to be done in conjunction with management and our legal and accountants, that we won't see again. The same applies to the change in the U.S.

tax cut, this required a significant amount of outside work by our tax accountants for the remeasurement process. We won't see those types of items again and that makes up for may be 7% or 8% of that expense that will not be recurring..

So 7% or 8% of the - call it $8.8 million – what you're saying or 7% to 8%...?.

Yes, it was 8.7 in the quarter..

Okay.

So call it, like let's say that's 650, 000 or so, so is it right then to be thinking about run rate expenses being kind of a low $7 million quarterly range or was there anything else in there between cost for the new facilities that may not you know in terms of building those out initially and things like that that will – won't necessarily recur, because I guess really I'm asking the question is, you know expenses are up kind of, I don’t want to say like one point if I back out that real estate and the Brazil charge expenses were up like $1.6 million over the prior quarter and up over $2 million over the prior year and from this I'm trying to get a sense of what's all in that bucket so we can second that [indiscernible]?.

Obviously there are some expenses that is going to increase those volume, commissions are going to increase, price is going to increase as we add sales people - we will continue to add sales people in FY19. I do believe that we don’t give guidance and I would anticipate our operating expenses to run closer to 25 or 24% to 26% of sales, but 26 more..

Okay, that helps thank you.

And then you may have said it Chris, but can you just talk about where things stand with India, I mean you talked about it a little bit, but gives us a little bit more in terms of where India and Vietnam stand and when you expect to have those fully up and running?.

Well, Vietnam is up and just up and running this week with about 250 employees. We will probably have 300 by June. We will probably make our first shipment in two to three weeks. But it will be – won't be through the full 600 in Vietnam until this time next year and they will be running it standard.

With India we haven’t made the jump yet, we want to see where Vietnam goes, but we are in a position to jump almost immediately in India. As I said we've got selling operations in India and we continue to expand that pilot plan. But we're looking, in fact I am due to go to India in two weeks so that's when the decision will be made.

And the decision will be basically to jump into a certain area and that area will be completely built out with an up from a year today..

Okay, that helps. And then I guess lastly from back of the in terms of the cash, so call it just under $16 million now, some of that was for inventory build.

I guess how do you see that bounce – kind of changing going forward? You have a fair amount of excess cash, how much would you expect to deploy on some of these various initiatives and/or for further inventory build for kind of new product lines? Thanks..

Yes, CapEx will be at about $2 million to $2.5 million, that would be India and Vietnam. Also this is sort of a heavy inventory time. Our sales are growing as you can see in the fourth quarter, so we built inventory for a number of reasons. Our inventory is about $7 million ahead of where it was this time last year.

But that's basically being built because this is a big turn time for most of the utilities in the U.S. We expect our sales to grow and we're also basically having lots of inventory around so that if we have any problems whatsoever with MRP we won't have delivery problems..

Absolutely, okay, which seems prudent.

So, it sounds to me then that with only in thought, let's say using the high end of the CapEx, guidance $2.5 million you've already built the inventory, it sounds like you don’t expect to dip that much further into that cash balance, is that kind of a fair…?.

Okay, that cash balance will hold for now. Inventory may come down by August as we get throughout the high season in the United States and Canada..

Perfect, well thanks for taking my questions, and good luck with the year ahead..

Our next question is from Alex Fuhrman with Craig-Hallum Capital Group..

Great, thank you very much for taking my question and congratulations on another really strong year.

I wanted to ask about some of the investments that that you're making here and get a little bit more color on what we should expect to see from those and one I'm particularly interested is the investments you've made to your sales force over the last couple of years.

You know, of course it sounds like you've added about five people I think you said relative to last year.

Can you give us a sense of where those people are being deployed or is it new geographies, are they perhaps working on any particular product line or market segment?.

Okay, they are new geographies internationally. In Europe we've added the sales person, in Australia we've added a sales person. In the United States it's new product lines where we've added another three sales people. So that is the five, it is two in geography, one in Europe, one in Australia and three new people in the United States..

Great, that's helpful Chris and then similarly with the investments you are making in Amazon and it sounds like that's a couple of quarters in a row we've heard about your growth there, can you give us a sense of here in the U.S.

how quickly that business has ramped up and what are you expecting as you launch the Amazon platform in some new geographies?.

Okay, well we basically started with almost nothing in Amazon and over the last year we ramped up. We're running at about 400,000 now and we expect that to grow as time goes on. What we're - you know we're still experimenting with just the right products. I feel like it is the three bear story, what's just right.

It's fine, it's just the right products that move rather than others. So, but we are growing and reporting at least with our projections on this. So we're not at all disappointed..

With minimal investments….

That's helpful. Sorry Teri, I didn’t mean to actually cut you off..

No, just it's the investment dollars have not been significant at this point. We're saying it's trading – optimistic return from what we're investing..

All right, that's helpful.

And then lastly just the development of higher margin product, can you give us a sense of when we should start to see those products in the assortment and is it primarily new customers you are going after there or an upsell on some of your existing products and then it sounds like the very strong gross margins you had here in the fourth quarter were driven at least in part by the mix of your business, was there any of these newer higher margin product lines in the fourth quarter and just curious what we can expect those to - how we could expect those to impact the gross margin going forward?.

Well, they've really just begun, so there is not too many in the fourth quarter, so what we do expect to see is some real movement in the next three to six months in these product lines. They have significantly higher gross margins than what we currently have.

So you should be seeing that building over the next year, but you haven't seen too much in the fourth quarter, but we're very, very close right now in the first quarter, particularly in the second quarter you're going to start seeing some real movement that we'll be able to comment on and really in a hard way..

Well, I'm looking forward to that. Thank you both very much..

Our next question is from Geoffrey Scott with Scott Asset Management..

Good afternoon, Chris.

How are you?.

Fine..

Couple real quick ones, the Amazon 400k is that per year or per quarter?.

That’s per year, that's where we're running at now..

The Brazilian asset, was that real estate that was impaired?.

I'm sorry, can you repeat that?.

The Brazilian asset that was subject to impairment was that real estate?.

Yes, that's the real estate holding..

It is real land with a factory on it..

Okay, in the press release, I'm not reading something correctly. In the press release, under the fiscal 2018 fourth quarter financial results, the first paragraph talks about U.S. sales, domestic sales were 12.3 compared to domestic sales of 11.3 and then the first sentence of the next paragraph sales in the U.S.

increased $1.6 million, where is the $0.6 million difference?.

I’m sorry.

I’m looking for what you’re quoting from the press release, you said it’s net sales?.

It's fiscal 2018 fourth quarter financial results underlined. And then in the first paragraph it talks about domestic sales of 12.3 compared to domestic sales of 11.3 which is a million dollar difference and then that the first sentence in the next paragraph it says sales in the U.S. increased $1.6 million.

So there's a $1.0 million difference in the first paragraph and $1.6 million in the second.

Am I reading something incorrectly?.

Frankly, I'm not, I believe there might be a typo that I'm not seeing and what I'm looking at here, the fourth quarter sales in this segment data where you would find absolutely was the result for us. If you would hold on one second while I look this up….

Do you see what I'm looking at though?.

No I don't..

Okay, while Teri is doing that, Chris in China how were the sales to Chinese end users for the quarter?.

Did we break that out? I don't think we generally do..

The segment data in the K geographically, give me one minute, I'm getting there..

Okay, because we don't normally break out the difference between sales to distributors and sales to end users..

Were sales to Chinese end users significantly up?.

There were up, but the intercompany was up as well that for the year end external sales out of China were $17.1 million versus last year $14.8 million….

What about Chinese end user sales?.

Well, we sell through distribution and end users and our distinction is the difference between an intercompany sale and an external sale. So in the U.S. the external sales and I don't have this broken out by the quarter, but I can get this to you in just a few minutes if you want to give me your email. But the external sales in the U.S.

for 2018 were $50.45 million versus 2017 the $46.54 million..

Yes, again I'm just - I'm going back again, I don't want to dwell on it too much, but I was going back to press release and I just, I don’t understand how I'm reading incorrectly..

No, I'm looking at net sales gross margins, I don’t see a segment that you have sales….

Do you see the paragraph that says fiscal 2018 fourth quarter financial results?.

And recent developments?.

No in the press release fiscal 2018 fourth quarter financial results is underlined..

Oh, I'm so sorry. I was looking at the very front sales in the U.S. increased $1.6 million or 14% and you are comparing that..

The first paragraph it has domestic sales were 12.3 an increase from 11.3. So I just wondered if I'm reading it incorrectly..

Let me give you….

Domestic sales were 12.3, the domestic sales of 11.3, give me one minute and I want to understand what happened there because what that should be..

Let me give you a call offline and we'll try to straighten it out..

Yes, he was placed out with the growth because I've got it filed in front of me, but I’m going to have to - for what it's clearly a typo of some sort, but I don't want to tell you which one is correct?.

Okay, I’ll give you a call offline. Thank you..

Mistakenly, okay..

That's it..

[Operator Instructions] We have a follow up question from Dave King from ROTH Capital Partners..

Thanks for taking my followup, just one on an earlier question in terms of gross margins.

Chris, the gross margin improvements you've had in the quarter from that resulted from mix, is it fair then to assume that that's chemical suits and things of that nature? And I guess more importantly what I'm trying to figure out is, is that is that also driven by shipments to the oil patch and should we kind of be thinking that that the sustainable trend at least in the interim near to intermediate term?.

Well, chemical suits can go up and down quarterly, but into the oil patch yes, those are some of the higher margin products that is picking up.

I can't predict what the price of oil is going to be, but it seems to be a trend that's going to stick here in 60 to 70, so my best guess is that margins will hold here because the oil business is going to hold here..

Fantastic, thanks for taking my question..

We have another followup question from Geoffrey Scott with Scott Asset Management..

Chris, followup on the pharmaceuticals side, how is that going, it had been delayed in implementation, where do we stand on that?.

We're making our first sales, albeit be small, but we're making our first sales in that area. As I said it really is just beginning this quarter which we haven’t reported yet and should be picking up in the second quarter..

Is that going to be a U.S.

domestic business or do you…?.

It will be - initially it will be primarily U.S. domestic business. We've hired up sales people from [indiscernible] but it will trying into a global business and the beauty of it is we don’t have to do, or really change anything except some labeling for it to be a global business..

Okay, thank you..

This concludes our question and answer session. I would like to turn the conference back over to Chris Ryan for any closing remarks..

Okay. We appreciate your participation on Lakeland’s fiscal 2018 fourth quarter financial results conference call.

As we are committed to delivering value for our shareholders, we believe this is best achieved for Lakeland Industries through the continued implementation of strategies for effectively managing its balance sheet, controlling expenses and capitalizing on long-term global growth initiatives.

We have made significant progress in the year toward optimizing our balance sheet, improving our cost structure and importantly, enhancing our competitive market position. It is our intent to continue on this path. Thank you..

This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..