Lakeland Industries, Inc. (LAKE) Earnings

Management highlights

- Core Fire Portfolio Progress * Completed full NFPA 1970-2025 certification for a complete head-to-toe fire product line including turnout gear, boots, gloves, hoods, and helmets, creating a competitive advantage for full solution procurement * Showcased the full certified portfolio at FDIC 2026 and Interschutz, with strong customer engagement and tender activity * Eagle subsidiary secured an intended award on the UK National Fire Chiefs Council 7-year £220 million PPE framework * Manufacturing ramps are underway to meet elevated backlog demand across production facilities - Recurring Service Platform Expansion * The independent service provider (ISP) decontamination and maintenance service platform continues growing faster than core fire product sales, currently generating $4-$5 million in quarterly revenue globally * Opened a new greenfield ISP location in Fresno, California, added advanced CO2 decontamination capabilities, and is developing a new location in Denver, Colorado, while expanding capacity at the existing Phoenix, Arizona facility * CO2 decontamination combined with traditional wet wash delivers far higher contaminant efficacy than wash-only models, creating a key competitive differentiator in the highly fragmented market * Organic buildout cost for a new ISP location ranges from $350 thousand to $500 thousand, with mature locations expected to hit $2+ million annual revenue with strong double-digit EBITDA margins - Strategic Portfolio and Operational Changes * Completed the divestiture of the non-core high performance FR and high vis product lines for $14 million in cash proceeds, simplifying the business, strengthening the balance sheet, and allowing focus on core fire and industrial segments * Transitioned German LHD operations to a third-party logistics model, onboarded new experienced sales leadership, and repositioned the brand, with H1 FY27 expected as a transitional period * Achieved $1.1 million year-over-year operating expense reduction through restructuring and consolidation initiatives * Reduced total inventory by $4.8 million quarter-over-quarter, driven primarily by the divestiture, while strategically building inventory in high-demand certified fire product categories - Balance Sheet and Governance Updates * Ended the quarter with $17.4 million in cash and cash equivalents, a $4.9 million increase from the end of FY26, and remained in compliance with all debt covenants * Added independent director Lee Rudow with deep industrial M&A experience to the Board of Directors and made key executive leadership appointments

Guidance

- Management maintains full year FY27 guidance of high single-digit total revenue growth and positive cash flow from operations * Sequential margin improvement is expected throughout FY27, with meaningful margin expansion becoming visible in the back half of the year as transitional one-time costs normalize and demand converts to revenue * Q2 FY27 is expected to be a transitional stepping stone rather than a full reflection of long-term improvement potential, with full performance gains materializing in H2 FY27 * The UK NFCC framework win creates an extended multi-year growth opportunity over its 7-year term, with ongoing replenishment orders generating consistent revenue * US industrial and oil and gas demand recovery is expected in the second half of FY27, though management is taking a measured approach until order patterns stabilize

Segment performance

Total net sales for Q1 FY27 were $47.4 million, a 1.4% increase from $46.7 million in the prior year period. 1. Fire Services: Revenue was $23.4 million, an 11% increase from $21 million year-over-year, accounting for 49% of total company revenue. The segment's backlog has grown to historic levels driven by new NFPA 1970-2025 certified product demand. 2. Global Industrials: The segment accounted for the remaining 51% of total revenue. Most regional operations delivered improved momentum, with Latin America hitting 119% of budget and Asia hitting 132% of budget. US and Canada underperformed budget, while demand has not meaningfully recovered for US disposables and oil and gas turnaround activity.

Risks & headwinds

- Geopolitical uncertainty in the Middle East has slowed project timelines and frozen regional budgets, temporarily delaying revenue conversion for identified EMEA opportunities * Current backlog growth has outpaced near-term manufacturing capacity, creating temporary delays while production ramps are completed * First quarter gross margin was pressured by 150 basis points from intentional pre-build inventory of new certified fire products, 80 basis points from one-time NFPA certification and transition costs, and 30 basis points from ISP location startup costs, all of which are temporary non-structural headwinds * The US industrial disposable and oil and gas end markets have not yet seen a meaningful demand recovery, creating near-term pressure on the industrial segment

Analyst Q&A

• Q: Backlog has expanded significantly with new NFPA certifications. How will this convert to revenue and what is the long-term growth trajectory of this demand? /

  A: Backlog is concentrated in new certified turnout gear, with 8-12 week manufacturing lead times that are temporarily extended due to capacity constraints. Production ramps are underway in both US and Mexican facilities, and product shipments are already ramping up quickly, with new orders continuing to outpace near-term production growth. The UK PPE framework alone is a 7-year ongoing opportunity with steady replenishment demand, creating a multi-year long runway for growth, with the certification transition unlocking demand that was delayed during the standard update process.

• Q: What is the current size and growth outlook for the ISP service business, and what are its key unit economics? /

  A: The ISP business currently generates $4-5 million in quarterly revenue globally, with roughly half coming from the US. Organic greenfield buildout costs range from $350 thousand to $500 thousand per location, with mature locations expected to hit at least $2 million in annual revenue with strong double-digit EBITDA margins. Demand is growing faster than core fire product demand driven by increasing focus on firefighter safety, and the market remains highly fragmented, giving the company significant room to expand. The business is already outgrowing existing facilities in multiple regions, creating immediate organic expansion opportunities.

• Q: How do product and service businesses interact, and what is the outlook for CO2 decontamination adoption? /

  A: The ISP business operates as an independent service provider to maintain trust with fire departments, and does not restrict service to only Lakeland products. While cross-selling opportunities for Lakeland gear emerge naturally from strong customer relationships, independent service is the core focus, and cross-selling is viewed as an incremental benefit rather than a core requirement for growth. CO2 decontamination combined with wet wash delivers much higher contaminant efficacy than wash-only models, meeting and exceeding NFPA efficacy standards for a wide range of contaminants, and management expects growing demand from local governments focused on firefighter safety.

• Q: What is the company's capital allocation hierarchy following the divestiture proceeds? /

  A: The first priority is investing in inventory to support expected growth in core fire products and capacity expansion at the company's industrial production facilities in Vietnam and China. Next priority is organic expansion of the ISP platform, which offers very fast, high returns on investment relative to other opportunities. Management is also progressing on a transition to an asset-based lending facility to improve liquidity and flexibility, and will prioritize debt reduction after addressing these core operating needs. Dividends are not a near-term priority as growth investments offer higher returns.