Lakeland(LAKE) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the company Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including statements of operations, comprehensive income (loss), balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, investments, debt, equity, and segment reporting Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income over specific periods | Metric | Three Months Ended Oct 31, 2024 ($000s) | Three Months Ended Oct 31, 2023 ($000s) | Nine Months Ended Oct 31, 2024 ($000s) | Nine Months Ended Oct 31, 2023 ($000s) | | :---------------------- | :-------------------------------------- | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Net sales | $45,761 | $31,678 | $120,583 | $93,449 | | Cost of goods sold | 27,201 | 18,317 | 70,603 | 53,461 | | Gross profit | 18,560 | 13,361 | 49,980 | 39,988 | | Operating expenses | 17,753 | 9,740 | 48,562 | 30,699 | | Operating profit | 807 | 3,621 | 1,418 | 9,289 | | Income before taxes | 233 | 3,555 | 479 | 9,080 | | Income tax expense | 147 | 937 | 116 | 2,678 | | Net income | $86 | $2,618 | $363 | $6,402 | | Basic EPS | $0.01 | $0.35 | $0.05 | $0.87 | | Diluted EPS | $0.01 | $0.34 | $0.05 | $0.85 | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents net income and other comprehensive income items, such as foreign currency translation adjustments | Metric | Three Months Ended Oct 31, 2024 ($000s) | Three Months Ended Oct 31, 2023 ($000s) | Nine Months Ended Oct 31, 2024 ($000s) | Nine Months Ended Oct 31, 2023 ($000s) | | :------------------------------------- | :-------------------------------------- | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Net income | $86 | $2,618 | $363 | $6,402 | | Foreign currency translation adjustments | (205) | (483) | 903 | (2,110) | | Comprehensive income (loss) | $(119) | $2,135 | $1,266 | $4,292 | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Asset/Liability/Equity | October 31, 2024 ($000s) | January 31, 2024 ($000s) | | :--------------------------------- | :----------------------- | :----------------------- | | ASSETS | | | | Cash and cash equivalents | $15,839 | $25,222 | | Accounts receivable, net | 26,563 | 19,169 | | Inventories | 72,721 | 51,250 | | Total current assets | 125,296 | 101,505 | | Property and equipment, net | 12,681 | 10,685 | | Operating leases right-of-use assets | 14,424 | 10,969 | | Goodwill | 22,397 | 13,669 | | Intangible assets, net | 15,528 | 6,830 | | Total assets | $201,213 | $153,745 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $16,711 | $7,378 | | Total current liabilities | 29,637 | 18,346 | | Loans payable – long term | 31,051 | 731 | | Total liabilities | 76,526 | 30,294 | | Total stockholders' equity | 124,687 | 123,450 | | Total liabilities and stockholders' equity | $201,213 | $153,745 | Condensed Consolidated Statements of Stockholders' Equity This statement tracks changes in the company's equity accounts, including net income, dividends, and other comprehensive income - Total stockholders' equity increased from $123,450 thousand at January 31, 2024, to $124,687 thousand at October 31, 2024. This increase was primarily driven by other comprehensive income of $903 thousand and stock-based compensation of $1,081 thousand, partially offset by net income of $363 thousand and dividends paid of $664 thousand[14][16] Condensed Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | Nine Months Ended Oct 31, 2024 ($000s) | Nine Months Ended Oct 31, 2023 ($000s) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash (used in) provided by operating activities | $(12,494) | $7,733 | | Net cash (used in) investing activities | $(25,387) | $(3,015) | | Net cash provided by (used in) financing activities | $28,251 | $(1,845) | | Effect of exchange rate changes | 247 | (1,087) | | Net decrease in cash and cash equivalents | $(9,383) | $(1,786) | | Cash and cash equivalents at beginning of period | 25,222 | 24,639 | | Cash and cash equivalents at end of period | $15,839 | $26,425 | - Operating activities shifted from providing $7.7 million in cash in 2023 to using $12.5 million in 2024, primarily due to a build-up in inventory and changes in accounts receivable[18]. Investing activities significantly increased cash usage to $25.4 million in 2024, mainly driven by acquisitions (LHD and Jolly) and investments in convertible debt instruments[18][148]. Financing activities provided $28.3 million in 2024, largely from credit facility borrowings to fund acquisitions, a substantial increase from using $1.8 million in 2023[18][148] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Business This note describes the company's primary operations, products, and global market presence - Lakeland Industries, Inc. manufactures and sells industrial protective clothing and accessories globally through in-house sales teams, customer service, and independent sales representatives to over 2,000 distributors[21][22]. Products serve diverse end-users including integrated oil, chemical/petrochemical, automobile, steel, construction, cleanroom, pharmaceutical, and governmental agencies across more than 50 countries[21][22] 2. Basis of Presentation This note outlines the accounting principles and standards used in preparing the financial statements - The condensed consolidated financial statements are unaudited and include normal recurring adjustments, not indicative of future fiscal year results, and should be read with the audited consolidated financial statements from the most recent Form 10-K[23][26]. The company is evaluating new accounting standards for Income Taxes (ASU 2023-09) and Segment Reporting (ASU 2023-07), planning adoption for FY26 and FY25 10-K filings, respectively[28] 3. Investments and Acquisitions This note details the company's strategic investments and recent business acquisitions - The Company made an additional investment in Bodytrak, providing a secured convertible loan of up to £1,500,000 ($1.9 million), with initial funding of £500,000 ($0.6 million) on May 19, 2023, and subsequent fundings totaling £1,900,000 ($2.4 million) through August 28, 2024[31][32]. The Company recognized losses of $0.1 million for the three months and $0.4 million for the nine months ended October 31, 2024, from its 22.5% equity investment in Bodytrak[35] - On July 1, 2024, the Company acquired LHD Group Deutschland GmbH for $15.9 million (net of cash acquired), a leading provider of firefighter turnout gear and maintenance[36][43][44]. On February 5, 2024, Jolly Scarpe S.p.A. was acquired for $9.6 million, specializing in professional footwear for emergency services[49][50]. On November 30, 2023, Pacific Helmets NZ Limited was acquired for approximately $8.6 million, enhancing the fire service protective helmets portfolio[53]. These acquisitions are preliminary and subject to final purchase price allocation Pro Forma Combined Financial Information (Unaudited) | Metric (in millions, except per share amounts) | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | Nine Months Ended Oct 31, 2024 | Nine Months Ended Oct 31, 2023 | | :--------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales | $45,761 | $44,311 | $131,852 | $130,275 | | Net income (loss) | $96 | $2,831 | ($27) | $6,764 | | Basic earnings per share | $0.01 | $0.38 | | $0.92 | | Diluted earnings per share | $0.01 | $0.37 | | $0.90 | 4. Inventories This note provides a breakdown of inventory components and changes over the period | Inventory Category | October 31, 2024 ($000s) | January 31, 2024 ($000s) | | :---------------------------- | :----------------------- | :----------------------- | | Raw materials | $36,616 | $27,417 | | Work-in-process | 2,490 | 668 | | Finished goods | 36,975 | 29,719 | | Excess and obsolete adjustments | (3,360) | (6,554) | | Total Inventories | $72,721 | $51,250 | - Total inventories increased by $21.47 million (41.9%) from $51.25 million at January 31, 2024, to $72.72 million at October 31, 2024, primarily driven by increases in raw materials and finished goods[59] 5. Goodwill and Intangible Assets, Net This note details the changes in goodwill and intangible assets resulting from acquisitions and amortization - Goodwill increased significantly from $13,669 thousand at January 31, 2024, to $22,397 thousand at October 31, 2024, primarily due to acquisitions[14][61]. Intangible assets, net, also increased from $6,830 thousand to $15,528 thousand over the same period, driven by acquisitions and measurement period adjustments, partially offset by amortization[61] 6. Contract Advances This note explains the nature and changes in contract liabilities representing customer advances | Metric | October 31, 2024 ($000s) | October 31, 2023 ($000s) | | :-------------------------- | :----------------------- | :----------------------- | | Contract liability – Jan 31 | $104 | $1,627 | | Increases | 910 | 326 | | Decreases | (650) | (1,752) | | Contract liability – Oct 31 | $363 | $201 | - Contract liabilities, representing advances for products, increased from $104 thousand at January 31, 2024, to $363 thousand at October 31, 2024, reflecting new advances of $910 thousand and decreases of $650 thousand[62][63] 7. Long-Term Debt This note describes the company's credit facilities and other long-term borrowing arrangements - The Company's revolving credit facility with Bank of America was amended on March 28, 2024, extending its maturity to March 28, 2029, increasing availability to $40.0 million (with a $10.0 million accordion feature), and removing the borrowing base component[67][68]. The interest rate is now based on Daily SOFR plus an Applicable Rate (1.25% to 2.00%)[68]. As of October 31, 2024, $26.9 million was outstanding under this facility at 6.17% interest[68] - Acquired entities (Pacific, Jolly, LHD) have their own borrowings[69]. Pacific has a trade finance facility and two term loans totaling NZ$2.05 million[70]. Jolly entered a €1.5 million term loan and received a €1.2 million advance[72][73]. LHD has a federally guaranteed term loan of €800,000 from Commerzbank AG, with an outstanding balance of €575,000 ($625,000) as of October 31, 2024[74] 8. Concentration of Risk This note discusses the company's exposure to credit risk and uninsured foreign bank balances - The Company's credit risk is diversified across a large customer base globally[75]. Cash balances are held in various domestic and foreign banks, with approximately $15.0 million of foreign bank balances uninsured as of October 31, 2024[76]. No single customer or vendor accounted for more than 10% of net sales or purchases during the three and nine-month periods ended October 31, 2024 and 2023[77] 9. Stockholders' Equity This note details changes in equity, including stock-based compensation and share repurchase programs - The 2017 Equity Incentive Plan was amended on June 13, 2024, increasing the authorized shares for issuance from 840,000 to 1,240,000[81][82]. Stock-based compensation expense recognized was $455 thousand for the three months and $1,081 thousand for the nine months ended October 31, 2024[83]. Unrecognized stock-based compensation expense totaled $2.9 million as of October 31, 2024, expected to be recognized over approximately two years[88] - The Company's stock repurchase program has $5.0 million remaining authorization as of October 31, 2024[90]. No shares were repurchased during the nine months ended October 31, 2024, under this program[90] 10. Income Taxes This note explains the effective tax rates and factors influencing the company's income tax expense - The effective tax rate for Q3 FY25 was 63.5% (vs. 26.4% in Q3 FY24), and for the nine months ended October 31, 2024, it was 24.3% (vs. 29.5% in 2023)[93][94]. These rates differ from the U.S. federal statutory rate of 21% primarily due to foreign tax rate differentials, GILTI, stock compensation vestings, and earnout adjustments[95]. The valuation allowance for deferred tax assets was $7.9 million at October 31, 2024[95] 11. Net Income Per Share This note provides the calculation of basic and diluted net income per share | Metric | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | Nine Months Ended Oct 31, 2024 | Nine Months Ended Oct 31, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income ($000s) | $86 | $2,618 | $363 | $6,402 | | Basic net income per share | $0.01 | $0.35 | $0.05 | $0.87 | | Diluted net income per share | $0.01 | $0.34 | $0.05 | $0.85 | | Weighted average common shares outstanding (Basic) | 7,428,451 | 7,428,557 | 7,379,835 | 7,344,559 | | Weighted average common shares outstanding (Diluted) | 7,664,532 | 7,614,404 | 7,636,646 | 7,528,723 | 12. Contingencies This note discloses potential future obligations arising from litigation and other matters - The Company is involved in various litigation proceedings, which management believes will not materially affect its financial position[103]. Discussions are ongoing with the landlord regarding structural defects at the Monterrey, Mexico facility, which may impact the right-of-use asset's carrying value[104]. As of October 31, 2024, there were no significant outstanding claims or litigation[104] 13. Segment Reporting This note presents financial information by geographic segment and product line - The Company manages operations by geographic location, with manufacturing facilities in the US, China, Mexico, Vietnam, Argentina, New Zealand, Romania, and India[106]. China facilities produce the majority of products and generate significant international revenues[107]. Performance is evaluated based on operating profit[107] Consolidated External Sales by Geographic Segment | Segment | Three Months Ended Oct 31, 2024 ($ millions) | Three Months Ended Oct 31, 2023 ($ millions) | Nine Months Ended Oct 31, 2024 ($ millions) | Nine Months Ended Oct 31, 2023 ($ millions) | | :--------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | USA Operations (including Corporate) | $15.4 | $15.1 | $42.1 | $42.6 | | Other foreign | 3.6 | 2.4 | 11.4 | 6.6 | | Europe | 14.4 | 3.2 | 27.5 | 12.6 | | Mexico | 1.3 | 1.0 | 4.1 | 2.9 | | Asia | 3.6 | 3.1 | 10.4 | 9.7 | | Canada | 2.5 | 2.7 | 8.0 | 7.2 | | Latin America | 5.0 | 4.2 | 17.2 | 11.8 | | Consolidated external sales | $45.8 | $31.7 | $120.6 | $93.4 | Consolidated External Sales by Product Line | Product Line | Three Months Ended Oct 31, 2024 ($ millions) | Three Months Ended Oct 31, 2023 ($ millions) | Nine Months Ended Oct 31, 2024 ($ millions) | Nine Months Ended Oct 31, 2023 ($ millions) | | :-------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Disposables | $12.4 | $11.9 | $37.8 | $36.7 | | Chemical | 5.1 | 4.7 | 16.7 | 15.4 | | Fire service | 19.3 | 5.6 | 41.8 | 20.0 | | Gloves | 0.3 | 0.5 | 1.4 | 1.7 | | High Visibility | 1.8 | 2.6 | 4.2 | 5.4 | | High Performance Wear | 2.6 | 2.4 | 5.2 | 5.2 | | Wovens | 4.2 | 4.0 | 13.4 | 9.0 | | Consolidated external sales | $45.8 | $31.7 | $120.6 | $93.4 | 14. Subsequent Events This note reports significant events that occurred after the balance sheet date - On November 1, 2024, the Board declared a quarterly cash dividend of $0.03 per share, paid on November 22, 2024[114]. On November 8, 2024, the Company agreed to provide an additional secured convertible loan of up to £150,000 ($192,000) to Bodytrak, with an initial funding of £50,000 ($64,000) on November 12, 2024[115] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, highlighting key operational results, recent acquisitions, and liquidity. It also includes forward-looking statements and a discussion of critical accounting policies Forward-Looking Statements This section outlines potential risks and uncertainties that could impact future financial results - The report contains forward-looking statements based on management's beliefs and expectations, which involve risks and uncertainties[120]. Key risk factors include international manufacturing operations (especially in China and Vietnam), geopolitical crises, foreign currency fluctuations, supply chain disruptions, climate change, competition, dependence on key personnel, cybersecurity incidents, product liability claims, environmental regulations, and the ability to achieve expected benefits from strategic transactions[121] Business Overview This section describes the company's core business, market position, and strategic initiatives - Lakeland Industries manufactures and sells industrial protective clothing and accessories globally, serving diverse industries and governmental agencies in over 50 countries[125][126]. The company emphasizes its strong market position through investments in its global footprint, owning and operating manufacturing facilities in seven countries, and strategic acquisitions like LHD, Jolly, and Pacific to expand product offerings and geographic reach[127][128][129] Net Sales Attributable to Customers Outside the United States | Period | Net Sales ($ millions) | | :----------------------------------- | :--------------------- | | Three months ended October 31, 2024 | $30.4 | | Three months ended October 31, 2023 | $16.6 | | Nine months ended October 31, 2024 | $78.5 | | Nine months ended October 31, 2023 | $50.8 | - Sales in Russia accounted for approximately 2.6% of consolidated sales for the nine months ended October 31, 2024, with no significant sales in Ukraine[132] Results of Operations This section analyzes the company's financial performance, including sales, gross profit, and net income Three Months Ended October 31, 2024 vs. 2023 | Metric | 2024 ($ millions) | 2023 ($ millions) | Change ($ millions) | Change (%) | | :---------------------- | :---------------- | :---------------- | :------------------ | :--------- | | Net Sales | $45.8 | $31.7 | $14.1 | 44.5% | | Gross Profit | $18.6 | $13.4 | $5.2 | 38.8% | | Gross Profit % of Sales | 40.6% | 42.2% | -1.6 pp | | | Operating Expense | $17.8 | $9.7 | $8.1 | 83.5% | | Operating Profit | $0.8 | $3.6 | $(2.8) | -77.8% | | Operating Margin | 1.8% | 11.4% | -9.6 pp | | | Net Income | $0.1 | $2.6 | $(2.5) | -96.2% | - Net sales increased significantly due to $11.4 million from LHD, Jolly, and Pacific acquisitions, and growth in the Fire Services product line[133][134]. Gross profit percentage declined due to lower margins from acquisitions and increased inbound freight[135]. Operating expenses surged by $8.1 million, driven by $2.9 million from acquisitions, $0.5 million in transaction expenses, $0.7 million in restructuring costs, $0.2 million in PFAS litigation, $0.3 million in intangible amortization, and $0.4 million for the Monterrey facility[136][137]. This led to a substantial decrease in operating profit and net income[139] Nine Months Ended October 31, 2024 vs. 2023 | Metric | 2024 ($ millions) | 2023 ($ millions) | Change ($ millions) | Change (%) | | :---------------------- | :---------------- | :---------------- | :------------------ | :--------- | | Net Sales | $120.6 | $93.4 | $27.2 | 29.1% | | Gross Profit | $50.0 | $40.0 | $10.0 | 25.0% | | Gross Profit % of Sales | 41.5% | 42.8% | -1.3 pp | | | Operating Expense | $48.6 | $30.7 | $17.9 | 58.3% | | Operating Profit | $1.4 | $9.3 | $(7.9) | -84.9% | | Operating Margin | 1.2% | 9.9% | -8.7 pp | | | Net Income | $0.4 | $6.4 | $(6.0) | -93.8% | - For the nine months, net sales increased by 29.1%, primarily driven by $21.0 million from the LHD, Jolly, and Pacific acquisitions and strong growth in the Fire Service and Woven product lines[139][140]. Gross profit percentage decreased due to lower margins from acquisitions, increased inbound freight, and amortization of acquired inventory step-up[141]. Operating expenses rose by $17.9 million, with $6.6 million from acquisitions, $1.9 million in acquisition costs, $0.6 million in PFAS litigation, $0.4 million for the Monterrey facility, and $0.6 million in restructuring costs[142]. This led to a significant decline in operating profit and net income[144] Liquidity and Capital Resources This section discusses the company's cash position, working capital, and funding sources - As of October 31, 2024, cash and cash equivalents were $15.8 million, and working capital was $95.7 million[145]. Cash decreased by $9.4 million from January 31, 2024, while working capital increased by $12.5 million[145]. Operating activities used $12.5 million in cash, investing activities used $25.4 million (primarily for acquisitions), and financing activities provided $28.3 million (mainly from credit facility borrowings for acquisitions)[148] - The Company believes its current cash, borrowing capacity under its $40.0 million revolving credit facility (extended to March 2029), and expected cash from sales will be sufficient for operating and investing requirements for at least the next twelve months[152][156]. The credit facility terms were modified to remove the borrowing base and adjust covenants[156] - Capital expenditures for the nine months ended October 31, 2024, were $1.5 million, mainly for manufacturing equipment[159]. Anticipated FY25 capital expenditures are approximately $2.0 million for strategic capacity expansion and equipment replacement[159] Critical Accounting Policies and Estimates This section highlights accounting policies requiring significant judgment and estimation - The Company's critical accounting policies and estimates, which require significant judgment and estimates, are consistent with those disclosed in its fiscal year 2024 Form 10-K[161]. No significant changes in the application of these policies occurred during the nine months ended October 31, 2024[161] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Lakeland Industries, Inc. is not required to provide disclosures regarding quantitative and qualitative information about market risk - The Company, as a smaller reporting company, is exempt from providing quantitative and qualitative disclosures about market risk[162] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of controls ensuring timely and accurate financial reporting - The Company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of October 31, 2024, ensuring timely and accurate reporting of required information[163] Changes in Internal Control over Financial Reporting This section reports any material changes in the company's internal control system during the period - There were no material changes in internal control over financial reporting during the third quarter of fiscal 2025[164] PART II - OTHER INFORMATION This section includes disclosures on equity security sales, other information, and a list of exhibits Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase program and any equity security purchases made during the quarter - The Company has an ongoing stock repurchase program with $5.0 million remaining authorization as of October 31, 2024[165]. No shares were repurchased under this program during the third quarter of fiscal 2025, except for 6,000 restricted shares withheld to cover taxes on vested restricted shares[170][171] Item 5. Other Information This section indicates that there is no other information to report under this item - No other information is reported under this item[172] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, agreements, certifications, and XBRL financial statements - Exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Severance and Change in Control Plan, Letter Agreement, CEO and CFO certifications (Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL financial statements[173] SIGNATURES This section contains the signatures of the registrant's authorized officers, including the Chief Executive Officer, President, Executive Chairman, Chief Financial Officer, and Secretary, certifying the filing of the report - The report is signed by James M. Jenkins (Chief Executive Officer, President, and Executive Chairman) and Roger D. Shannon (Chief Financial Officer and Secretary) on December 9, 2024[176][177]