Lakeland Fire and Safety discusses Q3 2026 financial results, including non-GAAP measures and forward-looking statements, on a listen-only call with Q&A session following the presentation.

The company reported a 4% YoY sales increase to $47.6M, driven by fire services products, despite EBITDA decline due to margin compression and revenue shortfalls. Acquired California and Arizona PPE to expand global fire footprint, securing a $5.6M 3-year contract in Hong Kong and completing a property sale for financial flexibility.

A company faces significant economic challenges including tariff uncertainty, inflation, and supply chain disruptions, impacting revenue and margins. Despite these issues, the company is focusing on operational improvements, inventory optimization, and a disciplined financial approach to regain trust and improve performance. A new interim CFO has been appointed, and the company is shifting away from formal guidance to emphasize measurable execution and transparency. Long-term optimism remains, driven by a robust tender pipeline and expected easing of headwinds into the next year.

The dialogue discusses revenue underperformance in fire services due to extended certification cycles and tender timelines, with reassurance of high success probability in major tenders. It also covers softening industrial demand and strategic responses to improve forecasting accuracy and distributor engagement, aiming for stable growth.

Despite revenue challenges and a significant decrease in adjusted EBITDA, the company is focusing on cost reduction initiatives and optimizing inventory levels. A recent acquisition has bolstered revenue growth, but headwinds in key regions have impacted profitability. To manage cash prudently, the company has decided to suspend its quarterly cash dividend, aiming to reinvest profits into growth opportunities for better long-term returns for shareholders.

Despite macro uncertainties, the company anticipates high single-digit revenue growth and improved margins through targeted acquisitions and operational efficiencies. A robust pipeline supports expansion in fire services and industrial verticals, aiming for 10%-12% adjusted EBITDA margins in the next quarter, with a longer-term goal of 15%-17%. Ongoing discussions for strategic acquisitions align with growth strategies in decontamination, rental, and services.

Discussion on the high probability of winning a $38 million fire service tender, factors contributing to this probability, and the potential expansion of the $178 million opportunity with NFPA standards adoption.

The dialogue covers challenges in the tender cycle due to delayed standards, shifts in product mix towards lower-margin items, and market adjustments in response to geopolitical issues and reliance on specific regions, emphasizing strategies to recover costs and adapt to new market conditions.

Discussing the prioritization of implementing an ERP system, particularly focusing on North America as a critical step for enhancing global business visibility and operational efficiency. The strategy involves a phased approach, starting with North America, followed by integrating acquisitions and then expanding to other regions like Vietnam.

The dialogue discusses delays in certification due to a new combined standard for firefighting gear, SCBA, personal safety systems, and tactical apparel, causing a backlog at certification agencies.

To improve gross profit margins, the company is addressing tariff issues through supplier programs, simplifying product lines, and shifting production to higher-margin categories. An ongoing SKU rationalization process is streamlining legacy products, while targeted inventory reductions aim to significantly lower stock levels. Additionally, third-party manufactured products are being integrated into in-house production, particularly for turnout gear.

Annual pricing increases are being strategically implemented in fire and industrial sectors to counteract tariffs and higher freight costs. Different businesses are addressed uniquely, avoiding a one-size-fits-all approach. Inventory reduction programs are also in place, leveraging new customer budgets starting January 1, to clear non-tariff-driven stock in the critical environment space by the fiscal year-end in February.

The dialogue highlights the impact of NFPA's approval process delays on business activities, with concerns raised about the time taken for product approvals. It discusses the role of NFPA as a standard-writing body, the involvement of various stakeholders in the standard-setting process, and the subsequent certification by third-party agencies. The conversation touches on the costs of certification borne by manufacturers and the exploration of alternative certification agencies to expedite the process. The NFPA's efforts to work within available resources to improve approval throughput are acknowledged, despite the challenges faced by companies like Lakeland.

The conversation highlights the potential for high margins in Malaysia and Hong Kong contracts, with a focus on the tragic events in Hong Kong driving increased demand. It also touches on the evolving fabric requirements impacting product costs and the competitive pricing environment in the firefighting gear industry.

The call concludes with appreciation for participants and partners, emphasizing Lakeland's growth potential and inviting further inquiries through the IR firm for unresolved questions.