Lakeland Industries - Earnings Call - Q4 2020

Transcript

Speaker 0

Good day, ladies and gentlemen. We appreciate your patience. Welcome to the Lakeland Industries Fourth Quarter Fiscal twenty twenty Financial Results Conference Call. All lines have been placed on a listen only mode and the floor will be opened for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host for today, mister Charles Robertson.

Sir, the floor is yours.

Speaker 1

Okay. I'd like to begin with our safe harbor statement. Before we begin, parties are reminded that statements made during the call can contain forward looking information within the meaning of the Securities Act of 1933 and the Securities Act of 1934. Forward looking statements are all statements other than statements of historical facts, which reflect management's expectations regarding future events and operating performance and speak only as of today, 04/15/2020. Forward looking statements are based on current assumptions and analysis made by the company in light of its experience and its perception of historical trends, current conditions, including business affairs pertaining to the COVID-nineteen pandemic, expected future developments and other factors it believes are appropriate under circumstances.

These statements are subject to a number of assumptions, risks and uncertainties and factored in the company's filings with the Securities and Exchange Commission's general economic and business conditions. The business opportunities that may be presented to you and pursued by the company, changes in law or regulations and other factors, many of which are beyond the control of the company. Listeners are cautioned that these statements are not guarantees of future performance and the actual results or developments may differ materially from those projected in any forward looking statements. All subsequent forward looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. With that, I'll move on to our comments.

Good afternoon. I'd like to thank you for joining our fiscal twenty twenty fourth quarter and full year financial results call. I'm joined here today by Lakeland's Chief Financial Officer, Alan Dillard. As many of our followers know, I was appointed President and Chief Executive Officer of Lakeland Industries on February 1. This is the first quarterly earnings call in nearly two decades that is not being led by Chris Ryan.

It is an honor to succeed Chris as our CEO. He held the title through the end of our fiscal year 2020 and it is fitting that it was an historic year marked by the highest levels of revenue in the company's history for the fourth quarter and full year alike. Under Chris' leadership, we've made incredible progress in replacing DuPont and Tyvek related sales with our own products and taking considerable market share away from them and others while expanding and transforming the company to become a major player in the global personal protective equipment or PPE market. As a founding investor in Lakeland and a member of its leadership team for more than thirty years, we are fortunate to continue to drive forward with Chris as our Executive Chairman as of February 1. I'm fortunate to have worked alongside him for the past sixteen years, most recently as Chief Operating Officer before being appointed CEO.

And I share his vision for growth for Lakeland. So with a focus on strengthening our management team and introducing new perspectives into Lakeland, we were pleased to add Alan Dillard as our Chief Financial Officer in the middle of fiscal twenty twenty. This team has made considerable operational and financial progress this year and we continue to work very hard to address our organic growth initiatives as well as our response to the COVID-nineteen pandemic. Lakeland's leadership team is bolstered by a deep bench of talent globally, particularly within our senior and middle management ranks. Our managers coordinate and direct the effort of approximately 2,400 employees worldwide.

The differentiating term here is employees since our key customers rely or our key competitors rely predominantly on outsourcing manufacturing. Owning our manufacturing facilities, managing our own supplier relationships and having our own employees is a significant competitive strength. In the aggregate, it equates to manufacturing resilience. Our employees have risen to the challenges presented by COVID-nineteen. We've been able to add production capacity, move production between facilities, work with our supply chain partners to assure timely delivery of raw materials and distribute garments from our various manufacturing and warehousing facilities around the world as demand and market conditions necessitate.

In so doing, we remain focused on supporting our day to day customers and responsibly addressing COVID-nineteen related demand. We are confident in our ability to build on the success achieved in fiscal twenty twenty to navigate the challenges and opportunities presented by COVID-nineteen. However, before we can service that demand, our first duty is to ensure the safety of our team globally. We are pleased to report thus far that our workforce is healthy and continues to abide by all relevant safety guidelines. I'd like to congratulate our employees who have risen to the occasion to keep our workplaces and their communities and families safe while contributing to our efforts to increase production.

Lakeland's manufacturing facilities in China and Vietnam and India produce disposable protective garments and chemical suits, including our popular line of sealed seam garments.

Speaker 2

These types of garments afford the wearer maximum protection from infectious agents and are commonly requested during viral outbreaks such as coronavirus. The company is experiencing heightened demand for these products and last month we announced that Lakeland was accelerating its previously planned expansion of our sealed seam manufacturing capacity by 30%.

Speaker 1

In the last two years, Lakeland has invested approximately $6,000,000 to expand its global manufacturing footprint into Vietnam and India, update and add IT systems, improve efficiencies and increase margins. These investments have proven not only timely, but effective as evidenced by our current results. Our fourth quarter saw a continuation of the strong demand we experienced in the third quarter in The Americas and an improvement in our sales in China to the extent that we were on a pace for another quarter with revenue in excess of $27,000,000 and record annual revenue of about $107,000,000 And this is before the addition of late fourth quarter demand of approximately $1,000,000 for the coronavirus outbreak in China. In our fourth quarter results, we reported not only an increase in revenues to a record level, but improvements in our gross and operating margins as well as all major financial performance metrics including further improvements to our balance sheet. Alan will address many of these in his remarks.

We have ample liquidity to advance our ongoing business initiatives while aiding in the exigent circumstances relating to the coronavirus outbreak by moving our previously planned capacity expansion forward by approximately nine months from the 2022 to mid April and May. The increase in our seam sealing capacity allows us to meet our immediate coronavirus related demand combined with our regular industrial demand and have increased capacity required to continue revenue growth when the coronavirus demand subsides. Our manufacturing approach, even through times of emergency has always been to place a priority on satisfying the needs of our traditional customers. Our organic growth has been robust for a few quarters now. COVID-nineteen demand, significant as it is, remains incremental and requires management of our growth so that we do not trade one customer's protection for another customer's protection.

It

Speaker 2

is

Speaker 1

our mission to continue to grow organically in excess of the overall market, which is estimated at approximately 7% worldwide. We've exceeded this growth rate in both our fiscal twenty twenty third and fourth quarters even without estimated COVID-nineteen related sales. Since late January twenty twenty, we have fielded orders in connection with what we believe is demand arising from the coronavirus outbreak. Since the large majority of our orders come in through our globally diversified customer base of distributors who then resell the garments, it's difficult for us to ascertain whether the products are being purchased for stocking purposes in anticipation of future orders or for immediate use by end users. For this reason, we are not disclosing specifics on the orders being received prior to our quarterly results report as some of these orders are likely being held in inventory by distributors and end users for future use.

This is often the case during crisis situations. But the COVID nineteen pandemic is having an unprecedented impact on most businesses and the overall global economy. In China, Lakeland personnel returned to work four days prior to the end of their scheduled Chinese New Year holiday in order to meet the demand for protective garments in Wuhan. Since returning to work in China, our facility has been running at full capacity for twelve hours a day on all coronavirus related lines. Our first shipments for coronavirus related orders took place in the last two weeks of our fiscal fourth quarter.

And on 02/14/2020, we increased our hours of operation in our Vietnam and India plants, which were previously curtailed in order to draw down inventories from approximately forty to forty five hours per week to twelve hours per day, seven days per week. In aggregate, we estimate these schedule changes amount to a nearly 50% increase in capacity above our curtailment schedule and about 20% above our normal operating schedule for products with COVID-nineteen application. The additional seam sealing equipment once installed will further increase this capacity in Vietnam. Lakeland was well positioned for an emergency response at the onset of the coronavirus. We have leveraged our inventory position, previous investments in ERP planning and logistics to flex manufacturing platform with our considerable experience in other emergency events to formulate a COVID-nineteen response plan that will sustain our strategic growth plans so that we emerge from this event in a position to continue our healthy organic growth rate.

To this end, Lakeland's priority through these kinds of events is to remain focused on satisfying the needs of our traditional customers and to service emergency demand to the extent that we have excess capacity or to the extent that we can quickly increase capacity. This focus on our traditional markets allows us to develop additive new customer relationships and increase market penetration that serves as a hedge against economic downturns or excess inventories within distribution channels. Our plan is working. Our current order backlogs have filled our manufacturing capacity through July and August for some products. This has not only ended our manufacturing curtailment, but now has us running at maximum capacity with inventories reduced to more normal operational levels as we seek to balance COVID-nineteen emergency need with the additional demand that is not coronavirus driven within some of our vertical markets.

We have orders contracted for delivery beyond 08/01/2020. And additionally, we have significant new accounts that are in development for the second half of the year. Forward bookings and potential new accounts combined with our many market drivers, market diversification and resilient manufacturing capability position us well for the second half of fiscal year FY 2021. But these are extraordinary times and we must be prepared for any eventuality. This includes the possibility of temporary closure of our customers or suppliers' manufacturing facilities and the uncertainty of the oil sector, a market from which we derive approximately 20% of our sales.

Perhaps the preliminary oil production reduction agreement between OPEC and its allies announced last week will boost this industry. Our focus will remain on organic growth initiatives, inventory management and the generation as well as preservation of cash so that we may invest accordingly to build upon the terrific year that we had in fiscal twenty twenty. That concludes my remarks. I will now pass the call to Alan to provide a more thorough review of the company's financial results.

Speaker 3

Thank you, Charlie. The following address is my review of fiscal twenty twenty fourth quarter and full year ended 01/31/2020. Net sales were $28,200,000 for the three months ended 01/31/2020 as compared to $25,000,000 for the three months into January 3139. For the third consecutive quarter, our revenues exceeded 27,000,000 Coronavirus related demand as best we can tell added approximately $1,000,000 to our fiscal twenty twenty fourth quarter sales, which were recorded in the final two weeks of that period. The majority of these orders were fulfilled with products already in inventory.

Without the incremented COVID-nineteen demand, fourth quarter revenue would still have reached a record level for the period with an increase of 9% from the prior year, a growth rate that is well in excess of what we believe to be the industry growth rate. Net sales increased to 107,800,000 for the full year ended 01/31/2020, up 9% as compared to $99,000,000 for prior year. Sales in the second and fourth quarters reached the highest levels in the company's history for the respective periods. On a consolidated basis for the year, domestic sales were $55,900,000 or 52% of total revenues and international sales were $51,900,000 or 48% of total revenues. This compares with domestic revenues of $49,900,000 or 50% of the total and international sales of $49,100,000 or 50% of the total in fiscal twenty nineteen.

In fiscal twenty twenty versus 2019, sales in The U. S. Increased approximately $6,000,000 or 12% while international sales increased 2,800,000 or 5.7%. Among our major international operations, sales in The UK were down less than 1% at nearly $9,400,000 due to concerns related to Brexit. Sales in Mexico were down $700,000 or 20% due primarily to the loss of a large customer.

Sales in Asia were up just under 1% at nearly $18,200,000 where China is our largest market and continues to experience limited economic growth. Sales in Canada were up $1,100,000 or 12.6 percent driven by demand for fire products or turnout gear. And finally, in Latin America increased $1,700,000 or 25.3% as we expanded our customer base in Chile and Uruguay. As previously disclosed, in the 2020, we initiated a curtailment of production and staff in Vietnam after having built up sufficient inventories that we believe would be needed given the disruption we had anticipated with the ERP system implementation. The curtailment aid into our gross margins during the middle of the fiscal year.

The ERP system has now been in use for three quarters and is yielding most

Speaker 4

of

Speaker 3

the intended improvements to enable enhanced efficiencies and productivity as nearly half of our total revenues were processed using these capabilities. That said, we did have a material weakness in our control over financial reporting pertaining to inventory valuation that has been reported in accordance with SEC reporting guidelines and have identified and implemented a specific review and remediation program. We will provide updates on that remediation as we progress. Aside from this issue, the ERP system, higher revenue levels and margin improvement strategies including a price increase for select products during the year have led to higher gross margins. Tariff increases on products made in China and sold in The U.

S. Had minimal impact on our financial results since we have been able to shift most of the manufacturers of these products to our Vietnam and Mexico plants or instituted price increases to cover the differential. Gross profit of $10,600,000 for fiscal twenty twenty fourth quarter increased from $6,900,000 for the same period of the prior year. Gross profit as a percentage of net sales was 37.7 percent for fiscal twenty twenty fourth quarter, an increase of 10 percentage points compared to the same period in 2018 and was driven by volume, price increases and fully reserved stock that we were able to sell into the COVID-nineteen demand. Our fiscal twenty twenty gross profit was $37,900,000 an increase of $4,000,000 or 11.8% from $33,900,000 in 2019.

As a percentage of net sales in fiscal twenty twenty, gross margin was 35.2%, up from 34.2 in 2019. Operating expenses increased in the quarter and full year as our business substantially grew, but decreased as a percentage of revenue, a reflection of our various attention to cost management efforts. Operating expenses increased 5.5% to $8,900,000 for the three months ended 01/31/2020 from $8,400,000 for the three months ended January 3139. Operating expenses as a percentage of net sales was 31.6% for the three months ended 01/31/2020 as compared to 33.7% for the three months ended January 3139. The increase in operating expenses primarily relates to higher shipping, currency adjustments and commission and compensation pertaining to the higher sales volumes, partially offset by reduced G and A expenses, primarily equity compensation and legal fees.

Operating expenses of $32,000,000 in fiscal twenty twenty increased $1,900,000 or 5.6% from $30,600,000 in 2019 while remaining at approximately 3031% of sales respectively. Lakeland reported operating profit of $1,700,000 in Q4 twenty twenty, up from a loss of $1,500,000 in the prior period. Operating margins were 6.1% for Q4 twenty twenty and were a negative 6% for the prior year. Operating income in fiscal twenty twenty of $5,900,000 increased $2,300,000 or 65.4% from $3,600,000 in 2039. All major operating regions except Mexico were profitable or breakeven in fiscal twenty twenty.

On the higher pretax income, overall taxes increased. Income tax expense consists of federal, state and foreign income taxes. Income tax expense was $500,000 for Q4 twenty twenty and $2,500,000 for the full year of fiscal twenty twenty as compared to $400,000 in Q4 twenty nineteen and $2,000,000 for all of fiscal twenty nineteen. Fiscal twenty twenty income tax expense included a non cash charge of $1,000,000 associated with the GILTI component of Tax Act of 2017. This is more completely discussed in our SEC filings.

As a reminder, we have substantial tax shields pertaining to our U. S. And corporate income tax. However, we are subject to taxation on profits in certain of our foreign subsidiaries as well as new GILTI tax, which has been impacting us this fiscal year. Lakeland's net operating loss was approximately 15,900,000 at 01/31/2020, down from $20,600,000 at the beginning of the fiscal year.

Fourth quarter twenty twenty net income was $1,200,000 or $0.15 per basic and diluted share compared to a net loss of $1,900,000 or $0.24 per share in the prior year. Net income for fiscal twenty twenty was $3,300,000 or $0.41 per basic and diluted share, which included the non cash GILTI tax expense compared to net income in fiscal twenty nineteen of $1,500,000 or $0.18 per basic and diluted share. The improved results in fiscal twenty twenty reflects higher sales and gross margin, expense management and operating efficiencies due in part to the ERP system and factory utilization. The company had 8,005,927 basic shares outstanding at 01/31/2020. 37,953 shares were repurchased in the fourth quarter as part of the company's $2,500,000 stock buyback program that was approved July 2016.

Approximately $500,000 was spent to repurchase shares in fiscal twenty twenty. To date, 1,700,000.0 has been spent to repurchase shares with just over 800,000 remaining available under the buyback program. At 01/31/2020, Lakeland had cash and cash equivalents of $14,600,000 up from $9,500,000 at the end of fiscal third quarter and an increase of $1,800,000 or 14% from $12,800,000 at the beginning of the fiscal year. Inventories were increased by $1,900,000 year over year, but we're down over $3,000,000 from Q3 as we continue to focus on improving cash conversion. We actually benefited from this increase in inventories as we began to respond to COVID-nineteen demand in late Q4.

At the present time, our sealed same finished goods inventories remain below normal stocking levels in all of our warehouses around the world and we are now quoting July deliveries for new orders in many cases. We're servicing coronavirus orders only to the extent we have capacity beyond what is required to service our traditional customers and organic growth targets. We believe this process upholds our long term growth strategies, supports our commitment to our customers and contributes to the COVID-nineteen response. Accounts receivable at year end increased by nearly $1,200,000 due to higher sales as DSOs remained relatively steady at sixty days or less. Accounts payable increased by $1,000,000 and shareholders' equity increased by $1,900,000 Total assets reported increased $4,700,000 in the year from $94,700,000 to $99,400,000 in part due to the impact of the new lease accounting requirements.

Total debt outstanding at 01/31/2020 was $1,200,000 down $100,000 from $1,300,000 at the end of fiscal twenty nineteen. The company has no borrowings outstanding on its $20,000,000 revolving credit facility. The company is currently negotiating a new revolving credit facility to provide for greater financial flexibility and reduced administration expense. Working capital of $66,900,000 including cash at 01/31/2020 increased 1,800,000 during the fiscal year. Capital expenditures were approximately $300,000 during the 2020, down from $600,000 in the prior year period.

For the year, capital expenditures was $1,000,000 up from $3,100,000 in fiscal twenty nineteen. Major investments were made in prior years as Charlie mentioned during his remarks. The majority of the spending in fiscal twenty twenty was allocated towards extending the global rollout of the ERP system and additional manufacturing capacity in Vietnam and India, which most of which have been substantially completed. Fiscal twenty twenty one CapEx is budgeted at approximately $2,000,000 primarily for global ERP rollout and strategic capacity increases. Adjusted free cash flow in fiscal twenty twenty was over $4,000,000 an increase of $3,800,000 from $500,000 in the prior year driven by increased profitability and reduction in capital expenditures.

We have seen efficiencies come into play to enhance our results and we will continue to manage all areas of expenses as we invest in our growth. The operating leverage in our business on higher sales volume has enabled us to drive better returns in 2020. We believe there remain opportunities for top line growth and further performance improvements using the ERP system along with other means for increasing margins and cash flow through fiscal twenty twenty one. This is of course amid the current business conditions which seem unpredictable given the economic impact globally from COVID-nineteen. Challenges remain particularly with COVID-nineteen, which has been modifying the outlooks and the business decisions from many industries around the world.

In turn, we have seen in the fourth quarter and upon entering into the first quarter that certain of our newer high margin products are not a priority with demand globally centered around disposable and chemical product lines. In any case, Lakeland is in the best operating and financial condition it has ever been and we are excited for what lies ahead in fiscal twenty twenty one. That concludes my remarks. I will turn the call back to the operator to open the call for questions.

Speaker 0

Thank you, We'll go first to Alex Fuhrman at Craig Hallum Capital Group.

Speaker 5

Great. Thank you very much for taking my question and congratulations on a really strong year and to everyone in their new roles here heading into 2020. I wanted to ask about the core business outside of coronavirus. Certainly seems like the outside of any sort of emergency demand, very strong quarter for the business. Can you talk a little bit about where that's coming from?

Specifically, are there any industry groups that have really been contributing towards that growth that you've been seeing the last couple of quarters? Just curious your outlook for the business here outside of any

Speaker 1

Alex, it's hard for us to distinguish that. And a lot of our sales have been made through our normal distribution channels. One area that is COVID nineteen related, it is likely to continue even perhaps longer than COVID nineteen as we have seen an uptick in institutional cleaning services that are using our products. So we've had some nice orders, you know, come in from that direction. You know, otherwise, you know, our chemical sales, our fire sales, those obviously are not COVID-nineteen related.

And we are trying part of our growth strategy is focusing on those higher margin product lines into the second half of the year.

Speaker 5

Okay. That's really helpful. Thanks. And then, just thinking about the different geographies where you're active. I know you have a lot of resources for sales and marketing geared towards emerging markets.

Can you talk about the growth that you've been seeing in emerging markets and what your outlook would be there for the next couple of years and what you're doing to go after those opportunities?

Speaker 1

We are currently reworking our sales strategy in foreign markets. We've we've made some changes in the North American market space that we believe will improve performance in other developed markets around the world, I mean Europe. We're already using these systems in China and Asia. South America will be next for us rolling them out. But we see India, The Middle East and Latin America as the areas of highest growth as we move forward.

And we are looking to support those with additional sales personnel and are looking to our ERP system to give us better visibility or modeling of their demand so that we can service those markets better.

Speaker 5

Okay. Thanks. That's really helpful. Appreciate those answers and look forward to catching up again soon.

Speaker 1

All right, Alex. Thank you.

Speaker 0

We'll move next to Jerry Sweeney at ROTH Capital.

Speaker 4

Good afternoon, gentlemen. Thanks for taking my call. Much appreciate it. So obviously, wanted to maybe touch upon the COVID side of the business. I know it sounds like you're a little bit reluctant to go into details, but wanted to see if you could give even qualitatively maybe some view as to what maybe some inbound calls, orders, talking to distributors are related to COVID today versus maybe at the January or the beginning of the quarter, if you'll be inclined to do so.

Speaker 1

Yeah. Jerry, you know, calls certainly haven't dried up. There's still people looking for product, but I I think that the most interesting dynamic that's going with that is looking at the second half of the year. You know, there are a number of industries, pharmaceuticals, you know, medical that have run into supply issues, necessarily with our products, but masks, you know, medicines, and that kind of thing that are looking to assure that they don't repeat this situation in the future. To that end, you know, we we talked about booking business out into the second half of the year, and we have a number of people, and this is unusual for us, you know, that are booking months in advance, willing to wait for the product because, you know, I can only assume that their their demand is not based on what they see as a business or an immediate use of it, but it's for stockpiling and preparation.

And I'm not I'm not talking government stockpiling here. I'm talking about individual companies.

Speaker 4

Got it. Building their own sort of, stockpile. Got it. And then so the the next step was, I think we discussed in the past, if COVID potentially giving you an opportunity to move in with new customers. And I think you even touched upon it slightly in the previous answer with companies that may not have been able to be supplied by their normal or their previous suppliers, etcetera.

So it opens the door essentially. Have you seen any of that coming through?

Speaker 1

Yes. We have. You know, we we've been successful in doing that. If if you go back, Jerry, and look at the timeline for COVID nineteen developing and you look at where the world really where the World Health Organization declared a pandemic. If you look at where that is from the timeline and you consider where our products are manufactured in China and you look at a sailing time, you've got forty five days from the time you realize you had the the emergency before you can get the first products, for instance, into The US or Europe.

Those products are just now arriving unless you air freight it. So, yeah, the demand is just starting to be satiated.

Speaker 4

Got it. Okay. And then switching gears slightly. I think on the last call, talked about the ERP system giving you some better visibility in the logistics even to merge with some of the containers, penalties for unloading excess time to unloading, etcetera. And gross margin and I think you threw out maybe 200 basis points of potential improvement.

And obviously, margin is up this quarter. Was that part of that ERP system? I think you called out some specifics, but how do we look at that on a go forward basis?

Speaker 1

Jerry, if you don't mind, I'll pass that to Alan. He is the expert on all things margin related.

Speaker 3

Yes. Hey, Jerry. That was a contributing factor to our margin improvement as we had planned. But there were a number of factors that we experienced and particularly in the quarter, product mix, pricing, our ability we use the system to help us do our manufacturing allocations, which assisted in improving margins. And then we were able to utilize existing stock on hand.

So there are a combination of factors that really drove our margin improvement. We think that ERP and some of the pricing and product mix are things that will continue to stick and help us continue to drive that increase or sustain that increase as we move forward. But it was a combination of all those factors. It's hard to specifically quantify exactly how much the ERP drove that improvement, but it certainly gave us a much more aggressive approach to the way we managed our manufacturing allocations. Got it.

And if I

Speaker 1

can add to that, it's only installed in half of our business at this point. So, you know, we have, you know, a lot of low hanging fruit elsewhere within the company, to go get with this.

Speaker 4

Got it. But maybe to summarize, you know, on the margin front, it was sort of ERP mix and price, which are I don't want to say permanent, but more or stickier and then probably some of the inventory or stocking on hand with obviously a little bit more transitory on the margin from a high level view. Is that a fair way to sort of summarize?

Speaker 3

That's very yes, that's exactly right. Very fair.

Speaker 4

Okay. Then obviously, I think the ERP, your the second half of the rollout, is that that's more international? First half was more North American or even North America?

Speaker 3

Yeah. We're we're essentially fully installed in The US, which, you know, to Charlie's point is approximately half of the business throughput. We're going to initiate the first stages of our international rollout in the second half of this year. We've got a solid roadmap for doing that. And, you know, our goal is to is to progressively reduce the number of other systems that we have to use to manage our business to, you know, from you know, you can imagine with with seven or eight international markets to drive all of those to a single system will, you know, substantially improve our management capability and our manufacturing allocation efficiencies.

Speaker 4

I appreciate taking time to answer my questions. And congratulations on a great quarter and year. You, Jerry.

Speaker 0

Again, it is star one if you had a question. We'll go next to Andrew Pike at AM Valuations.

Speaker 2

Hi. Good day, everybody. My name is Andrew Pike.

Speaker 1

First of

Speaker 2

all, I'd like to say this is a very impressive company. Really looks looks really great. So this is my first time on one of your conference calls. So there there might be some things that you've discussed in previous calls that I don't that I'm not privy to. So my apologies if I if a a question comes across as something that might be, well, a bit known to more more known to some of the other people on the call.

I'm trying to get a better understanding of of the of what the what the factories look like from the inside. And and I'm trying to understand, do you have, sort of textile mills where where you're producing cloth, or or is it just Yeah. Are you just cutting cloth that you've taken from others? Is it mostly manual assembly, long benches with people working, or is it heavy machinery?

Speaker 1

No. We're we're light industrial. We're not a we're not a textile mill. We are cut and sew operations, assembling garments in various countries around the world. Raw materials that we use are in many well, are of our own design, but they are manufactured to our specifications by a number of different textile companies in The U.

S, Europe, China, India, various places around the world. One of the things that we pride ourselves in, especially where our core products are concerned, is the development and qualification of multiple suppliers for product. That makes sense. And that's one that's one

Speaker 3

of the reasons we won't

Speaker 1

okay.

Speaker 2

No. Sorry. Go ahead.

Speaker 1

That's one of the reasons we won't manufacture our own fabrics. We we become too dependent, you know, on suppliers of either well well, and there's far fewer of those than there are of spun by polypropylene or film.

Speaker 2

Right. Okay. So when there was 6,000,000 of CapEx spent over the past two years focused on Vietnam, India, and IT systems, which I do need the EF systems, If I understand that it's light manufacturing mostly cut and sell. Is it correct that Vietnam and India, that was just an expansion of the plants that that you extended it? Or Those those are new that CapEx.

Speaker 1

No. Those were new plants. New plant installs.

Speaker 2

You have some new locations.

Speaker 1

India was an existing location, but it was a glove plant. We refitted it and turned it into a cut and sew operation, and Vietnam was a ground up operation. Greenfield. Fantastic.

Speaker 2

Awesome. And sorry. Just flipping pages here. I believe you said, 2,000,000 coming up in 2021. If I understood correctly, is that gonna be ERP, or are you building out more plans?

Speaker 3

There will be a part of that will be the international expansion of ERP. Part of it will be expansion of capacity in existing facilities and a part of it will be normal maintenance capital just to replace old worn machines and other plant and equipment.

Speaker 2

Okay. Thank you. And just one more before Take up everybody's time. My apologies everybody for that.

My last question is I'm trying to understand your your competitive strategy versus I think there are some pretty big players in this market. And are you going for the speed and customization angle against the big players, or are you going for the produce more cheaply, which I I can't see how, but, what's the strategy against the big competitors? How do you beat them at their game?

Speaker 1

Our key against the the big players in the market, the DuPont, the Kimberly Clark, the Ansells well, DuPont and Kimberly Clark is we own our manufacturing. They use contract manufacturers. They typically work on a three month rolling forecast. The quickest they can turn up the knob in the case of an emergency is thirty days, and that that result is thirty days beyond that thirty days. Okay?

So owning our own product, you know, we're in China. We're in Vietnam. We run into a trade war. We shift product from China to Vietnam. No duty.

Problem solved. Right. Right. You know, we we have owning our own plants, owning the other part of using contractors is you don't necessarily control the roll good supply. So, you know, we control who our vendors are, and we have those relationships, not our suppliers.

Speaker 4

Ah, okay. Okay.

Speaker 2

So you can you can react faster and, you've got better control over the quality, for example.

Speaker 1

Correct. And we also sell an extremely wide range of products compared to our competitors. Disposable and chemical, we compete against DuPont, Kimberly Clark. We go up, you know, in turnout gear. We go up against MSA and Globe.

You know, FireDex. You know, we compete in electric arc flash clothing against there are very few people that sew as broad a range of PPE as we do. As a matter of fact, I can't think of anyone.

Speaker 2

K. Well, I'd like to thank you very much for, entertaining my questions. And, yeah, good. Much wishing you much success for the coming year, and hope everybody stays healthy.

Speaker 1

Well, thank you, sir.

Speaker 0

And that's all the time we have for questions today. I'll turn the conference back to management for any additional or closing comments.

Speaker 1

Thank you very much. We appreciate your participation on Lakeland's fiscal twenty twenty fourth quarter and year end financial results conference call. As we look ahead to fiscal twenty twenty one, we continue to be poised for growth in sales, market share attainment and margin expansion, which we believe will deliver value for our shareholders. Thank you again for joining us on today's conference call. Goodbye.

Speaker 0

Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time and have a great day.