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Lakeland Industries, Inc. (LAKE)

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Lakeland Industries, Inc. (LAKE)

Q3 2019 Results Earnings Conference Call

December 17, 2018, 04:30 PM ET

Executives

Christopher Ryan - CEO, President, Secretary

Teri Hunt - CFO

Analysts

Dave King - Roth Capital

Alex Fuhrman - Craig-Hallum

Pete Muckerman - Raymond James

Presentation

Operator

Greeting, and welcome to Lakeland's Third Quarter Fiscal Year 2019 Financial Results. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

I'll now turn the conference over to your host Christopher Ryan, CEO.

Christopher Ryan

Good afternoon to you all, and thank you for joining our fiscal 2019 third quarter financial results conference call. We're going to provide opening statements on the status of operations and on our financial results. The call will then be opened up so that we may respond to your questions.

Now onto my formal remarks. We're now in the fourth consecutive quarter of favorable global industrial growth trends, although our company's growth in fiscal 2019 third quarter was only modest year-over-year. To this end, we are disappointed in the reported revenues, although the primary reason for this less than ideal performance is understandable, and an end is in sight for issues that are within our control.

Our sales, gross profit, operating expenses and cash flow continue to be negatively impacted by our enterprise resource planning or ERP System implementation. On August 1, 2018, the first day of our fiscal 2019 third quarter, we commenced usage of the system for financial reporting and other data inputs, including costing, order tracking and sales. The ERP implementation was expected to require significant effort and expense as well as lead to operational issues amidst such a massive undertaking.

But the challenges exceeded what we had anticipated. As a result, we filed for a delayed reporting of third quarter results to ensure accuracy, while working with our orders to systematically and manually complete the financial reporting process.

At that time and amid an overall pessimistic sentiment in the stock market, as the calendar year comes to a close, shares of our common stock sold off. Ultimately, we expect the ERP System to yield improved information, operational agility and inventory and cash flow management.

While we believe we are past the most difficult and costly period, which was during our fiscal 2019 third quarter, the current implementation and training on the system is now expected to be completed by the end of April 2019. Upon completion, we expect to reduce inventory to a normalized level as we increase inventory in anticipation of certain disruptions.

In third quarter, we had elevated expenses and reduced revenues in the U.S. as we were unable to process orders to the extent that reflects the true global demand that we are otherwise experiencing. We anticipate a similar, although diminished negative impact through April 2019 as we continue to train our workforce on efficient utilization of the ERP System.

Some of our long standing customers have taken some orders to our competitors while committing to return to us, yet there have been a few isolated instances where we may have lost a smaller customer. We start to the fiscal fourth quarter with over 5 million in orders waiting to be cleared and shipped. Our order backlog historically have been approximately $3 million just in the U.S.

The delay in shipping and revenue recognition caused by our ERP System essentially reduced reported revenue by an estimated $2.5 million or nearly 10% of total third quarter revenue, which would have brought our third quarter revenue growth significantly higher than only marginal improvement over the prior year period.

We have recently implemented double shifts in order to get product out the door and reduce the backlog. Despite the [optics] [ph] presented by our ERP challenges and the reported revenues on a consolidated basis, our sales traction has been strong.

A basket of currencies from countries in which we operate are down by about 5% year-over-year, yet on a reported basis, in U.S. dollars, our international sales in the quarter still increased 10% from the prior year.

However, all major country operations were profitable in the third quarter, so we continue to maintain focus on our profitability metrics while investing in the future growth strategies.

We have been strategically deploying our cash to position the company for continued growth. Teri will speak more about our capital expenditures and strong cash positions in our prepared remarks.

Cash used since the beginning of the fiscal year includes planned investments in manufacturing operations in Vietnam and the company's upgraded technology system deployments as well as our digital marketing evolution. We now have a manufacturing staff approaching 400 in Vietnam.

Earlier today we announced the launching of 9 new websites for our global operating regions. As was stated in the press release issued this morning, the launch of our new websites provides an advance user experience for our customers, distributors, channels partners, investors and media, who will be touching the sites daily.

Our customers and partners represent some of the world's most progressive organizations in their respective fields and they will now be able to better leverage Lakeland's research, robust educational resources and innovative product offerings that act as the first line of defense in critical environments while improving worker safety.

The new website launches are part of our digital marketing in e-commerce investments, which also includes our Amazon platform. We have deployed Amazon sales and distribution in five countries, and we invested nearly $2.2 million in equipment for use in Mexico, India, Vietnam and China as we prepare for continued global demand.

Read the rest of this transcript on seekingalpha.com