Q2 2025 Lakeland Industries Inc Earnings Call
Participants
James Jenkins; Executive Chairman of the Board, Acting President and Chief Executive Officer; Lakeland Industries Inc
Roger Shannon; Chief Financial Officer, Company Secretary; Lakeland Industries Inc
Gerry Sweeney; Analyst; ROTH MKM
Matthew Galinko; Analyst; Maxim Group
Presentation
Operator
Good day and welcome to the Lakeland Industries fiscal 2025 second-quarter financial results conference call. (Operator Instructions)
During today's call, we will make statements relating to our goals and objectives for future operations, financial and business trends, business prospects, and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management's expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings.
Our actual results, performance or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call.
On this call, we will also discuss financial measures derived from our financial statements that are not determined in accordance with US GAAP, including adjusted EBITDA, excluding FX and adjusted EBITDA, excluding FX margin. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in our earnings release.
At this time, I would like to introduce you to your host for this call, Lakeland Industries' President, Chief Executive Officer and Executive Chairman, Jim Jenkins. Mr. Jenkins, the floor is yours.
James Jenkins
Thank you, operator. Good morning, everyone. Thank you for joining us today to discuss our fiscal 2025 second-quarter results, which ended on July 31, 2024. We appreciate your continued interest in Lakeland Industries. I always want to begin our call by thanking our customers and distributor partners worldwide for trusting us with your lives and safety. Our customers are heroes, and we never take that trust for granted.
Finally, I want to thank our Lakeland team members across the company for their continued commitment and enthusiasm as we further delivered on our strategic initiatives this quarter, Lakeland continued to experience significant growth and change during this quarter, and I appreciate the hard work from our dedicated team as we continue to execute our growth strategy.
As previously announced, we closed on the LHD acquisition in early July. LHD is a leading provider of firefighter turnout gear accessories and personal protective equipment, cleaning, repair and maintenance, with an annual revenue of approximately USD27 million. This strategic move enhances our global fire services offerings and footprint, and continues our small strategic and quick SSQ growth strategy.
LHD Group increases Lakeland's ability to serve firefighters in Germany and Australia, two of the largest fire markets in the world and the Hong Kong region with an expanded range of high quality and rescue gear as well as care and maintenance services.
LHD's product range includes structural, wildland, and industrial fire and rescue gear, technical rescue equipment and station wear and it complements Lakeland's existing fire service offerings, LHD Care provides a holistic approach to protecting closing maintenance, including laundry services, repairs, a software app for tracking the progress of those services and sample production.
As the global focus on firefighter health and safety increases, this offering further protect firefighters from environmental contaminants and helps ensure the longevity and effectiveness of firefighting gear also introducing an attractive recurring revenue stream that Lakeland plans to leverage and expand.
Along with our Pacific Helmets and Jolly acquisitions, LHD allowed Lakeland to offer our head to toe fire offering to a larger geographic audience. As we have discussed previously, this acquisition reflects our commitment to executing and accelerating the pace of our SSQ M&A strategy.
We still have an attractive and robust SSQ acquisitions pipeline, and we will continue to search for opportunities that further position Lakeland to execute our growth strategies and invest strategically to broaden and diversify Lakeland's range of products and end markets.
I trust everyone has had the opportunity to review the press release and Q2 earnings deck we published last evening. I encourage you to follow along earnings presentation as Roger and I review our results.
Our earnings presentation gives me the opportunity to introduce Lakeland's fire and safety. This exciting new corporate and brand identity reflects our evolution as a company and reinforces our dedication to provide comprehensive innovative solutions for the first responder and worker safety sectors. Lakeland fire and safety will integrate our existing portfolio of outstanding brands, including Eagle, Pacific, Jolly, and LHD as well as any future acquisition, creating a consolidated safety solution for fire customers.
Reviewing our performance, it's clear that while we saw significant revenue growth overall, we encountered some challenges in the second quarter that impacted our results. Nonetheless, we believe that our earnings shortfall for the quarter was a matter of timing and integration, both with our new North American industrial product market representative and newly acquired companies, and we remain confident in our full year projections.
While we remain very optimistic about our relationship with our new North American industrial product market representative, LineDrive, the transition during the quarter of coverage to certain large North American channel partner accounts resulted in some slippage in Q2 orders. LineDrive continues to build pipeline opportunities with national accounts, and we believe these sales will accelerate in the second half of the year.
Additionally, delays in the shipment of fire orders from Jolly and Eagle affected our second-quarter revenue. We expect these substantial orders to ship in the third and fourth quarters.
Pacific had a solid sales quarter as we continue integrating their products into Lakeland's sales channels. And I'm pleased to report that LEC Germany has resumed manufacturing, and we remain very optimistic about their growth opportunities.
Turnout gear production at LHD, German entity had slowed to a trickle due to a lack of liquidity under the previous ownership and a multiyear backlog was created as a result. Beginning with and even leading up to our acquisitions, suppliers resumed LHD credit terms and discounts based on Lakeland's financial strength. We have added new production capacity and are focused on working down the significant backlog by the end of our fiscal year.
LHD's Australian operations, including its service business, remains strong, and we remain optimistic that we can leverage and replicate their outstanding service and care model in other parts of the world. We also recently learned that LHD Hong Kong procure a renewal with Hong Kong fire department with committed contract revenue increasing from USD3.5 million to USD5.3 million from September 24 to September 25.
Looking at our organic business, we were again very encouraged by the growth in our Latin American operations with a 63% increase of sales year over year. LATAM now represents close to 20% of Lakeland's total sales and they continue to grow. Our outstanding LATAM team is continually identifying and capitalizing on new market opportunities, and we expect further growth in that region.
Our LATAM team is having tremendous success growing our woven products. We are working to expand our fire services offering in LATAM. We expect to introduce new industrial products from the Lakeland portfolio into that region going forward.
We've also recently put our Mexican sales operation under our LATAM management team, and we are optimistic that they can replicate their success in that country. Even so our Q2 sales in Mexico were up 58% year over year. We also saw double-digit sales growth year over year in Canada, Asia, India, and rest of world. We are very excited about the new sales leadership we have put in place in Asia, and we are encouraged by the growth we are seeing both in China and the new Asian markets outside of China.
While our US sales were affected by the sales coverage transition that I discussed earlier. our European sales also remained soft in the quarter. We are taking concrete and immediate steps to improve our industrial sales offerings, selling efforts and customer service in Europe. We see very good sales opportunities in Europe, and we are committed to returning that region to a growth trajectory.
From a product perspective, our fire service business continues to grow with a 34% increase year over year. The solid performance was driven by our recent acquisitions and increased demand in this segment. Our industrial product lines grew $2.4 million or 10% over the same period last year, led by our woven products, particularly in LATAM as mentioned earlier.
Disposable products declined 2% year over year. And chemical product sales were flat due primarily to the LineDrive transition and weakness in Europe, partially offset by growth in Asia, Canada, Mexico and our rest of world markets. Disposables represented 32% of revenue for the quarter, while fire grew to 31% and chemicals increased to 20%.
The remainder of our industrial products, including FRAR high performance and high vis accounted for 17% of sales. Our FRAR high performance products declined 7% year over year, and high vis declined 23%.
Before turning the call over to Roger, I want to take this opportunity to acknowledge the outstanding work of our two new sales executives and welcome a new member of the executive team, Barry Phillips, our Chief Revenue Officer; and Cameron Stokes, VP of Global Industrial sales now have been in place for two months and they're having immediate impact across our organization.
Barry brings a wealth of experience in the fire services industry, having led sales, marketing, and product development across leading manufacturing and distribution companies as well as serving on regulatory and advisory board. Cameron Stokes is a highly accomplished industrial sales professional, having worked for 12 years industrial sales leadership roles at Ansell as well as other leading organizations. Both bring a passion for engaging end-user customer and a commitment to grow and excellence.
I'm also pleased to welcome Laurel Yartz to Lakeland's executive team as our new Chief Human Resources Officer. Laurel brings over 30 years of experience in global human resources leadership, primarily in Fortune 500 and private equity companies. Her extensive background includes senior strategic roles, leading cultural and business transformation.
As our CHRO, Laurel will be responsible for enhancing Lakeland's people strategy and fostering a culture focused on growth, innovation, flawless execution, customer satisfaction, and continuous improvement. Her proven track record of aligning talent to the operational, commercial, and functional vision of the business and a spirit of developing teams and driving revenue growth will be crucial as Lakeland continues to execute on its global fire services and industrial safety growth strategies.
So to summarize, after a strong start in Q1 of fiscal 2025, we saw a slowdown in our organic sales in Q2, which impacted our profitability. We remain confident in our growth strategy and expanding market opportunities in Fire Services and Industrial Safety products. Our commitment remains unwavering, and I'm excited about the remainder of this fiscal year. So with that, I'd like to pass it over to Roger to cover our financial results and provide an outlook for the rest of the year.
Roger Shannon
Thanks, Jim, and hello, everyone. Looking at our second quarter 2025, Lakeland delivered sales of $38.5 million compared to $33.1 million for the second quarter last year. Organic revenue comprised 85% of our total sales and 15% of our Q2 revenue came from our recent acquisitions, including one month of sales from LHD group.
On a trailing 12-month basis, Lakeland TTM revenue as of Q2 of fiscal 2025 is $137.7 million. This is an increase of $18.6 million or 16% versus the Q2 of fiscal 2020 for TTM revenue total of $119.2 million. Year over year, organic sales decreased by $300,000 in Q2, impacted by slightly lower sales in the US and ongoing weakness in European markets, offset by continued robust growth in Latin America, which increased 63% compared to the second fiscal quarter for fiscal year 2024.
We were also encouraged to see double-digit growth in Canada Mexico, Asia, India, and our rest of world markets. Lakeland's domestic sales were $12.4 million or 32% of total revenues and international sales were $26.1 million or 68% of total revenues. This compares with domestic sales of $15.2 million or 46% of the total and international sales of $17.8 million or 54% of the total in the second quarter of fiscal 2024.
Regarding product mix for the second quarter, our fire services business grew by $3 million or 34% versus the same period last year as we start to see gains from our head-to-toe strategy. Our industrial product lines grew $2.4 million or 10% over the same period last year, led by our woven products, particularly in Latin America.
Disposables declined 2% year over year, and chemical products were flat, due primarily to the line drag transition as Jim discussed. We are seeing significant growth in woven product category, driven by outstanding performances in Latin America. Disposables represented 32% of revenue for the quarter while fire grew to 31% and chemicals increased to 20% of our revenue.
The remainder of our industrial products, including FRAR high performance and have this accounted for the remaining 17% of sales.
Reported gross profit was $15.2 million for the second quarter of fiscal year 2025, an increase of $1 million or 7% compared to $14.2 million in the second quarter of fiscal 2024. Our recorded gross profit as a percentage of net sales was 39.6% for the second quarter of fiscal 2025 compared to 42.9% for the second quarter of fiscal 2024.
Gross profit was negatively affected by 3.8% from the integration of newly acquired companies, including a 0.9% impact from the amortization of acquired assets relating to the purchase accounting step-up of acquired inventory at Jolly and LHD and by 3.4% due to the impact of profit in the inventory, partially offset by higher organic gross profit as we showed in slide 8.
While our operating expenses increased to $16.8 million for the quarter, $2.4 million of the increase was SG&A from our newly acquired companies and $2.6 million of the increase was due to acquisition related expenses, non-cash expenses, including higher depreciation and amortization from purchase accounting for acquired companies, nonrecurring expenses, including restructuring and Argentina related FX expense.
The increased organic SG&A operating expenses was due primarily to professional fees. Lakeland reported an operating loss of $1.6 million for the second quarter of fiscal year 2025 compared to an operating profit of $3.7 million for the second quarter of fiscal 2024.
Operating margins were negative 4.1% for the second fiscal quarter, down from 11.3% for the second fiscal quarter of last year. The decrease in operating income is due to previously mentioned margin issues and the increases in operating expenses.
Tax impact for the quarter was a benefit of $420,000, resulting in an effective tax rate of 23%. Lakeland reported a net loss of $1.4 million or $0.19 per basic and diluted share compared to net income of $2.5 million or $0.33 per basic share and $0.32 per diluted share last year.
Adjusted EBITDA, excluding FX, for the second quarter of fiscal 2025 was $2.7 million or an adjusted EBITDA excluding FX margin of 6.9%. This compares to $4.7 million or a margin of 14.3% for the same quarter of fiscal 2024.
As shown on slide 8, the decrease in adjusted EBITDA, excluding FX was driven by the previously mentioned profit in ending inventory, higher manufacturing costs associated with the inventory build and increased SG&A. Adjusted EBITDA from our acquisitions were lower than our expectations due to slippages, but are expected to improve in the second half of the year.
Also as we explained in our earnings press release, the profit in ending inventory that affected our gross profit and gross margin in the quarter is expected to reverse and be a benefit in the second half of the year once that inventory is shipped. On a trailing 12 month basis, Lakeland's TTM adjusted EBITDA, excluding the impacts of FX as of Q2 of fiscal 2025 is $14.5 million. This is an increase of $1.3 billion or 10% versus the Q2 FY24. TTM adjusted EBITDA, excluding FX, which totaled $13.2 billion.
Now turning to the balance sheet. Lakeland ended the quarter with cash and cash equivalents of approximately $24.9 million and long-term debt was $29.5 million. This compares to $28.4 million in cash and $13 million in long-term debt as of April 30, 2024.
The decrease in cash was due primarily to debt repayments during the quarter and the net increase in our long-term debt was mainly related to the acquisition of LHD Group in July, partially offset by repayments on our credit facility.
At the end of Q2, inventory was $67.2 million, up from $56.1 million at the end of Q1 FY25, primarily due to LHD, Jolly, Eagle, and organic sales that are expected to ship in the second half of this current fiscal year. Year over year, we saw a reduction in our organic inventory of $5 million versus the quarter ended July 31, 2023.
Capital expenditures for the three months ending July 31, 2024, were $600,000. We still expect FY25 capital expenditures to be in the range of $2 million to $3 million as we develop additional in-house fire service manufacturing capacity and replace existing equipment in the ordinary course of operation.
The Monterey expansion, which we discussed last quarter remains on pause as we continue to assess weather-related damage to our leased buildings.
Looking ahead to the rest of fiscal 2025, based on our existing backlog and our outlook for the remainder of the year, we are maintaining guidance for our 2025 fiscal year. Please note that these expectations include the announcements of Jolly boots, Pacific Helmets and LHD Group acquisition.
We remain confident in our global sales platforms and earning ability for the second half of the year. And we are reaffirming expectations for fiscal year 2025 revenue in the range of $160 million to $170 million. Additionally, we reaffirm our expectations for FY25 adjusted EBITDA, excluding FX, to be between $18 million to $21.5 million. For better overview, I would like to turn the call back over to Jim before we start taking questions.
James Jenkins
Thank you, Roger. I'll conclude by saying that our strategy and focus has not changed. Prospects for both our industrial and fire businesses are bright. The value proposition between these two business models continues to be unique and resonates in the market.
We continue to expect high single digit organic growth and the sales pipeline continues to strengthen. We expect impact of the timing of our sales will reflect stronger second half sales and gross profit margins. We're-making progress on our operational improvements and expect to see productivity improvements in the third quarter.
Our operations team is also focused on productivity improvements in the short term in parallel to their longer-term multiyear effort across the organization. We still believe and expect significant margin leverage as operational initiatives progress and our period ending inventory is sold off. We continue to work on improving the effectiveness and efficiency in our processes, databases, and systems as we look to eliminate redundancy and improve our analytics.
Over the longer term, we expect to be even more competitive to take market share and improve our scalability, predictability and profitability. In other words, we plan to drive a better business model. Acquisitions remain an integral part of our growth plan, and we expect to continue growing our M&A pipeline and methodically pursuing our SSQ M&A strategy. With that, we will now open the call for questions. Operator?
Question and Answer Session
Operator
(Operator Instructions) Gerry Sweeney, ROTH Capital.
Gerry Sweeney
Good morning, afternoon, evening as per where you guys are, but thanks for taking the call, Jim and Roger. I wanted to start on the revenue side. Obviously, it sounds as though we'll just see core base revenues doing reasonably well, as you said, high single digits going forward. But it also sounds like some of this impact on the revenue miss came from -- I'll call it LineDrive friction as you sort of transition into that relationship. Is there any way you can sort of segment out how much revenue was impacted by the transition to some of the sales over the LineDrive?
James Jenkins
I'm going to give that one to Roger.
Roger Shannon
Yeah, we -- Gerry we did the first quarter in review with LineDrive, go methodically account by account looking. So we know exactly which counts were unchanged and which were affected. Obviously, I can't get into an account-by-account basis. But we did have the appropriate people on the call and looked at the individual ones, and we kind of know how that unfolded.
I guess, it is not surprising when you have of that 33 or so large national accounts transition. And we had a team on our side that are now redeploying more toward end user engagement in the LineDrive regional and headquarters team starts to take over that there would be some friction in that. And that is certainly what we saw.
As we look at the USA sales, USA operations, I know we were down about $2.8 million year over year for Q2. So we think that is the bulk of it having to do with that transition, with that effort. Of course, there are other aspects. The timing of oil and gas turnaround is unpredictable. Sometimes that's a big headwind. Sometimes it can be a tailwind.
But we've seen we are very bullish still on taking market share on time, kind of further developing our value proposition in the US market. And so like we said in our guidance, we do still expect that to pick up in second half of the year.
Gerry Sweeney
Got it. Very good, Roger.
James Jenkins
Jerry, look, we -- as the relationship develops for LineDrive, we're starting to get more visibility to their pipeline approach and the way they work their pipeline. And we are -- our team having weekly meetings with them.
Roger and I and our sales leaders are having, you know, check-ins. I have a monthly call with the LineDrive's CEO. And then we have 90 days sort of look back. So we're kind of laser focused at this point on ensuring that that LineDrive relationship meets our expectations.
And they have every reason to want to beat them as well. I mean, they don't make money if they don't grow this thing. So I think we're all rowing in the same direction right now. And I think, as Roger said, maybe started off a little clunky and maybe we should have expected that. But at the end of the day, we're very confident in that relationship and where it's going.
Gerry Sweeney
Yes, I mean that's fair. I mean, I personally probably should have expected some lumpiness and transitions like that, especially with larger accounts, right? But Jim, you kind of touched upon it on the pipeline. As you look at the pipeline or sales process you -- I think it was like 33 accounts. They took over plus. I think there may be some others. What does that building pipeline look like versus maybe what you were doing in sales previously?
James Jenkins
Well, there's a couple of changes there. Well, I don't want to get into specifics of the pipeline because obviously pipeline management is something that can be a little nuanced, right? But what I will say that the approach we're taking right now to our pipelines, both with LineDrive and within our sales organization, I believe it's a robust process, one that was obviously different given the two sales professionals that we brought in and with attention to more interaction with end users, which when traditionally used to sort of channel partners giving you information, that information sometimes is not as accurate as it might be from a traditional sort of engagement with an end user.
And we're starting to pivot to that. And the more we engage with our end users, the better we feel about the pipeline. And we're in the early stages of doing that. And obviously LineDrive has visibility to some end users as well between their relationships with the channel, their own channel partners and our channel partners and end users.
So it's a lot of art versus science, a lot of ways. But I will tell you that I'm feeling a lot more confident about how that pipeline is being generated as opposed to the way it was being done about six or nine months ago.
Gerry Sweeney
Okay, that's fair. Switching gears just maybe go to Roger as well gross margins. Just want to understand, there's probably a couple different buckets here. We had some impact from integration with some, I think, the profits -- inventory and quarter profits, which are probably the least understanding. And then new there's another bucket, which is probably the few -- where there are future opportunities, but optimization.
But just want to understand how gross margins maybe qualitatively rebound over the next couple of quarters? I mean, some of this sounds like - I'm not sure the purchase accounting kicks back in or the inventory side. And I just -- I think it would be helpful for everyone just to understand on an apples-to-apples basis and what happened in the quarter as well as may be what the rebound looks like.
Roger Shannon
Happy to explain that. And you're right. It gets into a lot of the GAAP and accounting weeds, but it is an important concept to understand the profit in the inventory because it affects us pretty much every quarter. And it can be a benefit as we've seen in past quarters, and it can be a headwind as we've seen in past quarters.
I'd like to first start off by mentioning that as we point out on slide 8 of our presentation, we actually got a 4.4% margin uplift from our organic sales mix. And that's very promising to see. So I mean, we are continuing to manufacture efficiencies and improvements and being able to maintain price on organic.
So we're really looking at two things, the acquired company gross margin, including the purchase accounting. And I won't go off on my rant here, although it ticks all of you and hold us back. The way purchase accounting works is when you acquire a company and we're going to see a lot of this with our acquisitions as you paid x amount for a company. And then we have to record that on our financials.
And the process of how you record it is you kind of remeasure and kind of revalue all the assets you've acquired up to market value. So if you theoretically have a CapEx, equipment had been fully depreciated. It still has value. You kind of reestablish the value and start the depreciation clock over.
Where this affected our gross margins in this quarter was that the acquired companies, and particularly Jolly had raw material -- finished goods inventory at the time we acquired them. So if you think about that, the roll off of the finished goods inventory is written up to fair value, which is what we're going to sell it for, which means that we get zero margin when we sell our product.
So what has to happen? And we always talk about needing one year to flesh out the noise from purchases. But that inventory, as that inventory turns, there's essentially no gross margin from it. And again, I don't -- I've said I agree with that and that creates more visibility for the user in understanding that probably it creates more confusion.
So we had -- we certainly had that. We did -- we have communicated, I think pretty clearly that the acquired gross margins of these entities particularly the ones that don't have their own manufacturing are going to be lower because of that manufacturing profit. So we expected some lower gross margin, but it was certainly impacted by purchase accounting, and it was also on affected by other things such as the summer shutdown.
So we acquired LHD in July, which is the month that Europe goes on vacation. So that had some effect. So that was 3.8 margin points of headwind. And in the profit and in the inventory, I mean, I look at this as a positive, really. So that's 3.4 margin points. So if you take 39.6 and add that 3.4 back to it, you're at 43 right there.
The way that 3.4 happens is we've got -- the company heads really two sets of operations. We have sales entities, and we have manufacturing entities. Manufacturing, when they produce product, there is margin built into that. So when manufacturing -- Lakeland's manufacturing entity sells it to a sales entity, they have profit that they would recognize.
But as a company, your consolidation, we can't recognize it until it sold to the customer. So that kind of gets hung up. So the good news there is we've talked about we built a good deal of inventory. Some of the sales have slipped. But those we expect to ship that product in the second half, so that 3.4 essentially reverses when that inventory is sold, and which then becomes a benefit. So again, I hope it's not too much detail, but I think it's important to understand.
But we have that. We have it about every quarter, not always this large because it was a large build. Especially Jolly and for Eagle, they're going to have second half orders.
Gerry Sweeney
Got it. So that sort of gets to the point of my question on the gross margin 3.96% (sic – see slide 12, "39.6%") The inventory -- that happens every quarter, but there was this and that abnormally large. So it certainly impacted the gross margin. How long we also get less gross profit dollars because revenues were down because of the sales. But that makes sense.
And last question, I know these are probably shorter questions, but longer answers. Yeah, the one thing that caught me, well, the $2.4 million in acquired will say, SG&A or operating expenses from some of the acquired companies. Is that permanent or is some of that going to be transitionary as you integrate some of these companies in? And how do we look at that?
Roger Shannon
Yes, I think we are certainly scrubbing that to work that down. So LHD, we have we have identified. We've just added a month or so. We've identified certain SG&A costs that we don't think are necessary. We explained before who we value acquisitions. We don't really build in a big takeout or stripping of costs because more often we bring -- we may need to add some sales or add some resources. But we see some things there.
On the Jolly side, kind of same thing. Jolly heads a new manufacturing entity that's relatively new that they had just kind of stood up before we acquired them in addition to the Italian operations. So we're looking for ways to make those more efficient.
And then same thing with Pacific. A part of that SG&A was these integration marketing efforts. We've had these teams traveling all around the world to give the specific people and Jolly people training our LATAM teams, training our US teams. US teams going to trade and sale shows in their market. So we have seen an increase in selling expense as we work to get these integrated?
James Jenkins
Yes. I mean, Jerry, some of this is an investment in the people that we have. Some of it to as Rogers pointed some. We have some low hanging fruits we can fix. But I mean, I'm talking to you from Sydney Australia. So my -- the Chief Revenue Officer is in Argentina right now. So we're trying to -- we're growing this thing and there will be some expense associated with that.
But we are -- I mean, Roger's got guys heading out to Romania shortly to sort of work through those things as well. So I would expect, obviously sales fixes everything, but there are some expenses here that we are looking at to drive down.
Gerry Sweeney
No, that's fair. Listen, I'd rather have the infrastructure in place to drive sales than the others. The question was probably more around just understanding the model and progression and center. But I totally understand. So I'll jump back in line. Thanks, guys.
Roger Shannon
Thanks Gerry.
James Jenkins
Thank you.
Operator
Matthew Galinko, Maxim Group.
Matthew Galinko
Thanks for taking my questions. Can you maybe talk about the pipeline with LH -- I guess the backlog with LHD? Is it safe to assume you can convert that or is there attrition that you sort of expect to come, get peeled off from competitors or how do you keep that going?
James Jenkins
I guess what Roger and I and actually the entire executive team were surprised to learn was that this backlog issue is not necessarily unique to LHD although obviously the business was not managed terribly well. And they got cut off from suppliers and that slowed things down. But the competitive environment in Germany is such that the delivery issues that our competitors are facing as well.
So I wanted to sort of -- that's sort of one issue that we were all surprised about how -- was necessarily unique to us. There are some. We are looking hard at those our backlog opportunities, and we want to make sure that we're not building something that suddenly somebody already decided to go -- walk away and do something else with.
But by and large, we're not finding that. So what we're trying to do now and because we're getting better delivery terms and we're getting discounts on purchases that where we're delivering cash, we're addressing things like what's the margin look like when you don't order was made over a year ago when prices may have gone up.
So we have that delicate tight wire to sort of walk with our customers. But we're finding ways to capture that margin as I said, in other ways by perhaps purchasing something, COD and getting a discount as opposed to being on COD prior to our arrival in our balance sheet.
So we're whittling down that. We're aggressively going after it. We are utilizing the gentleman that we acquired the Eagle from, turned out to be very good talent pickup for us. And he is spending considerable time with our friends at LHD to work that backlog down. I hope that answers your question.
Roger Shannon
I would just add that of the LHD revenue that we mentioned in the call,in Germany over the last year has only been about $8 million. Now that the bulk of the street currently is coming from Australia. We have the turnout gear as well as the services.
So we see very significant upside in Germany because like we said, like Jim said, other competitors are having the same delivery lead time issue. So we were working to bring on additional capacity as well as in housing some capacity for the Asian markets into our China facility. So we think there's a lot of upsides. You know what I've said before that if we just double the German, I'm going to be disappointed with that because until there's we have significant upside in the country.
Matthew Galinko
Got it. Terrific. And I guess on the subject of Europe, it sounds like you see opportunities in Europe. I know you are in capturing now. What kind of levers can you pull to kind of go after that a little bit more effectively?
James Jenkins
So I'll say that, on the industrial side, which is where we -- our legacy business in Europe is primarily that industrial business. We almost exclusively relied on our channel partners, our distributors. And we actually have some very solid distributor relationships, particularly in the Benelux areas and one of our larger distributors in that market recently merged with the French entity.
And that has resulted, we believe, in some potential opportunity for us to expand our market share in Europe. So on the channel partner side, we've got one sort of real significant opportunity with a channel partner to drive that.
The other is that our new industrial sales leader, Cameron Stokes, it's really, you know, pre-paying end user engagement. And the entire executive team spent some considerable time about a week in Europe about a month ago in Poland with our European industrial sales team. And so the opportunities that we see are a sort of a different sales style from engaging with the end user, along with our channel partner to sort be the industry expert when it comes to selling the industrial side of the business.
And it could take a little bit of time, I think, to do that. But I think we're starting to get the right people in place. We're certainly getting the right attitude. And then, of course, on the fire end, with Eagle and with LSD and Jolly, and there's obviously opportunities for growth in Europe there.
Roger Shannon
I'd add one additional thing we're doing there and this is going on as we speak. We're addressing both some your customer service delivery time challenges as well as cost challenges and lead our operations group. We are revamping how we do warehousing, logistics, and distribution to kind of significantly cut down on delivery time.
And the sales team, as Jim said, what we want to do is translate the approach and model that we have in LATAM into Europe. And I know our sales folks are working hard to get that message across and not just a message, but the training, the approach and then having the right products that we can deliver quickly to get to the customer.
So, you know, like we said, I think there is opportunity, particularly with Kimberly-Clark selling their PVE business to. And so I think that creates some displacement. We're getting that feedback already from our sales team. So we're going to work that hard as well as make it very easy to work with Lakeland, both in terms delivery, lead times, product availability and customer service.
Matthew Galinko
Got it. Thanks. And I guess my final question is around the opportunity to take the service maintenance business from LHD and kind of expand the concept in North America or elsewhere. I think you touched on it in the prepared remarks, but I'm curious now that you've had the business for a few weeks, do you expect to do it organically or inorganically? And kind of what do you stepped up from that expansion opportunity through the back half of the year?
James Jenkins
So I am actually in Sydney, I met the largest trade show in Australia, the fire tradeshow in Australia in fact. And I spent considerable time with our friends at LHD. I got a tour of the Sydney facility, and it is impressive. And I was so excited about. I was sending videos to Roger and the team.
This is scalable. I spent some time with my Chief Revenue Officer who has some experience on this in his prior life. This is a something that we would look at both organic and inorganic opportunities.
I know for a fact that our friends in Latin America, they're trying to do this. And we've already put them in touch with the LHD folks and I would expect a dialogue there in the short term. I don't think -- these are not -- you don't just add water and proof that happens, right? It's going to take a little bit of time.
But it clearly isn't on our radar. And it is a, you know for me -- I view this as a significant opportunity in a space that's going to grow by virtue of the fact that that is the way that fire is trending these days. And that we have to decontaminate these suits so these guys are not inhaling -- guys and girls are not inhaling carcinogens on a regular basis. And the easiest way to do that is the consistent cleaning of the garments. And so you're going to see that in all of the markets all over the world. And it's still very early in the game on that. And we believe we've got an edge and some pretty interesting markets.
Roger Shannon
If I might (technical difficulty) on the software because that software that LHD Australia has, which we also believe is scalable and deployable was kind of really --- we do about the services, but this was a really pleasant surprise as you dug into it.
James Jenkins
I mean, that's another opportunity to monetize. And it's one that I think is probably a little bit longer term, you know, 12 to 18 months before we get our arms fully around that. But right now it is a total differentiator for LHD within the Australian market. And we want to be able to roll that out in other markets.
Matthew Galinko
Got it. Just a quick follow-up on that. You mentioned are early innings on that, I guess globally. But can you maybe touch on just what proportion of the fire equipment TAM is currently entering those sorts of contracts. Your best guess of kind of what the penetration of that opportunity is today.
James Jenkins
I couldn't. Look, there's millions of suites all over the world that got to get cleaned. Each firefighter generally within those markets has two sets of those suits. So I am not in a position at this point, Matt, to give you an actual number, but it is significant. And we've really only got our baby toe in the water right now.
Obviously we're going to do this smartly and methodically, but we'll do it with urgency. And I would expect that we would be wading into the water here over the course of next 12 months in other markets.
Matthew Galinko
Thanks.
Operator
(Operator Instructions) There are no other questions in queue.
James Jenkins
Thank you, operator, and thank you all for joining us on today's call. We appreciate your continued interest in Lakeland. We look forward to building on the strong momentum Lakeland has and sharing our successes with you in fiscal 2025. Have a great day.
Operator
Thank you. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.