Quarterly Report for Quarter Ending April 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with the historical financial statements and other financial information included elsewhere in this quarterly report on Form 10-Q. This Form 10-Q may contain certain forward-looking statements. When used in this Form 10-Q or in any other presentation, statements which are not historical in nature, including the words "anticipate," "estimate," "should," "expect," "believe," "intend," "project," "plan," "seek," "will," "may," "might," "would," "could" and similar expressions, are intended to identify forward-looking statements. They also include statements containing a projection of sales, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

The forward-looking statements in this Form 10-Q are based upon our management's beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to us. These statements are not statements of fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements that are based on current expectations. Furthermore, forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events or otherwise, except as may be required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q might not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors.

Business Overview

We manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. In addition, we provide decontamination, repair and rental services that complement our fire services portfolio. Our products are sold globally by our in-house sales teams, our customer service group, and to a strategic and selective global network of authorized distribution partners. Our authorized distributors supply end users across various industries, including integrated oil, chemical/petrochemical, automobile, transportation, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical and high-tech electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. We also supply federal, state and local governmental agencies and departments, including fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, we sell to a mixture of end-users directly and to industrial distributors, depending on the particular country and market. In addition to the U.S., sales are made into more than 50 foreign countries, the majority of which are into China, the European Economic Community ("EEC"), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India, Uruguay, Middle East, Southeast Asia, New Zealand, Australia and Hong Kong.

The Company's strong market position across its focus product categories and markets is supported by continued and increasing investment in its global footprint, particularly owning and operating its own manufacturing facilities, acquiring complementary companies or products that expand and enhance product offerings and/or geographic customer territories and investing in sales and marketing resources in countries around the world. We believe that ownership of manufacturing is the cornerstone of building a resilient supply chain and providing high-quality products to our customers. Having ten manufacturing locations in eight countries on five continents, and sourcing core raw materials from multiple suppliers in various countries affords Lakeland superior manufacturing capabilities and supply chain resilience compared to our competitors who use contractors. Additionally, our focus on providing customers with best-in-class service includes the strategic location of our sales team members.

Lakeland is committed to protecting the world's workers, first responders, and communities while creating value for its shareholders. Key elements of our corporate strategy include:

On September 15, 2025, the Company acquired 100% of U.S.-based Arizona PPE Recon, Inc. ("Arizona PPE") for cash consideration of approximately $4.1 million, subject to post-closing adjustments and customary holdback provisions. Founded in 2016, Arizona PPE is the leading UL-certified independent services provider ("ISP") for performing advanced decontamination, inspection and repairs on firefighting garments for the Arizona market, as well as providing educational and training classes to fire departments and personnel to help them implement and adhere to NFPA 1851 guidelines.

On September 15, 2025, the Company acquired 100% of U.S.-based California PPE Recon, Inc. ("California PPE") for a combination of approximately $2.4 million in cash consideration and 227,728 unregistered shares of the Company's common stock with an estimated fair value of $3.3 million at the date of acquisition, subject to post-closing adjustments and customary holdback provisions. Founded in 2022, California PPE is a leading and rapidly expanding UL-certified ISP in the California firefighting services market, one of the largest fire markets in the U.S. It also provides advanced decontamination, repair, and inspection of firefighting personal protective equipment, along with rental services and sales of cleaning detergents, extractors, and dryers.

We sold our high performance FR/AR apparel line and our high visibility clothing line on March 27, 2026.

Our net sales attributable to customers outside the U.S. were $27.3 million and $26.0 million for the three months ended April 30, 2026 and 2025, respectively.

Key Trends Affecting Our Operations

Trade Policies and Regulations

Since early 2025, the executive branch of the U.S. government has pursued a policy of imposing tariffs on imports from many foreign countries, including countries where the Company has manufacturing facilities, such as China, India, and Vietnam, among others. In response, China and other countries announced retaliatory tariffs against certain U.S. imports. These tariffs have been, and may continue to be, announced, amended, paused, reinstated and rescinded with little or no advance notice. On February 20, 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"), and the U.S. Court of International Trade ("CIT") subsequently ordered U.S. Customs and Border Protection to process refunds of tariffs paid under the IEEPA. While we have submitted claims for refunds related to certain eligible tariffs paid, the ultimate availability, timing, and amount of any potential refunds of such tariffs remain uncertain and are subject to further legal, regulatory, and administrative developments. No tariff refund receivables have been recorded in the accompanying condensed consolidated financial statements as of April 30, 2026. However, after April 30, 2026, we began receiving refunds, but the amount received to date is not material.

After the Supreme Court's ruling on the IEEPA tariffs, the Trump Administration immediately imposed new global tariffs pursuant to Section 122 of the Trade Act of 1974, which allows for tariffs of up to 15% for a period of up to 150 days, and indicated its intention to consider other legal options for imposing tariffs. However, in May 2026, the CIT held that the tariffs imposed under Section 122 were unlawful. This ruling has been appealed and is subject to ongoing litigation.

The extent and duration of increased tariffs and the resulting impact on general economic conditions and on our business are uncertain. As the situation remains fluid due to the rapidly changing global trade environment, we continue to evaluate the potential implications of these actions on our business, and we are uncertain about the ultimate impact that these policies will have on our business. Thus far, however, they have increased the cost of importing certain products, which has affected our operating results and margins. In prior years, the Company has been able to pass along a portion of costs resulting from tariffs to its customers, but there is no guarantee that we will be able to successfully do so in the future. Therefore, we expect that, as long as such tariffs are in effect, they will continue to affect our operating results and margins, and as a result, our historical and current gross profit margins may not be indicative of our gross profit margins for future periods. We will mitigate these factors to the best of our abilities through supply chain and manufacturing site initiatives. However, where annualized cost increases cannot be eliminated, strategic market price adjustments will be implemented.

Russia-Ukraine Conflict

We are continually monitoring the potential financial impact of the Russian invasion of Ukraine on our operations. For the three months ended April 30, 2026, sales in Russia accounted for approximately 2.3% of our consolidated sales, and sales into Ukraine were not significant. We do not have any capital assets in Russia.

Conflict in the Middle East

We are continually monitoring the potential financial impact of the U.S. and Israel coordinated military operation against Iran on our operations. Our sales in the Middle East were not significant during the three months ended April 30, 2026. However, ongoing supply chain disruptions or increased freight costs resulting from the reduction in shipping volume through the Strait of Hormuz could have material adverse effects on our business.

Results of Operations

Three Months ended April 30, 2026, Compared to the Three Months Ended April 30, 2025

Net Sales. Net sales were $47.4 million for the three months ended April 30, 2026, an increase of $0.7 million or 1.4%, compared to $46.7 million for the three months ended April 30, 2025. Sales of our Fire Service product line increased $2.4 million primarily due to $1.5 million in sales from Arizona PPE and California PPE, as well as continued organic growth in our portfolio of fire turnout products. Sales increased for Disposable products by $0.5 million and sales declined for Woven products by $0.6 million, Chemical products by $0.6 million, High Performance Wear by $0.7 million and High Visibility products by $0.3 million.

On March 27, 2026, the Company completed the sale of certain assets associated with its High Performance Wear and High Visibility product lines.

Gross Profit. Gross profit for the three months ended April 30, 2026 was $14.9 million, a decrease of $0.8 million, or 4.9%, compared to $15.6 million for the three months ended April 30, 2025. Gross profit as a percentage of net sales decreased to 31.4% for the three months ended April 30, 2026, from 33.5% for the three months ended April 30, 2025, primarily due to increased labor, rent and certification costs partially offset by lower production and material costs.

Operating Expenses. Operating expenses decreased by $1.2 million, or 6.0%, from $20.3 million for the three months ended April 30, 2025 to $19.1 million for the three months ended April 30, 2026. The decrease was primarily due to lower freight costs, incentive compensation and professional fees, partially offset by an increase in stock based compensation and amortization expense. Operating expenses as a percentage of net sales were 40.3% for the three months ended April 30, 2026, down from 43.4% for the three months ended April 30, 2025, primarily due to the factors noted above.

Gain on Sale of Certain Assets. On March 27, 2026, the Company completed the sale of High Performance and High Visibility inventory and intellectual property to an unrelated third party for $14.0 million yielding $13.2 million in cash proceeds after inventory adjustments. The Company, for a six-month period, will manufacture and ship such inventory on behalf of the buyer; accordingly, any gain associated with such inventory and the related profit has been deferred and will be recognized over the six-month contract period.

Operating Income (Loss). Operating income was $2.3 million for the three months ended April 30, 2026, compared to an operating loss of $(4.6) million for the three months ended April 30, 2025, due to the impacts detailed above. Operating margins were 4.8% for the three months ended April 30, 2026, as compared to (9.9)% for the three months ended April 30, 2025.

Income Tax Expense (Benefit). Income tax expense consists of federal, state and foreign income taxes. Income tax expense was $1.3 million for the three months ended April 30, 2026, compared to a benefit of $1.2 million for the three months ended April 30, 2025. The Company's effective tax rate for the first quarter of FY26 was 78.5% which differs from the U.S. federal statutory rate of 21% primarily as a result of a valuation allowance against the Company's U.S. operations.

Net Income (Loss). Net income was $0.4 million for the three months ended April 30, 2026, compared to a net loss of $(3.9) million for the three months ended April 30, 2025.

Liquidity and Capital Resources

At April 30, 2026, cash and cash equivalents were approximately $17.4 million, and working capital was approximately $92.8 million. Cash and cash equivalents increased $4.9 million, and working capital decreased $3.4 million from January 31, 2026 due to the balance sheet fluctuations described below.

Of the Company's total cash and cash equivalents of $17.4 million as of April 30, 2026, cash held in Latin America of $1.0 million, cash held in the UK of $1.3 million, cash held in Russia and Kazakhstan of $1.8 million, cash held in the EEC of $3.9 million, cash held in India of $0.6 million, cash held in Vietnam of $0.2 million, and cash held in Hong Kong of $0.4 million would not be subject to additional U.S. tax in the event such cash was repatriated due to the change in the U.S. tax law as a result of the December 22, 2017 enactment of the 2017 Tax Cuts and Jobs Act (the "Tax Act"). When the Company repatriates cash from China, of the $3.0 million balance at April 30, 2026, an additional 10% withholding tax may be incurred in that country. The Company expects to repatriate cash from China during FY 27 and in anticipation of doing so, has accrued withholding tax expense of $0.3 million as of April 30, 2026.

Cash provided by operations was $5.8 million. Net income of $0.4 million was adjusted for non-cash charges of $4.5 million, primarily related to the gain on sale of inventory and intellectual property associated with our high performance and high visibility product lines and an increase in operating assets and liabilities of $9.6 million primarily related to changes in deferred revenue, inventory and other assets. Net cash provided by investing activities was $10.0 million, primarily due to the proceeds from the sale of the high-visibility and high-performance workwear styles partially offset by purchases of capital equipment. Net cash used in financing activities was $5.2 million due to $14.0 million borrowed under our credit facility to fund working capital increases offset by the repayment of debt facilities of $19.1 million and $0.2 million in shares returned to pay income taxes on shares vested under our equity compensation program.

We believe our current cash, cash equivalents, borrowing capacity under our Loan Agreement, and the cash to be generated from expected product sales will be sufficient to meet our projected operating and investing requirements (including planned capital expenditures) for at least the next twelve months. However, our liquidity assumptions may prove to be incorrect, and we may need to utilize our available financial resources sooner than we currently expect.

On June 25, 2020, the Company entered into a Loan Agreement (the "Original Loan Agreement") with Bank of America, N.A. ("Lender"), as amended by Amendment No. 1 to the Loan Agreement, dated June 18, 2021 ("Amendment No. 1"), Amendment No. 2 to the Loan Agreement, dated March 3, 2023 ("Amendment No. 2"), Amendment No. 3 to the Loan Agreement, dated November 30, 2023 ("Amendment No. 3"), Amendment No. 4 to the Loan Agreement, dated March 28, 2024 ("Amendment No. 4"), Amendment No. 5 to the Loan Agreement, dated December 12, 2024 ("Amendment No. 5") and Amendment No. 6 to the Loan Agreement, dated July 7, 2025 ("Amendment No. 6" and, collectively with Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4, and Amendment No. 5, the "Loan Agreement Amendments"; and the Original Loan Agreement, as amended by the Loan Agreement Amendments, the "Amended Loan Agreement").

The Amended Loan Agreement provides the Company with a secured revolving credit facility of up to $40.0 million of borrowings (giving effect to the reduction of such limit following the application of the net proceeds from the Company's January 2025 equity issuance). The revolving credit facility includes a $10.0 million letter of credit sub-facility. The credit facility matures on December 12, 2029.

On April 13, 2026, the Company and the Lender entered into a limited waiver (the "Limited Waiver"), pursuant to which the Lender waived the Company's non-compliance as of January 31, 2026 with respect to two financial covenants under the Amended Loan Agreement. The $40.0 million aggregate commitment amount of the Amended Loan Agreement, maturity date of December 12, 2029, and applicable interest rate of the Amended Loan Agreement remained unchanged. The Company was in compliance with all of its debt covenants as of April 30, 2026.

Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of (i) the greater of the daily Secured Overnight Financing Rate ("SOFR") or an index floor of 1% plus (ii) the Applicable Rate (as defined in the Amended Loan Agreement). The Applicable Rate is based on a funded debt-to-EBITDA ratio (discussed below) and includes four different levels, constituting a SOFR margin range of 1.25% to 2.00%. All outstanding principal and unpaid accrued interest under the revolving credit facility are due and payable on the maturity date. On a one-time basis, and subject to there not existing an event of default, the Company may elect to convert up to $5.0 million of the then outstanding principal of the revolving credit facility to a term loan facility with an assumed amortization of 15 years and the same interest rate and maturity date as the revolving credit facility. The Amended Loan Agreement provides for a fee on any difference between the line of credit commitment and the amount of credit it actually uses, determined by the daily amount of credit outstanding during the specified period. Such fee is calculated at the Applicable Rate and is payable quarterly.

The Company made certain representations and warranties to the Lender in the Amended Loan Agreement that are customary for credit arrangements of this type. The Company also agreed to maintain, as of the end of each fiscal quarter a minimum "basic fixed charge coverage ratio" (as defined in the Amended Loan Agreement) of at least 1.20x and a "funded debt to EBITDA ratio" (as defined in the Amended Loan Agreement) not to exceed 3.5x (with step-downs to 3.25x and 3.0x on February 1, 2026 and February 1, 2027, respectively), in each case for the trailing 12-month period ending with the applicable quarterly reporting period. In addition, the Company has agreed to maintain a springing "asset coverage ratio" (as defined in the Amended Loan Agreement) of at least 1.10x, but only to the extent that the maximum funded debt to EBITDA ratio exceeds 3.25x at any reporting period. The Company was in compliance with all of its debt covenants as of April 30, 2026.

The Company also agreed to certain negative covenants under the Amended Loan Agreement that are customary for credit arrangements of this type, including restrictions regarding the ability of the Company and/or its subsidiaries to conduct business, grant liens, make certain investments, and incur additional indebtedness, which negative covenants are subject to certain exceptions. Moreover, the Amended Loan Agreement contains restrictions on the Company's ability to enter into mergers and other business combination transactions and to purchase or acquire other businesses or their assets, although the Company may purchase a business or its assets without the consent of the Lender if the aggregate amount of consideration paid for by the Company is less than $26.0 million for any individual acquisition or $36.0 million on a cumulative basis for all such acquisitions or purchases subsequent to the date of Amendment No. 5. The Amended Loan Agreement also authorizes the Company to enter into additional lines of credit or incur liabilities in connection with the acquisitions of foreign subsidiaries in foreign countries where the Lender lacks a physical presence (such amounts not to exceed $10.0 million in the aggregate).

The Amended Loan Agreement contains customary events of default that include, among other things (subject to any applicable cure periods and materiality qualifier), non-payment of principal, interest or fees, defaults under related agreements with the Lender, cross-defaults under agreements for other indebtedness, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments and material adverse change. Upon the occurrence of an event of default, the Lender may terminate all loan commitments, declare all outstanding indebtedness owing under the Amended Loan Agreement and related documents to be immediately due and payable, and may exercise its other rights and remedies provided for under the Amended Loan Agreement.

In connection with the Amended Loan Agreement, the Company entered into with the Lender (i) a security agreement dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in substantially all of the personal property and the intangibles of the Company, and (ii) a pledge agreement, dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in the stock of its subsidiaries (limited to 65% of those subsidiaries that are considered "controlled foreign subsidiaries" as set forth in the Internal Revenue Code and regulations).

As of April 30, 2026, the Company had no borrowings outstanding on the letter of credit sub-facility and borrowings of $23.8 million outstanding under the revolving credit facility, and there was $16.2 million of additional available credit under the Loan Agreement. As of January 31, 2026, the Company had no borrowings outstanding on the letter of credit sub-facility and borrowings of $28.5 million outstanding under the revolving credit facility, and there was $11.5 million of additional available credit under the Loan Agreement. The interest rate on outstanding borrowings was 5.74% at April 30, 2026 and 5.76% at January 31, 2026.

Stock Repurchase Program. On April 7, 2022, the Board of Directors authorized a stock repurchase program under which the Company may repurchase up to $5.0 million of its outstanding common stock, which became effective upon the completion of a prior share repurchase program. On December 1, 2022, the Board of Directors authorized an increase in the Company's stock repurchase program, under which the Company may repurchase up to an additional $5.0 million of its outstanding common stock.

No shares were repurchased in the three months ended April 30, 2026 leaving $5.0 million remaining under the share repurchase program at April 30, 2026. The share repurchase program has no expiration date but may be terminated by the Board of Directors at any time.

Capital Expenditures. Our capital expenditures were $1.4 million for the three months ended April 30, 2026 which primarily relates to replacement equipment for our manufacturing sites and developed technology projects. We expect to fund the capital expenditures from our cash flows from operations. The Company may also expend funds in connection with potential acquisitions.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our fiscal year 2026 Form 10-K. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult, or complex judgments, often employing the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in our 2026 Form 10-K. There have been no significant changes in the application of our critical accounting policies and estimates during the three months ended April 30, 2026.