Lakeland Industries Inc

NASDAQ:LAKE

Earnings Call Analysis

Earnings Call Transcript 2025-Q2

[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 U.S. 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, executive]

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 calls 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 strategies.

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 $27 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, 2 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 ranges -- range includes structural wildland and industrial fire and rescue gear, tactical rescue equipment and station wear, and it complements Lakeland's existing fire service offerings.

LHD Care provides a holistic approach to protecting clothing 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 protects firefighters from environmental contaminants and helps ensure the longevity and effectiveness of firefighting gear, while also introducing an attractive recurring revenue stream that Lakeland plans to leverage and expand. Along with our Pacific Helmets and Jolly acquisitions, LHD allows 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 in the earnings presentation as Roger and I review our results.

Our earnings presentation gives me the opportunity to introduce Lakeland Fire & 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 & 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 for 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 Helmets had a solid sales quarter as we continue integrating their products in the Lakeland sales channels. I'm pleased to report that LHD Germany has resumed manufacturing, and we remain very optimistic about their growth opportunities. Turnout gear production at LHD's German entity had slowed to a trickle due to a lack of liquidity under the previous ownership and a multi-year backlog was created as a result. Beginning with and even leading up to our acquisition, 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, remained 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 procured a renewal with the Hong Kong Fire Department with committed contract revenue increasing from $3.5 million to $5.3 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 have 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 the 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 U.S. 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. This solid performance was driven by our recent acquisitions and the 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 FR/AR, high performance and high-vis accounted for 17% of sales. Our FR/AR 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 2 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, have now been in place for 2 months, and they're having an 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 boards. Cameron Stokes is a highly focused, highly accomplished industrial sales professional, having worked for 12 years in industrial sales leadership goals at Ansell as well as other leading organizations. Both bring a passion for engaging the 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 in the 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, executive]

Thanks, Jim, and hello, everyone. Looking at our second quarter of 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 1 month of sales from LHD Group. On a trailing 12-month basis, Lakeland's 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 2024 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 U.S. and ongoing weakness in European markets, offset by continued robust growth in Latin America, which increased 63% compared to the second fiscal quarter of 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 LineDrive transition, as Jim discussed. We are seeing significant growth in the 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 FR/AR high-performance and high-vis 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 reported 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 and in the inventory, partially offset by higher organic gross profit as we show 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 expenses. The increase in 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 the 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 second quarter of fiscal 2024. As shown on Slide 8, the decrease in adjusted EBITDA, excluding FX, was driven by the previously mentioned profit in any 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 and ending inventory that affected our gross profit and gross margins 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 million, or 10% versus the Q2 FY 2024 TTM adjusted EBITDA, excluding FX, which totaled $13.2 million.

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 FY '25, primarily due to LHD, Jolly, Eagle and organic sales that are expected to shift 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.

The capital expenditures for the 3 months ending July 31, 2024 were $600,000. We still expect FY '25 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 operations. The Monterrey expansion, which we discussed last quarter, remains on pause as we continue to assess weather-related damage to our leased building.

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 announced Jolly boots, Pacific Helmets and LHD Group acquisitions. 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 FY '25 adjusted EBITDA, excluding FX, to be between $18 million and $21.5 million.

With that overview, I would like to turn the call back over to Jim before we start taking questions.

[James Jenkins, executive]

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 2 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 the 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 multi-year 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?

[Operator]

[Operator Instructions] Your first question for today is from Gerry Sweeney with ROTH Capital.

[Gerard Sweeney, analyst]

I want to start on the revenue side. Obviously, it sounds as though we'll just a core base revenue is doing reasonably well, as you said, high-single-digits going forward. But it also sounds like some of this impact on the revenue mix came from the, 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, executive]

I'm going to give that one to Roger.

[Roger Shannon, executive]

Yes. We -- Gerry, we did -- as we did the first quarter end review with LineDrive go methodically account by account, looking -- so we know exactly which accounts were unchanged and which were affected. I'm not -- obviously, I can't get into an account-by-account basis. But we did have the appropriate people in the call and looked at the individual ones and kind of know the -- how that unfolded. I guess it's not surprising when you have that 33 or so large national accounts transition, and we had a team on our side that is now redeploying more towards end user engagement and the LineDrive regional and headquarters team starts to take over that there would be some friction in that. And that is -- that's certainly what we saw.

As we look at the U.S.A. sales, U.S.A. operations, 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 friction. Of course, there are other aspects, the timing of oil and gas turnaround is unpredictable. Sometimes it's a big headwind, sometimes it can be a tailwind. But we are very bullish still on taking market share on kind of further developing our value proposition in the U.S. market. So we said in our guidance.

[Gerard Sweeney, analyst]

Go ahead.

[James Jenkins, executive]

Go ahead, Roger.

[Roger Shannon, executive]

So we -- like we said in our guidance, we do still expect that to pick up in the second half of the year.

[Gerard Sweeney, analyst]

Got it.

[Roger Shannon, executive]

Sorry, go ahead, Jim.

[James Jenkins, executive]

Yes. Gerry, look, we -- as the relationship develops with LineDrive, we're starting to get more visibility to their pipeline approach and the way they work their pipeline. And we are -- our team is having weekly meetings with them. Roger and I and our sales leaders are having check-ins. I have a monthly call with the LineDrive CEO and then we have a 90-day 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 meet 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.

[Gerard Sweeney, analyst]

Yes. I mean that's fair. I mean, I personally probably should have expected some lumpiness in 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 about 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, executive]

Well, there's a couple of things. Well, I don't want to get into the specifics of the pipeline because, obviously, pipeline management is something that can be a little nuanced, right? But I will say that the approach we're taking right now to our pipeline, both with LineDrive and within our sales organization, I believe, is a robust process, one that was obviously different given the 2 sales professionals that we brought in and with attention to more interaction with end users, which when traditionally you're 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. Obviously, LineDrive has visibility to some end users as well between their relationships with the -- their own channel partners and our channel partners and end users.

So it's a lot of art versus science in 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 6 or 9 months ago.

[Gerard Sweeney, analyst]

Okay. That's fair. Switching gears, just may go to Roger as well. Gross margins, just want to understand, there's probably a couple of different buckets here. We had some impact from integration with some, I think, profit -- or inventory end of quarter profit, which I'm probably the least understanding. And then you -- there's another bucket which is probably the -- all 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 maybe what the rebound looks like?

[Roger Shannon, executive]

Sure. Happy to explain that. And you're right, it is -- it gets into a lot of the gap and accounting weeds, but it is an important concept to understand the profit in any 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 we are continuing to make manufacturing efficiencies and improvements and being able to maintain price on organic.

So really, we're looking at 2 things. The acquired company gross margin, including the purchase accounting. And I won't go off on my rant here, although it takes all to hold that back. But 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 pay 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 do -- you kind of remeasure and you kind of revalue all the assets you acquired up to market value, which -- so you could theoretically have CapEx equipment that's been fully depreciated. It still has value, you kind to reestablish the value and you start the depreciation talk over.

Where this affected our gross margins in this quarter was the acquired companies, and particularly Jolly, had raw material -- sorry, a finished goods inventory at the time that we acquired them. So if you think about that, 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 0 margin when we sell our product, yes.

So what has to happen, and we always talk about kind of needing 1 year to flesh out the noise from purchases. But that inventory -- as that inventory turns, there is essentially no gross margin from it. And again, I don't -- obviously, I don't agree with that, as that creates more visibility for the user and understanding that, probably it creates more confusion. But -- 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 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 then the profit in any inventory, I mean, I look at this as a positive, really. So that's 3.4% margin points. So if you take the 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 has really 2 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 manufacturing entity sells it to a sales entity, they have profit that they would recognize. But as a company in consolidation, we can't recognize it until it's sold to the customer. So that kind of gets hung up.

So the good news there is we 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 then becomes a benefit.

So again, I hope that's not too much detail, but I think it's important to understand that we had...

[Gerard Sweeney, analyst]

No -- yes, sorry, go ahead.

[Roger Shannon, executive]

We have that. We have it about every quarter, not always this large because it was a large build, especially at Jolly for an order and for Eagle, that's going to have second half orders.

[Gerard Sweeney, analyst]

Got it. So that sort of gets to the point of my question. The gross margin is 3.96%. The inventory -- that happens every quarter, but there was an abnormally large one, so it certainly impacted the gross margin, along with -- we always get less gross profit dollars because revenues were down because of sales.

[Roger Shannon, executive]

That's right.

[Gerard Sweeney, analyst]

But that makes sense. Last question. I know these are probably shorter questions, but longer answers. The one thing that caught me -- well, I don't know of the right, but the $2.4 million in acquired, we'll 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? And how do we look at that?

[Roger Shannon, executive]

Yes. I think we are certainly scrubbing that to work that down. So LHD, we have identified -- we've just had it a month or so. We've identified certain SG&A costs that we don't think are necessary. I think we explained before, when we value acquisitions, we don't really build in a big takeout or stripping of costs because more often than not, 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 has 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 like all around the world to the Pacific people and Jolly people training our LATAM teams, training our U.S. teams, U.S. teams going to trade and sales shows in their markets. So we have seen an increase in selling expense as we work to get these integrated.

[James Jenkins, executive]

Yes. I mean, Gerry, some of this is an investment in the people that we have. Some of it, to Roger's point is, we have some low-hanging fruit we can fix. But I mean, I'm talking to you from Sydney, Australia. So my 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're looking at to drive down.

[Gerard Sweeney, analyst]

That's fair. Listen, I'd rather have the infrastructure in place to drive sales than the others. This is -- the question was probably more just understanding the model and progression, et cetera. So but totally understand.

[Operator]

Your next question for today is from Matthew Galinko with Maxim Group.

[Matthew Galinko, analyst]

Can you maybe talk about the pipeline with LH -- I guess the backlog with LHD? Is it safe to assume you can convert that all, or is there attrition that you sort of expect to kind of get peeled off from competitors? Or, how do you expect that to go?

[James Jenkins, executive]

Well, so I guess, what Roger and I and actually does the entire executive team was 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 -- there are delivery issues that our competitors are facing as well. So there's -- I wanted to sort of -- that's sort of one issue that we were all surprised about how it was not necessarily unique to us.

There are some -- we are looking hard at those backlog opportunities, and we want to make sure that we're not building something for something that 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 turns and we're getting discounts on purchases where we're delivering cash, we're addressing things like what does the margin look like when an order was made over a year ago when prices may have gone up. So we have that delicate tight wire 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 widdling down that. We're aggressively going after it. We are utilizing the gentleman that we acquired Eagle from turned out to be a 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 [indiscernible].

[Roger Shannon, executive]

I would just add that of the LHD revenue that we mentioned in the call, Germany, over the last year, has only been about $8 million. Being the bulk of the stream currently is coming from Australia, we have to turn our 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're 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 upside. I would -- I've said before that if we just double the German, I'm going to be disappointed with that because I think there's significant upside in the country.

[Matthew Galinko, analyst]

Got it. Terrific. And I guess on the subject of Europe, it sounds like you see opportunities in Europe that you aren't capturing now. What kind of levers can you pull to kind of go after that a little bit more effectively?

[James Jenkins, executive]

So I'll say that on the industrial end, 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 a 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, is really preaching 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 -- it's sort of a different sales style, engaging with the end user along with our channel partner to sort of be the industry expert when it comes to selling the industrial side of the business. And it's going to 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 LHD and Jolly, there's obviously opportunities for growth in Europe there.

[Roger Shannon, executive]

I'd add one additional thing that we're doing there, and this is going on as we speak, is we've -- we're addressing both some customer service, delivery time challenges as well as cost challenges. So led by 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, what Jim said, is what we want to do is kind of 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 the message, but the training, the approach, and then having the right products that we can deliver quickly to get to the customer.

So like we said, I think there is opportunity, particularly with Kimberly-Clark selling their PPE business to Ansell. 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 of delivery, lead times, product availability and customer service.

[Matthew Galinko, analyst]

Got it. I guess my final question is around the opportunity to take the service maintenance business from LHD and kind of expand the concept into North America or elsewhere. And 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, what -- do you expect to do it organically or inorganically? And kind of what do you expect from that expansion opportunity through the back half of the year?

[James Jenkins, executive]

So Matt, I'm actually in Sydney. I'm at the largest trade show in Australia, the Fire trade show in Australia, AFAC. 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 it 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 something that we would look at both organic and inorganic opportunities. I know for a fact that our friends in Latin America, and 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 it happens, right? It's going to take a little bit of time. But it clearly is in -- on our radar. And it is a -- 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 gals not inhaling carcinogens on a regular basis. And the easiest way to do that is the consistent cleaning of the garment. 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 in some pretty interesting markets.

[Roger Shannon, executive]

I also want to touch on the software, because it's that software that LHD Australia has, which we also believe is scalable and deployable was as kind of really -- we knew about the services, but this was a really pleasant surprise as we -- as you dug into it.

[James Jenkins, executive]

Yes. I mean that's another opportunity to monetize, and it's one that I think is probably a little bit longer term, 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, analyst]

Got it. Just a quick follow-up on that. You mentioned you are early innings on that, I guess, globally. But can you maybe touch on just what proportion of the fire equipment TAM is currently kind of entering those sorts of contracts? Your best guess of kind of what the penetration of that opportunity is today?

[James Jenkins, executive]

I couldn't -- look, there's millions of suits all over the world that got to get cleaned. Each firefighter generally, within those markets, has 2 sets of those suits. So I'm 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. And 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 waiting into the water here over the course of the next 12 months in other markets.

[Operator]

[Operator Instructions] At this time, there are no other questions in queue.

[James Jenkins, executive]

Thank you, operator. 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.