Good afternoon, and welcome to the Lakeland Industries fiscal year 2016 first quarter financial results conference call. [Operator Instructions] Before we begin, parties are reminded that statements made during this call contain forward-looking information within the meanings of the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements are all statements other than statements of historical facts, which reflect management's expectations regarding future events and operating performance and speak only as of today, June 15, 2015. Forward-looking statements are based on current assumptions and analysis made by the company in light of its experience and its perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate under circumstances. These statements are subject to a number of assumptions, risks, and uncertainties and factored in the company's filings with the Securities and Exchange Commission, general economic and business conditions, business opportunities that may be presented to you and pursued by the company, changes in law or regulations, and other factors, many of which are beyond the control of the company. Listeners are cautioned that these statements are not guarantees of future performance, and the actual results or developments may differ materially from those projected in any forward-looking statements. All subsequent forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. At this time, I would like to introduce your host for this call, Lakeland Industries' Chief Executive Officer Christopher J. Ryan. Mr. Ryan, you may begin.

Good afternoon to you all, and thank you for joining our fiscal 2016 first quarter financial results conference call. We are going to provide brief opening statements on the status of operations and on our financial results for the quarter. The call will then be opened up so that we may respond to your questions. Now, I’d like to discuss our operating strategies and the progress that has been made, along with a view of our objectives as we move forward. The first quarter fiscal 2016 built upon the momentum from the second half of last year. Importantly, net income from continuing operations grew by over 500% [ph] and free cash flow from continuing operations improved 105%. We are referencing continuing operations as part of our presentation of financial results, due to new accounting treatments that relate to some of the progress we have made in the latter stages of our turnaround. Effective in this first quarter, we implemented discontinued operations accounting that reflects our decision to exit Brazil. For financial reporting presentation purposes, the operating results in Brazil are excluded due to the company’s decision, which was announced on April 30, to exit Brazil, which has resulted in discontinued operations accounting. Commencing with this first quarter 2016, historical and future financial results from the Brazilian operations will be reflected as discontinued operations in accordance with generally accepted accounting principles. Discontinued operations accounting entails the reclassification of all the financial results of the former Brazil operations within the consolidated financial results of the parent company and a restatement of prior periods to reflect the same treatment. Our exit from Brazil will include the transfer of our business unit to the Brazilian management team. We announced the proposed transfer of the unit, which has been progressing steadily and we believe it…

Thank you, Chris. The following addresses my review of the first quarter of FY16 [unintelligible] I trust is now the onset of discontinued operation accounting as presented will be far more simple and easier to understand our financial results. The fiscal 2016 first quarter financial results that I discuss on this call will be from continuing ops, unless otherwise noted. I am now also including information to develop free cash flow, which I know many investors do want to see. Now, onto my review, and I’ll start with revenue growth. Q1 sales worldwide were $24.8 million this year, compared to $21.8 million last year, an increase of 14.1%. In terms of the margin improvement and expense management, the Q1 gross margin worldwide was 37.4% compared to 29.9% last year. Q1 operating expenses worldwide increased by $400,000, but decreased as a percentage of sales to 24.4% compared to 26.0% last year. [unintelligible] significant increases in operating income, adjusted EBITDA, and free cash flow. The Q1 operating income increased to $3.2 million compared to operating income of $900,000 last year. Operating income as a percentage of sales increased to 13.0% this year compared to 3.9% last year. Q1 adjusted EBITDA worldwide this year was $3.6 million compared to $1.7 million last year. Free cash flow increased from 1.3 to last year to 2.7 this year. As far as net income, Q1 net income of $2.2 million or $0.31 a share versus $400,000 and $0.06 a share, again, continuing operations. Net loss from discontinued operations of $900,000 or $0.14 a share this year compared to $400,000 and $0.06 a share last year. Net income this year was then $1.2 million or $0.17 a share compared to breakeven and zero last year. As previously reported, due to the subordinated debt that was paid off,…

[Operator instructions.] And our first question will come from Alex Christensen from Craig-Hallum.

Starting off, looking at this quarter, I was pleasantly surprised by the opex savings you guys had compared to what we had estimated and compared to last year. Could you explain a little bit of where that’s coming from? Is that from the fact that you’ve got a backlog and you’ve had some efficiencies that you can build in with your Ebola builds? Or is it other operations efficiencies?

Let me handle that, because if you look at what happened, it didn’t actually decrease. It actually increased a modest amount. Where the decrease happened is as a percentage of sales. And if you look at the operating expenses that we do have, other than [freight out] and commissions, our operating expenses for the large part are fixed. Again, freight out and commissions are pretty much the only real variable expenses we have. And I think those reflected the fact that there was a modest increase, and that’s where it was. So to the extent that we have volume increases and largely fixed operating expenses, that’s how we get a significant leverage in the reduction in the operating expenses as a percentage of sales. Also, compared to FY15, in that we had built in a large cumulative change in the restricted stock performance level, which was a one-time cumulative adjustment of about a million dollars. That was not in Q1, of course. That was in all of FY15. Comparing Q1 this year to Q1 last year, it’s pretty much in the leverage of the largely fixed operating expenses and a volume increase.

And then on the Ebola backlog, do you have an update on how long that is going through?

I’ll pick that up. We’re pretty much finished with Ebola in the first quarter. It continues to go in West Africa. It is still sort of going on in both Sierra Leone and Guinea, with 20 to 30 new occurrences every week. So we’re on a wait and see posture with Ebola, but right now, we’re not producing anything of size for that market. It could resurface, it could not, and it’s difficult for me to figure out the inventory positions of all the charitable institutions and government institutions that are responding to it.

And then you spoke about MERS a little bit. Are you guys able to ship into Korea? And have you started seeing interest there?

We’ve actually made sales through one of our distributors in Korea who is buying for MERS. You know, the governments ignore, although they’re not ignoring them in Korea. But where they do ignore them like they did with Ebola, it went for nine months without anything being done so that it became a very big situation. They’re really attacking this in Korea, so I don’t see it really taking off, but like SARS, you just never know how many people left the country carrying it. And I think they’re holding 20 or 30 Japanese tourists or business men in South Korea, because they’ve been exposed to it. So it’s more where it shows up, and usually it’s not likely that it shows up, but there’s always that percentage possibility. Same thing with the bird flu. They let it go for months, and you don’t hear much about it, because the USDA and the government is so embarrassed that they let it go this far this long. So now they’ve got a huge problem that they’ve got to clean up.

You’ve said you’ve started making a lot of strides with the ChemMAX, the branding, across sectors, and so I was just wondering if you could share some of what you’ve been hearing from clients and distributors, and how you think your market share is changing and what you see for the future.

The ChemMAX One, Two, and Three garments were being used extensively in Ebola in the United States, extensively in Africa. We started getting more brand recognition simply because we could actually deliver the suits. And so once you can deliver, everybody wants to talk to you. And because we can deliver, a lot of people are just calling us out of the blue and we’re getting a lot of brand recognition from customers who otherwise had never really spoken to us. And that’s happening internationally. So I guess that’s the best way to answer it. We’re also seeing a little bit more exposure in the healthcare fields, and what occurs, and I’ll use Ebola as an example only, is that they finally figure out that they need industrial strength garments. The hospital garments do not do the trick. They cannot protect you against Ebola, they cannot protect you against SARS. They probably can’t protect you against MERS. So people start figuring that they need industrial strength protection and not what they use every day in a hospital, for these viral contagions that are very contagious.

And our next question will come from Dan [Gader] of [High Key ph] and Company.

Yes, this is actually Buzz [High Key]. I know you all used to do business with DuPont, and you finished, I guess, in 2011. Are you starting to do business with them again, and do you think you can get that relationship back?

No, we won’t do business with them again. I don’t think that relationship’s ever going to come back. And I wouldn’t want to do it, because it would just be cannibalizing our own brand name. And we make a much higher margin on our own brand name than we ever made on DuPont.

Then what about the dollar? How were you affected last quarter, and how do you expect it, in the current quarter, to affect your earnings?

Well, if I could predict the currencies of the world, I’d tell you, but as you know, the dollar went up about 20% against most currencies in the world. And since half our sales are offshore, a very large part of our sales was reduced by 20% when we report in U.S. dollars. Indeed, the only country that really didn’t depreciation against the dollar was surprising. It was India. But we don’t do a whole lot of sales in India. And China. China’s renminbi stayed pretty tough with the dollar, and we do do about 15% of our sales there. But the rest of the world, the euro just got trashed. Every South American currency was trashed, so our sales in those countries were trashed when you report them in dollars. And I don’t know, I can’t predict where the dollar’s going to go, but my guess is things equalize over the next year or two. I think a lot of it has to do with the price of oil, and that will probably go up in the next year or two.

And then I think your inventory, your payables and your receivables are all up 8% to 10% right now versus the prior quarter. Is that maybe giving us an indication that you’re going to be doing okay this quarter?

Yeah. This quarter will be another good quarter, but we’ll report it when we report it.

And then lastly, are you gonna have pretty much a clean income statement this quarter?

We’ll still have Brazil as a discontinued operation, but we feel fairly optimistic that it will be gone in the third quarter.

Next we have a question from Doug Ruth at Lenox Financial Services.

What exactly do you have to do to finish the Brazil transaction now?

Actually, that’s not a simple question, as you well know. Kind of painful, but a main precursor we announced actually, we have a plan in place. Basically, without getting into the details, we have an outline that we’ve actually disclosed. There’s management of the current Brazil operations that will take over the company in a management buyout. We’ve disclosed the basic structure of it. We’re going to have to pay them cash to get it off our hands and keep it going. We’ve disclosed that. We have the approval from our lender for the whole plan, and that’s a major hurdle. And as I said before, I’m getting on a plane to Brazil, and we are in the final stages of negotiating. I can’t guarantee that we’ll have a final deal, but the pieces are very close to being in place. So I’m confident that we’ll have something that will certainly go to contract, in my opinion, somewhere in Q2. Whether we can get it closed, it may take a few weeks because of the bureaucracy in Brazil, but I’m very confident and hopeful that we’ll have at least a contract signing in Q2.

Can you give us some detail on how the other countries have been performing and what your outlook is?

The U.K. has been a strong performer in Q1, when you look at the 10-Q and you look at the segment notes. And that’s in part due to the Ebola sales that they had there, which will tail off. So it will still be very profitable, but nowhere near as profitable as in Q1. But they had a good quarter, and we expect them to continue. Canada is up and coming. They were pretty profitable. But actually, the biggest profit improvement has been in the U.S. and that’s where we expect, by far, the biggest improvement in the near term, over the next couple of quarters, is in the U.S. China is steady. We didn’t have any explosions in profits, but they’ve been steadily profitable. But again, the biggest contributor is really the U.S. going forward, I think, in the near term.

What about Chile and Argentina? How are you doing there?

We’re kind of fighting a holding pattern. Argentina has some political issues that everybody in the world is waiting for the results of the election in October. And everybody’s just waiting to pounce on that. So we expect in Q4, right after the election, we do expect a fairly sizable currency devaluation by the new regime, and right after that, I think we’ll see a major pickup in business activity, probably in Q1 of next year. We spent a lot of time and effort and blood, sweat, and tears in Argentina without any great results, frankly, but we do hope after the election things will turn around.

And then what about the new product introductions? What’s the best product you have in the pipeline right now?

We’re looking at a new green product to introduce, just probably in December of this year. We’ll have to see how it goes, but we’re very, very hot on the product. It’s a disposable item, which is very, very green, unlike anything we sell today or anything our competitors sell today. And that’s the real selling point of this new product. We also have a new arc flash rain gear product out that’s going to the utilities. Utilities are making a lot of money these days on the price of oil, and so they’re very open to stocking up on new protective apparel. That’s another product line that’s sort of been taking off. We’re improving a lot of our chemical suit lines on our disposable lines. We’ve introduced probably over 50 products in the last two years, and that’s what I mean about the branding and refranchising of our product lines. Historically, we bought everything from DuPont, and now everything is pretty much a proprietary fabric on our part, and that’s why you see the gross margins going up, because if you went back to 2006 and looked at when 90% of our products were DuPont products, we only had a 20% gross margin. Today, we’re running 33% plus all the time, and on most products. That’s the difference. And now, if we can grow our sales, and it’s a big market out there for us to grow our sales, I mean, DuPont, just in our product line, is probably 10x our size. And KC’s another big one out there. And there’s growth in the emerging markets. But we’re looking at the United States. The United States is picking up relatively rapidly right now, and that’s because we’re taking share from competitors. And we have an NOL in the United States and we’re pretty sure we’re going to have it for three or four years. The United States is about 50% of our sales, so as we’re emphasizing, free cash flow is the name of the game here. We did about $2.7 million in free cash flow this quarter. And so when you look at that, you’re looking at $10 million of free cash flow on a company that’s valued at $92 million. Most people can do the numbers for themselves.

Are the customers asking for the green product?

No, not yet. We haven’t started marketing it until we’re certain we can basically make it in quantity. That’s where we’re held up right now, is getting the equipment and machinery to be able to blow it out in great quantities.

And you’ll be able to do that maybe by the third quarter? Is that the goal?

We’re hoping by December, the end of the year, to basically have the machinery set up so that we can make it. This is the slow end of things, setting up machinery and working with suppliers. It doesn’t happen overnight.

And then you mentioned a $3.2 million coming from China. Is that money earmarked for something?

Actually, first of all, there are some tax rules. We have to pay dividends ongoing every year with the manufacturing company. But this was a larger than planned dividend. In part, there was a tax audit in China that pushed us a little bit. But really, what I was doing was, if you noticed elsewhere, I said I was building up cash in anticipation of paying that dividend, but paying that dividend, in turn, is in anticipation of doing the Brazil buyout. And for the moment, that’s about all I can say. The dividend was larger than planned, which was laying the groundwork for the Brazil buyout.

So that was all for the Brazil buyout?

Not all, no. As I said, there’s some tax reasons in China that also coincided, but it was really mostly to plan for the buyout in Brazil.

What I meant, Gary, I will fully support you finishing up the Brazil transaction. That’s what I meant. And then finally, can you talk a little bit about the margins? Chris, would it be fair to take the first quarter, could we think about annualizing that?

It’s hard to read out into the third and fourth quarters, so I wouldn’t annualize that. I think we’ll be able to give you better guidance at the end of the second quarter.

Are you thinking, though, that the $100 million of free cash flow is a possibility?

I was thinking around $10 million. I was just extracting that from…

Oh, I’m sorry, $10 million for the year.

It’s a good possibility. When we come up with the second quarter, I think we’ll be able to see into the third quarter. Right now, I can see into the second quarter. I can’t see that well into the third and fourth. When I get to the end of the second, I can see into the third, and possibly into the fourth. Because I hate to mislead people.

And the next question comes from Peter Muckerman at Raymond James.

I just thought I would jump in and see what you guys might be planning. In other words, you can’t turn on the TV recently without the announcement of some new highly contagious disease. It seems to be something that’s just hot and trending. You’ve got the TB case, you’ve got the Pentagon sending anthrax around the world by FedEx. So what I’m wondering is, is there any money being spent on marketing to kind of help to get the name out even more than it already is? And then I was also curious, do you all sell into any of the travel industry, in regards to these cruise ships, where someone on a cruise ship all of a sudden gets something highly contagious, and then they’ve got to evacuate the ship?

In regards to I guess what would be [unintelligible], yes, we are concentrating a lot on marketing sales dollars. We’re going after what would be called the Obama bill, the $1.7 billion bill that he passed in December of 2014, with regard to Ebola. And that’s what we’re talking about, is the second spending here in the United States, which will include a stockpiling of our product for future outbreaks. That will probably be controlled by the CDC. As usual, this is a government operated situation, so they still haven’t really agreed on the design of the garment, but I guess they will fairly soon. But that’s what we’re looking for, is a big bump in the United States, because a lot of those monies will be spent on procuring what we call personal protective equipment as a stockpile for future pandemics. And as I also mentioned in my speech today, we’ve got the U.K. planning to do the same thing, with Cameron coming on at the G7 and lecturing them as to the fact that they should have some preparation for an influenza, a MERS, a SARS, an Ebola. They are showing up on a much more frequent basis, simply because they’re mutating and because of world travel. People are just going everywhere all the time from out of the way countries like Liberia. And you had the Lhasa guy come into New Jersey just last month. People are flying all over the world, and they’re flying all over the world in places that they never have. The MERS started in Saudi Arabia, it moved to Korea, it may be in Japan now, and it’s like a SARS type of influenza. However, because it’s going into what I call developed countries, they’ll probably get their arms around it quicker than they ever did in Africa. But that’s where we’re really pushing our marketing dollars. The anthrax being sent around the world by Federal Express is just another government screw up, but you know, it’s the type of thing where they have to start wearing our garments. And as to brand, a lot of people are recognizing our brand a lot more in a lot more foreign countries.

Would you ever anticipate any sort of similar organization being created, something like TSA, but it turns out to be a health screening before you fly? Something like that?

I don’t know. I know they set one up in Japan to stop MERS coming into the country. The Chinese set up the same thing when SARS occurred. But then they shut them down. Once they get control over the virus, they do tend to shut them down. So it’s tough. I don’t think anybody’s gonna go to a TSA, but I think they’re gonna have sort of a mobile group of people ready to go, on call, should something occur.

[Operator instructions.] And our next question will come from Michael [Dissler] of [Amanx] Holdings.

I’m the [unintelligible] guy, as you know, for the better part of the last decade that I’ve held Lakeland stock, so I’m just gonna toss up a softball for you guys. Great job righting the ship. That’s number one. So take this for what it’s worth. Gary, with somewhat tongue in cheek, as you know, a contract in Brazil is now a contract in the United States. So I just wanted to say, my only future advice is don’t shoot until you see the whites of their eyes. [laughter] And that’s [unintelligible] to both of you.

[unintelligible] possible in describing the situation. Yes, I agree completely.

And this concludes our question and answer session. I would like to turn the call back to management for any closing remarks.