Good day, ladies and gentlemen, and welcome to the Lakeland Industries report on fiscal 2020 first quarter financial results and conference call. All lines have been placed in a listen-only mode, and the floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero. At this time, it's my pleasure to turn the floor over to Mr. Christopher J. Ryan, President. Sir, the floor is yours.
Thank you, good afternoon to you all, and thank you for joining us on our fiscal 2020 first quarter financial results conference call. I am joined here today with Lakeland's Chief Operating Officer, Charles Roberson. We are first going to discuss the status of operations and our financial results. The call will be opened up so that we may respond to your questions. Now on to the formal remarks. Our first quarter fiscal 2020 results show meaningful progress from the fourth quarter of last year while setting the stage for important business decisions and continued execution toward achieving our growth objectives. Most notable for quarterly performance sequentially, we did deliver an improvement in gross margin, a reduction in operating expenses, lower operating and net losses, and a return to adjusted EBITDA profitability.
The company continues to work toward the completion of the enterprise resource planning solution, or ERP restructuring, and business development on a global scale to support our ERP installation, which largely commenced last year. With crucial performance measures providing perspective on the headway we have been making, we believe we are now past the most challenging aspects of our initiatives, although work remains to be done to fully capitalize on the many opportunities available in the markets in which we operate. A critical component of our plan has included the implementation of an ERP. To date, the ERP cost us $0.9 million for the technology suite licensing and installation. There was an estimated $1.3 million in additional non-recurring expenses in fiscal 2019 relating to the installation and an estimated $0.1 million in the first quarter of the fiscal 2020 this past quarter.
This does not include the business disruption, which is very difficult to quantify. I can say that we believe it to be a material impact, including the resignation of our Chief Financial Officer. We expect the domestic installation to be completed by the end of calendar 2019, with installation in our foreign subsidiaries to begin in the first half of fiscal 2020, beginning with our Mexico and Canada facilities. Thanks to our deep senior management bench, we have been able to drive forward in the face of these challenges. In the absence of the CFO on today's call, here are some key financial performance data for the first quarter. Net sales for Q1 FY 2020 were $24.7 million, compared with $24.3 million in quarter one FY 2019 or last year, and $25 million in Q4 FY 2019 or last quarter.
Gross profit for Q1 FY 2020 was $7.5 million, compared with $9.5 million in Q1 FY 2019 or last year, and $6.9 million in Q4 FY 2019 or last quarter. Since we are required to report all of our sales and earnings in USD, it should be no surprise that both these line items were hurt when translated back to USD from the approximately 10 material foreign currencies we deal in. Gross margin as a percentage of net sales in Q1 FY 2020 was 30.6%, compared to 30.90% in Q1 FY 2019 last year, and 27.7% in Q4 FY 2019 or last quarter. Operating expenses of $7.9 million in Q1 FY 2020, up from $7.1 million in Q1 FY 2019 last year, down from $8.4 million in Q4 FY 2019 or just last quarter.
Net loss of $465,000 or $0.06 per basic share for the Q1 FY 2020 quarter, compared with net income of $1.9 million or $0.23 per basic share in Q1 FY 2019 last year, and net loss of $1.9 million or $0.24 per share in Q4 FY 2019 or just last quarter. Adjusted EBITDA, $242,000, compared to $2.1 million in Q1 FY 2019, and a loss of $932,000 in the last quarter. What's really obvious here is that we picked up from last quarter in the first quarter. We are making some progress here. Similar to the fourth quarter, the ERP system in the U.S. led to lower domestic sales and gross margins due to order processing issues and a significant expense incurred to ensure, to the extent possible, that our customers received their shipments on time. This was particularly in the first quarter.
The fact that our gross margins increased from the fourth quarter amid these challenges, as well as pricing pressures in select markets and other macroeconomic concerns, demonstrates the potential for revenue growth and profitability expansion once conditions normalize. On our year-end conference call, we mentioned that our investments in product development, quality control, and positioning in the market are paying off, as evidenced by fiscal 2020, starting with a global order backlog of $10.5 million, with U.S. backlog going from $5.5 million at the beginning of the fourth quarter and ending the year at $4 million. Our backlog at the end of the first quarter 2020 was $8.9 million, of which $4 million was from the U.S. We made certain improvements here, if for no other reason than our customers needed it. As I discussed herein, it was at the expense of margins.
The other critical change to our business has been the ramping up of our Vietnam manufacturing and associated operations, along with our new facility in India. We have been investing in these facilities for more than a year while adding in-country sales and warehousing capabilities. Capital expenditures for equipment peaked last year, we are now spending less in 2020. CapEx for fiscal 2020 first quarter was $200,000 compared with approximately $300,000 in fiscal 2019 period. Capital expenditures for all of fiscal 2019 were $3.1 million and are expected to decline to approximately $2 million for fiscal 2020, with the majority of spending in the current year allocated toward the phased global rollout of ERP systems and additional manufacturing capacity in both Vietnam and India.
Staffing in Vietnam has been elevated to near capacity. We are training the staff while transitioning some of the production headcount from China to the new facility. Manufacturing staff in Vietnam and India combine for 819 employees, while our manufacturing staff in China is now 542 employees, down from 560 a year ago. Following the training regimen to yield more efficient output over the next few quarters, we expect a much lower cost and tariff-free manufacturing platform in Vietnam to further bolster our financial performance. Sales activities within Vietnam and India are also gaining traction. Our efforts to strengthen our global marketing channels and manufacturing capabilities and improve our overall financial performance are moving forward.
At the same time, by the end of Q1 FY 2020, we increased our cash position by $1.5 million from the beginning of the fiscal year and modestly reduced the little debt that remains on our balance sheet. We now have under $1.3 million in debt. Our cash position, now at $14.3 million, has increased for two consecutive quarters, even though we have elevated our inventories to $46.8 million at the end of Q1 from $42.4 million at the start of the year. Approximately 75% of this increase was in work in process and raw materials as we seek to continue delivering improvements to our customers, scale up our high-value utility product line, and support our new manufacturing facilities.
Our cash flow and profitability should also be assisted by efficiency improvements in our new manufacturing facilities in Vietnam and India and the corresponding alignment of cost as capacity is allocated accordingly. Depending on product mix, our run rate of revenue from a normalized and efficient manufacturing standpoint could be in the range of $130 million-$150 million today, up from our current Q1 analyzed revenues of about $115 million. With our share price at the current levels and our outlook for improving cash levels, we will certainly be looking closely at our stock repurchase program. This program was approved on July 19th, 2016. To date we've spent $1.2 million to acquire 105,048 shares, although no shares were purchased in the first quarter.
We are encouraged by the company's direction and progress with a strategic advantage through diversified manufacturing operations in Argentina, China, India, Mexico, the U.S., and Vietnam that affords us and our customers significant flexibility in the uncertainty of the current international trade environment and sales into 65 countries. We remain excited by our strong position in the market. As we move through FY 2020 and beyond, we look forward to capitalizing on the progress we have made and will continue to make in our efforts to drive sustainable improvements in longer-term top-line results as well as bottom-line performance. That concludes my remarks. I will turn the call back to the operator to begin the Q&A.
Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, it is star one on your touchtone telephone. We ask that you please make sure your mute button is turned off to allow your signal to reach our equipment. Also, if you're using a speakerphone, we ask that while posing your question, you pick up your handset to provide favorable sound quality. Again, ladies and gentlemen, to ask a question or comment, please press star one on your telephone keypad at this time. We'll pause just a moment. We'll take our first question from Dave King with ROTH Capital.
Hi, Dave.
Hi, this is Andrew stepping in for Dave. I guess just first on the ERP system. We're trying to quantify how much of that might have weighed on the quarter. Do you have the dollar amount in cost of goods sold of the ERP impact?
I'll turn that one over to Charlie, who's also on the line and can indicate where this is all going on.
Trying to quantify that, Andrew, as we had in the written comment or in the comments earlier, is very, very difficult to try to determine. Some of it's legacy issues. The best I can spitball that number is about $300,000.
That's helpful. Thank you. Then I guess maybe turning to the revenue side, how much do you think maybe the ERP implementation weighed on revenue? How much of an impact do you think it might have in subsequent quarters? Then just to follow on with that, how are you feeling about your ability to meet demand as well?
That's one of the things about the ERP is we've seen our revenues remain pretty consistent through all of the quarters, and we've even seen our backlogs grow. In Q1, we did begin to pull those backlogs down. We still have a high backlog compared to what we're ordinarily used to seeing, and we're continuing to work to pull that number down. I think we're benefiting from a good business environment, and our manufacturing install is primarily in the U.S., it is not impeding our manufacturing processes at our foreign subsidiaries. We're still able to service our customers.
Great. Thank you.
One of the other thing affecting revenues is a lot of the currencies we operate in were really pummeled this quarter. Up until recently, the Mexican peso, the Chinese RMB, the British pound, were really pummeled with saber-rattling by certain people in this country.
That's helpful. Thank you. I guess just lastly from me, how are some of your oil and gas customers holding up given some of the recent weakness there? Similarly, how's demand been out of China with some of the macroeconomic concerns we're seeing?
China has held up fairly well for us. Right now, we've had weakness with select customers, one of whom decided to actually exit the protective clothing business. It was a significant customer. I think our experience with China's economy is not reflective of their economy as a whole. We're a little behind, but certainly not by as much as their economy is suffering right now. That's the second part. What was the first part of your question? Hello?
One moment, gentlemen.
I'm sorry. It was oil and gas. Right now, that has not impacted our back orders. We remain in a back-ordered situation in those markets.
Great. That's helpful. Thank you for taking the questions.
Thank you.
Once again, ladies and gentlemen, that's star one on your touch-tone telephone. If you do have a question or comment at this time, star one, please. We'll go next to Mark Rosenkranz with Craig-Hallum.
Hello, Mark.
Good afternoon. Good afternoon, everyone. Thanks for taking my questions. Wondering if you could broadly speak, you discussed a lot of the developments in India and Vietnam. I wonder if you could discuss the sourcing of your raw materials and maybe some of the labor costs you're seeing in those two countries and compare that to the current setup in China and just how you maybe see those expectations for those regions versus China going forward.
I'll interject here and Charlie can close up. This is the one place where these weakening foreign currencies do help us, because we're buying a lot of our fabrics in China and some in India. To the extent that those currencies weaken, that make our collection of raw materials much more cheaper. The RMB has been hit pretty hard in the last two quarters. That's the positive side of the currencies being weak. If Charlie has anything more to say, I'll let him say it on that.
As I mentioned earlier in a previous question, our backlogs remain high. Our plan all along with India, Vietnam, and China was to open up Vietnam, use it as a bridge to India, which is a longer-term play, and gradually draw down our capacities in China. When you got a backlog like we have, and barring any trade issues that may pull us otherwise, we are not drawing down China as quickly as we would have thought that we would. That's a positive. It's working for us right now. We need the labor, and we have it, and we're able to cover it. However, it is at a little bit higher cost. India, just the relative cost of our labor between these markets, India being the least expensive. Let's kind of couch the question in terms of India labor.
If India is a one, then Vietnam per hour, it's about a factor of one and a half times, and Weifang is a factor of four times India. That gives you some idea of what our labor costs are like. That's why we will see gradually our products shift to Vietnam and then to India. One of the controlling factors in the rate at which we can do that is, of course, raw material availability. Currently, Vietnam serves us very well because it's such a short sail and can be serviced from China. Right. We have manufacturers now coming online in Vietnam at the lower end of our product lines, and we also have those growing and maturing or developing in India, and that's going to take place over time.
Vietnam is first, India's going to follow, we're prepared to just move that direction around Southeast Asia as that occurs. Especially in terms of the uncertainty of the current trade environment, that's something our customers are quite happy to see us prepared to do.
I would also add to that, we buy a lot of fabrics in the U.S. from major manufacturers in the U.S. They have all raised their prices significantly. Okay. We can usually pass on that amount or sometimes a little bit more when this occurs, because these are the last remaining textile suppliers in the U.S. They usually have a virtual monopoly by the fact that they have patents on their fabrics. They're very expensive, we buy them in USD, at least it don't affect us on a currency basis, those prices are going up, it shouldn't be too difficult to pass the increases on because as I said, these are sort of monopoly-type fabrics.
Okay, great. No, thanks for clearing all that up. Then just shifting gears, you've mentioned in the past, part of the issue with the ERP, the latent challenges or the impact on the sales force, notably some of the new hires in the sales force being a little skittish to maybe open up new clients or just develop markets when things weren't lined up and all the mess as you kind of go through the ERP problems. Have you seen some returned activity on the initial front for some of the sales force ramps?
That's to you, Charlie.
Yeah. To answer that question, yes. The very worst of our delivery issues were in Q3 and Q4. We still have some legacy problems remaining because of planning issues and our lead times, but, I think our sales force has held up very well through this, and they continue to move forward. They've been very good.
I would add, yes, the salesmen are probably in a holding pattern until they see better delivery.
Okay.
Ladies and gentlemen, that's star one on your touch-tone telephone if you do have a question. Star one at this time, please. We'll go next to Peter Markarian with Evercore.
Good afternoon. Just had a couple questions. One would be, and forgive me if you've already mentioned it, but, your cleanroom initiative or focus that you've mentioned in previous calls, I was just curious if you could touch on that, any progress you've made. There's a handful of hotspots around the world that I've only read about. One being this whole swine flu thing in China, and then I read a report just yesterday that the WHO mentioned that the Ebola thing could take another 2 years, quote unquote, to get through. Are you all receiving any sort of business from those hotspots and/or if you could just touch on the cleanroom thing, that'd be great. Appreciate it.
That's you, Charlie.
With regard to our cleanroom business, we are seeing that is meeting our expectations for growth and actually pushing the upper edges of that. We're very pleased with the orders that we've seen there and with some of our chemotherapy products. As for the outbreaks of swine flu and Ebola and that kind of thing, we have had some phone calls. So far no orders. In the case of Ebola, it's in a place that is largely unserviceable, even by medical staff, because of revolution activity and that kind of thing that's going on there. There's no consumption, but I think people are looking to find out what's available in case it winds up going into less contagious territory. I think that the vaccines are actually working pretty well there at this point. If it goes 2 years, who knows?
Because it's going to mutate several times and the vaccine will be figured into that mutation. On swine flu, we haven't seen anything yet.
Gotcha. Thank you.
Ladies and gentlemen, I'd like to give everybody an opportunity to ask a question today. Star one please. Mr. Ryan, there are no further questions at this time. I'd like to turn the call back over to you for any additional or closing comments.
Okay. Thanks, Tom. We appreciate your participation on Lakeland's fiscal 2020 first quarter financial results conference call. As we close out the first quarter of this fiscal year, we believe we are on track with the right mix of products and manufacturing presence around the world, financial health, and a growing global team to capitalize on the opportunities ahead. We continue to be very well positioned for continued growth in sales, market share, and profitability in fiscal 2020, which we believe will deliver value for our shareholders. Thank you for joining us today on today's conference call. Goodbye.
Ladies and gentlemen, thank you. This concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.