Leatt Q3 2023 Earnings Call Transcript

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November 6, 2023

There are 6 speakers on the call.

Operator

Greetings. Welcome to the LIAT Corporation's 3rd Quarter 2023 Results Conference Call. Please note this conference is being recorded. I will now turn the conference over to Michael Mason, Investor Relations.

Speaker 1

Thanks, Sherry. Good morning. We apologize for the delay and thanks for your patience. Are in the line with the company's financial results for the Q3 of 2023. Participating in the press release today, Monday, November 6, 2023, at 8 am Eastern and filed its report with the SEC.

Speaker 1

Available on Lietz's website at www.lietzcorp.com. This call is being broadcast live and may be accessed on the company's website. An audio replay of this call will be available for 7 days and may be accessed from North America conducting by calling 1-eight forty four-five twelve-two ninety two one or one-four twelve-three seventeen are in the call for international callers. The replay pin number is 1,000,000,000,000,000,000,000,000,000,000,000,000 A replay of this webcast will be available immediately following this call and will continue for 7 days. Certain statements in this conference call may constitute forward looking statements.

Speaker 1

Actual results could differ materially from those discussed in this call. Leid Corporation does not undertake any obligation to update such statements made in the call. Please refer to the complete cautionary statement regarding forward looking statements in today's press are in the press release dated November 6, 2023. The company will make a presentation on the quarterly results and then open the call to questions. I would now like to turn the call over to Mr.

Speaker 1

Sean McDonald, CEO of Liav Corporation. Good afternoon to you and Cape Town, Sean.

Speaker 2

Ready. Good morning and thank you, Mike, and thank you all for your patience and for joining us today. Although the results of the Q3 of 2023 continue to exhibit constrained ordering patterns, particularly from our international distribution partners, They simply don't reflect the current marginal uptick in sentiment that we are experiencing at the dealer and consumer level participants are in the same position as the participants are in the Q3 were placed in early 2023 at the peak of overstocking dynamics. The comparative was also particularly challenging As a comparative period, Q3 of 2022 was our 3rd best quarter ever in terms of revenue, with a boost from MTB orders placed in early 2022 at the peak of pandemic demand levels. Participants are ready to take questions.

Speaker 2

We remain very enthusiastic about the future and look forward to returning to a level of growth as our global distributors and dealers continue to digest stock And the latest strong participation trend continues. More recent international ordering patterns already indicate an improvement in stocking levels in key areas. On a year to date basis, Although global revenues decreased by 43% compared to the 1st 9 months of 2022, our gross margins increased from 42% are subject to 43% and net income was $2,300,000 We believe that this is a testament to our focus on retaining brand equity, participants are in the range of $1,000,000,000 and operating efficiency despite inflationary pressures. Cash flow generated from operations for the 1st 9 months was $6,600,000 up by 2 77 percent compared to $1,700,000 for the 1st 9 months of 2022. Ready to take questions.

Speaker 2

And we ended the quarter with $10,800,000 of cash and equivalents. Total revenues for the Q3 of 2023 participants were $12,000,000 a 48% decline compared to last year's Q3, one of the strongest in our company's history. In the range of $1,000,000 in the quarter. International revenues

Speaker 3

were $8,200,000

Speaker 2

a decrease of 54% year over year and sales in the United States decreased by 29 are subject to $3,900,000 Net income for the Q3 was $460,000 a decrease of 89% compare to the strong prior year. As our dealers and distributors continue to digest the stock the inventory overhang post pandemic, We have intensified our efforts to develop an innovative, multichannel and robust selling organization that has the ability to reach a wide consumer base of riders at all levels. We continue to build a strong and talented team of product, sales and marketing professionals and have recently invested in the continued success of our MTB business. This is an area where some of our competitors are pulling back and we see a great opportunity to build market share. Will be available.

Speaker 2

To that end, we have added 2 key leaders in MTB who share our infectious passion for innovation and riding and who will help us bring a new level of focus to our MTB business around the world. Our 2024 MTB launch is imminent will include additional head to toe offerings with appeal to some of the fastest growing cycling segments. Are also excited to launch our new adventure range of gear and apparel tomorrow at EICMA, an international motorcycle show in Milan, Italy. These products are specifically designed for motorcycle riders at all levels that seek adventure and need technical gear participants will be conducting a number

Speaker 3

of key drivers that enable riding in

Speaker 2

all weather conditions and over all terrains. This is now a head to toe segment that should open doors at the dealer level and more importantly, reach a wide community of riders. As always, these products, which include new boots and gloves, participants are developed in house by our global design and engineering professionals and are fully tested for safety and protection at our on-site Liet facility. We believe that our adventure line is a testament to our team's ability to once again develop innovative gear that appeal to a wider group of riders Sales of our flagship neck brace were $710,000 accounting for 6% of our revenues, are in the range of $1,000,000 decrease from last year due primarily to the decrease in volume of neck braces sold in the U. S.

Speaker 2

And abroad. In the Q3 of 2022, neck brace sales were $1,89,000 8% of our revenues.

Speaker 3

Participants are in the range of the categories.

Speaker 2

Our Body Armor category includes chest protectors, upper body protectors, knee braces, knee and elbow guards, part of the Off Road Motorcycle Boots and Mountain Biking Shoes. BodyArmor sales were $5,460,000 accounting for 45% of our revenues. Participants are in the range of $1,000,000,000. The 48% decrease in revenue was primarily due to a 40% decrease in upper body armor sales globally. In the Q3 of 2022, body armor sales were $10,520,000 45 percent of our revenues.

Speaker 2

Participants were $2,870,000 a 34% decrease from the Q3 of 2022, which was an exceptionally strong quarter for helmets. The decrease was primarily due to a 43% decrease in sales of motor helmets for Off Road Motorcycle Use. That quarter was exceptionally strong for helmet revenues, up by 88% year over year. Participants are in the range of 20% of our revenues for the quarter compared to 19% participants are available for the comparative quarter. Our products, parts and accessories are comprised of goggles, hydration, bags and apparel items, participating

Speaker 3

in the Q1, including jerseys, pants, shorts

Speaker 2

and jackets. Sales in this category for the quarter were $2,970,000 or 25 percent of our revenues, a decrease were 54%, due primarily to the decrease in sales volume of our motor and MTB technical apparel designed for off road motorcycle and mountain biking use, are in the range of $1,000,000 compared to an exceptionally strong Q3 of 2022. Technical apparel in the Q3 of 2022 had increased by 51% over the prior year. Here is the financial summary for the Q3 and 1st 9 months of 2023. Participants are in the range of $1,000,000 and we are now in the range of $1,000,000 for the Q3 of 2022.

Speaker 2

Decrease in global revenues during the Q3 is attributable to a CAD5.1 million decrease in body armor sales, are $3,500,000 decrease in other products, parts and accessories sales, a $1,500,000 decrease are in helmet sales and a $1,200,000 decrease in neck brace sales. Income from operations for the Q3 of 2023 was $620,000 are down by 89% compared to CAD5,500,000 for the Q3 of 2022. Net income for the 3rd quarter was CAD460,000 or CAD 0.08 per basic and CAD 0.07 per diluted share, down by 89% as compare to net income of CAD4.1 million or CAD0.70 per basic and CAD0.65 per diluted share for the Q3 of 2022. Global revenues for the 1st 9 months were CAD 37,400,000 down by 43% compared to the 1st 9 months of 2022 Gross profit margins increased from 42% to 43% for the 1st 9 months of 2023 compared to the same period of 2022. Net income was $2,300,000 down by 80% compared to the 1st 9 months of 2022.

Speaker 2

Are ready to take questions. And once again, cash flow generated from operations for the 1st 9 months was CAD6.6 million, up by 2 77 percent compared to CAD1.7 million for the 1st 9 months of 2022. Leit continued to meet its working capital needs from cash on hand and internally generated cash flow from operations. Are in the range of $10,000,000 up by 123 percent are subject to $4,800,000 for the 1st 9 months of 2022 and a current ratio of 7.5:one.

Speaker 3

Participants are ready to begin.

Speaker 2

Looking ahead, our growing talented and passionate team remains enthusiastic about our exceptional expanding product range, our outreach to new wider markets and brand momentum that positions us well for future growth and exponential gains. Although we do expect some further constrained ordering patterns internationally, particularly from our MTB partners As inventory is digested, we are well diversified in terms of market penetration and product offering, continue to build a multichannel sales organization to leverage products and brand momentum globally. We are encouraged by the results of our efforts are to bolster consumer direct selling, which continues to grow, increasing by 16% year to date compared to the same period in 2022. Revenues on liet.com and our consumer direct channels increased by 30% during the Q3 of 2023 when compared to the prior year period. We believe that the growth in consumer direct sales is a testament to the momentum that our products and brand have built over the past several years.

Speaker 2

It's also an encouraging indicator of an increasing consumer demand for our products that should further influence revenues as inventory is digested by our dealers and distributors. We are actively expanding our ability to sell and market lead products directly to consumers globally with our distributors as our partners. In conclusion, the 1st 9 months of 20 party 3 has been a challenging time for the entire industry. Elevated stock levels accumulated as a result of the pandemic driven surge in demand, are in the range of $1,000,000 which resulted in adjusted ordering patterns at the dealer and distributor level. But we do believe that our strong commitment to growth initiatives will fuel growth as conditions continue to improve over time.

Speaker 2

We are confident that the overstocking dynamics participants will result. The stock is digested with a positive inflection point on the horizon. Participation remains strong. Of course, we continue to focus on working capital management and maintaining a robust cash flow position to fund operations and future growth initiatives. We look forward to the near future and our return to revenue growth.

Speaker 2

As always, we'd like to thank our entire Lear family, our dedicated employees, business partners and team riders for their continued strong efforts and support. With that, I'd like to turn the call over for any questions. Operator?

Operator

Thank you.

Speaker 3

Participants are

Speaker 2

in the line with us.

Speaker 4

So it's good to speak with you. Just a few questions today. Firstly, is there any material revenue associated with the new adventure line or the upcoming Endurance line in the 3rd quarter results Or would those initial stocking orders primarily hit in the Q4?

Speaker 2

Those have not shipped yet. So that will primarily be coming through in the 4th quarter of 2023 and then obviously moving forwards.

Speaker 4

Great. And second, It's no secret that some distributors and large online retailers in the UK and European markets are facing some pretty uncertain financial futures at the moment. I suspect that some of these are also significant sales channels for Liat product. So I was wondering, I realize this is a pretty fluid situation, but are there any thoughts you could share around this and maybe how you see it playing out over the next year.

Speaker 2

Sure. And I mean, absolutely, I mean, directly, those are some of our customers. Participants And indirectly, some of our customers sell through some of those e commerce channels that are affected. And I think, of course, I mean, It's not great that some of the funding was pulled by the holding company that supports some of those e comm partners. And participants I think in the short term that certainly might have an impact on their ordering patterns.

Speaker 2

They remain very strong E Commerce Brands and Channels. And I would be surprised if they were not picked up in some way by entities that are looking for growth in the future. So I think the brands themselves, the e commerce brands themselves will continue in the future. But of course, there is going to be some are in short term pain here. They might have to enter some kind of a business rescue situation, Which does affect the ordering ability at this stage.

Speaker 2

So far, what I've seen is that it's business as usual. Are continuing to sell. They haven't closed any e commerce shops, and they're doing their best to get themselves are out of the situation and either get a new owner or new funding in place. And as I say, fundamentally, these are strong brands on the e commerce space. They have a very loyal and dedicated and participants are in a committed consumer base that they sell to.

Speaker 2

And that, of course, remains in place. But it will take time for them to get back to a kind of situation when they can return to significant ordering, I would imagine. So in the short term, it might affect some of the orders that we see coming through from them. That's number 1. Number 2, of course, they will be selling out some of the inventory into the market.

Speaker 2

We don't expect that to be have a significant impact on anything, but there might be some short term pain there. Participants are in the going to take some time for them to get to that position again.

Speaker 4

Great. I appreciate the color there. Lastly for me, It seems like the new Enduro helmets have been very well received. And I've noticed you've done quite a bit of marketing specific to these. Do you feel like you're having some success, maybe not only in winning share from competitors, but maybe changing consumer perceptions, around convertible helmets Does a viable, attractive category?

Speaker 2

No, absolutely. And I mean, I think, I would would say that we were really very enthusiastic by the reception of that helmet at the distributor level, at the dealer level and now, of course, At the consumer level, we've been working very, very hard at refining that category for a very long time. We are up against participants are in the range of some strong competitors in that area, and it's very encouraging to see that participants are in the market. There were some surveys done recently in Vital MTB, and our convertible helmet came up as the top helmet that people intend to purchase, Which is great. It just is testament to the fact that we can develop products that do appeal to participants are in a range of consumers and especially with the e bike market that is a strong growing segment around the world.

Speaker 2

It's a kind of helmet, which has so many different applications, and And it really is a trailblazing product and an important source of revenue, the entire category actually, Moving forward. So you can expect us to continue marketing that segment heavily and some of the new marketing people in MTB that we've and on board sales and marketing people are very, very excited about the opportunity that, that product and the related products represent.

Speaker 4

That's great to hear. Well, I hope the ICMA show goes well this week. Thanks again for the time, Sean.

Speaker 2

Participants. Thank you, Chris. Chat

Operator

soon. Bye. Our next question is from Chris Jares with of Dunlap Equity. Please proceed.

Speaker 5

Hey, Sean. Good to talk to you.

Speaker 2

Hey, Chris. How are you?

Speaker 5

Participants are

Speaker 3

in the line with us.

Speaker 5

Very good. Thank you. Just following up on the other Chris' question, maybe I missed it while you were answering. But in the situation you discussed with that ordering in Europe, do you

Speaker 3

feel like those issues

Speaker 5

have caused them? Obviously, we partnering in Europe, do you feel like those issues have caused obviously, we know everything in Europe is depressed or on that way now, but do you feel like it's made it Significantly worse than it otherwise would have been like when you look at the partners associated with that group that's in trouble. Participants Do they seem to get anything worse off than their peers?

Speaker 2

I don't think that I mean, if you look at the group of companies that were involved, The reason that they're having these financial difficulties is very, very simple. Participants are in the same position. Their funding was pulled from kind of from underneath their feet overnight From the main funder, which was a holding company that was listed in the U. S. And that is the reason why they're not able to participants continue in the current form.

Speaker 2

So I think that places them in a bad position now. Participants But before that happened, which was a kind of overnight very exceptional situation, they were not in a bad position at all. We're actually trading really on a positive trend. And I have obviously participants are in the same store. And the feedback certainly is they're as surprised as everybody else, Which means that they were not in extreme difficulty before the funding was pulled.

Speaker 2

Of course, they had times in the last year, like everybody did, where there were Pressures in terms of stock and they had to freeze some purchasing. But in general, participants E commerce business in Europe, sure, they have been sitting with the Overstock situation, but there is a level of sell through, Which is positive and it's the same as what we see on liye.com. The closer that liye as the brand gets to the end consumer participants And kind of get to leapfrog over the stocking dynamic, The better the situation looks, so lit.com was the only area really in the business in terms of revenue channel is in Q3, we grew by 30%. So e commerce channels, they still have selling and the feedback that I've participants have been selling through to these Internet stores that are in trouble now participants The trend on Leer sales remains positive. Of course, they are selling the stock that they have.

Speaker 2

And as that fell through, they're able to order more. And that's certainly the position that we're seeing now. And I spoke a little bit earlier in the script. The ordering patterns that we are seeing from our international distributors, including MTV Distributors, is more positive than what it was participants are going to be in the same way. A few months ago.

Speaker 2

So there's an improvement. And it would be the same, and they're going to continue ordering now. And we don't see a huge impact from some of the e commerce stores that are that have been affected here. But I do think in the short term, there will be some Some pressure on pricing. There will be some flooding of stock into the market.

Speaker 2

And again, that will need to be managed. We've been managing that for about a year now, and it should sell through.

Speaker 5

Okay, great. You've been able to grab some great execs from peers who are letting people go. Participants Is that do you have what you need now? Are you still on the look for more?

Speaker 2

Yes. I'd say we've also added park a few product development team members to help with some new key categories that we really want to refine. Participants And in terms of the in the U. S, we still are building out the sales rep and employee rep capabilities there. So there will still be a few key people that we want to bring on there.

Speaker 2

But in terms of execs from the high level guys, I think we've got a really great team and a really great family there of very committed team members. Participants So I think we're pretty good there. And it will be more on the actual sales and rep 4s that will be working really hard as part of our focus on AMTB, particularly in the U. S.

Speaker 5

Okay, great. And last question for me is just one as you launch these new product lines and looking at the current product lines, I mean, any participants are in particular that hold excitement for you or you think when things normalize, they'll kind of be looked at as standout products? Participants are ready to take questions. For sure.

Speaker 2

I mean, I really would say that the Adventure line is a very big opportunity. There's a bit of crossover between adventure and commuter road market in Europe. We've already got participants

Speaker 3

are in

Speaker 2

the same store. Great feedback from some chain stores on the European side. So we've got great products. We've participants are participating in the industry. I would expect that, that will be something over the next several quarters that will start show.

Speaker 2

I think that's great. And then I've been talking a lot about the Endurance segment on the MTB side. And I must say, there's a huge opportunity there. It's not only Endurance, which is your mountain biking, typical mountain biking rider. It's also the gravel bike segment, which is the fastest growing segment outside of e bikes at the moment.

Speaker 2

And we've got parts Head to toe products that we'll be launching that will be applicable to all of those kinds of segments. So I think there's a huge opportunity there. Of course, MTB is currently under a little bit of pressure still in terms of stock. But once stock participants will follow through the system and the next wave of growth comes because it is going to come. I think we'll be well positioned to leverage our position as a niche brand that caters for a very wide wide audience.

Speaker 3

Participants are ready.

Speaker 5

Okay. That's great. Fantastic. And talk soon, Sean. Thank you.

Speaker 3

Great.

Speaker 2

Thanks a lot, Chris. Talk soon.

Operator

We have reached the end of our question and answer session. I would like to turn the conference back over to Sean for closing comments.

Speaker 2

Thank you all for joining us today. We look forward to our next call to review the results of the 2023 Q4.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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Key Takeaways

  • Q3 revenue was $12.0 million, down 48% year-over-year, and net income dropped 89% to $460 thousand, primarily due to pandemic-driven overstocking and constrained international orders.
  • For the first nine months, revenues fell 43% to CAD 37.4 million, but gross margin improved to 43% and operating cash flow surged 277% to CAD 6.6 million, ending Q3 with CAD 10.8 million in cash.
  • Consumer direct channels grew 30% in Q3 and 16% year-to-date, underscoring strong online demand and increasing brand momentum.
  • The company is investing in its MTB business with new leadership hires, a 2024 MTB “Enduro” helmet launch, and an inaugural Adventure gear line debuting at EICMA to capture market share as competitors pull back.
  • Management remains optimistic that as distributors digest excess inventory, improving international ordering trends will drive a return to revenue growth in upcoming quarters.
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Earnings Conference Call
Leatt Q3 2023
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