Leatt Q4 2023 Earnings Call Transcript

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March 13, 2024

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Liat Corporation 4th Quarter and Full Year 2023 Results Conference Call.

Operator

At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Mason, Investor Relations. Thank you, sir.

Operator

You may begin.

Speaker 1

Thanks, Christine. Morning, and welcome to the Leatt Corporation Investor Conference Call to discuss the financial results for the Q4 and full year 2023. The company issued a press release today, Wednesday, March 13, 2024, at 8 am Eastern and filed its report with the SEC. The press release is posted on Leatt's website at leatt corp.com. This call is being broadcast live and may be accessed on the company's website.

Speaker 1

An audio replay of this call will be available for 7 days and may be accessed from North America by calling 844 512-2921 or 412-317-6671 for international callers. The replay PIN number is 1,000,374,7005. A replay of the 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. Actual results could differ materially from those discussed in this call.

Speaker 1

Lea Corporation does not undertake any obligation to update such statements made in this call. Please refer to the complete cautionary statement regarding forward looking statements in today's press release dated March 13, 2024. The company will make a presentation on the quarterly and year end results and then open the call to questions. I would now like to turn the call over to Mr. Sean McDonald, CEO of Liat Corporation.

Speaker 1

Good afternoon to you in Cape Town, Sean.

Speaker 2

Good morning and thank you, Mike, for and all of you for joining us today. Although 2023 was a challenging year for the cycling and motorcycle industries, the Q4 represented the first signs of the green shoots of a recovery in certain areas. We remain extremely optimistic that ordering patterns will improve over time because participation remains strong globally. The increase in our operating cash flow and our ability to remain profitable in a constrained environment is testament to our commitment create long term shareholder value. We believe that our continued investment in a strong pipeline of innovative products in global industry talent and in Liet as a consumer brand will fuel future growth.

Speaker 2

Total global revenues in 2023 were $47,240,000 a 38% decrease from a very strong 2022. As dealers and distributors continue to regulate ordering in the context of elevated industry wide inventory levels that continue to be digested as participation remains robust. While international distributor revenues were $33,270,000 down 44% year over year, dealer direct revenues decreased by 26% and consumer direct sales grew by 18% when compared to 2022. Revenues for the Q4 of 2023 were $9,800,000 a 10% decrease compared to the Q4 of 2022. Although international revenues in the quarter did increase by 15% as we continue to manage credit risk growth globally sorry, this decreased by 15% as we continue to manage credit risk globally.

Speaker 2

Dealer Direct sales were encouraging, decreasing marginally by 2% in total and consumer direct sales grew by 23%. We continue to strive to reach a wider group of consumers on a multi channel basis that includes leveraging digital and traditional brick and mortar channels with our partners around the world. Our goal this year was to efficiently manage through and mitigate the impact of industry headwinds. We managed the impact of sustained inflationary pressure and kept spending under control, increased our margins and reinforced our sales and marketing team. We increased our operating cash flows by $3,570,000 to $6,660,000 We also successfully launched an entirely new line of adventure gear designed for all weather and all terrain conditions, representing a new milestone for us and the opportunity to reach a wider global community of riders, which we'll talk about shortly.

Speaker 2

As a company and as a brand, we have always strived for design excellence and innovation in all that we do despite the headwinds that we have experienced. Just last month, we were rewarded again for those efforts. We won the 2024 Design and Innovation Award, this time for the MTB All Mountain 5.0 Jersey and All Mountain 4.0 Pants. This is our 10th Design and Innovation Award and testament to the competency of our global design and engineering team. Now I'll turn to some more details on sales of our product categories for the full year of 2023 compared to 2022.

Speaker 2

Sales of our flagship neck brace for 2023 were $2,750,000 representing 6% of our revenues for the year. The 49% decrease in revenues from 2022 was primarily attributable to dealers and distributors continuing to adjust ordering patterns and digest industry wide inventory levels. Our BODYARMOR products are comprised of chest protectors, upper body protectors, knee braces, knee and elbow guards, all pro motorcycle boots and mountain biking shoes. BodyArmor revenues were $22,580,000 representing 48% of our total revenues for the year and 42% revenue decrease compared to 2022 was primarily due to a 43% decrease in upper body armor sales and a 48% decrease in off road motorcycle boots sold in 2023. Motorcycle boots sales were exceptionally strong in 2022, up by 58% from 2021.

Speaker 2

Helmet revenues were $11,120,000 in 2023 representing 23 percent of our revenues for the year. Sales of our motor helmet line for off road motorcycle use were a highlight increasing by 45% year over year, but were offset by a 49% decrease in MTB helmets sold in 2023. Once again as dealers and distributors particularly in the cycle industry continue to cautiously manage ordering and industry wide inventory levels. Our other products parts and accessories category is comprised of goggles, hydration bags and apparel items including jerseys, pants, shorts and jackets. Revenues for this category were $10,800,000 for the 2023 year, representing 23% of our total revenues.

Speaker 2

The 39% decrease in revenues in this category was primarily due to a 47% decrease in global sales of technical apparel designed for off road motorcycle and mountain biking use on a year over year basis. Here is the financial summary for the 4th quarter and full year 2023. Total revenues for the Q4 were CAD9.8 million down by 10% compared to $10,900,000 for the Q4 of 2022. Net loss for the quarter was 1.46 dollars or $0.24 per basic and $0.23 per diluted share as compared to a net loss of $1,000,000 or $0.18 per basic and $0.17 per diluted share for the Q4 of 2022. Total revenues for the 2023 full year were $47,200,000 down by 38% as compared to $300,000 for the full year of 2022.

Speaker 2

The decrease in global revenues is attributable to a 2 point 6 $4,000,000 decrease in necro sales, a $3,360,000 decrease in helmet sales, a $6,800,000 decrease in other products, parts and accessories sales and a CAD16.29 million decrease in Body Armor sales. Net income for the full year of 2023 was $803,000 or $0.13 per basic share and $0.13 per diluted share, down by 92% compared to $9,960,000 or $1.71 per basic share and $1.62 per diluted share for 2022. We have continued to meet its working capital needs from cash on hand and internally generated cash flow from operations at December 31, 2023, the company had cash and cash equivalents of $11,350,000 and a current ratio of 6:1. Looking ahead, we remain optimistic about the progress that we are making toward a return to sustainable growth as inventory continues to be digested and industry turbulence normalizes. Our industry is adjusting, but participation remains very strong and our team remains energized about our future.

Speaker 2

As I mentioned earlier, the Q4 of 2023 represented the first signs of a recovery in our revenue performance. Although revenues decreased by 10% during the quarter, we did see revenue growth in emerging market areas in Europe and domestic motor dealer sales in the United States increased marginally. Our e commerce revenues grew by double digits and we expect continued expansion in this area. We are very excited about the recent launch of our entirely new line of adventure gear designed for all weather and all terrain conditions. This line represents a solid growth opportunity for the company with a large total addressable market.

Speaker 2

As it is our first ever entrance into a much wider crossover motorcycle market with products designed for a diverse community of riders around the world. We have developed core competencies that create significant opportunities to build new innovative head to toe offerings. In conclusion, we are incredibly enthusiastic about the future of Viets. Participation in the industry remains very strong with a strong portfolio of innovative products in the market and in the pipeline, a multichannel sales organization that continues to grow and develop and a robust balance position, we believe that we are well positioned for future growth and shareholder value. As always, we'd like to thank our entire Lear family, our dedicated employees, business partners and team riders for their continued strong support.

Speaker 2

And with that, I'd like to turn the call over for questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Christopher Mueller, a Private Investor. Please proceed with your question.

Speaker 3

Hi, Sean. Hope you're doing well today.

Speaker 2

Hi, Chris. It's Bharti here from you. Yes. Just 2 or 3

Speaker 3

questions for you today. Firstly, we've spoken before about some of the challenges in building up the U. S. MTB dealer network. And I see you've recently been hiring for a number of U.

Speaker 3

S. Sales reps, both moto and on the bike side. Could you maybe provide an update on progress with respect to the MTD sales and marketing efforts in the U. S?

Speaker 2

Absolutely. And I think it's a great question because that is a strong focus area for us currently. Ever since we employed Dane as our VP of Sales and Marketing on the MTB side, we've been working really hard at getting industry talent on board. It's going well. We've got a couple of new reps that we've employed.

Speaker 2

Those are company employee reps and be looking at whether we should be bringing on some independents as well. Marketing on the MTB side is going extremely well. We've grown the team in the U. S. On that side as well.

Speaker 2

So the distribution network continues to grow and we in fact in Q1, we are starting to see some positive indicators of some of the areas that we put in place today. So to answer your question, it's going well. We're carrying on. We still got a lot of work to do. But we we think we've got some good people on board to help us get us to where we need to be on the MTB side.

Speaker 3

That's good to hear. And switching over to the

Speaker 2

international side of things. I see

Speaker 3

you've launched with some new distributors. Sportech Brazil launch. I would imagine that anytime you're changing distributors that there's an expectation for greater brand and dealer penetration. But are there any specific changes or opportunities you see with some of these new distributor relationships that you're would be particularly optimistic about?

Speaker 2

Yes. I think there are some big opportunities coming. I mean, a lot of the new distributors that we're bringing on are in emerging areas where we don't actually have strong representation. But with the sales and brand managers that we brought on that are focusing strongly in those areas, there's a lot of opportunity for growth. So it's certainly quite correct that the new distributors that we're bringing on of course, are stronger financially, but are stronger in terms of the reach to dealers and generally also stronger marketing side and the management side.

Speaker 2

So that's the reason why we're making some changes. You'll also see that we will be adding new distributors that can get us into some of these new exciting channels that we are now entering like ADB. In certain cases, a distributor can service motor dealers and can also service ADV dealers that are a little bit more crossover and in some cases more chain store like. But in some areas, we'll be bringing on new ABB distributors, which should open up some really nice new doors and channels for us. And that's something that we really are excited about.

Speaker 3

Great. And just one last follow-up if I may. Once we get beyond this initial launch with ADB, would you expect that the majority of product sales to still be with existing Liatmoto dealers? Or would you expect that this line would ultimately open up new sales channels and dealers that may lean more heavily in the on road or maybe even commuter side of the market?

Speaker 2

It's a great question. And I mean ADV is one of those areas where there is a large amount of crossover with the street market just because a lot of ADV riders they need to ride on the road in order to get to some of the off road areas that they need to access. In some cases and in some geographical areas that is the same dealer, but in many areas, it's a completely different channel. So this is going to open brand new doors for us. And ADB is a strong and growing market.

Speaker 2

If you look for example at BMW, which is a great example, BMW motorcycles, there's about 200,000 BMW motorcycles that are sold globally around the world. And of those, the GS, which is the ADV kind of segment, 60,000 of the 200,000 are ADV GS bikes. So it's obviously a very for 2023, you'll see there's some apparel in there. Those are the initial shipments, but there's a lot more to come. So that is certainly very exciting.

Speaker 3

Great. That was all very helpful. Thanks for the time, Sean. Chat soon.

Speaker 2

Thank you, Chris. Chat soon.

Operator

Our next question comes from the line of Chris Jowes with Dunlop Equity. Please proceed with your question.

Speaker 3

Hey, Sean.

Speaker 2

Hey, Chris. How are you?

Speaker 4

Very good, very good. Thank you. Good to hear things seems like they're turning. Two questions. One is off the back of Chris' question before.

Speaker 4

With the new people you have on board, what whether it's anecdotal or any data you can share, what market share looks to be given the environment? And then promotional activity, whether it's you guys or feeling the need to do something versus what competitors are doing or what other people are doing, just how would you rate promotion activity at this point in the cycle? And what your expectations for market share are for here and beyond?

Speaker 2

So our market share is still in the 2% to 5% range in many areas. In terms of promotional activity, if I look at our competitors, I think there have been some hand breaks that have pulled up. We are pushing hard still. We're not holding back on promoting our products. We're pushing hard in terms of getting products on the inventory side out to riders so that we can get some awareness out there to generate some sales in the future.

Speaker 2

So I would say that in the cycle right now with inflation, we've seen cuts across the board with many of our competitors and many industry players. But we are pushing hard still. We still feel strongly that there's an opportunity to invest right now for the future. So market share for us is still in the 2% to 5% range depending on the product category. But we'd like to get much higher than that.

Speaker 2

And hopefully the gap in the market right now on the promotional side, we can push quite hard.

Speaker 4

Okay. And what about the promotional activity by your competitors in terms of pricing? So sales, just trying to get product to move, what do you see?

Speaker 2

Totally understand. I understand what you mean in terms of pricing and discounting. So looking at our competitors, I mean, there's some huge discounts out there. Many of our competitors are it looks like they are going well below cost on some of their product lines. We tried really hard not to do that.

Speaker 2

You can see that our margins have increased. We've also had to take a really hard look at our inventory levels over the last year to see any areas where we might need to improve efficiency of inventory holding, taking a hard look at that. And despite that, we still have healthy margins. There is certainly some promotional activity that is going on out there. We are trying our hardest not to bite into that too much because we believe in the strength of our brand moving forward.

Speaker 2

But of course, I mean, there is a point when inventory does need to be discounted and I mean, yet will be its best to retain brand equity. And we do see a lot of discounting out there on the competitor in the competitive landscape. And I think we're trying to balance it out as best as possible, Chris. But as I said, our margins did increase last year, which I think is positive in the context of the current market conditions.

Speaker 4

Okay, fantastic. Thank you. That's it for me.

Speaker 2

Thanks, Chris.

Operator

Our next question comes from the line of Olivier Colombo, a private investor. Please proceed with your question.

Speaker 5

Yes. Hello, Sean.

Speaker 2

Hello, Olivier.

Speaker 5

I just had some follow-up regarding the new adventure line that you have launched this year. And first of all, congratulations because it really looks nice. So did I understand you properly that some of the products have been shipped already in Q4 and the rest will be shipped probably in the next two quarters? And which are the regions that have the

Speaker 2

should yes, you are correct Olivier. You understood correctly. We shipped a portion of the products out last year and there's some hangover in our products that are selling that that are going to be shipping during Q1 and Q2. And I mean currently and now Germany, Switzerland and a few other European areas, they do have the full range. Those are currently on the way to dealers, which is great and to chain stores.

Speaker 2

We've got some big chain stores that we're selling to now in Europe, which is also great. But yes, we shipped out a portion in Q4 and we're starting to see the bulk of shipments shipping out now during Q1. We did split some of the shipments in order to make sure that we have the CE certification for those products before they were shipped. So we got a lot of the CE certificates towards the end of Q4 and managed to ship and now we are continuing to ship during Q1 and Q2. As I was saying to Chris earlier, this is of course apparel, so primarily jackets, pants and gloves.

Speaker 2

And of course, NIAT always strives to be a head to toe brand. So there's still a lot of opportunity on the ADB side of things.

Speaker 5

That's perfect. Thank you very much. And I have some questions regarding the European online retailers that have had a lot of problems over the last 12 to 18 months. Some have disappeared. Some are starting to or not starting, but some are discounting their inventory up to up to 70%.

Speaker 5

So I would just like to know how hard have you been hit by these retailers?

Speaker 2

I mean, of course, they do tend to discount some Leer products and we haven't had a huge impact from them. What we have done Olivier is we've changed some of our pricing structures when it comes to dealing with the typical e commerce player that might look to discount deep. And we've done that in order to make sure that we protect the brand as much as possible. In terms of a number of the large e commerce kinds of players that we are dealing with that has decreased over time. And we are now looking to as opposed to going with ecom players directly, although some of them are still good customers and we still do work with them.

Speaker 2

As a multichannel brand, we feel quite strongly that that's what we need to do in order to reach as many consumers as possible. But we are partnering with our distributors on the e com side as well in order to make sure that we not only get the Leer brand front and center in the with as many consumers as possible, but we also can work with our distributors with the current inventory levels that they have and the future inventory that they're going to get to get that inventory through the distributor and either to the dealer or to the end consumer. So as I said, we see ourselves as a multi channel business. We sell to dealers, we sell to consumers, we sell to distributors, we sell to e commerce players. We do what needs to be done in order to get the brand yet into the hands of as many consumers as possible.

Speaker 5

That's perfect. Thank you very much. And then my last question is related to the press release. What do you exactly mean when you say first indications of recovery in certain areas?

Speaker 2

It's a good question, Olivier. And what I I was really referring to some of the sales numbers that we're seeing. So looking at some areas in Europe, during Q4, even though we were down by 2022. We did have to manage some credit issues. So there were some orders and stock that we didn't ship during Q4 because for us it's important that we make the right long term decisions when it comes to shipping and when it comes to credit management.

Speaker 2

So if we had shipped those, the gap would have been narrower. So from our side, we're starting to see sales catching up now to prior year levels. And if you look at motor sales to dealers in the U. S, we were marginally up. It's the same in South Africa.

Speaker 2

In fact, in South Africa, we were up motor and MTB. So we're starting to see that sales increasing in some areas. And generally, what we see is that it starts out at the consumer and dealer level, of course, direct to consumer sales are up by 23%, which is also a great indicator for us. So we normally would see that at the consumer and at the dealer level, they're available closest to the market obviously. So we start to see increases in sales in those areas and then it filters through first indicators.

Speaker 2

It's not all areas in the year, but in some areas, as I said in the discussion earlier, it is some areas where we're starting to see some positive indicators. And also sentiment is just improving slightly. Obviously, we are still in a high interest rate environment. That hasn't changed yet. But I think the market perception in general is that that is also going to improve.

Speaker 2

So macroeconomic conditions are seen to improve during 2024 and going into 2025. So that's also a positive indicator for us. And just in general, the feeling on our side is that we're starting to see some the green shoots of a bit of an improvement in revenues in some areas. It's not across the board yet, but I think we will get there over time.

Speaker 5

That's perfect. Thank you very much for these details answers to my questions. I really appreciate and wish you all the best and the team of course.

Speaker 2

Thank you, Azariah. Thank you.

Operator

Thank you. We have no further questions at this time. Mr. McDonald, I would to turn the floor over to you 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 2024 Q1.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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Key Takeaways

  • Leatt reported a 38% year-over-year revenue decline to $47.24 million in 2023, driven by a 44% drop in international distributor sales and a 26% decrease in dealer-direct revenues, although consumer-direct sales grew 18%.
  • Q4 revenues fell 10% to $9.8 million, yet the quarter showed early recovery signs with dealer-direct sales down only 2%, consumer-direct sales up 23%, and double-digit e-commerce growth in emerging markets.
  • Operating cash flow increased by $3.57 million to $6.66 million, supporting a full-year net income of $803,000 and leaving the company with $11.35 million in cash and a 6:1 current ratio.
  • Leatt launched a new adventure gear line in Q4—head-to-toe, all-weather apparel targeting the large adventure-motorcycle segment and opening new channels through ADV-focused distributors and chain retailers.
  • The company won its 10th Design & Innovation Award for the MTB All Mountain 5.0 Jersey and 4.0 Pants, highlighting ongoing investment in product design and engineering excellence.
AI Generated. May Contain Errors.
Earnings Conference Call
Leatt Q4 2023
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