Leatt Corp

and welcome to the LIAC Corporation third quarter 2020 results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Michael Mason, Investor Relations for LIAC Corporation. Thank you. You may begin.

Thanks, Melissa. Good morning and welcome to the Liat Corporation Investor Conference call to discuss the financial results for the third quarter of 2020. The company issued a press release today, Thursday, November 12, at 8 a.m. Eastern, and also filed its report with the SEC. The press release is posted on Liat's website at liat-corp.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 seven days and may be accessed from North America by calling 1-844-512-2921 or 1-412-317-6671 for international callers. Enter conference ID number 13712961. A replay of the webcast will be available immediately following the call and will continue for 30 days. Certain statements in this conference call may constitute forward-looking statements. Actual results could differ materially from those discussed in the call. The 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 release dated November 12, 2020. 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. Sean McDonald, CEO of LIAC Corporation. Good afternoon to you in Cape Town, Sean.

Good morning. Thank you, Mike, and thank you all for joining us today. We had yet another groundbreaking quarter, the best third quarter in our history in terms of revenue and profitability, and in fact, our best quarter in terms of revenue since inception. Quarter after quarter, we continue to grow by double digits and build our global enterprise, even in the midst of of the headwinds of the COVID-19 pandemic. Global revenues were $11.4 million, up by 18% over last year's third quarter, and up nearly 64% sequentially over this year's second quarter. In the US, our largest single market, revenues grew by a remarkable 47% over last year. Net income for the quarter was $1.6 million, up 22% over last year. This quarter's growth was driven by fantastic demand for our innovative protective gear from motor dealers, MTB dealers, and ultimately our end consumers, who continue to participate strongly in outdoor activities. International sales grew by 5% as we made initial shipments of the majority of our 2021 head-to-toe product line to our customers around the world. For the first nine months of 2020, revenues were $25.9 million, an increase of $4.8 million, or 23%, compared to the first nine months of 2019. Net income for the first nine months was $2.7 million, an increase of 89% over last year. Again, despite the turmoil caused by the pandemic, people are turning to outdoor activities, which is certainly proving to be a beneficial trend for Liat. In terms of our individual products, we saw breakout revenue growth in our footwear, which now consists of mountain biking shoes and motorcycle boots, and our expanding line of body armor and goggle product categories. A key driver of our continued success is the development of a larger and more professional sales and marketing organization in both the MTB and motor areas, and particularly in the US, where we now have the ability to reach more dealers around the country. We believe that our engaging marketing campaigns contribute strongly to the development of Liat as a global consumer brand. A professional sales team armed with products and marketing tools that are extremely attractive to dealers is driving our momentum and contributing to our growth. These are trends that we will certainly continue to invest in. We have also worked to adjust to the new challenges brought on by the pandemic. To help bolster our sales and marketing efforts, We have focused on e-commerce and have created a new Leit website designed to make it much simpler for customers to navigate and make online purchases. And of course, we continue to grow and nurture our e-commerce partnerships globally. Here are the financial details for the third quarter of 2020. Revenues for the third quarter increased to $11.4 million, up 18% compared to $9.6 million in the 2019 third quarter. The increase was driven by a 76% increase in sales of other products, parts, and accessories and a 25% increase in body armor products that were partially offset by a 5% decrease in helmet sales and a 39% decrease in neck brace sales. Helmets are the largest single safety product category in safety gear. Although helmet sales were down slightly overall, we have completely re-engineered our line of motor helmets and now have a pipeline of new helmets for Moto and MTB that will ship during the next several quarters. We are very encouraged by the initial industry reviews, athlete feedback, and consumer demand for our redefined helmet line. Sales of our flagship neck braces decreased by 39% during the third quarter due to orders that were placed during the initial phase of the COVID-19 pandemic and delivered during the third quarter. Those conservative buying patterns are expected to normalize over the next several quarters as our customers rebuild their stock levels. Gross profit was $4.95 million, or 44% of revenues, compared to $4.50 million, or 47% of revenues, for the same period last year. As next race revenues, which continue to contribute higher gross margins when compared to our other product categories, contributed less to our sales mix. Total operating expenses increased $102,000 to $2.85 million or 4% compared to $2.75 million in the same period last year. Third quarter income from operations increased 21% to $2.1 million compared to $1.8 million for the same period last year. And net income rose 22% to $1.6 million or 27 cents per diluted share, compared to $1.3 million, or 24 cents per diluted share, for the same period last year. Here is the category breakdown in slightly more detail. Sales of our neck braces counted for 10% of revenues. Our neck braces continue to generate a higher gross margin than our other product categories, primarily because of our highly efficient manufacturing techniques, our intellectual property, and our position as industry leader. Our body armour products include our range of chest protectors, body protectors and vests, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots and now mountain biking shoes. The 25% increase in body armour revenues was primarily due to strong demand worldwide for our GPX 5.5 boots for motorcycle use. Body armour accounted for 51% of third quarter revenue. Our other products, parts, and accessory category are comprised of our apparel line, hats, jackets, hydration kits, and goggles. The 76% increase in revenues is due to continued demand for our innovative Velocity line of military standard bulletproof goggles, both in the US and abroad. Other products, parts, and accessories accounted for 28% of third quarter revenue. Turning to the balance sheet. We have a very healthy balance sheet at this time. cash increased by 38% or $796,000 as compared to the period ending December 31, 2019. We continue to meet our working capital needs from cash on hand and internally generated cash flow from operations. At September 30, 2020, we had cash and cash equivalents of $2.9 million, a current ratio of 2.5 to 1, and no significant long-term debt. To summarize, while our business model continues to show strength, we remain cautious due to the global COVID-19 pandemic. We are closely monitoring consumer buying patterns and all COVID-19 related news to plan for any economic turbulence and industry headwinds that may arise. That being said, based on our promising results to date in 2020, we are extremely optimistic. We have a strong pipeline of cutting edge products that we expect will ship to our customers globally over the next several quarters. Recent launches of goggles, boots, and other exceptional protective gear, as well as our new MTB shoe line, have earned positive reviews and encouraging demand levels, as well as extremely good performance in the field. These products define Lears as a premium head-to-toe brand and are testament to our team's ability to develop a full offering of innovative products that appeal to a wide rider audience. All of our products are engineered and designed by our in-house Lear teams, tested in the field by our professional riders. Along with style, what you see in these products are the kinds of technological advancements in terms of comfort, safety, and quality that Lear is known for across the world. Finally, we continue to redefine our product offerings. and our market share potential remains exceptional in a majority of the new categories in which we compete. Our strong operating cash flow will be reinvested in our growth engine, developing innovative cutting edge products, as well as in building our global consumer brand and refining our sales channels. As always, we'd like to thank our entire Deert family, our dedicated employees, business partners, and team riders for their continued strong efforts and support in making Lear the success that it has become. With that, I'd like to turn the call over for questions. Operator?