Leatt Corp

Welcome to Liat Corporation's first quarter 2022 results conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please signal for an operator by pressing star then zero. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Michael Mason. Please proceed, sir.

Thanks, Claudia. Good morning and welcome to the Liat Corporation Investor Conference Call to discuss the financial results for the first quarter of 2022. The company issued a press release today, Thursday, May 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. The replay PIN number is 137-29-638. A replay of the webcast will be available immediately following this 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. LEAD 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 May 12, 2022. 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 Liat Corporation. Sean, good afternoon to you in Cape Town.

Good morning and thank you, Mike, and thank you all for joining us today. The first quarter of 2022 was another tremendously strong quarter for Liat. The seventh quarter in a row of record-breaking revenues and the 16th straight quarter of year-over-year revenue growth. First quarter revenues totaled $24.2 million, an increase of $11.3 million, or 88%, over the first quarter of 2021. Net income increased by 105% to $4.2 million, and earnings per share increased by 92% to 73 US cents. We grew by double digits in virtually all of our expanding product categories, thanks to surging global consumer demand for our exceptional product offerings. We achieved a $5.1 million increase in body armor sales, a $4.1 million increase in helmet sales, and a $2.5 million increase in other products, parts, and accessories that includes our off-road motorcycle and mountain biking apparel. Many of these products are in the infancy with a huge runway of potential for expansion and market share in the global marketplace. Only our most established product category, neck braces, showed a domestic sales decrease compared to the first quarter of 2021, which was an extraordinary period for neck brace sales in the U.S. Sales increased by 184% over the prior period, making the comparative very difficult to match. International revenues grew by a staggering 166% to $18.9 million and accounted for 78% of our first quarter revenues. Our international customers continue to replenish stock levels to meet strong demand for our head-to-toe product categories. So to summarize once again, Q1 of 2022 was tremendous. That being said, we, like many other international companies, are still feeling the effects of the COVID-19 pandemic, primarily in Asia and particularly China. where many factories remain temporarily shut down for weeks at a time as a result of governmental policies. As a result, we are experiencing some delays in manufacturing and product shipments. At this point, though, our strong supplier relationships and our supply chain efforts in Asia have meant that we've been able to limit these delays to a matter of weeks. As a knock-on, global ocean freight costs have increased and domestic port congestion has caused trucking delays. While they have begun to ease, these delays have resulted in industry-wide dealer stocking congestion. That is part of the reason that sales in the US during the first quarter of 2022 decreased by 8% compared to an extraordinary Q1 in 2021. Sales in Q1 of 21 increased by 194% in the US. The good news is that consumer demand for our protective gear for the motor and MTB communities continues to be strong. We continue to build and invest heavily in our US sales and distribution capabilities. Our Reno, Nevada warehouse is now well positioned to house and deliver more products more efficiently across the US. We are also actively growing our team of employee sales reps in the US to reach a wider base of both motor and MTB dealers. Despite the COVID-19 headwinds, These consistent results demonstrate that our strategy for growth and profitability remains solid and resilient. We continue to engineer and develop innovative products that serve an increasingly wider global audience of riders of all levels, from professional racers to weekend riders. And we continue to build out a multi-channel sales organization led by high caliber regional sales and brand managers who can deliver our outstanding products to our team of dealers and distributors around the world. Now let me turn to more detail on our product category sales during the first quarter. Helmet sales were up 269% over last year to $5.7 million. This was primarily due to the continued strong demand for our award-winning MTB helmet line that has been expanded significantly to appeal to a wide range of riders. And our redesigned motor helmet line for off-road motorcycle use. Helmets which accounted for 23% of our first quarter revenues, are an increasingly important product for us and an area where we are investing heavily. Sales of our body armor products, which include chest protectors, full upper body protectors, and upper body protection vests, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots, and mountain biking shoes, were up 69% over the 2021 first quarter revenues. to $12.5 million. The increase was due to continued shipments of our footwear line, consisting of off-road motorcycle boots and mountain biking shoes, and strong consumer demand for our innovative upper body and limb protectors. Sales of our expanded line of off-road motorcycle boots and mountain biking shoes exceeded our expectations. We have created a full line of boots and shoes at key price points and performance levels. Body armor accounted for 52%, of first quarter revenue. Our other products category, including goggles, hydration bags, and apparel, such as jerseys, pants, shorts, and jackets, as well as aftermarket support items, had an increase in sales of 122% over last year to $4.5 million, and represented 19% of our first quarter revenues. Apparel sales were very encouraging, displaying our ability to not only engineer high-performance products, but also create designs that appeal to a wide range of riders. Sales of our flagship neck brace totaled $1.5 million, or 6% of our first quarter revenues, a 21% decrease over last year. Now I will turn to more of the financial details. Total revenues for the first quarter increased to $24.2 million, up 88% compared to $12.9 million for the first quarter of 2021. Gross profit for the first quarter increased to $9.6 million, up 59% compared to $6.1 million for the first quarter of 21. Our gross profit percentage did decrease in the first quarter of 22 due to our product and geographical sales mix, with revenue associated with international distribution customers continuing to generate a lower gross profit margin than dealer direct sales in the U.S. and neck brace margins contributing a higher gross profit margin than our other product categories. This was compounded by increased global shipping and logistics costs as a result of the COVID-19 pandemic. Income from operations for the first quarter of 2022 increased to $5.6 million, up by 104% compared to $2.8 million for the first quarter of 2021, and net income for the first quarter of 2022 increased to $4.2 million compared to $2.1 million for the first quarter of 2021 and represented a 17% return on revenues. Liat continued to meet its working capital needs from cash on hand and internally generated cash flows from operations. At March 31, 2022, the company had cash equivalents of $4.2 million and a current ratio of 2.9 to 1. To summarize, on the back of a record-breaking 2021, we have started 2022 very strong and continued building on the sales traction that we have created over the past 16 quarters. We have plenty of room to grow with key product categories such as helmets, shoes and boots, armor, and apparel showing a vast potential to continue to expand as we build and refine the extensive sales and marketing structure needed to bring them to the global market. As I mentioned earlier, potential economic headwinds will need to be closely monitored and adjusted for if necessary. We are closely watching consumer buying patterns, worldwide geopolitical risks, the macroeconomic inflationary environment, and potential lockdowns as a result of the COVID-19 pandemic across our supply chain. In the US, which is an important market for us and an area that offers enormous potential for growth, we continue to invest heavily in our sales and distribution facilities. Our entire team is excited and encouraged by our successes to date. But we have plenty of work to do to realize the enormous potential of the Lear brand. 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 in making Lear a success. With that, I'd like to turn the call over for questions. Operator?