Leatt Corp

Greetings and welcome to Liat Corporation's second quarter 2022 results conference 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, Michael Mason, Investor Relations. Please go ahead, sir.

Thanks, Maria. Good morning and welcome to the Liat Corporation Investor Conference call to discuss the financial results for the second quarter 2022. The company issued a press release today, Thursday, August 11, 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 1-373-1945. 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. Liet 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 August 11, 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. Good afternoon to you in Cape Town, Sean.

Good morning, and thank you, Mike, and thank you all for joining us this morning. The results of the 2022 second quarter once again demonstrates our ability to grow revenue, gain sales traction in important product categories, and continue our momentum in building Liat's as a consumer brand recognized for innovation and exhilaration globally. The second quarter was our 17th consecutive quarter of year-over-year revenue growth. Consumers continue to participate in outdoor riding activities, a global trend that we expect to continue. Our MTB and motor distribution partners and dealer customers around the world are enthusiastic about the momentum and penetration that the Lear brand and our head-to-toe offerings of exceptional protective gear have achieved over the past several quarters. Total revenues for the quarter were $17.94 million, which in terms of growth was lower than previous extraordinary quarters, but was still up 25% over the 2021 second quarter. Gross profit and net income were also up by double digits compared to the second quarter of 2021. For the first six months of 2022, total revenue was $42.2 million, up by 55% compared to $27.2 million for the same period last year. Net income for the first six months was $6.9 million, up by 55% as compared to the same period last year. And basic earnings per share increased to $1.20 compared to 82 cents for the same period last year. We continue to achieve double-digit revenue growth in all of our expanding product categories, with the exception of our most established category, neck braces, where sales decreased this quarter compared to a very strong 2021 second quarter. Apparel, helmet, and off-road motorcycle boot sales have been particularly strong, energizing our entire team and our international distribution network. We are continuing to build out a global team of sales and brand managers, who are focused on regional marketing dynamics and support for our distribution partners and dealer networks. Building a multinational sales organization that is regionally relevant and can operate on a global scale has become an important revenue driver for Liat, and perhaps more importantly, a key tool to deliver exceptional consumer engagement. International revenues continue to grow, with $13.9 million in total international revenues for the 2022 second quarter, up 45% over the same period last year. Although sales in the US did contract as a result of industry-wide logistical import challenges that created some stocking issues and ultimately affected our dealers' ability to reorder, these delays have started to ease as we continue to drive consumer demand to stores with coordinated marketing campaigns designed to relieve congestion. In addition, we are investing heavily in our US sales and distribution capacity to reach a wider group of motor and MTB dealers around the country. Our new Reno, Nevada warehouse is also fully up and running, and we have grown our warehouse headcount by 30% over the past year to be able to ship stock to our customers efficiently. We believe that Liat USA is now well stocked with fast-moving items that should cover stock requirements and dealer promotions very well into the rest of the year. Our entire team remains focused on our ability to gain brand and revenue traction while striving for excellence in operating efficiency, controlling costs, and investing in key growth areas in the midst of a widespread global inflationary environment. Operating expenses increased by 28%, driven by our investments in sales and distribution channels and marketing campaigns designed to build a global sustainable consumer brand. These are investments that we believe will continue to fuel global growth moving forward. Of course, we will continue to monitor customer stocking, consumer buying patterns, and worldwide geopolitical and economic risks, as well as potential lockdowns due to the COVID-19 pandemic that may result in potential headwinds. Our team remains committed to building Liat on a sustainable basis, that creates lasting, ongoing shareholder value. Now let me turn to a bit more detail on our product sales. Sales of our body armor products, including chest protectors, full upper body protectors, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots, and mountain biking shoes grew by 11% to $9.5 million, representing 53% of our revenues for the 2022 second quarter. The increase was primarily the result of a continued strong global demand for our off-road motorcycle boots and upper body protective gear. For the first six months of 2022, sales of our body armor products totaled $21.99 million, a 38% increase over the same period last year. The increase was primarily the result of continued shipments of our footwear category consisting of off-road motorcycle boots and mountain biking shoes, and continued demand for our innovative upper body and limb protectors. Our helmet sales for the 2022 second quarter totaled $2.38 million, a 152% increase over last year. The increase was primarily due to a strong increase in sales of our expanded and redesigned motor helmet line for off-road motorcycle use to customers in the US and abroad. For the first six months, helmet sales totaled $8.07 million, a 214% increase over the last year. This increase was due to continued strong demand for our award-winning MTE helmet line designed for a wide range of riders and continued demand for our redesigned motor helmet line for off-road motorcycle use. Second quarter 2022 sales of our other parts and accessories category consisting of goggles, hydration bags, and apparel, including pants, shorts, jackets, and aftermarket support items, totaled $4.73 million, an increase of 51% over last year. And for the first six months of 2022, other parts and accessories sales totaled $9.26 million, a 79% increase over last year. The increase in sales of our other parts and accessories in both periods was primarily due to continued strong demand for our motor and MTB technical apparel lines for off-road motorcycle and mountain biking use. Now I will provide a bit more detail on our financial results for the second quarter of 22. Total revenues for the 22 second quarter increased to $17.9 million, up by 25% compared to $14.3 million for the second quarter of 21. Gross profit for the second quarter increased to $7.6 million, up 23% compared to $6.2 million for the second quarter of 21. Our Net Brace products continue to generate a higher gross profit margin than our other product categories, and although Net Brace revenues accounted for 7% and 11% of our revenues for the quarters ended June 30, 22, and 21 respectively, our gross profit remained consistent. with the 21 period due to a stabilization in global and domestic shipping and logistic costs. Income from operations for the 2022 second quarter increased to $3.7 million, up by 18% compared to $3.1 million for the second quarter of 21. And net income increased to $2.7 million, up by 13% compared to $2.4 million the second quarter of 21, and represented a 15% return on revenues. Liat continued to meet his working capital needs from cash on hand and internally generated cash flow from operations, and on June 30, 2022, the company had cash and cash equivalents of $4.95 million and a current ratio of 3.8 to 1. So to summarize, The second quarter of 2022 was another exceptional quarter in terms of global brand development, growth and sales traction. We expect consumers to continue to actively participate in outdoor riding activities. Most of our important product categories continue to experience double-digit growth, and we have created an exciting pipeline of new, innovative and consumer-centric products that are well differentiated from our competitors and rigorously tested by our team of dedicated product developers, engineers, and passionate family of professional riders and athletes. While we are making important progress, we are very aware of potential economic headwinds that may surface in the current environment. That said, we remain enthusiastic about our ability to continue realizing gains. Many of our popular newly launched products are still in their infancy in terms of market share. and their potential to meet the needs of riders at all levels around the world. As always, we'd like to thank our entire Lear family, our dedicated employees, business partners, and team riders for their continued efforts and support in making Lear the success that it is now. With that, I'll turn the call over for questions. Operator?