Leatt Corp

Greetings and welcome to the LIAT Corporation first quarter 2023 results conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Michael Mason, Investor Relations for LIAT. Thank you, Michael. You may begin.

Thanks, Devon. Good morning and welcome to the Liat Corporation Investor Conference call to discuss the financial results for the first quarter 2023. The company issued a press release today, Thursday, May 11, 2023, at 8 a.m. Eastern, and also filed 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 13738621. A replay of the webcast will be available immediately following this call and will continue for seven days. Certain statements in this conference call may constitute forward-looking statements. Actual results could differ materially from those discussed in this call. Liat 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 11, 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. 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 today. The first quarter of 2023 was both challenging and promising for Liat. Although the wider motor and MTB industry continues to experience post-COVID stocking dynamics and macroeconomic factors that have caused constrained buying activity at deal and distributor level, direct-to-consumer demand for Liat products remains encouraging and as we begin to see a return to strong rider participation around the world following some colder spring weather. First quarter revenues decreased by 46% year over year in the context of a global inflationary environment and a particularly difficult comparative. The first quarter of 2022 was the strongest quarter in our company's history. Revenues grew by 88% in a quarter that is traditionally our slowest quarter. Despite the year-over-year drop in revenues, we earned $1 million in net income and generated $5.3 million of cash from operations, with $11.4 million in cash and equivalents on hand at March 31, 2023. We remain optimistic that the arrival of the spring riding season will continue to increase consumer participation in outdoor activities, which will in turn stimulate growth and the digestion of inventory at dealer and distributor level so that restocking can intensify. Our team is enthusiastic about the future of our brand and our company, as we work diligently towards a strong return to our track record of delivering double-digit growth and shareholder value. Reflecting on the financials in a bit more detail, total revenues for the first quarter were $13.1 million, a decrease of 46%, compared to the first quarter of 2022. International revenues were $9.2 million, a decrease of 52% when compared to the remarkable 166% growth in international sales in the 2022 first quarter over the 2021 period. Sales in the US were $3.9 million, a 26% decrease year over year. US dealers continue to manage elevated stocking levels and adjust ordering patterns accordingly. and we continue to actively grow and invest in our team of US sales reps to reach a wider base of both motor and MTB dealers throughout the country. Gross profit as a percentage of sales increased to 44% in the first quarter, a result of improved supply chain and logistics costs, and our focus on maintaining margins and strong brand positioning. Net income in the first quarter was $1 million, a decrease of 76% compared to the exceptionally strong growth in the prior year period. Net income per common share was 17 US cents. Total operating expenses increased by 8% as we were able to control costs despite the strong global inflationary environment. The cash flow generated from operations was $5.3 million as our team continues to focus on managing working capital and cash flow. We believe that our ability to generate cash flow during this challenging period is a testament to the resilience of our business model and our team, and positions Liat well for future growth. We were particularly encouraged by the increased activity on our consumer direct channels and those of our international e-commerce partners. Liat.com site activity and consumer purchasing continued to grow during the first quarter, with consumer direct sales increasing by 10%, representing 5% of our total global revenues. Our team of sales and brand managers covering key established and emerging global markets are working closely with our distribution partners to facilitate a strong Lear presence at the dealer level and react to fluid market conditions. We continue to focus on building and refining a strong multi-channel sales organization that has the ability to leverage our head-to-toe offering of exceptional products. Unlike some of our competitors who have contracted their teams and cost centers, we are investing in talent and actively growing our sales channels in a sustainable manner. Now I'll turn to more details on sales of our product categories for the first quarter of 2023. Sales of our flagship neck brace for the first quarter of 2023 were $780,000 or 6% of our total revenues for the quarter. A 49% decrease year over year. The decrease was primarily attributable to a 51% decrease in the volume of neck braces sold. Body armor sales were $6.37 million in the quarter or 49% of our revenues. A 49% decrease year over year. The decrease in revenues was primarily the result of a 42% decrease in upper body armor revenues and a 76% decrease in the volume of motorcycle boots sold when compared to the exceptionally strong first quarter of 22, when body armor sales increased by 69% over 2021. Body armor products now include upper body protection pieces, knee braces, limb guards, off-road motorcycle boots, and mountain biking shoes. Helmet sales were $3.13 million, or 24% of our revenues for the first quarter of 2023, a 45% decrease compared to the strong first quarter of 2022 for MTB helmet sales. MTB helmet sales in the first quarter of 2022 were up 357% over the first quarter of 2021. Sales of our other products, parts and accessories for the first quarter were $2.8 million, or 21% of our total revenues, a 38% decrease year over year. The decrease is primarily attributable to a 41% decrease in revenues from our motor and MTB technical apparel, designed for off-road and mountain biking use, compared to the exceptional first quarter of 2022. Apparel revenues for the first quarter of 2022 were up 171% over the prior year period. To summarize the key financial details for the first quarter of 2023, total revenues for the first quarter were $13.1 million, a decrease of 46%, compared to $24.2 million for the first quarter of 2022, which was an exceptional quarter for the company. The decrease in global revenues is attributable to a $6.12 million decrease in body armor sales, $2.56 million decrease in helmet sales, and a $1.72 million decrease in other products, parts, and accessories sales, and a $750,000 decrease in neck brace sales. The impact of an exceptionally strong comparative quarter was compounded by industry-wide stocking dynamics that continue to affect distributor and dealer ordering levels. Income from operations for the first quarter of 23 was $1.4 million, down 75% compared to $5.6 million for the first quarter of 22. Net income for the first quarter was $1 million, or 17 cents per basic and 16 cents per per diluted share, down by 76% as compared to net income of $4.22 million, or $0.73 per basic and $0.68 per diluted share for the first quarter of 2022. Leah's continued to meet its working capital needs from cash on hand and internally generated cash flow from operations. And at March 31, 2023, the company had cash and equivalents of $11.4 million and a current ratio Looking ahead, despite the post-COVID stocking and macroeconomic challenges, we continue to push hard and to invest in the areas that will position Lear for future growth and that we can influence. Strong brand building, a global multi-channel sales organization, a pipeline of exceptional products, a plan to reach a much wider rider audience, and continued financial resilience. We are encouraged by the increased activity and sales on Lear.com and through our e-commerce partners internationally. Consumer direct sales now represent 5% of global revenues, a testament to the brand momentum that we have experienced over the past several years. Our online global dealers continue to report that consumer demand and resultant sales tree of our product categories remains healthy and well-positioned for future growth. We continue to invest in our strategy of developing innovative, cutting-edge products. Our design and engineering team, in collaboration with our team riders, continues to deliver an exceptional product pipeline and product offerings that are recognized throughout the industry. We believe that this continued focus on excellence in product innovation will allow us to gain additional market share. We are especially excited about our first partnership with the professional endurance mountain biking team. the Orbea Leard Speed Company Racing Team. This is an ideal partnership for us as we advance our shared vision of excellence in performance, innovation, and design, and as we move into much larger rider communities in the mainstream mountain biking segment. Throughout the coming year, team riders will be protected by Leard helmets and apparel as they compete in the Epic Series, select UCI MTV World Cup events, and more. To summarize, Although the MTB and motor industries continue to face post-COVID dynamics that have constrained ordering a dealer and distributor level, Lear's brand momentum and activity on a consumer direct level continues. Rider participation levels are ramping up as the spring season kicks off properly, and we believe that elevated stock levels will be digested. Many of our existing product categories are still in their infancy with significant market share opportunities. And we are investing in our team, in our products, and in growing our market share to intensify our positioning for long-term growth and shareholder value. We remain focused and committed to returning to our track record of double-digit sustainable growth. As always, we'd like to thank our entire Leard family, our dedicated employees, business partners, and team riders for their continued strong support. And with that, I'd like to turn the call over for questions. Operator?