Leatt Corp

Thank you for your patience. The conference will be starting in just a few moments. Again, we want to thank you for your patience. © transcript Emily Beynon © transcript Emily Beynon We'll be right back. Thank you. Thank you for your patience. The conference will be beginning in just a few moments. Again, thank you for your patience. Thank you. Greetings. Welcome to LEAC Corporation's third quarter 2023 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. Please note this conference is being recorded. I will now turn the conference over to Michael Mason, Investor Relations. Thank you. You may begin.

Thanks, Sherry. Good morning. We apologize for the delay, and thanks for your patience. Welcome to the LEAC Corporation Investor Conference call to discuss the financial results for the third quarter of 2023. The company issued a press release today, Monday, November 6, 2023, at 8 a.m. Eastern, and filed its report with the SEC. The press release is posted on LEAC's website, at www.leah-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 1-3742 A replay of this 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. Leehead 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 6th 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 Lief Corporation. Good afternoon to you in Cape Town, Sean.

Good morning and thank you, Mike, and thank you all for your patience and for joining us today. Although the results of the third quarter of 2023 continue to exhibit constrained ordering patterns, particularly from our international distribution partners, They simply don't reflect the current marginal uptick in sentiment that we are experiencing at the dealer and consumer level or the ongoing commitment and enthusiasm of our entire team. International MTB orders that shipped in Q3 were placed in early 2023 at the peak of overstocking dynamics. The comparative was also particularly challenging as the comparative period Q3 of 2022 was our third best quarter ever in terms of revenue, with a boost from MTB orders placed in early 2022 at the peak of pandemic demand levels. We remain very enthusiastic about the future and look forward to returning to a level of growth as our global distributors and dealers continue to digest stock and the latest strong participation trend continues. More recent international ordering patterns already indicates an improvement in stocking levels in key areas. On a year-to-date basis, although global revenues decreased by 43% compared to the first nine months of 2022, our gross margins increased from 42% to 43%, and net income was $2.3 million. We believe that this is a testament to our focus on retaining brand equity, supply chain management, and operating efficiency despite inflationary pressures. Cash flow generated from operations for the first nine months was $6.6 million, up by 277%, compared to $1.7 million for the first nine months of 2022. And we ended the quarter with $10.8 million of cash and equivalents. Total revenues for the third quarter of 23 were $12 million, a 48% decline compared to last year's third quarter, one of the strongest in our company's history. International revenues were $8.2 million, a decrease of 54% year over year, and sales in the United States decreased by 29% to $3.9 million. Net income for the third quarter was $460,000, a decrease of 89% compared to the strong prior year. As our dealers and distributors continue to digest the inventory overhang post-pandemic, we have intensified our efforts to develop an innovative, multi-channel and robust selling organization that has the ability to reach a wide consumer base of riders at all levels. We continue to build a strong and talented team of product, sales and marketing professionals and have recently invested in the continued success of our MTB business. This is an area where some of our competitors are pulling back and we see a great opportunity to build market share. To that end, we have added two key leaders in MTB who share our infectious passion for innovation and riding and who will help us bring a new level of focus to our MTB business around the world. Our 2024 MTB launch is imminent and will include additional head to toe offerings with appeal to some of the fastest growing cycling segments. We are also excited to launch our new adventure range of gear and apparel tomorrow at EICMA, an international motorcycle show in Milan, Italy. These products are specifically designed for motorcycle riders at all levels that seek adventure and need technical gear that enable riding in all weather conditions and over all terrains. This is now a head-to-toe segment that should open doors at the dealer level, and more importantly, reach a wide community of riders. As always, these products, which include new boots and gloves, are developed in-house by our global design and engineering professionals, and are fully tested for safety and protection at our on-site Lear facility. We believe that our adventure line is a testament to our team's ability to once again develop innovative gear that appeal to a wider group of riders globally. Now I will turn to more details on sales of our product categories for the third quarter of 2023. Sales of our flagship neck brace were $710,000, accounting for 6% of our revenues, a 63% decrease from last year, due primarily to the decrease in volume of neck braces sold in the US and abroad. In the third quarter of 2022, neck brace sales were $1.89 million and 8% of our revenues. Our body armor category includes chest protectors, upper body protectors, knee braces, knee and elbow guards, off-road motorcycle boots, and mountain biking shoes. Body armor sales were $5.46 million, accounting for 45% of our revenues. The 48% decrease in revenue was primarily due to a 40% decrease in upper body armor sales globally. In the third quarter of 2022, body armor sales were $10.52 million and 45% of our revenues. Helmet sales were $2.87 million, a 34% decrease from the third quarter of 2022, which was an exceptionally strong quarter for helmets. The decrease was primarily due to a 43% decrease in sales of motor helmets for off-road motorcycle use. That quarter was exceptionally strong for helmet revenues, up by 88% year over year. Helmet sales represent 24% of our revenues for the quarter, compared to 19% for the comparative quarter. Our products, parts, and accessories are comprised of goggles, hydration bags, and apparel items, including jerseys, pants, shorts, and jackets. Sales in this category for the quarter were $2.97 million, or 25% of our revenues, a decrease of 54% due primarily to the decrease in sales volume of our motor and MTB technical apparel designed for off-road motorcycle and mountain biking use, compared to an exceptionally strong third quarter of 2022. Technical apparel in the third quarter of 2022 had increased by 51% over the prior year. Here is the financial summary for the third quarter and first nine months of 2023. Total revenues for the third quarter of 23 were $12 million, down by 48% compared to $23.3 million for the third quarter of 2022. Decrease in global revenues during the third quarter is attributable to a $5.1 million decrease in body armor sales, a $3.5 million decrease in other products, parts, and accessory sales, a $1.5 million decrease in helmet sales and a $1.2 million decrease in net price sales. Income from operations for the third quarter of 2023 was $620,000, down by 89%, compared to $5.5 million for the third quarter of 2022. Net income for the third quarter was $460,000, or $0.08 per basic and $0.07 per diluted share, down by 89%, as compared to net income of $4.1 million, or $0.70 per basic and $0.65 per diluted share for the third quarter of 2022. Global revenues for the first nine months were $37.4 million, down by 43% compared to the first nine months of 2022, and gross profit margins increased from 42% to 43% for the first nine months of 2023 compared to the same period of 2022. Net income was $2.3 million, down by 80% compared to the first nine months of 2022. And once again, cash flow generated from operations for the first nine months was $6.6 million, up by 277% compared to $1.7 million for the first nine months of 2022. Lear continued to meet its working capital needs from cash on hand and internally generated cash flow from operations. And at September 30, 2023, the company had cash and cash equivalents of $10.8 million, up by 123% compared to $4.8 million for the first nine months of 2022, and a current ratio of 7.5 to 1. Looking ahead, our growing, talented, and passionate team remains enthusiastic about our exceptional, expanding product range, our outreach to new, wider markets, and brand momentum that positions us well for future growth and exponential gains. Although we do expect some further constrained ordering patterns internationally, particularly from our MTB partners, as inventory is digested, we are well diversified in terms of market penetration and product offering, and we continue to build a multi-channel sales organization to leverage product and brand momentum globally. We are encouraged by the results of our efforts to build consumer direct selling, which continues to grow, increasing by 16% year to date compared to the same period in 2022. Revenues on lear.com and our consumer direct channels increased by 30% during the third quarter of 2023 when compared to the prior year period. We believe that the growth in consumer direct sales is a testament to the momentum that our products and brand have built over the past several years. It's also an encouraging indicator of an increase in consumer demand for our products that should further influence revenues as inventory is digested by our dealers and distributors. We are actively expanding our ability to sell and market Lear products directly to consumers globally with our distributors as our partners. In conclusion, the first nine months of 2023 has been a challenging time for the entire industry. Elevated stock levels accumulated as a result of the pandemic-driven surge in demand, which resulted in adjusted ordering patterns at the dealer and distributor level. But we do believe that our strong commitment to growth initiatives will fuel growth as conditions continue to improve over time. We are confident that the overstocking dynamics will resolve as stock is digested with a positive inflection point on the horizon. Participation remains strong. Of course, we continue to focus on working capital management and maintaining a robust cash flow position to fund operations and future growth initiatives. We look forward to the near future and our return to revenue growth. 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. With that, I'd like to turn the call over for any questions. Operator?