Leatt Corp

Greetings and welcome to the LIAT Corporation first quarter 2024 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. Thank you, sir. You may begin.

Thanks, Maria. Good morning and welcome to the Liat Corporation Investor Conference call to discuss the financial results for the first quarter of 2024. The company issued a press release today, Monday, May 13, at 8 a.m. Eastern, and 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 13746608. A replay of this webcast will be available following the 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 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 13, 2024. 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, Mike. Thank you, and thank you all for joining us today. Although there are areas of the cycling and motorcycle industries that remain challenging, we continue to see the signs of a return to growth ahead. Participation remains strong, and the elevated industry-wide inventory levels that have resulted in somewhat of a growth pause are being digested. Consumer direct and dealer direct revenues continue to show solid improvement, and our newly launched adventure line of products have generated promising initial shipments during the quarter. Despite the ongoing challenges, we believe that our expanding portfolio of innovative products, robust financial position, and our growing and developing multi-channel sales organization have us well positioned for future growth, profitability, and value. Total global revenues for the quarter were $10.61 million, a 19% decrease from the first quarter of 2023. as dealers and distributors continue to regulate ordering levels. Although sales to our global distributors, representing 60% of our revenues for the first quarter of 2024, decreased by 31%, as our distributors continue to manage industry-wide stocking dynamics, consumer direct sales increased by 15%, and dealer direct sales increased by 9%. Domestic and South African dealer direct sales to both motor and NTB dealers also grew during the quarter, a very encouraging trend and testament to the gradual recovery that we believe will filter through to distribution over the next several quarters. It is relevant to note that the majority of distributor orders that shipped during Q1 of 2024 were for MPB products and were placed in mid-2023 when industry-wide inventory was peaking and sentiment was particularly strained. Historically, consumer direct and dealer direct revenues are the first to reflect the pulse of market conditions, whether challenging or buoyant. often followed by global distributor ordering patterns and performance filters through the channel. We remain very focused on our margins, which decreased in the first quarter, largely due to short-term promotional activities at the dealer direct level and particularly in the U.S. As an improvement in consumer demand, Dealer financial strength and dealer sentiment towards competitively priced categories have created opportunities to turn slow-moving inventory to cash that will fuel future growth. We do expect our margins to improve as we release our newest products globally and inventory levels continue to stabilize over time. Despite current industry-wide conditions, cash increased by $2.18 million to $13.53 million, and our cash flows provided by operations were $2.83 million. Inventory levels continued to stabilize, decreasing by $3.32 million, or 16% for the first quarter. Our liquidity also continues to improve as our team continues to efficiently manage working capital levels. Our new adventure or ADV line represents a solid opportunity globally. Unism distributors have received the initial line with great excitement and ordering patterns once again demonstrate our ability to develop products that will reach a much wider group of consumers around the world. We continue to build out our ADV distribution network and are working with elect influencers to build market reach. ADV legend Chris Birch, our strongest ADV ambassador, has ridden and raced in over 50 countries during his career. Chris has competed successfully in the world's biggest enduro races like Erzberg, Red Bull Westland Standing, and Hell's Gate. And he has competed successfully in the grueling Dakar Rally, finishing 27th and 2nd in the Rookies class in 2012. He is a three-time Roof of Africa winner, and he has been on the podium seven times at Red Bull Romaniacs, including as the 2010 winner. Chris is also very active on YouTube and other social media and hosts his own podcast. So far, we have only shipped ADV technical apparel, but are very excited about our pipeline of ADV gear. We have developed the core competencies to create a strong, innovative head-to-toe offering in this area that are very, very promising. Domestic sales on our consumer-facing Lear.com continue to be a highlight as we continue to refine the platform and reach a wider consumer group with targeted marketing campaigns. We successfully launched our direct-to-consumer store in South Africa during the quarter, with initial orders exceeding our expectations. Our digital direct-to-consumer channels continue to be an important focus area as we strive to reach wider consumer groups around the world. We continue to build out a high-performing team of sales and other professionals around the world to improve our penetration and reach across sales channels. Industry-wide consolidation and turmoil have also presented opportunities for us to add new, talented team members to the Lear family, all facilitated by our relatively strong financial position. Our inventory levels continue to stabilize, decreasing by $3.3 million, or 16% in the first quarter, as we continue to seek opportunities to turn over slower-moving merchandise. Let me turn to more details on sales of our product categories for the first quarter of 2024 compared to 2023. Sales of our flagship neck brace were $560,000, or 5% of our revenues, a 28% decrease from 2023. The decrease represented a 13% decrease in the volume of neck braces sold. Our body armor products are comprised of chest protectors, full upper body protectors, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots, and mountain biking shoes. Body armor sales were $5 million, or 47% of our quarterly revenues, a 21% decrease from 2023. The decrease was primarily the result of a 21% decrease in upper body revenues and a 48% decrease in the volume of mountain biking shoes sold. Additionally, while motor boot sales increased by 14%, motor boot revenues decreased by 29% due to short-term sales promotions meant to manage inventory levels and margins as efficiently as possible. Helmet sales were $1.69 million, or 16% of our revenues. a 46% decrease from 2023. The decrease was primarily due to a decrease in MTB helmet sales compared to the 2023 first quarter, which reflected helmets ordered in mid-2022 before the current high inventory dynamics. Our other products, parts, and accessories category is comprised of goggles, hydration bags, and apparel items, including jerseys, pants, shorts, and jackets. and aftermarket product support items. Total sales were $3.33 million, or 32% of our revenues, and 19% increase over 2023. While sales of our MTB and motor apparel lines did decrease, the increase in revenue came from strong initial shipments of our ABV apparel line, designed for adventure motorcycle riding during the first quarter of 2024. Here is the financial summary for the first quarter. Total revenues for the first quarter of 2024 were $10.61 million, down by 19%, compared to $13 million for the first quarter of 2023. The decrease in worldwide revenues is primarily attributable to a $1.34 million decrease in body armor sales, a $1.43 million decrease in helmet sales, and a $220,000 decrease in net gross sales that were partially offset by a $550,000 increase in sales of other products, parts, and accessories as our distributors continue to manage industry-wide stocking dynamics. Loss from operations for the first quarter was $791,000, down by 157%, compared to income of $1.3 million for the first quarter of 2023. Total operating costs increased by 10% in the quarter, which reflects sustained inflationary pressure and our investments in fueling future growth through brand recognition, channel development, and a strong drive, particularly in the U.S., to continue building a multi-channel team of sales professionals tasked with increasing and leveraging revenue opportunities on a regional level that we believe will fuel growth in the coming months and years. Net loss for the first quarter of 2024 was $817,000, or $0.13 per basic and $0.13 per diluted share, down by 180% compared to net income of $1 million, or $0.17 per basic and $0.16 per diluted share for the first quarter of 2023. We have continued to meet his working capital needs from cash on hand and internally generated cash flow from operations. Liquidity continued to improve as cash for the first quarter increased by $2.18 million. And March 31, 2024, the company had cash in equivalence of $13.53 million and a current ratio of 9.4 to 1 compared to a current ratio of 5.6 to 1 at March 31, 2023. Looking to key areas around the world, we have some exciting new distributor partnerships in the United Kingdom, Europe, and emerging markets that we expect will filter through to revenues over the next few quarters. And dealer direct sales on our company-owned distribution channels in the US and South Africa grew during the first quarter, which is a very encouraging trend. To sum up, although there are still some challenging market conditions in certain industry areas, particularly at the distribution level, we are seeing the first signs of a recovery at play. We continue to refine our network, and inventory is being digested. Participation remains strong, and more direct channels that typically decline or recover first are already experiencing growth. Market conditions continue to normalize, and although ordering patterns at the dealer level do reflect a tapering in large pre-ordering, daily order volume continues to increase, and dealer financial conditions, stocking levels, and demand sentiment continue to improve. We expect that these trends will continue to filter through to the distribution level over time. We remain enthusiastic about the future of Lyft as a company and as a brand. We have a strong portfolio of innovative products in the market and in our development pipeline. A multi-channel sales organization and our team of sales and marketing professionals are growing and developing, and we have a solid financial position. We remain confident that we will return to sustained growth, profitability, and shareholder value. As always, we'd like to thank our entire Lear family, our business partners, and team writers for their continued strong support. With that, I'd like to turn the call over for questions.