Leatt Corporation (PNK:LEAT) Q4 2023 Earnings Call Transcript

Leatt Corporation (PNK:LEAT) Q4 2023 Earnings Call Transcript March 13, 2024

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Operator: Greetings and welcome to Leatt Corporation Fourth Quarter and Full Year 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. [Operator Instructions] 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.

Michael Mason: Thanks, Christine. Good morning and welcome to the Leatt Corporation investor conference call to discuss the financial results for the fourth quarter and full year 2023. The company issued a press release today, Wednesday, March 13, 2024, at 8 a.m. Eastern and filed its report with the SEC. The press release is posted on Leatt’s website at www.leatt-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 844-512-2921 or 412-317-6671 for international callers. The replay PIN number is 13744705. 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. Leatt 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 March 13, 2024. The company will make a presentation on the quarterly and year-end results and then open the call to questions. I would now like to turn the call over to Mr. Sean MacDonald, CEO of Leatt Corporation. Good afternoon to you in Cape Town, Sean.

Sean MacDonald: Good morning, and thank you, Mike for – and all for you for joining us today. Although 2023 was a challenging year for the cycling and motorcycle industries, the fourth quarter represented the first signs of the green shoots of a recovery in certain areas. We remain extremely optimistic that ordering patterns will improve over time, because participation remains strong globally. The increase in our operating cash flow and our ability to remain profitable in a constrained environment is testament to our commitment to create long-term shareholder value. We believe that our continued investment in a strong pipeline of innovative products in global industry talent and in Leatt as a consumer brand will fuel future growth.

Total global revenues in 2023 were $47.24 million, a 38% decrease from a very strong 2022. Our dealers and distributors continue to regulate ordering in the context of elevated industry-wide inventory levels that continue to be digested as participation remains robust. While international distributor revenues were $33.27 million, down 44% year-over-year, dealer direct revenues decreased by 26% and consumer direct sales grew by 18% when compared to 2022. Revenues for the fourth quarter of 2023 were $9.8 million, a 10% decrease compared to the fourth quarter of 2022. Although international revenues in the quarter did increase by 15% as we continue to manage credit risk globally, sorry, did decrease by 15% as we continue to manage credit risk globally, dealer direct sales were encouraging, decreasing marginally by 2% in total and consumer direct sales grew by 23%.

We continue to strive to reach a wider group of consumers on a multi-channel basis that includes leveraging digital and traditional brick-and-mortar channels with our partners around the world. Our goal this year was to efficiently manage through and mitigate the impact of industry headwinds. We managed the impact of sustained regulatory pressure and kept spending under control, increased our margins and reinforced our sales and marketing team. We increased our operating cash flows by $3.57 million to $6.66 million. We also successfully launched an entirely new line of Adventure Gear designed for all weather and all terrain conditions, representing a new milestone for us and the opportunity to reach a wider global community of riders, which we’ll talk about shortly.

As a company and as a brand, we have always strived for design excellence and innovation in all that we do, despite the headwinds that we have experienced. Just last month, we were awarded again for those efforts. We won the 2024 Design and Innovation Award, this time for the MTB All Mountain 5.0 jersey and All Mountain 4.0 pants. This is our 10th Design and Innovation Award and testament to the competency of our global design and engineering team. Now I’ll turn to some more details on sales of our product categories for the full year of 2023 compared to 2022. Sales of our flagship neck brace for 2023 were $2.75 million, representing 6% of our revenues for the year. The 49% decrease in revenues from 2022 was primarily attributable to dealers and distributors continuing to adjust ordering patterns and digest industry-wide inventory levels.

Our body armor products are comprised of chest protectors, upper body protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes. Body armor revenues were $22.58 million, representing 48% of our total revenues for the year, and the 42% revenue decrease compared to 2022 was primarily due to a 43% decrease in upper body armor sales and a 48% decrease in off-road motorcycle boots sold in 2023. Motorcycle boot sales were exceptionally strong in 2022, up by 58% from 2021. Helmet revenues were $11.12 million in 2023, representing 23% of our revenues for the year. Sales of our Moto helmet line for off-road motorcycle use were a highlight, increasing by 45% year-over-year, but were offset by a 49% decrease in MTB helmets sold in 2023, once again, as dealers and distributors, particularly in the cycle industry, continue to cautiously manage ordering and industry-wide inventory levels.

Our other products, parts and accessories category is comprised of goggles, hydration bags and apparel items, including jerseys, pants, shorts and jackets. Revenues for this category were $10.8 million for the 2023 year, representing 23% of our total revenues. The 39% decrease in revenues in this category was primarily due to a 47% decrease in global sales of technical apparel designed for off-road motorcycle and mountain biking use on a year-over-year basis. Here is the financial summary for the fourth quarter and full year 2023. Total revenues for the fourth quarter were $9.8 million, down by 10% compared to $10.9 million for the fourth quarter of 2022. Net loss for the quarter was $1.46 or $0.24 per basic and $0.23 per diluted share as compared to a net loss of $1 million or $0.18 per basic and $0.17 per diluted share for the fourth quarter of 2022.

Total revenues for the 2023 full year were $47.2 million, down by 38%, as compared to $76.3 million for the full year of 2022. The decrease in global revenues is attributable to a $2.64 million decrease in net gross sales, a $3.36 million decrease in helmet sales, a $6.81 million decrease in other products, parts and accessories sales, and a $16.29 million decrease in body armor sales. Net income for the full year of 2023 was $803,000 or $0.13 per basic share and $0.13 per diluted share, down by 92%, compared to $9.96 million or $1.71 per basic share and $1.62 per diluted share for 2022. Leatt continued to meet its working capital needs from cash on hand and internally generated cash flow from operations. At December 31, 2023, the company had cash and cash equivalents of $11.35 million and a current ratio of 6:1.

Looking ahead, we remain optimistic about the progress that we are making toward a return to sustainable growth. As inventory continues to be digested and industry turbulence normalizes, our industry is adjusting, but participation remains very strong and our team remains energized about our future. As I mentioned earlier, the fourth quarter of 2023 represented the first signs of a recovery in our revenue performance. Although revenues decreased by 10% during the quarter, we did see revenue growth in emerging market areas in Europe and domestic MOTO dealer sales in the United States increased marginally. Our e-commerce revenues grew by double-digits and we expect continued expansion in this area. We are very excited about the recent launch of our entirely new line of Adventure Gear designed for all weather and all terrain conditions.

This line represents a solid growth opportunity for the company with a large total addressable market, as it is our first ever entrance into a much wider crossover motorcycle market with products designed for a diverse community of riders around the world. We have developed core competencies that create significant opportunities to build new innovative head-to-toe offerings. In conclusion, we are incredibly enthusiastic about the future of Leatt. Participation in the industry remains very strong with a strong portfolio of innovative products in the market and in the pipeline, a multi-channel sales organization that continues to grow and develop and a robust balanced position, we believe that we are well-positioned for future growth and shareholder value.

As always, we’d like to thank our entire Leatt 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?

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Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Christopher Muller, a Private Investor. Please proceed with your question.

Unidentified Analyst: Hi, Sean. I hope you’re doing well today.

Sean MacDonald: Hi, Chris. Glad to hear from you.

Unidentified Analyst: Yeah. Just two or three questions for you today. First, we’ve spoken before about some of the challenges in building out the U.S. MTB dealer network, and I see you’ve recently been hiring for a number of U.S. sales reps, both Moto and on the bike side. Could you maybe provide an update on progress with respect to the MTB sales and marketing efforts in the U.S.?

Sean MacDonald: Absolutely, and I think it’s a great question, because that is a strong focus area for us currently. Ever since we employed Dain as our VP of Sales and Marketing on the MTB side, we’ve been working really hard at getting industry talent on board. It’s going well. We’ve got a couple of new reps that we’ve employed. Those are company employee reps, and we’re looking at whether we should be bringing on some independents as well. Marketing on the MTB side is going extremely well. We’ve grown the team in the U.S. on that side as well. So the distribution network continues to grow, and in fact, in Q1, we are starting to see some positive indicators of some of the areas that we’ve put in place to date. So to answer your question, it’s going well. We’re carrying on. We’ve still got a lot of work to do, but we think we’ve got some good people on board to help us get us to where we need to be on the MTB side.

Unidentified Analyst: That’s good to hear. And switching over to the international side of things, I see you’ve launched with some new distributors recently, including last week’s announcement from Vedamotors with the Sportech Brazil launch. I would imagine that any time you’re changing distributors that there’s an expectation for greater brand and dealer penetration, but are there any specific changes or opportunities you see with some of these new distributor relationships that you would be particularly optimistic about?

Sean MacDonald: Yes. I think there are some big opportunities coming. I mean, a lot of the new distributors that we’re bringing on are in emerging areas where we don’t actually have strong representation, but with the sales and brand managers that we’ve brought on that are focusing strongly in those areas, there’s a lot of opportunity for growth. So it’s certainly quite correct that the new distributors that we’re bringing on, of course, are stronger financially, but are stronger in terms of their reach to dealers, and generally also stronger on the marketing side and the management side. So that’s the reason why we’re making some changes. You’ll also see that we will be adding new distributors that can get us into some of these new exciting channels that we are now entering like ADV.

In certain cases, a distributor can service Moto dealers and can also service ADV dealers that are a little bit more crossover and in some cases more chain store-like. But in some areas, we’ll be bringing on new ADV distributors, which should open up some really nice new deals and channels for us. And that’s something that we really are excited about.

Unidentified Analyst: Great. And just one last follow-up, if I may. Once we get beyond this initial launch with ADV, would you expect that the majority of product sales to still be with existing Leatt Moto dealers? Or would you expect that this line would ultimately open up new sales channels and dealers that may lean more heavily in the on-road or maybe even commuter side of the market?

Sean MacDonald: It’s a great question. And I mean, ADV is one of those areas where there is a large amount of crossover with the street market, just because a lot of ADV riders, they need to ride on the road in order to get to some of the off-road areas that they need to access. In some cases and in some geographical areas, that is the same dealer. But in many areas, it’s a completely different channel. So this is going to open brand-new doors for us. And ADV is a strong and growing market. If you look, for example, at BMW, which is a great example, BMW motorcycles, there’s about 200,000 BMW motorcycles that are sold globally around the world. And of those, the GS, which is the ADV kind of segment, 60,000 of the 200,000 are ADV GS bikes.

So it’s obviously a very attractive area for us to go into. We’re expecting some really good growth. If you look at the numbers for last year, for 2023, you’ll see there’s some apparel in there. Those are the initial shipments, but there’s a lot more to come. So that is certainly very exciting.

Unidentified Analyst: Great. That was all very helpful. Thanks for the time, Sean. Chat soon.

Sean MacDonald: You too, Chris. Chat soon.

Operator: Our next question comes from the line of Chris Jarrous with Dunlap Equity. Please proceed with your question.

Christopher Jarrous: Hey, Sean.

Sean MacDonald: Hey, Chris. How are you?