Q3 2023 Leatt Corp Earnings Call
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Greetings and welcome to Lee at Corporation 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 face until you said if it.
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, Jerry Good morning, we apologize for the delay and thanks for your patience welcome to the Lear Corporation Investor Conference call to discuss the financial results for the third quarter of 2023.
The company issued a press release today Monday November six 2023 at eight a M Eastern and filed its report with the SEC.
The press release is posted on <unk> website at Www Dot Leah dashboard dotcom.
This call is being broadcast live and maybe 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 184451 to two nine to 14141 to 3176671 for international callers.
The replay pin number is 13742073.
A replay of this webcast will be available immediately following this call and will continue for seven days.
Certain statements in this concept in this conference call May constitute forward looking statements actual results could differ materially from those discussed in this call.
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 six 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 Lear Corporation.
Corporation Good afternoon to you in Capetown 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 patents, 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 over stocking dynamics.
The comparator was also a particularly challenging as the comparative period Q3 of 2022, well, it's all third best quarter ever in terms of revenue, what's the 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 a global distributors and dealers continue to digest stuck and the latest strong participation trend continues.
More recent international ordering pattern already indicate 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, a 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 travelers up by 277% compared to $1.7 million for the first nine months of 2022 and we ended the quarter with pinpoint $8 million of cash and equivalents.
Total revenues for the third quarter of 23 were $12 million or 48% decline compared to last years third quarter, one of the strongest in our company's history.
Yeah.
International revenues were $8 $2 million, a decrease of 54% year over year and cells in the United States decreased by 29% to $3 $9 million net income for the third quarter was $460000 a decrease of 18, 9% compared to the strong prior year.
And our dealers and distributors continue to suggest the stock, but the the inventory overhang post pandemic.
We have intensified our efforts to develop an innovative multichannel Android that selling organization that has the ability to reach a wider consumer base of writers at all levels.
We continue to build a strong intelligent team of product sales and marketing professionals and have recently invested in the continued success of our M. T V business.
This is an area where some of our competitors are pulling back and we see a great opportunity to both market share.
Does that and we have added two key leaders in MTB you share our infectious passion for innovation and riding and he will help us bring a new level of focus to our MTBE business around the world.
Our 'twenty to 'twenty four MTV launch is eminent and will include additional head to toe offerings well its 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 Aqua and international motorcycle shot in Milan, Italy.
These products are specifically designed for motorcycle rod is at all levels that seek adventure and need technical yeah that enable writing in all weather conditions and Oliver Ultra range.
This is not a huge segment that should open doors at the dealer level and more importantly reached a wide community of writers.
As always these products, which included new boots and gloves, all developed in house by our global design and engineering professionals and I'm fully tested for safety and protection at all onsite leased facility.
We believe that our adventure line is a testament to our team's ability to once again developed innovative yeah that appeal to a wider group of riders globally.
Now I will turn into more details on sales of our product categories for the third quarter of 2023.
Sales of our flagship Nick price was $710000 accounting for 6% of our revenues of six 3% decrease from last year due primarily to the decrease in volume of make prices solved in the U S and abroad.
In the third quarter of 2020 to Nick Bray cells were $1.89 million and 8% of our revenues.
Our body armor category includes chest protectors upper body protect it there's knee braces knee and all the guards, all fried motorcycle boots and mountain biking shoes.
What are you all Marcellus well at $5.46 million accounting for 45% of our revenues.
48% decrease in revenue was primarily due to a 40% decrease in upper body all michelle's globally.
Third quarter of 2020, Geez, what do you all have a sales were $10.52 million and 45% of our revenues.
Itself, what 249 $7 million or 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 much of the homeless fall afraid of motorcycle use that.
That quarter was exceptionally strong for home with revenues up 88% year over year, how much sales represented 24% of our revenues for the quarter compared to 19%.
For the comparative quarter.
Our products parts and accessories are comprised of puzzles hydration bags, and apparel items, including jerseys pants shorts and jackets.
Sales in this category for the quarter with $2 nine $7 million or 25% of our revenues a decrease of 54% due primarily to the decrease in sales volume of our motor and MTV technical apparel design for fried motorcycle and arms and backing us compared to an exceptionally strong third quarter of 2022.
Technical apparel and a third cohort of 22 had increased by 51% over the prior year.
Here is our financial summary for the third quarter and first nine months of 2023.
Total revenues for the third quarter of 23 were $12 million down about 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 dollar decrease in body on myself for $3 5 million dollar decrease in <unk>.
Other products parts and accessory yourselves at $1.5 million decrease in helmets cells, and a $1 2 million a decrease of Nick myself.
Income from operations for the third quarter of 2023 was $620000 down about 89% compared to $5 5 million for the third quarter of 2022.
Net income for the third quarter was $460000 or eight cents per basic and seven cents per diluted share down about 89 for San Francis compared to net income of $4 $1 million or 70 cents per basic and 65 cents per diluted share for the third quarter of 2022.
Global revenues for the first nine months with $37 $4 million down about 43% compared to the first nine months of 2022 gross profit margins increased from 42% to 43% for the first nine months of 'twenty three compared to the same period of 2022.
Net income was $2 $3 million down about 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 lift.
<unk> continues to meet its working capital needs from cash on hand, and internally generated cash flow from operations and at September 32023, 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.
7.5 G. One.
Looking ahead, our growing talented and passionate team remains enthusiastic about all exceptional expanding product range, our outreach to new water markets and brand momentum that positions us well for future growth and exponential gains.
Although we do expect some further constrained ordering patents internationally, particularly is it for my MTV partners as inventory is digested, we are well diversified in terms of market penetration and product offering and we continued to build our multichannel sales organization to leverage products and brand momentum globally.
We are encouraged by the results of our efforts to both consumer direct selling which continues to grow increasing by 16% year to date compared to the same period in 2022.
Revenues I'll, let Todd comment on 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 boats over the past several years, it's still find encouraging indicator of an increasing consumer demand for our products that should further influence revenues as the inventory is digested Bob dealers and distributors we are.
We're actively expanding our ability to sell and market lift products directly to consumers love any with all 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 patents 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 overtime. We are confident that the other stocking dynamics will resolve a stuck 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 a return to revenue growth as.
As always we'd like to thank our entire let family our dedicated employees business partners and team writers for the continued strong efforts and support.
With that I'd like to turn the call over for any questions operator.
Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star he is.
So once again that is star one on your telephone keypad.
Our first question is from Christopher <unk>. Please proceed.
Hi, Sean I hope you're doing well.
Hi, Chris Nice to hear from you.
So it's good to speak with you just a few questions today.
First of all is there any material revenue associated with the new adventure line or the <unk>.
<unk> in the third quarter results or would those initial stocking orders.
Primarily here in the fourth quarter.
Those have not shipped yet so that'll that'll primarily be coming through in the fourth quarter of 2023, and then obviously moving forwards.
Great.
And secondly, it's no secret that some distributors and large online retailers in the U K and European Bank markets are facing some pretty uncertain financial futures at the moment.
I suspect that some of these are also significant sales channels for our lead product.
So I was wondering I realize this is a pretty fluid situation, but are there any thoughts you could share around this and maybe how you see it.
Playing out over the next year.
Sure and I mean, absolutely I mean directly those are some of our customers and indirectly some of our customer sell through some of those e-commerce channels that are affected.
And I think of course, I mean, it's it's not great that some of the funding was pulled by the holding company that supports some of us E Comm partners and I think in the short term that certainly might have an impact on the ordering patterns. They remain very strong e-commerce brands and channels.
And I would be surprised if they were not picked up in some way by them by entities that are looking for growth in the future.
So I think the brands themselves that e-commerce brands themselves will continue in the future but of course, there is going to be some some short term pain here.
You know they might have to into some kind of a business rescue situation, which does affect ordering ability at this stage.
I'm sorry for what I've seen is that it's business as usual, they're continuing to sell they haven't closed any e-commerce shops.
And they're doing their best not to get themselves I'm out of the situation in either gets and your own Oh, new funding in place and as I say it fundamentally these are strong brands on the e-commerce space, they have a very loyal and dedicated.
And.
But to the consumer.
Base that they sell to them and that's that of course remains in place, but it will take some time for them to them to get back to them.
And I kind of situation when they can return to significant ordering I would imagine so in the short term.
It might affect some of the orders that we see coming through from them. That's number one number two of course, they will be selling out some of the inventory into the market. We don't expect that to be having significant impact on anything but.
But there might be some short term pain there.
And then as I said in terms of the future I think that will still remain a solid partners in the market. It's just going to take some time for them to get to that position again.
Yeah.
Alright, I appreciate the color there and lastly for me it seems like the new Enduro helmet has been very well received.
I noticed you've done quite a bit of marketing specific to these.
Do you feel like you're having some success, maybe not only in winning share from competitors, but maybe changing consumer perceptions around convertible helmet as they are.
Viable attractive category.
No absolutely and I mean, I think you know what.
I would say that we were really very enthusiastic by the the reception of that how much at the distributor level at the dealer level and now of course at the consumer level and we've been working very very hard at refining them you know that category for a very long time, we are up against them.
Some strong competitors in that area and it's very encouraging to see that's you know there was some surveys done recently in vital MTB and all convertible how much came up as the top home at that people intend to use to purchase which is great.
It just it just is testament to the fact that we can develop products that appeal to a wide range of consumers and you know, especially with the black market that is a strong growing segment around the world. It's the kind of helmets, which has so many different applications.
And it really is a trial, but a trailblazing product and are an important source of revenue the entire category actually.
Moving forward. So you can expect us to continue marketing that sigma heavily in some of the new.
Marketing people and MTV, that's been put on board sales and marketing people are very very excited about the the the opportunity that that products and the related products represents.
Well, that's great to hear well I hope you like Michelle Wallach.
Thanks again for the time Sean.
Thank you Chris chat soon right.
Our next question is from Chris Jaras with.
Dunlap equity. Please proceed.
Hey, Sean Great to talk to you Hey, Chris how are you.
Very good very good. Thank you just following up on the other Christmas a question, maybe I missed it while you were answering but.
The situation you discussed with that that ordering in Europe do you feel like those issues have caused obviously, we know everything in Europe has been good.
First ore on that way now, but do you feel like it's amazing.
It got any worse than it otherwise would've been like when you look at the partners associated with that group. That's you know.
Trouble because they they seem to be anything worse off than their peers.
I don't think that I mean, if you look at the group of companies that we're involved in.
The and the reason that they're having and these financial difficulties is is very very simple they funding was pulled.
Pulled from kind of from underneath their feet overnight from the main fund, which was a holding company that was listed in the U S.
And that is a reason why they are not able to continue in the current form.
So I think that places them in a bad position now, but before you know.
That happened, which was a kind of overnight very exceptional situation. They were not in a bad position at all actually trading really.
On a positive trend.
And you know I have obviously direct contact with the people that work in these dozens.
You know these are our partners and the feedback certainly is that as surprised as everybody else, which means that they will not ah in extreme difficulty before the funding was pulled of course that had times in the last year like everybody did where they were pressures in terms of stock and they had to.
It has to freeze some pretty interesting that in general E Commerce business in Europe sure that that have been sitting with the other stock situation, but there is a level of sell through.
Which is positive and it's the same as what we see on Leer South Congress the close of the U S. As the brand gets to the end consumer you know and kind of gets to leapfrog over the the stocking dynamic.
Later the situation looks.
Telecom was the viney area really in the business in terms of our revenue channel where in Q3, we grew by 30%.
So e-commerce channels, they still have a selling and and the feedback that I've gotten from some of the key guys, including some of our customers that have been selling three mm. Two these internet stores at all in trouble now is that the trend on the itself remains.
Positive of course, they are selling the stock that they have and Ah that sell through that we're able to to where the more and that's exactly the position that we're seeing now and and I spoke a little bit.
Earlier in the script the ordering patterns that we're seeing from our international distributors, including MTBE distributors.
Is more positive.
And then what it was a few months ago. So there is an improvement and it would it would be the same.
Can it continue ordering now and we don't see a huge impact them from some of the e-commerce stores that all that've been affected yet, but I do think in the short term there will be some some pressure on pricing are there will be some flooding of stock into the market and again that will need to be managed.
We've been managing that for about a year now and it should it should sell through.
Okay, great and you've been able to grab some some great exact from peers.
Peers, who are.
Yeah, it's letting people go.
Is that do you have what you need now or are you still on the look for more.
Yeah, I'd say, we've also added a few a few product development our team members and to help with some new.
Key categories that'd be really wanted to refine them and in terms of the in the in the U S. And we still are building out the sales rep and employee rep capabilities. There. So there will still be a few key people that we want to bring on there but in terms of exact from the high level guys.
I think we've got a really great team and a really great family, they're off a very committed.
Hum.
Our team members and so I think we're pretty good there.
And it's a it will be more on the on the actual cells and Rep force that will be working really hard.
As part of all focus on MTBE, particularly in the U S.
Okay, Great and last question for me is just as you go into these new product lines and in looking at the current product lines I mean any areas in particular that hold.
Excitement for you or do you think when when things normalize they'll kind of looked at our standup products.
For sure I mean, I really would say that the adventure line is a it is a very big opportunity you know, there's a bit of crossover between adventure.
And commute road market in Europe, we've already got a great feedback from some chain stores.
The European side, So we've got great products we've.
Fusion with our existing distribution partners I would expect that that will be something over the next several quarters that will start to show up and that's great and then <unk> been talking a lot about the insurance segment on the MTBE side and I must say, there's there's a huge opportunity there.
It's not only insurance, which is your you'll you'll you'll mountain biking typical mountain biking rider. It's also the graduate block segments, which is the fastest growing segment outside of U box at the moment and we've got picked up products that will be we will be launching that will be applicable to all.
Buzz concert segment, so I think there's a huge opportunity there.
Of course MTB is currently under a little bit of pressure slowly in terms of stock, but once the stuff filters through the system and the next wave of growth communist because it is going to come.
You know I think we'll be well positioned to leverage our position as a niche brand that caters for a very wise right audience.
Okay, that's great Fantastic and park Central I think you're correct.
Thanks, a lot Chris talk soon.
We have reached the end of our question and answer session I would like to turn the conference back over to Sean for closing comments.
Thank you all for joining US today, we look forward to our next call to review the results of the 'twenty to 'twenty three fourth quarter.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Uh huh.
Yeah.