Q1 2024 Leatt Corp Earnings Call
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Operator: Greetings, and welcome to the Leatt 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, and 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, director of investor relations. Thank you, sir. You may do it.
Listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance.
Okay.
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.
Michael Mason: Thanks Maria.
Michael Mason: Good morning, and welcome to the Leatt 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 8am Eastern, and filed its report with the SEC. The press release is posted on Leatt's website at leatt-corp.com. This call is being broadcast live and may be accessed on the company's website, and by Jeffrey Guzy. The replay PIN number is 13746608.
Michael Mason: Good morning, and welcome to the Lear Corporation Investor Conference call to discuss the financial results for the first quarter of 'twenty 'twenty four the.
Michael Mason: Company issued a press release today Monday May 13 at eight a M Eastern and filed its report with the SEC.
Michael Mason: The press release is posted on <unk> website at Lee at Dash Corp Dotcom.
Michael Mason: This call is being broadcast live and maybe accessed on the company's website.
Michael Mason: 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 one or one for 123176671 for international callers.
Michael Mason: A replay pin number is 13746608.
Michael Mason: A replay of this webcast will be available following the call and will continue for seven days.
Michael Mason: Certain statements in this conference call May constitute forward looking statements actual results could differ materially from those discussed in the call.
Michael Mason: <unk> Corporation does not undertake any obligation to update such statements made in this call.
Michael Mason: Please refer to the complete cautionary statement regarding forward looking statements in today's press release dated May 13, 2020 for the.
Sean MacDonald: 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 Mcdonalds.
Michael Mason: A replay of this webcast will be available following the call and will continue for seven days. Furthermore, certain statements in this conference call may constitute forward-looking statements. Actual results could differ materially from those discussed in the call. Leatt 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 MacDonald, CEO of Leatt Corporation. Good afternoon to you in Cape Town, Sean.
Sean MacDonald: Yeah, well Yeah Corporation, good afternoon to you in Cape Town Sean.
Sean MacDonald: Good morning, Mike. Thank you.
Sean MacDonald: Good morning, Mike. Thank you and thank you all for joining us today.
Sean MacDonald: 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 signs of a return to growth. Participation remains strong, and the elevated industry-wide inventory levels that have resulted in somewhat of a growth force are being digested. Consumer Direct and Dealer Direct revenues continue to show solid improvement, and our newly launched Adventure line of products generated promising initial shipments during the quarter.
Sean MacDonald: Or what are they all areas of the cycling of motorcycle industries that remain challenging we continue to see the signs of it tends to go right ahead.
Speaker Change: Well just the patient remained strong and the elevated industry wide inventory levels resulted in somewhat of a joke falls all being digested.
Speaker Change: Consumer direct and dealer direct revenues continued to show solid improvement and our newly launched adventure line of products that are generating promising initial shipments during the quarter.
Sean MacDonald: 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 financial 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 71% as our distributors continue to manage industry-wide stocking dynamics, consumer direct sales increased by 15%, and dealer direct sales increased by 9%.
Speaker Change: Despite the ongoing challenges, we believe that our expanding portfolio of innovative products well that's fine.
Speaker Change: National position.
Growing and developing multi multichannel sales organization that is well positioned for future profitability.
Speaker Change: Value.
Speaker Change: Total global revenues for the quarter was $10 six 1 billion bottles, a 19% decrease from the first quarter of 2023.
Speaker Change: Dealers and distributors continue to be like ordering levels.
Speaker Change: Well that sounds talked global distributors, representing 60% of all even useful to first quarter of 'twenty 'twenty four decreased by 51% of our distributors continued to manage industrywide stocking dynamics consumer direct sales increased by 10% Indeed at our export increased online for St.
Sean MacDonald: Domestic and South African dealer direct sales to both motor and MTB dealers also grew during the quarter. This is 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, these are followed by global distributor ordering patterns and performance filters through the channel.
Speaker Change: Domestic ankle African dealer direct felt about Martha and M. D. D. D list also agreed during the quarter a very encouraging trend.
Speaker Change: The months of the gradual recovery that we believe will bolster future distributions over the next several quarters.
Speaker Change: It is relevant to note that the majority of distributor orders that shipped during Q1 of 'twenty 'twenty four week MTV products and were placed in 2023 and industry wide inventory was teaching and sentiment was particularly strange.
Speaker Change: Historically consumer direct and dealer direct revenues, although faster like the pulp market conditions.
Speaker Change: Challenging old blanks.
Paul: Thanks, Paul.
Paul: The ordering pattern.
Paul: Voltaire Street.
Paul: Ken.
Sean MacDonald: 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. However, an improvement in consumer demand, dealer financial strength, and dealer sentiment towards competitively-priced categories have created opportunities to turn slow-moving inventory into 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 continue to stabilize, decreasing by $3.32 million, or 16%, for the first quarter.
We remain very focused on our margins, which decreased in the first quarter largely due to short term promotional activities at the dealer direct channel and particularly in the U S and then improvement in consumer.
Paul: Consumer demand dealer financial strength and dealer sentiment towards competitively cost categories.
Paul: I couldn't opportunities she can slow moving inventory to cash.
Paul: Fuel feature.
Paul: We do expect our margins to improve as you heard in eastern U S products globally and inventory levels continued to stabilize on a pole.
Paul: Despite current industry wide conditions cash.
Paul: 2.18 million to $13 $3 million and net cash flow provided by operations was two points eight $3 million.
Paul: Inventory levels continued to stabilize decreasing by $3.3 million or 16% for the first quarter.
Sean MacDonald: Our liquidity also continues to improve as our team continues to efficiently manage working capital levels. Our new ADV line represents a solid opportunity globally. Unison 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 ADB distribution network and are working with select influencers to build market reach.
Our liquidity also continues to improve as our team continues to efficiently manage working capital levels.
Paul: Although new adventure Eddie V Leiden represents a solid opportunity globally.
Paul: He lives and distributors are there Steve the initial line with great excitement and older in Texas once again demonstrate our ability to develop products that will reach a much wider group of consumers around the world.
Paul: We continue to bolt alcohol ATV distribution network and are working with Nick.
Paul: Influencers pit bull market reach.
Sean MacDonald: ADV legend Chris Birch, our strongest ADV ambassador, has ridden and raced in over 50 countries during his career. He has competed successfully in the world's biggest enduro races, like Erzberg, Red Bull Wasteland Standing, and Hell's Gate. And he has competed successfully in the grueling Dakar Rally, finishing 27th and 2nd in the rookie class in 2012. He is a three-time Roots 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.
Paul: D D legend KRYSTEXXA, our strongest 80 D ambassador that's rather than raised in over 50 countries during his career.
Paul: Christmas competed successfully in the world's biggest jewelry items like big named Boardwalk land spending and Hell Gate and he has completed successfully in the green back already finishing 27th and second floor.
Paul: Clos in 'twenty, two and Paul.
We have three times with a ethically winner and he has been in a pretty uncertain times I wont bore well maniacs, including 2010 winner.
Paul: Especially it's also very active in Youtube and other social media and her design part cost.
Sean MacDonald: 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 is very, very promising. Domestic sales on our consumer-facing leatt.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.
Paul: So far we have only shipped out it'd be technical apparel and I'm very excited about our pipeline or a D. D. Yet we have developed a core competency to create a strong innovative hit to tell offering in this area that are very very promising.
Paul: 6000 are consumer facing media telecom continues to be a highlight as the computer you'll find the platform and reach a wider consumer grade with targeted marketing campaigns.
Paul: It's really launched authority consumer storm from Africa during the quarter with initial well is exceeding all expectations.
Sean MacDonald: Our digital diary to consumer channels continues to be an important focus area as we strive to reach wider consumer groups around the world. We continue to build out a high-performance 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 Leatt family, all facilitated by our relatively strong financial position.
Paul: Digital direct to consumer channel continue to be an important focus area as we strive to reach wider consumer groups around the world.
Paul: We continue to build out a high performing team upsells and other professionals around the world to improve our penetration and reach across sales channels.
Paul: Industry wide consolidation and Tim all have also presented opportunities for us to add new talented team members. Because then you get family all facilitated by a relatively strong financial position.
Sean MacDonald: 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. Now, I will 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.
Paul: Our inventory levels continued to stabilize decreasing by $3 $3 million or 16% in the first quarter as we continue to seek opportunities to 10 out of a slow moving merchandise.
Sean MacDonald: 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.
Let me turn into more details on sales of our product categories for the first quarter of 2024 compared to 2023.
Paul: Sales of our flagship <unk> with $560000 or 5% of our revenues, 28% decrease from 'twenty to 'twenty three.
Paul: The decrease represented a 15% decrease in the volume based in salt.
Paul: Our body armor products second follow up curious protectors full upper body protecting that's affected knee braces.
Paul: The walls of our motorcycle boots, and mountain biking shoes body, Omnicell was $5 million or 47% of our hotel revenues.
Paul: Only 1% decrease from 2023.
Paul: The decrease was primarily the result of about 21% decrease in off a bunch of women using a 48% decrease in the volume of mountain Bakken shoes sold. Additionally, while most of these cells increased about 14% multi beach revenues decreased by 29% due to short term sales promotions to manage inventory.
Paul: The modules as efficiently as possible.
Paul: On the call.
Paul: $6 million or 16% of all gaming is a 46% decrease from 2023.
Sean MacDonald: 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.
Paul: The decrease was primarily due to a decrease in MTBE in almost all cases of 2023 fourth quarter, which reflected homes ordered in 2022 before the current high inventory dynamics.
Paul: All of our other products parts and accessories category is comprised of Basel I collection bags in apparel items.
Paul: Thank jerseys pants shorts injecting.
Paul: And after market product support offerings.
Sean MacDonald: Total sales were $3.33 million, or 32% of our revenues, a 19% increase over 2023. While sales of our MTB and Moto apparel lines did decrease, an increase in revenue came from strong initial shipments of our ADV 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.
Paraguay at $3 $3 million, a 32% of our revenues, 19% increase all between 'twenty three.
Paul: Well south of our MTBE and multi peril lines did decrease the increase in revenue came from strong initial shipments of our Adv of how long the wildfire venture model talk arriving during the first quarter of 2024.
The financial summary for the first quarter.
Sean MacDonald: 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 neck brace 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 of $791,000 down to 157% compared to income 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 US, 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.
Paul: Total revenues for the first quarter of 'twenty 'twenty four were $10 six $1 million down by 19% compared to $15 million for the first quarter of 'twenty to 'twenty three.
Paul: The decrease in worldwide revenues is primarily attributable to a 123 4 million dollar decreasing body almost falls a one for $3 million decrease in home itself and the 220000 decreasing next myself that's were partially offset by a.
Paul: $550000 increase in sales of other products parts and accessories, although distributors continue to manage industry, while walking bottlenecks.
Paul: Loss from operations for the first quarter of $791000 down by 157% compared to income of $1 $3 million for the first quarter of 2023.
Paul: Total operating costs increased by 10% in the quarter, which reflects sustained inflationary pressure and all indoor smoking fueling future growth through brand recognition channel development and a strong got it particularly in the U S to continue building a multichannel team of sales professionals, it's Austin increasing.
Paul: And leveraging revenue opportunities on a regional level that we believe will fuel growth in the coming months and yes.
Paul: Yeah.
Sean MacDonald: The 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.
Paul: Net loss for the first quarter of 2024 was $817000 or 13 since they buy it.
Paul: And 13 cents per diluted share down by 180% compared to net income of $1 million or 17 cents per basic and <unk> 16 cents per diluted share for the first quarter of 'twenty three.
Sean MacDonald: Leatt continued to meet its 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. [inaudible] Compared to a current ratio of 5.61 at March 31, 2023, looking to key areas around the world.
Paul: We have continued to meet its working capital needs from cash on hand, and internally generated cash flows from operations liquidity continue to improve as cash for the first quarter increased by $2.18 million.
Paul: Citywide in 'twenty 'twenty, four and the company had cash and equivalents of $15 five $3 million and a current ratio of nine four to one.
Paul: Compared to a con crash Huh al Fastball 61 March 31 2023.
Sean MacDonald: 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 Delidor Excel shows that our company-owned distribution channels in the US and South Africa grew during the first quarter, which is a very encouraging trend. Sean MacDonald, Olivier Colombo, Christopher Leatt, Jeffrey Guzy, and Christopher Leatt continue to refine our network, and inventory is being digested.
Paul: 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 fall through to revenues over the next few quarters and dealer direct sales of our company owned distribution channels in the U S until the Africa pre.
Paul: During the first quarter, which is a very encouraging trend.
Paul: Although they also have some challenging market conditions in certain industry areas.
Paul: At the distribution level, we all seeing the first signs of a recovery at play.
Paul: We continue to refine our network and inventory is being digested participation remained strong and mobile rec channels typically decline will recover fast are already experiencing.
Sean MacDonald: 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 papering and 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.
Paul: Market conditions continue to normalize.
Paul: Ordering patterns at the dealer level do reflect a tapering in your large preordering daily order volume continues to increase and dealer financial conditions stocking levels and demand sentiment continues to improve.
Paul: We expect that these trends will continue to filter through to the distribution level or at the time.
Sean MacDonald: We remain enthusiastic about the future of Leatt 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 Leatt family, our dedicated attendees, business partners, and team riders for their continued strong support. With that, I'd like to turn the call over to questions.
Paul: 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 another development pipeline, our multichannel sales organization and our team of sales and marketing professionals are growing and developing.
Solid financial position.
Paul: We remain confident that we will return to sustained profitability.
Paul: Profitability and shareholder value.
Otherwise, we'd like to thank our entire family.
Paul: These business partners and team of artists for the continued strong support.
Speaker Change: Well that I'd like to turn the call over for questions operator.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing start.
Speaker Change: Thank you we will now be conducting a question and answer session. 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.
Speaker Change: You May press star two if he would like to remove your question from the kit for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key one.
Operator: One moment, please, while we poll for questions. Our first question comes from Christopher Mueller. Please proceed with your question.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Our first question comes from Christopher York. Please proceed with your question.
Christopher Mueller: Sean, I hope you're doing well today.
Christopher York: Sean I hope you're doing well.
Sean MacDonald: Hi Chris, nice to hear from you.
Christopher York: Hi, Chris Nice to hear from you.
Christopher Mueller: It's always good to speak with you. Just two or three questions.
Christopher York: Always good to speak with you and just just to add two or three questions. You noted at the end there that ordering patterns at the dealer level reflect a decline in large preorders I'd like to understand that a bit better.
Christopher York: I believe you historically had some seasonality in the business in the sense that preorders for next year's line.
Christopher York: During Q2 would lead to stronger revenues in the back half of the year.
Christopher Mueller: You noted at the end there that ordering patterns at the dealer level reflect a decline in large pre-orders. I'd like to understand that a bit better. I believe you've historically had some seasonality in the business in the sense that pre-orders for next year's line during Q2 would lead to stronger revenues in the back half of the year. Of course, last year was a notable exception to that. So I'm wondering how the pre-order trends you're seeing might compare to last year versus more historic norms.
Speaker Change: Of course last year with a notable exception to that so I'm wondering how the preorder trends youre seeing might compare to last year versus more historic norms.
Sean MacDonald: So what we are seeing is that dealers, and that's when you're selling direct to dealers, dealers are more reluctant to place bigger orders on a pre-order level. So because of the stocking dynamics of that experience over the last several quarters, and some of them for several years, they've become more reluctant to invest too much of their cash into pre-orders. So pre-orders have become a bit leaner, but the day-to-day orders are higher. So there's actually more volume coming through on a day-to-day basis with dealers. So those are dealer-direct channels.
Speaker Change: No problem.
Speaker Change: Well, we are seeing is that dealers and that's when you when you're selling direct to dealers dealers are more reluctant to place.
Speaker Change: A bigger orders on a pre order nipple I'm, sorry, because of the stocking dynamics of that experience over the last several several quarters and some of them several years.
Speaker Change: They've become more reluctance to invest too much of the cash it's preorders and preorders have become a bit leaner.
Speaker Change: The day to day orders.
Speaker Change: So there's actually more volume coming through on a day to day basis and with dealers. So theres a dealer direct channels.
Sean MacDonald: I think the seasonality that you're referring to is maybe more on the distributor side of things where, of course, we get pre-orders and then we ship sometimes 70 to 80 days later. So there is a certain reliance on pre-ordering. What I can say is that we are seeing an improvement in pre-ordering in certain areas. However, on the MTB side of things, which is really what's reflected in the Q1 numbers, pre-orders have not been as strong as in previous periods. But certainly on the motor and on the protection side of things, we are seeing an improvement. So things are improving.
Speaker Change: I think the seasonality that you're referring to is maybe more on the distributor side of things where I'm. Unfortunately get preorders and then we ship them and sometimes 70 to 80 days later, so there is a certain.
Speaker Change: Reliance on preordering.
Speaker Change: I can say is that.
Speaker Change: We are seeing an improvement in preordering in certain areas that are on the MTBE side of things, which is really what's reflected in the Q1 numbers are the preorders I'm I have not been as strong as in previous.
Speaker Change: Previous periods, but.
Speaker Change: But certainly on the Mitre and on the protection side of things you are seeing an improvement.
Speaker Change: So things are improving.
Christopher Mueller: So if dealers rely less on preorders and take a more just-in-time approach to their ordering, does that sort of shift the working capital obligations upstream to Leatt? In other words, without firm preorders in hand, do you have to hold greater inventory levels to fulfill that anticipated but more sporadic ordering pattern?
Speaker Change: And so if dealers rely less on preorders and take a more just in time approach to their ordering is that sort of shift the working capital obligations as upstream to lay out.
Speaker Change: Other words without firm preorders in hand, do you have to hold greater inventory levels to fulfill that anticipated that more sporadic ordering pattern.
Sean MacDonald: We do have to make sure that we do have enough inventory on hand to be able to do those deals on a more just-in-time basis, for sure. It's not as if we have no pre-orders; we do still have some pre-orders, so there is a bit more risk that I guess we do need to take when it comes to ordering inventory to make sure that we can perform. So I would agree with your statement that there's definitely more reliance on our own inventory than... Unknown Attendee, Unknown Shareholder, Michael Mason, Sean MacDonald, Olivier Colombo, Christopher Leatt, Jeffrey Guzy, Christopher Leatt
Speaker Change: Would you have to make sure that we didn't have enough inventory on hand.
Speaker Change: He lives in a more interesting time doses for sure and it's not as if we have nurses pre orders, we do still have some preorders.
Speaker Change: Is it a bit more risk that I guess, we do need to take it when it comes to ordering inventory to make sure that we can fulfill so I would agree with your statement that there's there's definitely more reliance on our own inventory that can.
Speaker Change: Looking at the time, though.
Christopher Mueller: Okay, great. Then lastly, for me, turning to gross margins, it sounds like much of the softness this quarter was due to discounting scale inventory in the US. But putting that short-term issue aside, are there any other factors at play here, whether that be in manufacturing, or channel mix, or product mix, particularly with the new ADV line, that would significantly impact your gross margin profile going forward, positively or negatively?
Speaker Change: Okay, Great and then lastly for me turning to gross margins.
Speaker Change: Sounds like much of the softness this quarter was due to discounting of scale inventory in the U S.
Speaker Change: But putting that short term issue aside are there any other factors at play here, whether that be in manufacturing or channel mix or product mix, particularly with the new Adv line.
Speaker Change: That would significantly impact your gross margin profile going forward positively or negatively.
Sean MacDonald: Yeah, so I mean, I think it's a very good question, and you're 100% right.
Speaker Change: Yeah. So I mean, I think it's a very good question and I mean, you know harvest and dry I mean, the main source.
Speaker Change: Softness in our gross margins was due to some short term promotional activity in the U S. A.
Speaker Change: And that's very market related.
Speaker Change: There are some dealers that have become a lot more confidence in terms of consumer demand going forward.
Speaker Change: Now taking some opportunities we are taking some opportunities to sell them some slower moving inventory, that's a little bit older and snuff current inventory.
Sean MacDonald: I mean, the main softness in our gross margins was due to some short-term promotional activity in the US. And that's very market related. So there are some dealers that have become a lot more confident in terms of consumer demand going forward. And they are taking some opportunities, and we are taking some opportunities to sell them some slow-moving inventory that's a little bit older; it's not current inventory. And that has all been created by some of the industry consolidation that we've seen in the US.
Speaker Change: And that is all being created by some of the industry consolidation that we've seen in the U S and some of the big distributors, particularly on the biotech side.
Speaker Change: Do some consolidation activity at the distributor level, which has affected some of our competitors and some of the sell off of older. Good Seth I'd be nuts, and dairy prices. We've seen this as an opportunity to move some of this older inventory and to turn that into cash.
Sean MacDonald: So some of the big distributors, particularly on the motor side, there's been some consolidation activity at the distributor level, which has affected some of our competitors, and some of the sellouts of all the goods have been at very low prices. We've seen this as an opportunity to move some of this older inventory and turn that into cash. At this time, to make room for the new inventory that we'll be bringing in quite soon to fulfill ordering levels moving forward.
At this time.
Speaker Change: To make room for the new inventory that we'll be bringing him quite seen after full ordering levels moving towards in tens or our margins moving forward would you expect margins to improve them I think it's important to note you mentioned ATB that you know, we primarily ship docks are technical apparel.
Speaker Change: ATV side, it's a very competitive area Adv margins on the apparel side, and a little bit tied to them than what we see them.
Sean MacDonald: In terms of our margins moving forward, we do expect margins to improve. I think it's important to note, you mentioned ADV. As you know, we primarily shipped out technical apparel on the ADV side. It's a very competitive area, and ADV margins on the apparel side are a little bit tighter than what we see in the rest of the business. And that's really because of the competitiveness in the area, and it's a strategic move on our behalf.
Speaker Change: And the rest of the business and that's really because of the competitiveness in the area and it's a strategic move in all Aloha. We took the decision that we needed to really get to get the stock them into the shops in front of the Arthur <unk> achievements.
Sean MacDonald: You know, we took a decision that we needed to really get the stock into the shops in front of the eyes of end consumers, and on a short-term basis, our margins there were quite tight. Now, of course, that will change as we start bringing other ADV products into the mix. Things will certainly start improving and balancing out as the mix improves.
Speaker Change: And our short term basis.
Speaker Change: Arjun <unk> with my part now of course that will change as you start, bringing the ABB products into the mix.
Speaker Change: So say it can be stocks are improving and in balancing ops as a mix increase.
Christopher Mueller: Great. That was all very helpful. Thanks for the time, Sean. I'll chat soon. Thanks a lot, Chris. I appreciate it.
Speaker Change: Okay that was all very helpful.
Speaker Change: Sure Jonathan.
Jonathan: Thanks, a lot Chris.
Speaker Change: Got it.
Operator: Our next question comes from Oliver Colombo. Please proceed with your question.
Speaker Change: Our next question comes from Oliver Colombo.
Olivier Colombo: Please proceed with your question.
Olivier Colombo: Yes. Hello Sean. Thank you for taking my questions.
Olivier Colombo: Yes, Hello, Sean Thank you for taking my questions.
Sean MacDonald: Thank you. Hello, Olivier.
Olivier Colombo: Hello Olivia.
Olivier Colombo: I actually have four questions for you. The first one is, can you tell us more about those areas of the cycling and motorcycle industry that remain challenging?
Olivier Colombo: I have actually four questions for you.
Olivier Colombo: The first one is can you tell us more about those areas of the cycling in the motorcycle industry remains challenging.
Sean MacDonald: Yes, sure. No problem, Olivier.
Olivia: Yes, sure no problem.
Olivia: I mean, I guess to kick off is mainly at the distributor level and if we don't drill down.
Sean MacDonald: So, I guess the kickoff is mainly at the distributor level, and if we drill down, it's mainly with MTB distributors. And I would say that the most difficult area right now is Central Europe and the UK. Of course, in the UK, you know, our distributor, Legal CLC, had some administration issues last year, and their liquidation has been announced. So, we are currently in the market with a new distributor that will be coming on board soon, and that will be announced quite soon. It's actually very exciting news.
Olivia: Manny with MTV distributors, and I would say that the most difficult area right now is central Europe, and the U K of course in the U K.
Olivia: Distributor they can see all see them at.
Olivia: Some administration issues last year and they liquidation as it has been announced and so we are currently in.
Olivia: In the markets with a new distributor that'll be coming on board soon and that will be announced vaccines actually a very exciting news, but of course that affected us in terms of Q1 shipments thus yet because last year, we were still shipping to a very healthy distributor in the U K.
Sean MacDonald: But of course, that affected us in terms of Q1 shipments this year because last year we were still shipping to a very healthy distributor in the UK. Central Europe on the MTB side is also pretty tough at the moment. There's been some consolidation there as well and some financial difficulties at the dealer level, which has made distributor ordering a lot tighter than previously. But of course, that is, you know, that will move through the channel over time. So, certainly at the distributor level, there is more prevalence on the MTB side of the business. And in terms of regionally, Central Europe and the UK are really the toughest areas.
Olivia: Central Europe on the MTBE side, it was a pretty tough at the moment.
Olivia: There's been some consolidation there as well and some financial difficulties at the dealer level.
Olivia: It was just named distributor ordering a lot tighter.
Olivia: Ben previously but of course that is now that will move through the channel and all the time so.
Olivia: Certainly at the distributor level more prevalent on the MTBE.
Olivia: One of the business and in terms of regionally central Europe, and the U K are really.
Sean MacDonald: If I look at MOTO, as I mentioned to Chris earlier, in the US, there's been some consolidation at the distributor level. So, you know, traditionally, there were three big distributors in the US, and two of them have had some troubles over the last few quarters.
Olivia: Toughest areas, if I look at much.
Olivia: As I mentioned to Chris earlier in U S. There's been some consolidation at the distributor level for them you know that traditionally there were three big distributors in the U S. Two of them they have been and had some troubles over the last in the last few quarters.
Sean MacDonald: And that has affected some of the other brands out there in the market in terms of their distribution. And, of course, they've also had very high inventory levels. And that has created challenges, certainly, you could say, on the MOTO side, particularly in the US, but also opportunities. You know, we've been in a position where we can move some of our older inventory. Sure, the margins are not fantastic, but those will improve over time.
Olivia: And that has affected some of the other brands out there in the market in terms of their distribution and of course. That's also had very high inventory levels and that has created a challenging certainly you could say on the micro side, particularly in the U S. I thought it was the opportunities are you know we've been.
Olivia: Being in a position where we can move some of our older inventory sure and the margins are not fantastic.
Olivia: Those will improve.
Olivia: Over time.
Sean MacDonald: So, on the MOTO side in the US, we had an increase in sales to dealers, which is great, but the margins were not great, which, of course, reflects some of the difficulties that the marketplace is going through there right now, primarily on the NTD side, Olivier, and some motor difficulties that we are having in the U.S.
Olivia: So the mitre side in the U S. We had an increase in sales to dealers, which is great, but the margins were north Greg's, which of course reflects some of the difficulties that the marketplace is going through the Oh I'm sorry, it primarily on the MTBE side into the air.
Olivia: And some might have difficulties that we are having and yes.
Olivier Colombo: Okay, thank you very much. That's very helpful.
Speaker Change: Okay. Thank you very much that's very helpful.
Speaker Change: A question on the Adv line, which seems to be doing extremely well initially with the first apparel that have been shipped and.
Olivier Colombo: I have a question on the ADV line, which seems to be doing extremely well initially with the first apparel that has been shipped. When do you plan to release the boots and the glove line? And maybe a question for a non-professional from you, maybe a naive question. When a company like Leatt launches a brand new category, wouldn't it make sense to offer head-to-toe directly from day one?
When do you plan to release the boots in the Glove line and maybe a question for nonprofessional from you maybe a naive question when a company like Lear to launches a brand new category wouldn't it make sense to offer head to toe directly from day one.
Sean MacDonald: It's an interesting question, Olivier. I think strategically for us, what we try to do, because, of course, you know, we need to find a place in the dealers and in the distributors. And at the beginning, we found it's best to select an area where there will be investment. But placing ourselves in front of our competitors will not require a huge investment, like a head-to-toe line would require upfront. We then obviously try to get a place on the floor in retail and, obviously also online.
Speaker Change: Well, it's an interesting question Olivia I think strategically for us and what we try to do because of course, we need to find a place in the dealers.
Speaker Change: And then the distributors and the beginning we find its best.
Speaker Change: To select an area, where there will be investment but.
Speaker Change: And placing ourselves in front of our competitors will not require a huge investment like I hate to tell on that.
Speaker Change: Require upfront.
Speaker Change: And then obviously you're trying to get a place on the floor. The Mito and obviously also online and once we establish ourselves as being a value player in the area and we can build a little bit on the brand within released the higher ticket items.
Sean MacDonald: And once we establish ourselves as being a value player in the area, and we can build a little bit on the brand, we then release the higher-ticket items. Now, once you've actually got a position as a player in the channel, and that is exactly what we are doing now with ADV, it obviously does take time to develop these products. And we've been very excited to get this ADV line of apparel out to the market, especially under the current conditions, where we wanted to make sure that we got our apparel in front of consumers, distributors, and dealers as soon as possible.
Speaker Change: Now once you've actually got a position as a player in the channel and that was exactly what we are doing now.
Speaker Change: With Adv.
Speaker Change: It obviously also does take time to develop these products and we've been very excited to get this adv line of apparel.
Speaker Change: To the market, especially under the current conditions, where we wanted to make sure that we got all our apparel I'm in front of them with consumers and distributors and dealers as soon as possible.
Sean MacDonald: Of course, over time, you should start seeing some filtering through over the next few quarters. Our head-to-toe offering will be at the dealer level. So generally, we would look at boots and we would look at helmets and those types of products as a kind of second tier to get us into the dealerships and into the distributors. So in the relatively short term, we should start seeing that at a dealer level and a consumer-facing level, which is, of course, very exciting.
Speaker Change: Of course, all the time and you should start seeing a filtering through over the next few quarters and I hate to tell offering.
Speaker Change: We'll be at the dealer level and so on.
Speaker Change: Generally we would look at our booths and.
Speaker Change: Look at helmets and those types of products as a kind of second tier to.
To get us into the dealerships and into the distributors. So.
Speaker Change: In the relatively short term, we should start seeing that's at the dealer level and a consumer facing level, which of course is very exciting.
Speaker Change: Yeah, Yeah, no no I understand the reason why.
Olivier Colombo: Yeah, no, no; I'd better understand the reason why. And my last question would be regarding salary increases of 26% for the quarter. I guess you have hired some new talent. Can you tell us more about these people, who they are, their industry experience, and what role they will fit at Leatt?
Speaker Change: And my last question would be regarding salary increases of 26% for the quarter. I guess you have hired some new talent can you tell us more about these people who they are they're industry experience and what role will they fit actually yet.
Sean MacDonald: Absolutely, no problem. And I mean, this has really been a very strategic move from our side; we have taken the decision that there are some opportunities that have come out of the current industry dynamics. And particularly, in the US, we've been working very, very hard at building our own employee-managed sales force. So traditionally, in the US, we've worked with a kind of mix of employee sales reps and independent external reps that sell other brands.
Speaker Change: Absolutely no problem and I mean, this is really being a very strategic move them from all fronts.
Yes.
Taken the decision that they awesome opportunities that have come off of the current industry dynamics.
Speaker Change: Particularly in.
In the U S.
Speaker Change: <unk> been working very very hard at building our own employee.
Speaker Change: Manage sales force so traditionally in the U S. We've worked with the kind of mix of employee sales reps.
Sean MacDonald: And over the last several quarters, we've been working very hard to bring on board some great sales managers, sales reps, and marketing people that have become available in the market. In the US, we've got about an additional eight people on board when compared to Q1 last year. We've got two new marketing people that are going to be making sure that we get a great presence at some of the core events. So they're working hard at the grassroots level in the US.
Speaker Change: And independent external reps, that's how other brands and over the last several quarters, we've been working very hard to bring on board and some great sales managers.
Speaker Change: Those reps.
Speaker Change: And marketing people when it becomes available in the market.
Speaker Change: In the U S.
Speaker Change: That's an additional eight people on board when compared to Q1 last year.
Speaker Change: The two new marketing people that are going to be making sure that we get a great presence.
Speaker Change: The cool events, so that they are working hard and things at the grassroots level in the U S.
Speaker Change: Yes.
Sean MacDonald: We also have the balance of then salespeople. We've got an additional two sales managers on the Moto side for different regions, where we see that we've got potential for expansion. And, of course, it takes some time for them to really start flexing their muscle.
Speaker Change: We also have the balance is then salespeople we put an additional two new sales managers on the motto side for different regions, where we see that we've got a potential for expansion and of course. It takes some time for them to really start flexing the muscle.
Sean MacDonald: But that's going really, really well so far. And then, of course, we've got Dane, who's also on board. You know, Dane is an industry guru on the MTV side, and he's our VP of sales and marketing on the MTV side. And he's also brought on a new sales rep on the MTV side. Great experience.
But that's going really really well so far.
Speaker Change: And then of course, you have Diane you bolt on bolt.
Dave is a.
Speaker Change: And industry grew on the MTBE side and he is our VP of sales and marketing on the MTBE side.
Speaker Change: There's a vote on a new sales rep on the MTBE side.
Sean MacDonald: And then, of course, the balance is really sales reps. So these are employee sales reps based in the US, covering the domestic market there, making sure that we improve our presence at the dealer level. It's still a huge opportunity for us to grow its dealer base on the Moto side, and especially now that we have ADV on board as well. It's a door opener for us and something that we'll be focusing really, really hard on moving forward.
Speaker Change: Great experience and then of course, the balance is really solve their studies on employee sales reps.
Speaker Change: In the U S covering a domestic market they are making sure that we improve our presence at the dealer level is still a huge opportunity for near to grow its dealer base on the multi side and especially now that we have a T V on board as well it becomes a door opener for us.
Speaker Change: Something that we'll be focusing really really hard on them.
Speaker Change: Moving forward and then if I look at and and the rest of the World and we do have new product developers on board, that's a huge industry experience in developing a few.
Sean MacDonald: And then, if I look at the rest of the world, we do have new product developers on board that have got huge industry experience in developing a few new categories on the Moto and the MTV side, which will be very exciting and should be in the market over the next few quarters. But, of course, their salaries will go to product development costs.
Speaker Change: New categories on the military and the MTBE side, which will be very exciting and should be in the market.
Speaker Change: Over the next few quarters.
But of course their salaries will go to product development costs.
Sean MacDonald: So in a row, we have also recently brought in during Q1 a sales and brand manager that is focusing on Eastern Europe, which is a huge emerging area for us. In fact, in Q1, we grew quite nicely in Eastern Europe. We see that as an area of great potential. Maciej came on board. He used to work for one of our strong distributors in Poland, and he's now working for Team Lietz. Focusing on the area, we do see great potential for growth there. And I think one can expect us to continue looking at growth areas and finding strong people that will add focus to those areas moving forward.
Speaker Change: So in Russia, and we have also recently brought on in Q1, and a sales and brand manager and that is focusing on eastern Europe, which is a huge emerging area for us in fact in Q1, we grew quite nicely and in eastern Europe, and we see backs them everyday.
Olivier Colombo: That's perfect. Thank you very much for the detailed answers to my question. I really appreciate it, Sean, and wish you and the team all the best. Thank you, Olivier.
Speaker Change: They're all great potential metric came on board and he used to work for one of our strong distributors.
Speaker Change: And and he is now working for two mix focusing on the area, we do see great potential for.
Speaker Change: Go for it.
And I think one can expect us to continue looking at both areas and finding strong people that will add this to those areas moving forward.
Speaker Change: Okay. That's perfect. Thank you very much for the detailed answers to my question I really appreciate it Sean and wish you and the team will kind of familiar.
Sean MacDonald: Thank you so much, Olivier. Talk soon.
Speaker Change: Thank you so much a linear function.
Sean MacDonald: We have reached the end of our question and answer session. I would now like to turn the floor back over to Sean MacDonald for closing comments.
Speaker Change: We have reached the end of our question and answer session I would now like to turn the floor back over to Sean Macdonald for closing comments.
Sean MacDonald: Thank you all for joining us today on this call. We look forward to our next call to review the results of the 2024 second quarter.
Sean MacDonald: Thank you all for joining us today on this call. We look forward to our next call to review the results of the 2020 for second quarter.
Operator: This includes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Hmm.
Speaker Change: Hum.
Speaker Change: Mhm.
Speaker Change: Hmm.
Operator: [inaudible] Unknown Attendee, Unknown Shareholder, Michael Mason, Sean MacDonald, Olivier Colombo, Christopher Leatt, Jeffrey Guzy, Leatt Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Mason, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Jeffrey Guzy, Unknown Shareholder, Michael Mason, Sean MacDonald, Unknown Attendee, Unknown Shareholder, Michael Mason, Sean MacDonald, Olivier Colombo, Jeffrey [inaudible] MacDonald, Sean MacDonald, Olivier Colombo, Jeffrey Guzy, Leatt Unknown Attendee, Michael
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