Q3 2024 Leatt Corp Earnings Call
Speaker Change: Greetings and welcome to the third quarter 2024 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance for this conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this concert is being recorded. It is now my pleasure to introduce your host, Michael Mason, Investment Relations of Viac Corporation. Thank you. You may begin. Thank you.
Michael Mason: Thanks, LaTanya. Good morning and welcome to the LIAC Corporation Investor Conference Call to discuss the financial results for the third quarter 2024.
Michael Mason: The company issued a press release today, Tuesday, October 29, 2024 at 8 a.m. Eastern and filed its report with the SEC.
Michael Mason: This call is being broadcast live and may be 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 844-512-2921 or 412-317-6671 for international callers.
Michael Mason: The replay PIN number is 13749831.
Michael Mason: A replay of the webcast will be available immediately following this call and will continue for seven days.
Speaker Change: Please refer to the complete cautionary statement regarding forward-looking statements in today's press release dated October 29, 2024. The company will make a presentation on the quarterly results and then open the call to questions.
Speaker Change: I would now like to turn the call over to Mr. Sean MacDonald, CEO of Liac Corporation. Good afternoon to you in Cape Town, Sean.
Sean MacDonald: Good morning Mike and thank you all for joining us today. We are all very encouraged by the results of the third quarter of 2024. We see it as a pivotal quarter as global revenues return to growth, albeit still marginal at this early stage.
Sean MacDonald: Total global revenues for the quarter were $12.14 million, a 1% increase year-over-year. Body armor sales were up $270,000, helmet sales were up $140,000, and neck brace sales were up $40,000.
Sean MacDonald: International sales were $8.58 million, up by 5% as inventory continues to be digested and the uptick in ordering begins to falter through to our revenues. Gross profit for the third quarter was $5.17 million.
Sean MacDonald: Although we continue to monitor the impact of potential economic headwinds, and there are still areas of enstrained inventory, the start of our privacy growth is the important and encouraging point, as participation remains strong and ordering patterns continue to improve.
Sean MacDonald: Our margins also continue to improve on a quarterly basis, increasing by 4% sequentially over the second quarter as we manage clearing all the inventory and selling newer stock at higher margins.
Sean MacDonald: Our inventory levels continue to stabilize, decreasing by $4.62 million, or 23%.
Sean MacDonald: over the last few months as we continue to seek opportunities to turn over slow and medium inventory and replenish stock levels in preparation for stronger ordering.
Sean MacDonald: We continue to ship orders for our EDB Adventure apparel line, a product line designed for motorcycle enthusiasts, seeking comfort and safety while riding in all weather conditions and terrains.
Sean MacDonald: We remain confident that we have the initial distribution, track record, core competencies and talent to continue delivering a pipeline of innovative ADB product categories to reach the substantial market segment.
Sean MacDonald: Footwear, comprising of MTB shoes and multiple detailers, contracted on a variable basis during the quarter.
Sean MacDonald: The market has been particularly constrained in the current environment, with aggressive competitive pricing and high inventory levels causing very cautious buying at the dealer level. We expect this area to improve as inventory is digested and the ordering continues to pick up.
Sean MacDonald: We continue to see very encouraging trends at the direct-to-consumer level, growing by 12% during the quarter. Our consumer direct platform in South Africa continues to display strong sales, exceeding our expectations.
Sean MacDonald: Our liquidity continues to improve as our team continues to manage working capital efficiently.
Sean MacDonald: Overall, despite some constrained brick-and-mortar-motored unitails in the US during the quarter, our team remains enthusiastic about this pivotal moment in our recovery that is currently in play.
Sean MacDonald: We believe strongly that our investment in talent, innovative product development and the brand, as well as our distribution capabilities, will fuel growth going forward.
Sean MacDonald: Now I will turn to more details on sales of our product categories for the third quarter of 2024 when compared to the third quarter of 2023.
Sean MacDonald: at Tribute to Bull primarily to a 109% increase in sales of our premium 6.5 necklace, partially offset by a 37% decrease in sales of our 3.5 necklace.
Sean MacDonald: Net price sales were 6% of our total revenues for the quarter.
Speaker Change: Our body armor products are comprised of chest protectors, full upper body protectors, knee braces, knee and elbow guards, off-road motorcycle boots, and mountain biking shoes.
Speaker Change: Body armour revenues for the 2024 third quarter were $5.73 million, a 5% increase year-over-year.
Speaker Change: The increase was primarily the result of a 25% increase in cells of upper body and limb protection.
Speaker Change: Partially offset by a 55% increase in sales of footwear, comprising motorcycle boots and mountain biking shoes, as our distribution partners continue to digest inventory of body armor products with 47% of our total revenues.
Speaker Change: Helmet sales were $3 million, a 5% increase year-over-year, due primarily to a 98% increase in the sale of our motor helmets, partially offset by a 22% decrease in sales of our MTB helmets. Helmet sales made up 35% of our revenues for the quarter.
Speaker Change: as well as aftermarket support items.
Speaker Change: Revenues were at $2.65 million and 11% decrease year over year. The decrease was partially due to a 37% decrease in MTB apparel sales as our MTB distribution partners compared to manage ordering, as a result of stocking dynamics.
Speaker Change: other products and parts and accessories category made up 22% of our revenues for the quarter
Speaker Change: Now I will turn to our financial results in a bit more detail.
Speaker Change: Total revenues for the third quarter of 2024 were $12.14 million, up by 1%, compared to $12 million for the third quarter of 2023.
Speaker Change: This increase in worldwide revenues is primarily attributable to a $270,000 increase in body armor sales.
Speaker Change: a $140,000 increase in helmet sales, a $40,000 increase in neck brace sales that were partially offset by a $320,000 increase in other products, parts and accessories sales.
Speaker Change: Net income for the first quarter of 2024 was $116,000.
Speaker Change: or $0.02 per BASIC and $0.02 per WT Chair down by 75% as compared to net income of $460,000 or $0.08 per BASIC and $0.07 per WT Chair for the third quarter of 2023.
Speaker Change: NET continued to meet its working capital needs from cash on hand and internally generated cash flow from operations. At September 30, 2024, the company had cash and cash equivalents of $12.47 million and a current ratio of 6.5 to 1.
Speaker Change: Although there are still some challenging economic headwinds globally that may impact Iran to some extent.
Speaker Change: Inventory continues to be digested, participation remains strong and ordering patterns continue to improve and have started to filter through to our international distribution revenues and ultimately our revenue position. This is a trend that we expect to continue over the next few periods and beyond.
Speaker Change: Additionally, we have some very exciting new distributor partnerships in the United Kingdom, Europe and emerging markets that should filter through to revenues over the next few quarters.
Speaker Change: We will continue to optimize our selling capabilities by building a team of sales and marketing professionals around the world, as industry-wide turbulence presents an opportunity to continue growing the Lear family by adding talent.
Speaker Change: Although these investments typically take some time to make an impression on our results, we do believe that building out a great global team is a cornerstone of our future growth plans.
Speaker Change: In conclusion, we are all very enthusiastic about the future of the X.
Speaker Change: and the Global Growth Pipeline. A multi-channel solar organization that is growing and developing and a robust energy to fuel brand and revenue growth. We remain confident that we are well positioned for future growth and increased shareholder value.
Speaker Change: As always, we'd like to thank our entire DEF family, our dedicated employees, business partners and team riders, for their continued strong support. With that, I'd like to turn the call over for any questions. Operator?
Speaker Change: Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: Once again, that's star one to ask a question at this time.
Speaker Change: One moment while we pull for our first question. Our first question comes from Oliver Colombo with Private Investors. Please proceed.
Oliver Colombo: Yes, good afternoon, Sean.
Sean MacDonald: Hi. Hi, Olivia. How are you?
Oliver Colombo: Doing fine, thank you very much. Nice to see the company grow again and hopefully Q2 of this year marks the low point in this inventory cycle.
Oliver Colombo: I have a couple of questions for you. The first one is, it looks like Europe has stabilized and customers are coming back. Have you seen this also and if yes, can you provide a few anecdotes?
Speaker Change: I think people are starting to feel a little bit more confident in terms of spending.
Speaker Change: And if you look at the latest Consumer Sentiment and Confidence indexes, you'll see that there was an uptick in October, albeit...
Speaker Change: I think consumers are expecting things to get better.
Speaker Change: and that is fueling a return to a level of spending.
Speaker Change: That's on the consumer side, and then of course with our customers in Europe, when you can see it in ordering.
Speaker Change: ordering is looking a lot more positive now. It's certainly at an up-tick that is selling through. Inventory has been digested and, of course, on the business side as the cost of capital increases with the decrease in interest rates, things always start looking river like.
Speaker Change: I think we are well positioned in Europe for things to improve quite nicely.
Speaker Change: That's perfect. Thank you very much.
Speaker Change: My next question is regarding your cash which continues to increase and
Speaker Change: is now at 12.5 million. Do you have any particular plans to use this money in the coming months?
Speaker Change: Thank you.
Speaker Change: It's a good question, Olivier, and it's something which we obviously do look at internally and we're quite focused on it. There's a couple of uses. I mean, we're expecting to return, hopefully, to a position of sustainable growth. And with that will come an investment in working capital in the U.S.
Speaker Change: and in South Africa. The factory ordering, I think, starts to intensify again. So some of the cash that we currently have on hand will go back into working capital which is, of course, a great use of our cash.
Speaker Change: I mean, I think, you know, there's a couple of other things that we're looking at. Of course, we are intensifying our spending on marketing, and you can see that in the results. Marketing costs are up.
Speaker Change: Sales and marketing are certainly an area for us, where you can expect some increase in spending and particularly
Speaker Change: on the marketing side, and as we build up our sales organization around the world, there will definitely be some selling costs needed.
Speaker Change: So cash will certainly be allocated to that. And then, of course, any opportunities that come around, they're always on the lookout if there are interesting areas, categories.
Speaker Change: we can add, you know, we will look at how to invest our cash. So, certainly something that we are thinking about. We do have some plans. I think investing in the Lear brand is a smart move.
Speaker Change: It certainly gained us brand momentum in the past, and building up a strong selling organisation that can sell our very extensive head-to-toe product categories is also a wise use of our cash moving forward.
Speaker Change: Investing in inventory accounts receivable and factory credits also have to be a smart move for us.
Speaker Change: What makes you the most proud in this quarter and what did you actually not like or where you see some kind of headwinds?
Speaker Change: Oh, that's an interesting one. I think, of course, we're very proud of the fact that we've returned to growth. We're very proud of the fact that if you look at our revenues on a sequential basis, just compare Q3 to Q2, our revenues are up by 20% and we managed to increase margins sequentially by 4%. That's a huge ask.
Speaker Change: In the current environment, there are still some constrained areas of inventory. I'm really proud of the team for balancing out the sell-out of some of the older inventory, converting that into cash at lower margins and balancing that out.
Speaker Change: we are selling new inventory at high margins. I think that's being managed really, really well. Brick and mortar sales in the US, in certain regions, were a little bit tough.
Speaker Change: I think we've reacted well to it. It's something that we are monitoring, something that we are certainly working hard on to make sure that we put the right
Speaker Change: both Scott MacDonald and Vickie Baker.
Speaker Change: And if we manage to work in capital or company, you know, which will obviously fuel our growth moving forward.
Speaker Change: That's perfect. Thank you very much. And I'm looking forward to the progress in the next quarter. Thank you very much. Have a nice afternoon. Thank you, Olivier.
Speaker Change: The next question comes from Nick Fisher, a private investor. Please proceed.
Sean MacDonald: Good morning from the U.S., Sean. I appreciate you taking my question. Good morning, Nick. No problem.
Nick Fisher: My question really revolves around the increase in salaries over the last nine months of 30% and then obviously the increase in marketing of 26% over the last nine months.
Speaker Change: You mentioned intensifying marketing and sales efforts, but if you could provide a little bit of color just on how much of that is strategic investment versus just kind of your new cost structure post-COVID and with inflation and whatnot.
Speaker Change: Sure, no problem. So, I mean, the primary salary increases are really on sales and marketing staff, so in the U.S.
Speaker Change: We changed our model, we've now got a full employee workforce, so they are of course salaried and there's also some costs that come with that in terms of travel costs and that type of thing.
Speaker Change: So that was a strategic move. We feel that there's an opportunity in the marketplace with some of the talent that became available.
Speaker Change: in the form of reps and sales managers to bring on people that are going to fuel growth moving forward. So you could say that that was a strategic move, which we will see.
Speaker Change: paying off over the next several quarters as conditions continue to improve. On the marketing level, it's is also around our AWD line. So AWD is obviously an important area for us.
Speaker Change: in that area. And we did not want to take away anything from MTV and Moto because we feel that investing in the Lear brand on the motorcycle side and the mountain biking side will definitely pay off in the future.
Speaker Change: So we increased our marketing budgets.
Speaker Change: towards IDB as well, to bring that in, to build IDB as a brand.
Speaker Change: So far, that really has been paying off nicely for us. I mean, on a year-to-date basis, ADB is 8 to 10 percent of our sales, so that's really nice to see. So I think those investments are paying off in the current market conditions.
Speaker Change: In terms of back to the salaries, we've also brought on some brand managers, some sales and brand managers outside of the U.S. And, I mean, this is all about building out a...
Speaker Change: Our sales have increased and it makes sense for us to bring on professional sales people that can take care of our customers in those areas again.
Speaker Change: If you look at the uptick in our ordering that we're seeing, some of that is due to the focus that we've managed to achieve in those areas.
Speaker Change: That's very helpful. Thank you for the call. I appreciate it.
Speaker Change: The next question comes from Christopher Mueller, a private investor. Please proceed.
Christopher Mueller: Hi, Sean. Hope you're doing well today.
Sean MacDonald: I'm doing okay, thank you.
Christopher Mueller: Maybe three or four questions today. First, it's good to see some growth again with international revenues. For clarity, does the third quarter distributor revenue include initial stocking orders for all 2025 lines, or is the third quarter more heavily weighted to the Modo side?
Speaker Change: It will be the motor side. So we'll be shipping MTB over the next several quarters. There are some MTB cells that are included, but it's primarily motor cells, Chris.
Christopher Mueller: Okay, that's helpful. Thanks.
Speaker Change: And second, you commented on particular weakness in footwear and apparel, offsetting gains elsewhere.
Speaker Change: Is the inventory overhang and discounting particularly notable there just because of the sheer number of competitors in these categories? Or is it the more discretionary nature of those product purchases? Or is there something else at play that makes those categories especially difficult?
Speaker Change: I think I'm just looking at footwear, I mean when it comes to footwear of course you've got to have a full size range when it comes to shoes and boots.
Speaker Change: So just by nature, the investment in those areas is larger than some other areas. So that's one factor. But I think the biggest factor is that many of our competitors and some of our strongest competitors and some of the strongest brands
Speaker Change: and Motorcycle Boots and Shoes have...
Speaker Change: a huge amount of inventory on hand that they needed to move.
Speaker Change: And they were not afraid to drop the pricing significantly on that inventory.
Speaker Change: And of course, that creates...
Speaker Change: in the market for everybody else. If you have a leading brand, a kind of go-to brand, for a certain category, you're dropping the pricing, because they're forced to, because of ...
Speaker Change: and Deanna Attica
Speaker Change: And that means that there's a lot of industry out there, and if they're willing to decrease pricing at the same time, it creates a kind of perfect storm scenario.
Speaker Change: And that is what we found ourselves in the middle of, particularly in the U.S. and particularly with motorcycle boots, which is quite a big category for us and quite a big industry category.
Speaker Change: So it's been quite difficult for us to trade through that. You know, I've completely dropping all of our pricing. That's certainly one of the reasons why our margins are lower than Q2.
Speaker Change: We took some opportunities there to move on some bits.
Speaker Change: But in general, I mean, I think a lot of it has got to do with exit indentury that has been in the market and promotional activity that has been extremely strong by some of our competitors that are out there.
Speaker Change: Appreciate the color there. Would you maybe comment on the product royalty income that's spiked higher in recent quarters? Is there any particular new partnership or product category that's primarily responsible for those gains?
Speaker Change: We've got some new partnerships that we've developed that are licensing some of our products on the distribution side and in some emerging markets.
Speaker Change: So they've been licensing our products, and that seems to be doing very, very well for us, actually. And that, of course, is an increase in policy revenues.
Speaker Change: Okay, good to hear. And lastly, could you provide an update on the MPB sales team in the U.S.? Has there been any additional hiring since the last announcement you made about six months back? And maybe more broadly, just any update on the progress and expanding dealer reach in the U.S.?
Speaker Change: It's just
Speaker Change: So those efforts have not really reflected in revenues yet, but we expect that to poper through to revenues over the next several quarters.
Speaker Change: So we've definitely started to see some increase in MTB sales in the U.S. Sales have increased quite nicely, actually. And we started on a dealer penetration uptick, you could say.
Speaker Change: We'll start to see some of that paying off a bit more strongly over the next few quarters as the new staff and the new sales reps that we've brought on start to gain some traction. And I'm looking forward to it.
Speaker Change: Great. That's very encouraging. Well, thanks for the time, Sean. Chat soon.
Sean MacDonald: Fantastic. Thank you, Chris.
Speaker Change: Thank you. There are no further questions at this time. I would like to turn the floor back to Sean MacDonald for closing remarks.
Sean MacDonald: Thank you all for joining us today. We look forward to our next poll to review the results of the 2024 Pulse Poll Test.
Speaker Change: Thank you. This stuff concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
Speaker Change: [music]