Leatt Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 28, 2025

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Leak Corporation Fourth Quarter twenty twenty four Results Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.

Operator

Michael Mason, Investor Relations for Leatt Corporation. Thank you. You may begin.

Speaker 1

Thanks, Melissa. Good morning, and welcome to the Leatt Corporation Investor Conference Call to discuss the financial results for the fourth quarter and full year 2024. The company issued a press release today, Friday, 03/28/2025, at 8AM Eastern and filed this report with the SEC. The press release is posted on Leatt's website at leattcorp.com. This call is being broadcast live and may be accessed on the company's website.

Speaker 1

An audio replay of this call will be available for seven days and may be accessed from North America by calling 40921 or 317-6671 for international callers. The replay PIN number is one million three hundred and seventy five thousand two hundred and sixty eight. A replay of the webcast will be available immediately following this call and will continue for seven days. Certain statements in this conference call may constitute forward looking statements. Actual results could differ materially from those discussed in this call.

Speaker 1

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 03/28/2025. The company will make a presentation on the quarterly and year end results, and then we will open the call to questions. I would now like to turn the call over to Mr. Sean McDonald, CEO of LIAC Corporation.

Speaker 1

And good afternoon to you in Cape Town, Sean.

Speaker 2

Good morning, Mark, and thank you and thank you all for joining us today. Our entire team is very encouraged by the return to double digit revenue growth in the fourth quarter. Total global revenues increased by 14% compared to the fourth quarter of twenty twenty three. This growth was fueled by international sell through, restocking dynamics on the addition of strong distribution partners in key areas. Reordering patents continue to stabilize, so this is a trend that we believe will continue.

Speaker 2

It was particularly encouraging to see growth from so many of our product categories in the fourth quarter. PolyArmor revenues increased by 14%, helmet revenues increased by 41% and other product parts and accessories increased by 9% with the only category that decreased in neck braces, which were down 25% compared to last year. ADB apparel sales exceeded our expectations and we look forward to delivering a pipeline of innovative products to the growing ADB market over the next several quarters. We remain confident that we have the initial distribution, core competencies and talent to reach this substantial segment. Gross profit as a percentage of sales continued to improve during the quarter, increasing from 36% in last year's fourth quarter to 41% as domestic trading conditions continued to improve.

Speaker 2

We continue to ship our new products and inventory levels continue to stabilize. International distributor sales grew by 24% in the fourth quarter as inventory was digested and as mentioned margins for the fourth quarter increased by 5%. On a full year basis, total revenues were $44,000,000 a 7% or $3,200,000 decrease compared to 2023. Our consumer direct channel continues to display encouraging trends as our brand continues to bold momentum around the world. Domestic sales on our consumer facing channels in The U.

Speaker 2

S. Continue to search and ViaClipio.za, our consumer direct platform in South Africa continues to show strong sales. International distributor sales decreased by 11.5% for the full 2024 year as our distributors digested elevated inventory levels in the first half of the year. Although dealer direct direct motor and MTB sales in South Africa have continued to grow and MTB dealer sales in The U. S.

Speaker 2

Was strong in 2024, these gains were partially offset by challenging U. S. Motor Dealer direct sales at the brick and mortar level, which contracted by 8% resulting in a marginal 0.3% increase in total dealer direct sales. Margins for the full year decreased by 2% from 42% to 40% as a result of promotional selling opportunities to move all the inventory in the first half of the year as we converted inventory to cash. While participation and demand for lead products remained strong, U.

Speaker 2

S. Motor Dealers continue to manage elevated inventory levels and some industry turmoil is stabilizing. Cash increased by $1,000,000 to $12,370,000 with cash flows provided by operations of 2,800,000 for the full year. This result came despite current industry wide conditions, reinvestments in working capital, capital expenditures on digital capabilities and product models that will fuel future growth. Our liquidity continues to improve as our team continues to manage working capital efficiently.

Speaker 2

In recent weeks, we have made some important strides in continuing to optimize our selling capabilities by building and refining a team of sales and marketing professionals around the world. We are confident that some of our newest additions to the team will have a strong impact on our performance moving forward. I've noted the addition of Rob Ramloes to the team as VP of Moto and ADB Sales. Rob brings a twenty year track record of strong industry success and a passion for building high performance teams and dealer partnerships to the U. S.

Speaker 2

Team. Although these investments typically take some time to make an impression on our results, we do believe that building on a great team will continue to be a cornerstone of our future growth plans. Now I will turn to more details in sales of our product categories for the full year 2024 compared to 2023. Sales in our flagship net price were $2,440,000 and 11% year over year decrease attributable to the decrease in volume of net prices sold. Net price sales was 6% of our total revenues for the year.

Speaker 2

Our body armor products are comprised of chest protectors, full upper body protectors, upper body protection based, back protector knee braces, knee and elbow guards, off road motorcycle boots and mountain biking shoes. Volley armor revenues for 2024 were $22,460,000 a 1% decrease year over year. Although revenues generated on the sale of upper body and limb protection increased by 14%, the overall 1% decrease was primarily the result of a 36% decrease in revenues from the sale of footwear comprised of motorcycle boots and mountain biking shoes during the year. Footwear has been a particularly constrained category due to post COVID stopping dynamics on an industry wide basis. Body armor sales were 51% of our total revenues for the year.

Speaker 2

Body armor sales were $8,390,000 a 25% decrease year over year. Although strong shipments of our ADV helmet designed for adventure motorcycle riding continued, the decrease is due primarily to a 37% decrease in motor and MTB helmets sold to our international customers during 2024 as our distributors continue to manage elevated inventory levels as a result of post COVID stocking dynamics that continue to improve as participation of Armstrong and Woodring patterns improve. Helmet sales were 19% of our revenues for the year and our other products, parts and accessories category, which is comprised of gargoyle hydration bags and apparel items that include jerseys, pants, shorts, jackets and aftermarket support items. Revenues were $10,740,000 or 1% decrease year over year. The decrease was partially due to a 22% decrease in the sale of our motor and MTV technical apparel lines, designed for motorcycle and mountain biking use that was partially offset by strong sales of ADB technical apparel designed for adventure motorcycle riding.

Speaker 2

Our other products and accessories category put 24% of our revenues for the year. Now I will turn to our financial results in a bit more detail. Total revenues for the fourth quarter of twenty twenty four were $11,190,000,000 up by 14% compared to $9,800,000 for the fourth quarter of twenty twenty three. Net loss for the fourth quarter was $446,000 or $0.07 per basic and $0.07 per diluted share as compared to a net loss of $1,460,000 or $0.24 per basic and $0.23 per diluted share for the fourth quarter of twenty twenty two. Total revenues for the full year 2024 were $44,000,000 a 7% decrease compared to revenues of $47,240,000 for the full year of 2023.

Speaker 2

The decrease in worldwide revenues is attributable to a $2,730,000 decrease in helmet sales, a $310,000 decrease in Necro sales, a $120,000 decrease in body armor sales and a $60,000 decrease in other products, parts and accessory sales. Net loss for the full year 2024 was $2,200,000 or $0.35 per basic share and $0.34 per diluted share, down by 374% compared to $803,000 or $0.13 per basic share and $0.13 per diluted share for 2023. We have continued to meet its working capital needs from cash on hand and internally generated cash flows from operations and at 12/31/2024, the company had cash and cash equivalents of $12,370,000 compared to $11,350,000 at 12/31/2023 and the current ratio of 5.2:one. Another developments during the quarter, we are proud to announce that YIP has once again been recognized with two prestigious Design and Innovation Awards for 2025. The first award is in the apparel category with our ride kit MTB one point zero and the second is in the components category with the Ceramag All Mountain eight point zero Ti flat pedals.

Speaker 2

The Design and Innovation Awards are considered the gold standard in the bike industry as products are put through real world testing by a panel of 50 international experts including journalists, test riders and engineers. Winning in two categories is a huge achievement and a testament to our team's dedication to innovation, performance and quality. In addition, we are also extremely proud to announce our sponsorship of highly respected Supercross athletes, Colt Nichols, Justin Gill and Kyle Chisholm. The partnerships with Liet reinforces our commitment to providing world class gear and we look forward to seeing these athletes compete at the highest level of showcasing innovation and quality that VIT is defined by. To summarize, we are all very enthusiastic about the future of VIT, Although there are still some challenging geopolitical trading and economic headwinds globally that could impact demand, inventory continues to be digested, participation remains strong and ordering patterns continue to improve and have started to filter through to our revenues.

Speaker 2

These are trends that we do believe will continue. As ordering patterns at the consumer level and ultimately the distributor and dealer level continue to improve, we also expect working capital investments to grow in the coming periods. We are confident that we have sufficient strong liquidity to feel this growth. Despite some constraints looking more to note of the leader sales in The U. S, our team remains enthusiastic about the recovery that is currently in play and the latest additions to our team.

Speaker 2

We will continue to optimize our selling capabilities by building and refining a team of sales and marketing professionals around the world. We also had some very exciting new distributor partnerships in The United Kingdom, Europe and emerging markets that will continue to filter through to our revenues over the next few quarters. It was particularly encouraging once again to see body armor, helmets and other products, parts and accessories return to growth in the fourth quarter on a global basis. Growth in sales of our ADV gear also exceeded our expectations and we remain confident that we have the track record and ability to reach the substantial and growing ADB market segment in the upcoming quarters. With a strong portfolio of innovative products in the market and in the pipeline, a multichannel sales organization that is growing and developing and a robust value sheet to fuel brand and revenue growth, we remain confident that we are very well positioned for future sustainable growth and shareholder value.

Speaker 2

As always, we'd like to thank our entire NEAR family, our dedicated employees, business partners and team riders for the continued strong support. And with that, I'd like to turn the call over to the operator for questions. Thank

Operator

Thank you. Our first question comes from the line of Christopher Mueller, private investor. Please proceed with your question.

Speaker 3

Hey, Sean. I hope you're doing well today.

Speaker 2

Hey, Chris. Matthew here from you.

Speaker 3

Good to speak with you and good to see the return to double digit growth. I have maybe three or four questions today. First, could you comment on the impact and any response thus far to the escalating trade war and tariffs? Maybe more specifically, what degree of flexibility do you have on the manufacturing side to mitigate this?

Speaker 2

Absolutely. It certainly is a dynamic that we are watching very, very closely and with the increase in tariffs already and the trade war that is clearly in play, we are taking steps currently to work on the flexibility that you speak of. We've got very good relationships with our suppliers throughout Asia. As you will know, we three or four years ago, we already started working on supply side channels outside of China. And so we've got some supply set up now in Cambodia, in Bangladesh, in Thailand, in Taiwan and soon to be in Vietnam as well.

Speaker 2

Many of our factories that we are working with do have factories in areas outside of China. And of course, we are very aware of the fact that Asia as a target in general is something that we need to keep an eye on. So we are working very closely with our manufacturers right now to look at what flexibility they have in terms of supply and in terms of pricing and in terms of support, so that we can maintain the margins that we have been able to achieve in the past. Currently, it hasn't affected our margins materially. But of course, we're very aware of the fact that this is something that needs to be managed very carefully.

Speaker 3

Okay. And then possibly on a related note, in the 10 K you noted the increase in rent expenses related to inclusion of consolidation warehousing costs to facilitate global shipping. Is this a reclassification of expenses that were previously under cost of goods? Or are you doing something differently on the operation side?

Speaker 2

Okay. We're just what we're doing is we're reclassifying some of the expenses that were under cost of goods previously for China consolidation and we're bringing that out in order to manage that really carefully and putting it into warehousing costs below the cost of sales line.

Speaker 3

Okay, great. And then in regards to the personnel changes in The U. S. And the new leadership on the Moto side, does this signal any sort of change in direction? And generally, how are you thinking about U.

Speaker 3

S. Sales and marketing priorities as we move through the year?

Speaker 2

Absolutely. So I think it's really just an intensification of our efforts, particularly on the motor sales side of things. And I mean MTB continues to be a strong focus for us in The U. S. Where we feel that we have a lot of opportunity for growth and for market penetration even though the MTB industry remains under some stress.

Speaker 2

I think Lea has some great opportunities on the MTB side of things. Strategically, really, we just felt that we needed to intensify some of the selling activities, particularly on the motor side, which is why we brought on a VP of motor sales that has the really strong selling and operational skills as well as some fantastic industry contacts and relationships, which we feel is really, really important. And we'll be looking now quite closely at our the selling organization that we have and with a view to really having a mix between employee sales reps and perhaps in some areas where it makes sense looking at getting independent rep groups on board just in order to make sure that where we are able to sell strongly, we have the right kind of wet mix in play. So I think in general, on the brick and mortar side in The U. S, we are very focused now on getting better coverage and on servicing our dealers a lot more professionally.

Speaker 2

And hopefully, we'll see that filtering through to the results over the next several quarters.

Speaker 3

Great. That's all good to hear. Just as one last question for me. The financial difficulties and restructuring at KTM have been widely discussed, but maybe you could just comment on any effects you're seeing there and how this may relate to the softness you're seeing on the moto dealer sales in The U. S?

Speaker 2

Absolutely. That's a very big factor that's been around for the last six months. And I mean, I think the biggest impact that we see is really on a sentiment level, at the dealer level because dealers are I mean, they have a lot of dealers have got significant KTN stock of motorcycles and are now probably in a position where they will be looking to channels in order to sell those. Of course, they've worked on a certain level at a certain price And other bikes could potentially be distressed quite soon or already are distressed. So many dealers are under stress because of what's going on with KPM.

Speaker 2

It certainly has resulted in some industry turmoil and mainly on an uncertainty level because there's no real certainty as to exactly what is going to happen with KTM, whether there's going to be some support coming from a buyer or whether they are going to need to liquidate. And the market turmoil in the market industry has certainly, I mean, it's definitely been impacted. It was very bad timing because obviously after COVID things were already a little bit stressed. So we're seeing dealer sentiments and dealer appetite to really invest strongly in things that has been certainly impacted. And we hope that the uncertainty moves through the system as fast as possible.

Speaker 2

Participation remains strong. People are still riding and people still want to ride. So that obviously is a big plus. Dealers are monitoring very closely the foot traffic through their doors. And I think economically, should interest rates start to drop, I mean, interest rates obviously being a little bit sticky and we can see some choppiness now also with inflation.

Speaker 2

So we're not there's a bit of uncertainty on that level as well. I think it's a deleverable because of course, when interest rates start dropping, people are then have a much bigger appetite to finance things like motorcycles. And I think that's going to also have a really positive impact on dealers in The U. S. Over time.

Speaker 2

So yes, KTM has been a factor, the economic conditions have been a factor and the COVID stocking dynamics continue to be a factor, although less of a factor than in the MTB industry where that is still definitely in play.

Speaker 3

All right. Well, that's all very helpful. Thanks for the time, Sean. Chat soon.

Speaker 2

Chat soon. Cheers, Chris.

Operator

Thank you. Our next question comes from the line of Nick Fisher, private investor. Please proceed with your question.

Speaker 4

Thanks for taking my call, Sean. I just have a couple of questions. The first is, with the industry relatively stabilized, as you said, how do you think about the use of cash here at nearly $2 a share now?

Speaker 2

I mean, I think we obviously things are starting to increase now in terms of particularly on the international distribution side of things. We are already starting to see an uptick in the ordering. So I think we are going to start seeing cash being put back into working capital and inventory. There's no doubt about that. Over the next few quarters, we'll be investing in inventory for sure, which is of course, I mean, we get a great return on that.

Speaker 2

So that's the best place for it to be and receive a bulk and payments to our suppliers in the form of deposits and low cost capital investment. So we do have some cash that we are going to be using over the next few quarters. And then of course, I mean, we're always looking at different opportunities to use our cash as efficiently as possible.

Speaker 4

Okay, very good. I appreciate that. And you essentially addressed it, but I just wanted to get a little more color on the use of cash for working capital growth as you mentioned in the release and the need to address inventory levels a little bit with the return to growth in the EDV line?

Speaker 2

Sure. Absolutely. So I mean, I think, yes, as I said, I mean, we're going to be investing in inventory. We're going to be investing in working capital in the form of accounts receivables and then, I mean, growth. So marketing, you can expect us to intend to pass on our marketing activities or some of these new categories that we've got in.

Speaker 2

ADB is a big category for us now and we've already had some fantastic initial success. The products are fantastic and many of our distributors and dealers around the world are very supportive of what we're doing on the ADV side. That also requires investment if you want to grow in the ADV market. That's certainly going to impact our inventory investments and our investments in receivables. And just investing in general marketing to feel future growth.

Speaker 2

So that's really what I was referring to in terms of working capital spend that we can expect nothing out of the ordinary, nothing that I wouldn't expect from a company that is looking to grow double digits.

Speaker 4

Very good. Thank you for the color, Sean. Appreciate it.

Speaker 2

Thanks, Matt. Appreciate it.

Operator

Our next question comes from the line of Chris Brennan with Milwaukee Capital. Please proceed with your question.

Speaker 5

Hey, Sean. Good to hear that things are back to growth and that orders are stabilizing here. If I take a step back, if I look back to where you guys were in 2020, you guys were about a $40,000,000 top line business at that point. Yet you're operating and you're still roughly there, around $40,000,000 or so in sales, yet the OpEx line for you guys has almost doubled from $10,000,000 to $20,000,000 And the business as a whole has cumulatively lost in terms of net income for nine quarters or so. So my question is, like you and I have talked about $100,000,000 in sales is the point where this business really gets to scale and can really start generating healthy profits.

Speaker 5

I'm just wondering if is that still a feasible goal? And as we grow into that and as we get to that point, do you expect to earn profits as we get there? Or is it kind of a breakeven, let me deploy all my free cash flow and gross profits into growth in telecom?

Speaker 2

It's a good question. And I mean, I think this is obviously the journey to $100,000,000 and hopefully, we do believe that we can get there. And I think there's profitability on the way there. I certainly don't think that we will be breakeven if we do do $100,000,000 in sales. We'll be strongly profitable at that point.

Speaker 2

And of course, we have we've set our costs up for the future growth that we are expecting. So the team that we have on board now is really set up and the marketing level that we have now is set up for the categories that we have, the four head to toe categories that we have. And the three primary markets that we are trying to sell to, which is of course, Motel, MTB and ADB, and the growing products that we have on board. But we're expecting to get back to double digit growth on an annual basis as soon as possible. And should we do that along the way, we are targeting to have profitability and growth in profitability, on a certainly on an annual and a sequential basis.

Speaker 2

Now there may be some choppiness as we go over the next few quarters, over the next few years, But we are remain focused on trying to double our revenues every three to five years. And we certainly think that we do have the two on board now and many of the investments in R and D and product development are not going to be increasing in order to be able to do those kinds of numbers. So I think we are expecting profitability along the way to summarize. And should we double our revenues, we certainly will be a strongly profitable business.

Speaker 5

Got it. And how do you think about like a normalized level of sales for the business? Like it's obviously volatile and going to be dependent on macro trends and writing trends and trade wars and whatever else. But is there a way for you to say like, hey, I really think that this industry is 30% off its peak and that I should thereby be at sales levels that are X percent higher? Or is it just any kind of simple mental math that you use when you're thinking about, hey, I'm investing ahead of what I think is going to be growth and here's what I think that growth actually is?

Speaker 5

Like I get the double digit target, but is the industry depressed to a certain level that everybody should be a certain percent higher?

Speaker 2

I mean, it's obviously a very good question. It's quite an analytical question. And I think it's difficult to answer that question with very broad strokes because different categories, different industries are at different levels right now in terms of the recovery from the hangover after COVID and different industries are exposed to some of the risks that are out there right now at different levels. And so I wouldn't say that it's a kind of broad stroke answer, but I can go by what I'm seeing in some of the reporting that we do and get to see in the industry and certainly in discussions that I am exposed to some of our industry peers. And I mean, I think the industry is certainly, I can say, still depressed.

Speaker 2

We're not at a normalized level yet. But I think should we have double digit growth over the next one to two years, things will then be more normal, I think. And then certainly for many of the industry players, if they do do that, I think that they would be on track to reach their goals too. So it's quite a difficult question in the current turmoil that we see and the many variables that are out there. But I do think things are certainly still depressed to pay an exact percentage on the entire industry is a little bit challenging.

Speaker 2

But I think there certainly is many opportunities for growth. And if you look also at a company like Leuitt, where we are still in our infancy in terms of market share in many other categories that we sell, we still have a huge amount of opportunity. And I think that is a very strong position to be coming at this situation from.

Speaker 5

Got it. Makes sense. Thank you, Sean.

Speaker 2

Thanks very much, Chris.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. McDonald for any final comments.

Speaker 2

Thank you all for joining us today on this conference call. We look forward to our next call to review the results of the twenty twenty five first quarter.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
Leatt Q4 2024
00:00 / 00:00