Earnings Call: Q1 2021

May 12, 2021

Greetings, and welcome to the Leak Corporation First Quarter 2021 Results Conference 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. It is now my pleasure to introduce your host, Michael Mason, Investor Relations for Lea Corporation. Thank you. You may begin. Thanks, Doug. Good morning, and welcome to the Leatt Corporation Investor Conference Call to discuss the financial results for the 1st The company issued a press release today, Wednesday, May 12, at 11 am Eastern and also filed this report with the SEC. The press release is posted on Liet's website at liet corp.com. This call is being broadcast live and may be accessed on the company's website. An audio replay of this call will be available 1-four twelve-three seventeen-six thousand six hundred and seventy one for international callers and our conference ID number 13,7,19, A replay of the webcast will be available immediately following this call and will continue for 30 days. Certain statements in this conference call may constitute forward looking statements. Actual results could differ materially from those discussed in the call. Liedt Corporation does not undertake any obligation to update such statements made in the call. Please refer to the complete cautionary statement Regarding forward looking statements in today's press release dated May 12, 2021. The company will make a presentation on the quarterly results I would now like to turn the call over to Mr. Sean McDonald, CEO of Liat Corporation. Good afternoon to you and Cape Town, Sean. Good morning on your side, Mike, and thank you all for joining us today. I am pleased to report that our strong performance The end of 2020 has continued into a record breaking 2021 Q1. 1st quarters have been traditionally slow, But global revenues for the 2021 Q1 were $12,900,000 up 71% compared to the 20 2Q1. This was the best quarter in our company's history, exceeding our previous best quarter, the 20 2Q4. We achieved revenue growth across our head to toe range of products for mountain biking and off road motorcycle riding in North America and abroad. We believe that these results are a strong testament to the momentum that the Leer brand continues to achieve and the effectiveness of our business model. We are very proud of the Leer team of talented staff and riders that have contributed to our continued excellence. While we saw surging growth in most of our products during the period, we are especially proud of the increases in revenue in our BodyArmor products. 1st quarter sales of BODYARMOR products, which includes our complete shoe and boot line increased by 79% when compared to the Q1 of 2020 and accounted for $7,000,000 or 57 percent of our quarterly revenue. Our revenues from neck braces Also very encouraging, up 48% over the Q1 of 2020 and helmet sales increased 109% over last year, primarily due to strong demand for our innovative award winning MTD helmet line and continued strong initial shipments of our completely redesigned We will get to more detail on the financial results of The Corte in a moment, But some of the important headline numbers were remarkable. Net income was $2,100,000 A 4 69% increase compared to a year ago. Margins remained consistent with last year at 47%, Which is a major achievement as we continue to actively manage manufacturing and logistics costs in the midst of rising raw materials and shipping costs in Asia. Our operating cost increased by 10%, which is in line with our expectations. As we continue to grow, we are investing in our people, Increasing commissions and salaries in line with sales growth and we are investing in more professional sales and marketing teams, which we believe will pay dividends by choosing growth Now and in the future. We continue to advertise in various motorsports and bicycle magazines and online media, sponsor a number of events and sponsor professional teams and riders who not only help us engineer and design our products, but have proven to increase products and brand awareness globally. Now I'll turn to the financial results for the Q1 in a bit more detail. Total revenues for the Q1 of 2021 increased to $12,900,000 up 71% Compared to $7,500,000 for the Q1 of 2020. 1st quarter income from operations increased to $2,800,000 up 460% compared to $491,000 for the Q1 of 2020. Net income for the Q1 of 2021 was $2,100,000 or $0.38 per basic and $0.34 per diluted share Compared to $362,000 or $0.07 per basic and diluted share for the 3 months ended March 31, 2020. Although I've touched on some of the highlights, the percentage increases, I'll provide a further breakdown by product category. We are very pleased with the performance of our Neck Brace products for the quarter as they continue to generate a higher gross margin than our other product categories. The 48% increase during the 2021 period is due to continued strong demand both in the U. S. And abroad. X brace sales accounted for 15% of our first quarter revenue. Our body armor products are comprised of a range of chest protectors, body protectors and vests, Back protectors, knee braces, knee and elbow guards or for motorcycle boots and mountain biking shoes. And the 79% increase in body armor revenue It's attributable to strong market demand for our full line of upper body and limb protectors, as well as our footwear category of off road motorcycle boots and mountain biking shoes, both in the U. S. And internationally. BODYARMOR accounted for 57% of 1st quarter revenue. As I mentioned, our helmets continue to be refined and in some cases completely redesigned to meet the needs of a wider riding community. All LIES helmets contain our patented 3 60 degree technology for brain protection. 109% increase in heart cells It's due to strong demand for our innovative award winning MTB helmet line and strong initial shipments of our completely redesigned redefined Motorhome line for off road motorcycle use to our customers around the world. Helmets accounted for 12% of our Q1 revenue. Our other products, sports and accessory category is comprised of our goggles, hydration bags and our apparel line of jackets, pants and jerseys. The 47% increase during the Q1 is due to the continued strong demand for our line of cutting edge, motor and MTD apparel lines For motor cycle and mountain biking use, this other products parts and accessories category accounted for 16% of 1st quarter revenue. Turning to the balance sheet. We are currently meeting our working capital needs through cash on hand, our revolving line of credit as well as internally generate We believe that our current cash and cash equivalent balances along with the net cash generated by operations Are sufficient to meet anticipated cash requirements for at least the next 12 months. We have no plans for any major capital intensive expenditures in the next 12 months Beyond tooling for the production of our growing product range, as of March 31, 2021, we had cash and cash equivalents of $3,790,000 compared to $1,000,000 on March 31, 2020. Our current debt to equity ratio Stands at 2.8:one and we have no long term debt. In closing, this has been a truly remarkable quarter. We expect the trend in worldwide participation in outdoor activities in spite of the COVID-nineteen pandemic to continue. Our strategy of building a global consumer brand and a pipeline of award winning cutting edge and innovative protective gear that appeals to a wide range of riders It's working exceptionally well. We believe that our products give Ryerson the confidence that they need to push themselves further with gear that they can rely on. We look forward to presenting our 2022 product lineup to consumers during the second half of twenty twenty one, And we are encouraged by the initial ordering sentiments from our distributors and dealers. In 2006, we produced a single product, Our gold standard neck brace for a single market. Now, 15 years later, we produced a array of products that protect virtually every part of the body and appeal to a wide rider community. Importantly, our suite of head to toe products has been a valuable investment for our partner dealers and distributors around the world. This is a truly exciting time for LITH as the company and its stockholders are finally reaping some of the rewards of over a decade of hard work and persistent dedication To excellence, as always, we'd like to thank our entire Leerds family, our dedicated employees, business partners And team riders for their continued support in making Leer the success that it has become. With that, I'll turn the call back over to the operator for a few questions. Operator? Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. Our first question comes from the line of Olivier Colombo with Any Private Investor, please proceed with your questions. Good afternoon, Sean. Hello, Olivier. How are you doing? Doing extremely well. Thank you very much. We'd like to congratulate you and your team for the best quarter in Lietz's history And especially in the Q1, which is seasonably slow quarter. So congrats. I had 4 questions for you. The first one is, did you face any Out of stock during Q1? And if yes, in what product category was that? And the same question would apply for Q2. Okay. So across our distribution network, demand and sales Through distributors and also through dealers was a bit stronger than expected. So some of our dealers were out of stock in certain Categories. And of course, now in Q2, they have replenished their stock. They do have stock to sell, so the situation is improving. There were no major categories beyond a That were affected beyond a few weeks out of stock. So the situation has certainly improved Olivier. That's excellent to hear. Thank you. And the second question is regarding, I would like to better understand your strategy Regarding the raising input cost, do you plan to pass that over to retailers or to take some costs On by yourself. So I think to answer your question, Javier, there's a combination of things that we'll be doing. Of course, input costs have been increasing across the industry. So we are watching the situation Very carefully to see what's going to happen to retail pricing on the off road motorcycle and the bicycle side of things, Because of course, we have to respect what the realistic retail prices are. So there will be some pass on to dealers And to distributors and ultimately in consumers, if the market moves in that direction and then some of the costs We will be absorbing ourselves in order to balance everything out. I don't expect it to be a major knock on effect On our margins over the next several quarters, because we have managed to avoid any Significant cost increases so far. Excellent. And third question would be on the BODYARMOR Sales that saw incredible increase during the quarter. Can you say that the motor boots and the mountain bike shoes were ahead of management's Yes, I can absolutely say. Sales of motorcycle boots and shoes have gone extremely well. By having said that, I would say that sales of our full body on the lineup exceeded our expectations. So we've got some products, of course, that have been in the lineup for many, many years and they continue To grow and they continue to sell well. So Upper Body Armor, and on Protection also exceeded our expectations. That's excellent. Thank you. And the last question is regarding the helmet, which were up also this quarter. You mentioned in your remarks that its initial shipments of the redesigned motor helmets. Does that mean that some regions Did not get those helmets during Q1? They all received the helmets during Q1, there may be some, it has to pass from the distributor onto the dealer. So there may be some areas that are not fully received all of their stock At the dealership level, but the vast majority of our dealers and our distributors had received stock In Q1. So we had some really strong shipments of those new motor helmets and we hope to get Really good. Restocking orders soon on the helmet. Excellent. Thank you very much. Those were all the questions that I had, and I wanted to wish you and the whole team an excellent Q2 as well. And please continue the great work that we have done for Thanks, Olivier. Appreciate that. I could say that I am personally very, very happy. Fantastic, Olivier. Thank you. Our next question comes from the line of Chris Jares with REIT Corporation. Please proceed with your question. Hey, Sean. As proud as I am with you guys, I don't think I'm officially an employee yet, but that's fine. Yes, it's news to me, Chris. That's news to me. Yes. I just want to echo Olivier's sentiments on the quarter. And on that, I mean, given how strong things were shifting back a year ago, I mean, you now sit on a cash balance that's Greater than anything the company's ever had before. What are the things that you are looking to do? What does that new balance and The new level of investment ability kind of affords you guys, what do you think over the next 12, 18 months and beyond? Yes, Chris, it's a good question. I mean, of course, we'll be plowing a lot of that Back into product development and back into refining the product categories that we have. Many of these product categories are still in the infancy In terms of what we can do in the market. So it's a combination of growing the product categories that we sell, refining the product categories that we sell. And I think it also gives us an opportunity to do some Extensive marketing activities that will just add fuel to the sales engine And really, help us to maintain the kind of momentum that we are currently seeing. Okay. And so what are you hearing from to the vein of continuing kind of pouring fuel on the fire? What are you hearing from distributors about that competitive environment? I mean, is it you I have to assume that you're one of the brands with strong momentum and What are they telling you from what other brands are doing, what you're seeing in the marketplace in regards to taking share? Yes. So I mean the industry itself is of course doing really, really well People are pushing to get outdoors and to get away from the pandemic and the horrible statistics. So as a whole, the industry Doing well. It is highly competitive. Leer as a business took a conscious decision at the beginning of the lockdowns To continuing to continue developing products, to continue selling to our distribution network, servicing our customers And really being very, very active as much as possible during lockdown, which I think has benefited us. The feedback that we're getting from our a competitive environment and Leer to certainly benefited from that and we do expect that to continue as we become a much more important Source of revenue for our distributors and for our dealers. We've certainly in certain areas got a really good foot in the door now. And we plan on making sure that we maintain that moving forward. Okay, great. Thank you. Thanks, Chris. Our next question comes from the line of Christopher Miller with a private investor. Please proceed with your question. Yes. Hi, Sean. Congratulations on the great start of the year. Thanks, Chris. Mike to hear from you. Just two questions for you today. First in terms of the international sales, obviously the timeline of COVID impact and recovery have varied widely region to region. Maybe you could comment on what you're seeing there. Is it broad based Strength across Europe and Asia or some areas performing much stronger than others? Yes. So generally, this Trend towards outdoor activities and a growth in the outdoor industry is global. We don't see many areas or many major areas Emerging, all well established, where there's weakness in demand. Things are surging really around the world. And looking at some of the sentiment that we've seen in some of the Ordering patents for our new lineup, the current trends that we're seeing industry wide are continuing and are sustaining. All right. Thanks for the color there. And secondly, Since we get increasing consumer interest in sustainability and perhaps you're already ahead of the curve there given your reputation for product Durability and longevity, but maybe you could comment on how you think about sustainability in general, both in terms of product design and product sourcing, And are these matters that routinely come up in discussions with dealers and distributors? Absolutely. So I mean, it comes up a lot With dealers, with distributors, within consumers and also of course now with our manufacturers in Asia. It's something which Lietz as a business is very, very serious about. And we are continuously reviewing the materials that we use In all of our products, and particularly on the packaging and the plastic side of things. And I think you'll see quite a big Swing in the way that we deal with those areas over the next 6 to 12 months It's something which is obviously extremely important to deal as a business. Being the innovative cutting edge business that we are, It's important to us to make sure that we are sustainable and that our footprint is built on a sustainable basis. So certainly something which is very important to us, particularly actually in the bicycle industry. No, we see that that is important to very important to end consumers and it's a focus area for us. It's One of the pillars that we are working on in our strategy to grow moving forward. That's great to hear. Well, that's all I have for you today. Thanks again, Sean, and good luck here in the second quarter. Thanks, Chris. Nice chatting. Our next question comes from the line of Jason Hirschman, a Private Investor. Please proceed with your question. Hey, Sean. How are you doing? Jason, how are you doing? I'm good. Thank you. Good to hear from you. I just called just to basically to say Congratulations. And it's really a tremendous quarter and with a tremendous 2020, but it's really been a fantastic journey. And I don't really have much More to say than just it's just amazing what you and Chris and the entire Liet team have done. And I'm just so happy for you and everybody there for having achieved what you've done. And I'm sure there's wonderful things to come. So I know we just called basically and woke up early in Las Vegas just to say that actually. Jason, that's fantastic. Thank you so much for the call and for calling in. If you don't mind, let me ask you one question since I got you on the line anyway, right? I had to ask you a question. So As you continue to grow, and I know we've talked about this in the past, what do you think you can do maybe to improve your inventory turnover so that More money ends up on the balance sheet in cash and less of it percentage wise ends up in inventory. And I know you've moved things a little bit forward. I was wondering if maybe you can discuss that a little bit then. Yes. I think what we one of the big things that we are looking at now is of course, A lot of the products that we are now selling are more, you could call them commodity based. They move a little bit quicker. So things like gloves and apparel, there's kind of a I mean, There's a I mean, you can sell them 3 to 4 times turnover a year whereas other products that we've traditionally sold like neck braces, It's kind of more like 1 to 2 times a year. So just by nature of the products that we are now moving towards selling more of, We should see inventory turnover rates increasing. Of course, the other thing is, we want to try and get more decrease The lead time between ordering and delivery to our distributors and to dealers And also the amount of online, e commerce selling that we do. And I think all of those things are going to contribute to a higher Infiniti, turn over right. Wow, wow. Always amazing, always great. And I'm so happy for you guys. And I know you'll have a Great rest of the year and your future is so bright. Really well done. Thank you, Jason. Fantastic to hear from you. Always a pleasure. There are no further questions in the queue. I'd like to hand the call back to management for closing remarks. Thank you all for joining us today. We look forward to speaking with you again to recap the Q2 of 2021. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.