May 12, 2022
Operator
Greetings, and welcome to Leatt Corporation's First Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host, Michael Mason. Please proceed, sir.
Michael Mason
Thanks, Claudia. Good morning, and welcome to the Leatt Corporation investor conference call to discuss the financial results for the first quarter of 2022.
The company issued a press release today, Thursday, May 12 at 8:00 a.m. Eastern and also 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.
An audio replay of this call will be available for 7 days and may be accessed from North America by calling 1 (844) 512-2921 or 1 (412) 317-6671 for international callers. The replay pin number is 13729638.
A replay of the webcast will be available immediately following this call and will continue for 30 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.
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 12, 2022.
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. Sean, good afternoon to you in Cape Town.
Sean MacDonald
Good morning, and thank you, Mike, and thank you all for joining us today. The first quarter of 2022 was another tremendously strong quarter for Leatt, the seventh quarter in a row of record-breaking revenues and the 16th straight quarter of year-over-year revenue growth.
Sean MacDonald
First quarter revenues totaled $24.2 million, an increase of $11.3 million or 88% over the first quarter of 2021. Net income increased by 105% to $4.2 million and earnings per share increased by 92% to USD 0.73.
We grew by double digits in virtually all of our expanding product categories, thanks to surge in global consumer demand for our exceptional product offering.
Sean MacDonald
We achieved a $5.1 million increase in body armor sales, a $4.1 million increase in helmet sales and a $2.5 million increase in other products, parts and accessories that includes our off-road motorcycle and mountain biking apparel.
Sean MacDonald
Many of these products are in the infancy with a huge runway of potential for expansion and market share in the global marketplace. Only our most established product category, neck braces, showed a domestic sales decrease compared to the first quarter of 2021, which was an extraordinary period for neck brace sales in the U.S.
Sean MacDonald
Sales increased by 184% over the prior period, making the comparative very difficult to match. International revenues grew by a staggering 166% to $18.9 million and accounted for 78% of our first quarter revenues.
Sean MacDonald
Our international customers continue to replenish stock levels to meet strong demand for our head-to-toe product categories. So to summarize, once again, Q1 of 2022 was tremendous.
That being said, we, like many other international companies, are still feeling the effects of the COVID-19 pandemic, primarily in Asia and particularly China, where many factories remain temporarily shut down for weeks at a time as a result of governmental policies. As a result, we are experiencing some delays in manufacturing and product shipments.
Sean MacDonald
At this point time though, our strong supplier relationships and our supply chain efforts in Asia have meant that we've been able to limit these delays to [indiscernible] weeks. As a knock-on, global ocean freight costs have increased and domestic port congestion has caused trucking delays.
While they have begun to ease, these delays have resulted in an industry-wide dealer stocking congestion. That is part of the reason that sales in the U.S.
during the first quarter of 2022 decreased by 8% compared to an extraordinary Q1 in 2021. Sales in Q1 of '21 increased by 194% in the U.S.
The good news is that consumer demand for our protective gear for the MOTO and MTB communities continues to be strong. We continue to build and invest heavily in our U.S.
sales and distribution capabilities.
Sean MacDonald
Our Reno Nevada warehouse is now well positioned to help them deliver more products more efficiently across the U.S. We are also actively growing our team of employee sales reps in the U.S.
to reach a wider base of both MOTO and MTB dealers. Despite the COVID-19 headwinds, these consistent results demonstrate that our strategy for growth and profitability remains solid and resilient.
Sean MacDonald
We continue to engineer and develop innovative products that serve an increasingly wider global audience of riders of all levels, from professional racers to weekend riders. And we continue to build out multichannel sales organization led by high-caliber regional sales and brand managers who can deliver our outstanding products to our team of dealers and distributors around the world.
Sean MacDonald
Now let me turn to more detail on our product category sales during the first quarter. Helmet sales are up 269% over last year to $5.7 million.
This was primarily due to the continued strong demand for our award-winning MTB helmet line that has been expanded significantly to appeal to a wide range of riders and our redesigned MOTO helmet line for off-road motorcycle use. Helmets, which accounted for 23% of our first quarter revenues are an increasingly important product for us in an area where we are investing heavily.
Sean MacDonald
Sales of our body armor products, which include chest protectors, four upper body protectors and upper body protection vests, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes were up 69% over the 2021 first quarter to $12.5 million.
Sean MacDonald
The increase was due to continued shipments of our footwear line, consisting of off-road motorcycle boots and mountain biking shoes and strong consumer demand for our innovative upper body and limb protectors. Sales in our expanded line of off-road motorcycle boots and mountain biking shoes exceeded our expectations.
We have created a full line of boots and shoes at key price points and performance levels.
Sean MacDonald
Body armor accounted for 52% of first quarter revenue. Our other products category, including goggles, hydration bags and apparel such as jerseys, pants, shorts and jackets as well as aftermarket support items had an increase in sales of 122% over last year to $4.5 million and represented 19% of our first quarter revenues.
Sean MacDonald
Apparel sales were very encouraging, displaying our ability to not only engineer high-performance products, but also create designs that appeal to a wide range of riders. Sales of our flagship neck brace totaled $1.5 million or 6% of our first quarter revenues, a 21% decrease over last year.
Sean MacDonald
Now I will turn to more of the financial details. Total revenues for the first quarter increased to $24.2 million, up 88% compared to $12.9 million for the first quarter of 2021.
Gross profit for the first quarter increased to $9.6 million, up 59% compared to $6.1 million for the first quarter of '21.
Sean MacDonald
Our gross profit percentage did decrease in the first quarter of '22 due to our product and geographical sales mix with revenue associated with international distribution customers continuing to generate a lower gross profit margin than dealer direct sales in the U.S. and net gross margins contributing a higher gross profit margin than our product -- than our other product categories.
This was compounded by increased global shipping and logistics costs as a result of the COVID-19 pandemic.
Sean MacDonald
Income from operations for the first quarter of '22 increased to $5.6 million, up by 104% compared to $2.8 million for the first quarter of 2021 and net income for the first quarter of 2022 increased to $4.2 million compared to $2.1 million for the first quarter of 2021 and represented a 17% return on revenues.
Leatt continues to meet its working capital needs from cash on hand and internally generated cash flows from operations. At March 31, 2022, the company had cash and cash equivalents of $4.2 million and a current ratio of 2.9
1.
Leatt continues to meet its working capital needs from cash on hand and internally generated cash flows from operations. At March 31, 2022, the company had cash and cash equivalents of $4.2 million and a current ratio of 2.9
To summarize, on the back of a record-breaking 2021, we have started 2022 very strong and continued building on the sales traction that we have created over the past 16 quarters.
Leatt continues to meet its working capital needs from cash on hand and internally generated cash flows from operations. At March 31, 2022, the company had cash and cash equivalents of $4.2 million and a current ratio of 2.9
We have plenty of room to grow with key product categories such as helmets, shoes and boots, armor and apparel showing a vast potential to continue to expand as we build and refine the extensive sales and marketing structure needed to bring them to the global market.
Leatt continues to meet its working capital needs from cash on hand and internally generated cash flows from operations. At March 31, 2022, the company had cash and cash equivalents of $4.2 million and a current ratio of 2.9
As I mentioned earlier, potential economic headwinds will need to be closely monitored and adjusted for, if necessary. We are closely watching consumer buying patterns, worldwide geopolitical risks, the macroeconomic inflationary environment and potential lockdowns as a result of the COVID-19 pandemic across our supply chain.
Leatt continues to meet its working capital needs from cash on hand and internally generated cash flows from operations. At March 31, 2022, the company had cash and cash equivalents of $4.2 million and a current ratio of 2.9
In the U.S., which is an important market for us and an area that offers enormous potential for growth, we continue to invest heavily in our sales and distribution facilities. Our entire team is excited and encouraged by our successes to date.
But we have plenty of work to do to realize the enormous potential of the Leatt brand. As always, we'd like to thank our entire Leatt family, our dedicated employees, business partners and team riders for their continued strong efforts and support in making Leatt a success.
With that, I'd like to turn the call over for questions. Operator?
Operator
[Operator Instructions] The first question is from [Christopher Muller ], who is a private investor.
Unknown Attendee
Sean, a great start to the new year in this challenging environment.
Sean MacDonald
Chris, thanks very much.
Unknown Attendee
Just 2 questions for you today. First, it's great to hear that the Reno facility is now fully online.
And you mentioned some logistics delays impacting U.S. revenues this quarter.
Maybe you could speak a bit more about the opportunities you see in the U.S. market now that you've built out the sales infrastructure.
And perhaps more specifically, is the strong growth you're seeing in helmet sales and apparel sales consistent in that U.S. market as well.
Sean MacDonald
Okay. Great questions, Chris.
So just in terms of the opportunity, we are building out our sales force around the U.S. There's quite a lot of areas where we can still employ viably sales representatives that are company employed as opposed to using independent sales reps.
And we found that having a facility like we have in Reno, we can now serve at a much wider range of areas a lot quicker.
Sean MacDonald
And that means that it's far more viable to have company employed sales reps in those areas because it can generate significant revenues to cover costs of having those reps. So that's one area of opportunity.
Sean MacDonald
We also have a very big opportunity in terms of our MTB side of the business. We're still growing out the distribution there.
And of course, we'll have to have stockholding at the facility in Reno to be able to reach all those dealers that are out there. And then direct-to-consumer sales is something which is still very important for us and something that we're working on a daily basis to make sure that we are able to sell on leatt.com, direct-to-consumers and fulfill those orders efficiently through the Nevada facility.
Sean MacDonald
So those are just some of the opportunities that we see coming out of having a much stronger distribution facility. We have had times in the past when stock levels at Leatt USA were not adequate to fulfill some of the dealer demand that we had.
And we don't think we'll have those issues moving forward now that we have sufficient space. So that's a huge opportunity, of course, because it means that we can get better stock turns over the year, which is really important.
Unknown Attendee
And second, I see that this is the second quarter with inventories around the $20 million mark. Are you comfortable with this inventory level relative to current sales?
Or should we expect any significant changes in the year ahead?
Sean MacDonald
No. I think what we've done is we've really ensured that we have enough inventory in order to sell out for a period.
And that obviously reflects expectations of growth moving forward. In terms of the inventory levels, we should see a bit of a drop off in inventory level as we sell out the inventory that we do have primarily at Leatt USA, I'm not too concerned about the inventory levels.
Much of that stock is inventory that is not subject to obsolescence, so it's not apparel and that type of thing. It's mainly protection, which we can solve over multiple periods.
So I think the inventory position is looking adequate in order to meet future demand.
Operator
The next question comes from [Olivier Colombo ], who is a private investor.
Unknown Attendee
Congratulations on this impressive quarter. It looks like you're even accelerating here with your 88% sales increase in Q1 versus last year.
And last year, you're already up to 71%. So that's really remarkable.
Sean MacDonald
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Sean MacDonald
Thank you, Olivier. We are.
Unknown Attendee
I have actually 2 questions for you. The first one is regarding the accounts receivables, which increased 40%.
This seems a little bit high for me. Do you have any concerns on that front?
And I would believe that it would be from European clients. Is that correct?
Sean MacDonald
Yes, correct. So we delivered a lot of our inventory towards the end of Q1.
So much of that accounts receivable that was delivered to our international European distributors is still sitting in accounts receivable. The sales are still sitting in accounts receivable.
The aging is very fresh. And in fact, receivables have decreased already since in the Q1.
So I don't have any major concern around that, just in light of the fact that sales increased significantly in Europe. So we would expect our receivables to go up until those amounts are settled.
Unknown Attendee
Okay. That's perfect.
And the other question was one of your last remarks was that you're monitoring customer demand. So what is this customer demand telling you today?
Sean MacDonald
So I mean at the moment, we still are seeing -- there hasn't been a rebound in consumer demand for outdoor products, and particularly, I mean, on the mountain biking side and to a slightly lesser degree on the motorcycle side. We're still seeing consumers that are actively participating in riding and in outdoor activities.
Sean MacDonald
So, so far, demand is still looking strong globally, domestically in the U.S. We certainly have not seen any drop-off in demand.
And in Europe, it's the same. And in the rest of the world, Australia.
We still have significant demand.
Sean MacDonald
Of course, we talked in the call about some of the things that we are monitoring. And much of those things are macroeconomic issues, some of the -- because some of the geopolitical risks that we are seeing in Europe is something that we're watching quite closely to see if there's any effect on consumer sentiment.
And then on the macroeconomic level, of course, there's inflation, which is an area that we're watching very, very carefully because we are definitely in an inflationary environment. We can see it in our shipping costs.
We can see it in costs around the world.
Sean MacDonald
Of course, that means that we're also in interest rate environment where interest rates are increasing, which may affect disposable incomes and what consumers can spend. We haven't seen that hitting demand levels so far to date.
Of course, Leatt as the business, we don't have any significant interest kind of cost. So we are quite strongly positioned to be able to service the market.
Unknown Attendee
Okay. That's perfect.
And maybe just as an observation, you have been listening a lot of conference calls over the last couple of days here. And something that surprised me was 2 brands, one in the barbecue space and one in the furniture space, and that people are now less spending money on refurbishing their home, but they focus more on traveling and outdoors, which should bode well for the outdoor brands.
Sean MacDonald
Yes, it's very interesting. Absolutely.
Very interesting.
Operator
Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Sean MacDonald for closing remarks.
Please proceed, sir.
Sean MacDonald
Thank you for joining us on this call today, and I look forward to talking to you all when we present the results for Q2 of 2022.
Operator
Thank you. This concludes today's conference.
You may now disconnect your lines at this time. Thank you for your participation.