Aug 11, 2022
Operator
Greetings, and welcome to Leatt Corporation Second Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
Operator
I would now like to turn the conference over to your host, Michael Mason, Investor Relations. Please go ahead, sir.
Michael Mason
Thanks, Maria. Good morning, and welcome to the Leatt Corporation Investor Conference Call to discuss the financial results for the second quarter 2022.
The company issued a press release today, Thursday, August 11 at 8:00 a.m. Eastern and also filed its report with the SEC.
The press release is posted on Leatt's website 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 13731945.
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 August 11, 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. Good afternoon to you in Cape Town, Sean.
Sean MacDonald
Good morning, and thank you, Mike, and thank you all for joining us this morning. The results of the 2022 second quarter, once again, demonstrates our ability to grow revenue, gain sales traction in important product categories and continue our momentum in building Leatt as a consumer brand recognized for innovation and acceleration globally.
Sean MacDonald
The second quarter was our 17th consecutive quarter of year-over-year revenue growth. Consumers continue to participate in outdoor running activities, a global trend that we expect to continue.
Our MTB and MOTO distribution partners and dealer customers around the world are enthusiastic about the momentum and penetration that the Leatt brand and our Head to Toe offerings of exceptional protective gear have achieved over the past several quarters.
Sean MacDonald
Total revenues for the quarter were $17.94 million, which in terms of growth was lower than previous extraordinary quarters but was still up 25% over the 2021 second quarter. Gross profit and net income were also up by double digits compared to the second quarter of 2021.
Sean MacDonald
For the first 6 months of 2022, total revenue was $42.2 million, up by 55% compared to $27.2 million for the same period last year. Net income for the first 6 months was $6.9 million, up by 55% as compared to the same period last year and basic earnings per share increased to $1.20 compared to $0.82 for the same period last year.
Sean MacDonald
We continue to achieve double-digit revenue growth in all of our expanding product categories with the exception of our most established category neck braces, where sales decreased this quarter compared to a very strong 2021 second quarter.
Sean MacDonald
Apparel, helmet and off-road motorcycle boots sales have been particularly strong, energizing our entire team and our international distribution network.
Sean MacDonald
We are continuing to build out a global team of sales and brand managers who are focused on regional marketing dynamics and support for our distribution partners and dealer networks.
Sean MacDonald
Building a multinational sales organization that is regionally relevant and can operate on a global scale has become an important revenue driver for Leatt and perhaps, more importantly, a key tool to deliver exceptional consumer engagement.
Sean MacDonald
International revenues continued to grow with $13.9 million in total international revenues for the 2022 second quarter, up 45% over the same period last year.
Sean MacDonald
Although sales in the U.S. did contract as a result of industry-wide logistical and port challenges that created some stocking issues and ultimately affected our dealers' ability to reorder, these delays have started to ease as we continue to drive consumer demand to stores with coordinated marketing campaigns designed to relieve congestion.
Sean MacDonald
In addition, we are investing heavily in our U.S. sales and distribution capacity to reach a wider group of MOTO and MTB dealers around the country.
Sean MacDonald
Our new Reno, Nevada warehouse is also fully up and running, and we have grown our warehouse headcount by 30% over the past year to be able to ship stocks to our customers efficiently. We believe that Leatt USA is now well stocked with fast-moving items that should cover stock requirements and dealer promotions very well into the rest of the year.
Sean MacDonald
Our entire team remains focused on our ability to gain brand and revenue traction while striving for excellence in operating efficiency, controlling costs and investing in key growth areas in the midst of a widespread global inflationary environment. Operating expenses increased by 28% driven by our investments in sales and distribution channels and marketing campaigns designed to build a global sustainable consumer brand.
These are investments that we believe will continue to fuel global growth moving forward.
Sean MacDonald
Of course, we will continue to monitor customer stocking, consumer buying patterns and worldwide geopolitical and economic risks as well as potential lockdowns due to the COVID-19 pandemic that may result in potential headwinds. Our team remains committed to building Leatt on a sustainable basis that creates lasting ongoing shareholder value.
Sean MacDonald
Now let me turn to a bit more detail on our product sales. Sales of our body armor products, including chest protectors, full upper body protectors, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes grew by 11% to $9.5 million, representing 53% of our revenues for the 2022 second quarter.
Sean MacDonald
The increase was primarily the result of a continued strong global demand for our off-road motorcycle boots and upper body protected gear.
Sean MacDonald
For the first 6 months of 2022, sales of our body armor products totaled $21.99 million, a 38% increase over the same period last year. The increase was primarily the result of continued shipments of our footwear category consisting of off-road motorcycle boots and mountain biking shoes and continued demand for our innovative upper body and limb protectors.
Sean MacDonald
Our helmet sales for the 2022 second quarter totaled $2.38 million, a 152% increase over last year. The increase was primarily due to a strong increase in sales of our expanded and redesigned MOTO helmet line for off-road motorcycle use to customers in the U.S.
and abroad.
Sean MacDonald
For the first 6 months, helmet sales totaled $8.07 million, a 214% increase over last year. This increase was due to continued strong demand for our winning MOTO helmet line designed for a wide range of riders and continued demand for our redesigned MOTO helmet line for off-road motorcycle use.
Sean MacDonald
Second quarter 2022 sales of our other parcel accessories category consisting of goggles, hydration bags and apparel, including pants, shorts, jackets and aftermarket support items totaled $4.73 million, an increase of 51% over last year. And for the first 6 months of '22, other parts and accessories sales totaled $9.26 million, a 79% increase over last year.
Sean MacDonald
The increase in sales of our other parts and accessories in both periods was primarily due to continued strong demand for our MOTO and MTB technical apparel lines for off-road motorcycle and mountain biking use.
Sean MacDonald
Now I will provide a bit more detail on our financial results for the second quarter of '22. Total revenues for the '22 second quarter increased to $17.9 million, up by 25% compared to $14.3 million for the second quarter of '21.
Gross profit for the second quarter increased to $7.6 million, up 23% compared to $6.2 million for the second quarter of '21.
Sean MacDonald
Our neck braces products continue to generate a higher gross profit margin than our other product categories. And although neck brace revenues accounted for 7% and 11% of our revenues for the quarters ended June 30, '22 and '21, respectively, our gross profit remained consistent with the '21 period due to a stabilization in global and domestic shipping and logistic costs.
Sean MacDonald
Income from operations for the 2022 second quarter increased to $3.7 million, up by 18% compared to $3.1 million for the second quarter of '21. Our net income increased to $2.7 million, up by 13% compared to $2.4 million in the second quarter of '21 and represented a 15% return on revenues.
Leatt continued to meet its working capital needs from cash on hand and internally-generated cash flow from operations. And at June 30, 2022, the company had cash and cash equivalents of $4.95 million and a current ratio of 3.8
1.
Leatt continued to meet its working capital needs from cash on hand and internally-generated cash flow from operations. And at June 30, 2022, the company had cash and cash equivalents of $4.95 million and a current ratio of 3.8
So to summarize, the second quarter of 2022 was another exceptional quarter in terms of global brand development, growth and sales traction. We expect consumers to continue to actively participate in outdoor riding activities.
Most of our important product categories continue to experience double-digit growth and we have created an exciting pipeline of new, innovative and consumer-centric products that are well differentiated from our competitors and rigorously tested by our team of dedicated product developers, engineers and passionate family of professional riders and athletes.
Leatt continued to meet its working capital needs from cash on hand and internally-generated cash flow from operations. And at June 30, 2022, the company had cash and cash equivalents of $4.95 million and a current ratio of 3.8
While we are making important progress, we are very aware of potential economic headwinds that may surface from the current environment.
Leatt continued to meet its working capital needs from cash on hand and internally-generated cash flow from operations. And at June 30, 2022, the company had cash and cash equivalents of $4.95 million and a current ratio of 3.8
That said, we remain enthusiastic about our ability to continue realizing gains. Many of our popular newly launched products are still in their infancy in terms of market share and the potential to meet the needs of riders at all levels around the world.
Leatt continued to meet its working capital needs from cash on hand and internally-generated cash flow from operations. And at June 30, 2022, the company had cash and cash equivalents of $4.95 million and a current ratio of 3.8
As always, we'd like to thank our entire Leatt family, our dedicated employees, business partners and team riders for their continued efforts and support in making Leatt the success that it is now.
Leatt continued to meet its working capital needs from cash on hand and internally-generated cash flow from operations. And at June 30, 2022, the company had cash and cash equivalents of $4.95 million and a current ratio of 3.8
With that, I'll turn the call over for questions. Operator?
Operator
[Operator Instructions]
Operator
Our first question comes from Christopher Muller.
Unknown Analyst
Congrats on the continued progress in the second quarter.
Sean MacDonald
Thanks very much, Chris. Nice to hear from you.
Unknown Analyst
A few questions for you today. First, could you provide a bit more color around what you're seeing in the U.S.
market. I know you mentioned port congestion creating some restocking issues.
But at the same time, inventory remains quite elevated from a year ago. So I guess I'm just trying to understand whether demand is also softer in the U.S.
than you're seeing in other markets? Or if you're really just expecting some stronger quarters ahead as those logistics issues ease?
Unknown Analyst
[Technical Difficulty]
Operator
Okay. We're just going to go back into Q&A right now.
Thank you for your patience.
Sean MacDonald
Hi, Chris. Sorry, we lost you there for a second.
I'm sorry, the line -- we're not sure what happened. But it's not personal, so please continue with your questions.
Unknown Analyst
Yes, I was nervous there for a minute. Yes, just see if you could provide a bit more color around what you're seeing in the U.S.
market. You mentioned port congestion and restocking issues.
But at the same time, inventory is quite a bit higher than a year ago. So I'm just trying to understand whether demand in the U.S.
is softer than you're seeing in other markets? Or if you're expecting a return to stronger U.S.
growth as those logistics issues ease?
Sean MacDonald
Yes. So to give you some color, I mean, obviously, it's a good question.
And what we've really seen is an industry-wide, a bit of stocking congestion that started at the end of '21 when we had congestion inside the actual ports and there were some trucking delays. It traditionally would take 3 to 4 days to get stock out of a port and into our warehouse, and then obviously and turn into the dealers and this started taking 4, 5, 6 weeks.
And it was quite unpredictable in terms of the stock that was coming out.
Sean MacDonald
So what happened was there was a delay really across the industry. This wasn't just Leatt.
This was many brands. And then a lot of the stock kind of arrived at the same time on the dealers' doorstep.
And then they had to digest a lot of stock at the same time.
Sean MacDonald
And that is what they are currently doing. They're digesting the stock.
They are still fit in the stores that are buying stocks. So the demand is still there.
People are still participating outdoor activities and are still riding. But there's a bit of an overhang, which -- I mean, the original cause really was the port congestion due to the dynamics that COVID presented.
But it created a stock overhang that was industry-wide. All the brands have sold something similar.
And we are now pushing hard in order to stimulate demand as much as possible so that the stock that is currently in the dealers can be digested, can move through into the market, and we can then carry on with restocking.
Sean MacDonald
So delays have now decreased. We've started to see a pickup.
We're, obviously, in Q3 now. So we started -- we have started to see a pick up now in what we are able to ship to our dealers.
And of course, our stock levels are at a level where we can supply stock into the dealers, and we can take advantage of some nice promotional opportunities that are out there. So things are starting to look a bit more positive now because the congestion has started to clear.
Unknown Analyst
That's good to hear. And I guess more broadly, not just in the U.S.
but also abroad, do you see opportunities to increase inventory turns from here? It would seem that with the strong growth in categories such as apparel, as well as the growing e-commerce channel.
These things might benefit inventory turns going forward. Would you say that's a reasonable expectation?
Sean MacDonald
Yes, I think so. I mean I think the kinds of products that we're selling now lend themselves to better turnovers just because some of them are more seasonal than others than we've had in the past.
So we hope to see better stock turnovers as we continue now.
Unknown Analyst
Okay. And it was good to see you back at the EuroBike Conference finally retired last month.
I don't believe you'd even debuted the shoe line yet at the time of the prior conference before COVID. Are there any broad takeaways from your meetings there?
How is the 2023 line generally being received?
Sean MacDonald
I'm sorry, I think the -- in terms of Leatt's positioning with our -- I mean, I managed to meet with a lot of our largest customers at Eurobike, which is really, really great because it's the first time that I've been able to travel since COVID with all of the restrictions. And the takeaway really is that Leatt as a brand is doing very well for all of our customers around Europe and in the rest of the world.
We had some South American customers there, we have some Australian customers. And so Leatt is certainly a standout brand in terms of our penetration into the various different markets.
Consumers love our products. They're very attracted to the brand.
The line was very well received. I think people were refreshed to see that we really haven't had developed into a strong MTB brand as well now.
And if you look at our product categories, it's not just a couple of helmets and some protection and a neck brace anymore. We've really got a full Head to Toe offering.
Sean MacDonald
And certainly, the dealers that have tended to show, many of them were very pleasantly surprised that Leatt has got such a full offering, which, of course, is really important because it means that we're an important source of revenue to those dealers, and they can really invest in the brand.
Sean MacDonald
So that's Leatt's positioning in the market. Products well received, brand very exciting.
Brand positioning, we're starting to take some market shares from some important players, and we've become a very well-respected brand in the -- particularly in the European MTB sector, which is a very competitive sector. So we're very excited about that, and our customers are very enthusiastic about that.
Sean MacDonald
Of course, in Europe, there are some -- you could call them geopolitical and macroeconomic issues. I mean there's widespread inflation everywhere.
We also have got -- this has affected obviously, currencies, the dollar has been very strong, which does affect retail pricing in Europe. So those issues are all raised, and they're put on the table.
Our distributors are themselves. So monitoring their stock levels very closely because we have had such a spike in revenues and they are doing extremely well out of Leatt, but they also are monitoring stock levels, looking at stock turnovers very carefully, looking at how much they have invested and how quickly they can turn that around.
Sean MacDonald
So there's a cautious optimism with our distributors in terms of economically how things are going to go. When you have a situation close to currency, parity between the euro and the dollar, of course, that does make things a little bit more expensive in European terms.
So we're watching -- we're all watching quite closely what impact that will have on revenues moving forward. Our revenues and also the revenues of our various big customers out there in Europe.
Unknown Analyst
That's good to hear. And just lastly, if I may, I was happy to see the Surefoot partnership extended to the U.S.
How is that going at Northstar? Have you received any feedback yet?
And do you see an opportunity for different locations?
Sean MacDonald
Absolutely. So it's very -- we've had very good feedback.
I mean it's really nice to engage with end consumers. And again, the consumers get to get a real good touch point of the Leatt brand, which is fantastic.
It is a strong consumer group for us. We've had really, really positive feedback.
And of course, there are other locations around the world. And I've had some suggestions in terms of some other European locations, and we certainly are looking into that because it's -- I think it's a win-win situation for Leatt, for the end consumer and also for the various stores out there.
So certainly something which we are looking at.
Operator
Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would now like to turn the call back over to Sean MacDonald for closing remarks.
Sean MacDonald
Thanks for joining us today. We look forward to speaking with you again to recap the third quarter of 2022.
Operator
This concludes today's conference. You may disconnect your lines at this time.