Although Leatt Corporation CEO Sean MacDonald admitted right up front on a conference call with analysts that 2023 was a challenging year for the cycling and motorcycle industries, he also noted that the fourth quarter represented the first signs of the green shoots of a recovery in certain areas.

“We remain extremely optimistic that ordering patterns will improve over time, because participation remains strong globally,” MacDonald opined. “The increase in our operating cash flow and our ability to remain profitable in a constrained environment is testament to our commitment to create long-term shareholder value. We believe that our continued investment in a strong pipeline of innovative products in global industry talent and in Leatt as a consumer brand will fuel future growth.”

Total global revenues in 2023 were $47.24 million for the the maker of protective equipment for adventure sports, a 38 percent decrease from a very strong 2022.

“Our dealers and distributors continue to regulate ordering in the context of elevated industry-wide inventory levels that continue to be digested as participation remains robust,” he said. “While international distributor revenues were $33.27 million, down 44 percent year-over-year, dealer direct revenues decreased by 26 percent and consumer direct sales grew by 18 percent when compared to 2022.”

Revenues for the fourth quarter of 2023 were reportedly $9.8 million, a 10 percent decrease compared to the fourth quarter of 2022.

“Although international revenues in the quarter did decrease by 15 percent as we continue to manage credit risk globally, dealer direct sales were encouraging, decreasing marginally by 2 percent in total and consumer direct sales grew by 23 percent.”

MacDonald said the company continues to strive to reach a wider group of consumers on a multi-channel basis that includes leveraging digital and traditional brick-and-mortar channels with partners around the world. He said the goal this past year was to efficiently manage through and mitigate the impact of industry headwinds.

“We managed the impact of sustained regulatory pressure and kept spending under control, increased our margins and reinforced our sales and marketing team,” he offered. “We increased our operating cash flows by $3.57 million to $6.66 million. We also successfully launched an entirely new line of Adventure Gear designed for all weather and all terrain conditions, representing a new milestone for us and the opportunity to reach a wider global community of riders, which we’ll talk about shortly.”

He made note that last month, Leatt won the 2024 Design and Innovation Award, this time for the MTB All Mountain 5.0 jersey and All Mountain 4.0 pants.

“This is our 10th Design and Innovation Award and testament to the competency of our global design and engineering team.”

Key Product Performance
Sales of the flagship Neck braces were $2.75 million in 2023, representing 6 percent of revenues for the year. The 49 percent decrease in revenues from 2022 was primarily attributable to dealers and distributors continuing to adjust ordering patterns and digest industry-wide inventory levels.

Body Armor products, which are comprised of chest protectors, upper body protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes, saw a 42 percent revenue decrease year-over-year to $22.58 million in 2023, representing 48 percent of total revenues for the year.

MacDonald said the sharp decline was primarily due to a 43 percent decrease in upper body armor sales and a 48 percent decrease in off-road motorcycle boots sold in 2023.

“Motorcycle boot sales were exceptionally strong in 2022, up by 58 percent from 2021,” he detailed. “Helmet revenues were $11.12 million in 2023, representing 23 percent of our revenues for the year. Sales of our Moto helmet line for off-road motorcycle use were a highlight, increasing by 45 percent year-over-year, but were offset by a 49 percent decrease in MTB helmets sold in 2023, once again, as dealers and distributors, particularly in the cycle industry, continue to cautiously manage ordering and industry-wide inventory levels.”

The Other Products, Parts and Accessories category, which is comprised of goggles, hydration bags and apparel items, including jerseys, pants, shorts and jackets, saw revenues decrease 39 percent year-over-year to $10.8 million in 2023, representing 23 percent of our total revenues.

MacDonald said the decrease in revenues in this category was primarily due to a 47 percent decrease in global sales of technical apparel designed for off-road motorcycle and mountain biking use on a year-over-year basis.

The CEO went on to talk about the opportunities after hiring a new VP of sales and marketing on the MTB side in the U,.S. and working really hard at getting industry talent on board.

“It’s going well. We’ve got a couple of new reps that we’ve employed,” he said. “Those are company employee reps, and we’re looking at whether we should be bringing on some independents as well. Marketing on the MTB side is going extremely well. We’ve grown the team in the U.S. on that side as well. So the distribution network continues to grow, and in fact, in Q1, we are starting to see some positive indicators of some of the areas that we’ve put in place to date.”

In response to an analyst question about shifting representation in other international markets, MacDonald asaid a lot of the new distributors the company is adding are in the emerging markets where Leatt doesn’t actually have strong representation. He emphasized that the sales and brand managers that have been hired are focusing strongly in those areas, and there’s a lot of opportunity for growth.

“So it’s certainly quite correct that the new distributors that we’re bringing on, of course, are stronger financially, but are stronger in terms of their reach to dealers, and generally also stronger on the marketing side and the management side,” he said. “So that’s the reason why we’re making some changes. You’ll also see that we will be adding new distributors that can get us into some of these new exciting channels that we are now entering like ADV.”

He said that in certain cases, a distributor can service Moto dealers and can also service ADV dealers that are a little bit more crossover and in some cases more like a chain store. In other areas, Leatt will add new ADV distributors, which he expects should open up new deals and channels for the company.

Addressing questions about the ADV segment, MacDonald said it is a strong and growing market.

“If you look, for example, at BMW, which is a great example, BMW motorcycles, there’s about 200,000 BMW motorcycles that are sold globally around the world. And of those, the GS, which is the ADV kind of segment, 60,000 of the 200,000 are ADV GS bikes,” explained. “So it’s obviously a very attractive area for us to go into. We’re expecting some really good growth. If you look at the numbers for last year, for 2023, you’ll see there’s some apparel in there. Those are the initial shipments, but there’s a lot more to come. So that is certainly very exciting.”

For the fourth quarter, total revenue was $9.8 million, down 10 percent compared to $10.9 million in the 2022 fourth quarter. Net loss for the quarter was $1.46 million, or a loss of 23 cents per diluted share, as compared to a net loss of $1.0 million, or a loss of 17 cents per diluted share, for the fourth quarter of 2022.

For the 2023 full year, total revenues were $47.2 million, down by 38 percent year-over-year, compared to $76.3 million for the full year of 2022. The decrease in global revenues was said to be attributable to a $2.64 million decrease in net gross sales, a $3.36 million decrease in helmet sales, a $6.81 million decrease in other products, parts and accessories sales, and a $16.29 million decrease in body armor sales.

Net income for the 2023 full year was $803,000, or 13 cents per diluted share, down by 92 percent compared to $9.96 million, or $1.62 per diluted share, for 2022.

MacDonald said Leatt continued to meet its working capital needs from cash on hand and internally generated cash flow from operations.

At December 31, 2023, the company had cash and cash equivalents of $11.35 million and a current ratio of 6:1.

Looking ahead, MacDonald said they remain optimistic about the progress that they are making toward a return to sustainable growth.

“As inventory continues to be digested and industry turbulence normalizes, our industry is adjusting, but participation remains very strong and our team remains energized about our future,” he said. “As I mentioned earlier, the fourth quarter of 2023 represented the first signs of a recovery in our revenue performance. Although revenues decreased by 10 percent during the quarter, we did see revenue growth in emerging market areas in Europe and domestic MOTO dealer sales in the United States increased marginally. Our e-commerce revenues grew by double-digits and we expect continued expansion in this area. We are very excited about the recent launch of our entirely new line of Adventure Gear designed for all weather and all terrain conditions.”

Image courtesy Leatt Corporation