Leatt Corporation (LEAT) Earnings Call Transcript

Hello, and welcome, everyone joining today's Leatt Corporation Third Quarter 2026 Results Conference Call. [Operator Instructions] Please note this call is being recorded. We are standing by should you need any assistance. It is now my pleasure to turn the program over to Michael Mason, Investor Relations. Please go ahead.

Thanks, Aaron. Good morning, and welcome to the Leatt Corporation Investor Conference Call to discuss the financial results for the third quarter 2026. The company issued a press release today, Thursday, November 12, 2026 at 8 a.m. Eastern and filed a 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 1844 512-2921 or 1 (412) 317-6671 for international callers. The replay pin number is 111-63009 and a replay of the webcast will be available immediately following this call and will continue for 7 days. Certain statements made in this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent our estimates and assumptions only as of the date of this call. Actual results could differ materially. 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 November 12, 2026. 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 Shaun.

Thank you, Mike, and thank you all for joining us today. I'd like to begin today by telling you about the excitement that we all shared a few weeks ago at our global distributor conference in Barcelona. Our distributors, business partners and customers joined us and the energy in the room was incredible. We had just closed our highest revenue quarter in 4 years and launched our first consumable product line, Gitlitz, a full range of high-performance Bicar products. . We shared our latest plans for the company, including the exciting new products in our pipeline and how we will amplify the brand to reach a much wider rider audience. It was wonderful to see firsthand how strongly our partners believe in Leatt and how committed they are to growing with us. Now on to the third quarter. By nearly every measure, the third quarter of 2026 was a very strong quarter for Leatt. Total global revenues were $20.46 million, up 43% over the third quarter of 2025. And as I mentioned, our highest quarterly revenues in 4 years. The numbers for the quarter for the story. Sales to global distributors increased by 52% which includes motor shipments that moved from the end of the second quarter into the third. Looking at the 2 quarters together, distributor sales increased by approximately 22%. Dealer Direct revenues increased by 24%. We are investing in our selling capabilities and dealer outreach programs to grow our dealer base and in-store presence. Our motor and NTV domestic sales force is gaining fantastic traction with our head-to-toe product offering. Consumer direct sales, another investment focus for us increased by 25% on top of 61% growth in the third quarter of 2025 and U.S. revenues increased by 24% to $5.33 million and international revenues increased by 50% to $15.12 million. Net income increased by 309% to $2.2 million or $0.35 per basic share and $0.34 per diluted share compared to $540,000 or $0.09 per basic share and $0.08 per diluted share in the third quarter of 2025. Gross profit increased by 48% or $3.01 million in part due to the recruitment of global trade tariffs levered on the importation of goods into the U.S. We clearly demonstrated our operating leverage in the quarter. Revenues for the quarter grew by 43%, while operating costs grew only 15%, allowing our operating cost to fall to 32% of revenues from 40% in the third quarter of 2025. Income from operations grew by 367% and our net margin improved to 10.8% from 3.8%. Our growth was broad-based across product categories. alone sales increased by $2.93 million or 48%. Helmet sales increased by $2.25 million or 68% and other products, parts and accessory sales increased by $1.04 million or 26% as compared to the third quarter of 2025. Net price sales were down slightly by $110,000 against the strong prior year quarter. On a year-to-date basis, revenues increased by 23% to $56.36 million, and net income increased 74% to $4.88 million or $0.78 per basic share and $0.76 per diluted share as compared to the same period of 2025. Consumer direct sales continue to be a highlight, increasing by 48% to $5.24 million. Gross profit increased by 27% and gross profit as a percentage of sales improved to 45%, up from 43%. Now I will turn to more details on sales of our product categories for the third quarter of 2026 compared to the third quarter of 2025. Sales of our flagship net base designed to prevent potentially devastating spot injuries to the cervical spine were down slightly to $750,000, a 12% decrease compared to a very strong prior year quarter in which net base volumes grew by 39%. The decrease was primarily due to a 22% decrease in the volume of net prices sold. Net prices represented 4% of our revenues for the third quarter. Sales of our body armor products, which include upper body and limb protection, motor and AV boots and MTB shoes were $9.03 million. a 48% increase over the third quarter of 2025. The increase was driven by a 33% increase in upper body and limb protection sales and an 88% increase in footwear volume. Body armor products represented 44% of our revenues for the quarter. Helmet sales totaled $5.58 million, a 68% increase driven by a 93% increase in the volume of off-road motor AEV and MTB helmets sold as global demand for these products continues to grow. Almedsales represented 27% of our revenues for the quarter. Sales of our other products, parts and accessories category, which includes goggles apparel by care products and parts were $5.1 million, a 26% increase driven by a 16% increase in sales of NCB, ADV and motor apparel compared to last year. Also, initial shipments of Ritvik and Rider care products exceeded our expectations. Other products, parts and accessories represented 25% of our revenues for the quarter. We are continuing our previously announced Board-authorized share repurchase program of up to $750,000 of -- let outstanding common stock. We repurchased approximately $182,000 of common stock during the first 9 months of 2026. We believe that this demonstrates our continued confidence in the strength of our company and our business plan as well as our commitment to enhancing long-term shareholder value. Now I will turn to our financial results in a bit more detail. Revenue for the third quarter ended September 30, 2026, were $20.46 million, a 43% increase compared to $14.34 million for the third quarter ended September 30, 2025. This increase in worldwide revenues was attributable to a $2.93 million increase in body armor sales, a $2.25 million increase in helmet sales and a $1.04 million increase in other products, parts and accessories sales, partially offset by $110,000 decrease in net price sales. Revenues generated from sales to our customers in the U.S. increased by 24% from $4.29 million to $5.33 million for the quarter ended September 30, 2026. The revenues associated with international customers worth $15.12 million and $10.06 million or 74% and 70% of our revenues for the quarter ended September 30, 2026 and 2025, respectively. Turning to our balance sheet and cash. Cash, cash equivalents and restricted cash increased by $2.27 million since year-end to $15.5 million at September 30, 2026. Cash flows provided by operations were $4.59 million for the first 9 months of 2026, more than 3x the $1.45 million for the same period in 2025. Despite 23% revenue growth, inventory decreased by $1.6 million since year-end, reflecting strong sell-through and disciplined working capital management. The current ratio at September 30, 2026, was 4.71%. A 2-year picture of our results shows the progress that we are making. Third quarter revenues have grown 69% since the third quarter of 2024. Year-to-date, revenues are up 72%. Year-to-date, gross margins have improved from 40% to 45%. Year-to-date net income has gone from a loss of $1.76 million in 2024 to a profit of $4.88 million in 2026 and helmet sales have more than doubled over the same period. Looking forward, we are on track for a very solid year in 2026. While there is still the potential for geopolitical headwinds, we are optimistic that the traction that we have gained will continue, participation remains strong and demand for our expanding line of innovative products continues to grow, fueling robust international reordering patterns and momentum in domestic sales at the dealer and consumer levels. We believe that this momentum will be sustained as we continue to invest in building Leatt as a global consumer brand that riders are compelled to engage with. We are actively building out our global team of sales, marketing and brand management professionals and continuing to build a pipeline of innovative products. In terms of marketing and product launches, the third quarter of 2026 was 1 of our busiest ever, and that momentum continues into the fourth quarter. In addition to Grip, which I mentioned earlier, we launched global campaigns across all 3 of our running categories, Moto, MTB and ADB, designed to support the sell-through we are seeing at dealers and distributors. In September, we collaborated with California-based Seagar and a 5.5% rate war kit for Letier Justin Hill, we debuted it at the Super motocross playoffs. Seagar has built a strong following for its Western and spine apparel and headwear. We also worked with new proof access rating on a limited edition casual apparel capsule released at the Whistler World Cup. The same weekend, New proof Junior liter Canada Rutherford when the junior mains downhill at Whistler. Continuing onto the fourth quarter. This week, we launched 2 new MTV flat pedal riding shoes featuring our unique Supertech technology designed to maximize Grip and enhance the riding experience for riders of all levels. And in December, we are planning an ADV brand campaign with a model-year 2027 AB range. So please stay tuned for that. In conclusion, our team remains very excited about our future. That excitement is driven by an innovative and expanding product portfolio, our plans to amplify the brand to reach a much wider rider audience rider that we've never reached before. the launch of Grid by Leatt and a strong balance sheet that is well positioned to fuel growth and sustain shareholder value. As always, we'd like to thank our entire Leatt family, our dedicated employees, distributors, business partners, team writers and shareholders for their continued strong support. With that, I'd like to turn the call over for questions. Operator?

[Operator Instructions] And we can take our first question from private investor, Christopher Mueller.

Thanks, Sean. Just a few questions. First, now that grates begun reaching distributors, could you maybe give some color on the geographic range of that rollout, when it's coming to the U.S. and has maybe the initial response you're seeing at a dealer level?

Absolutely, no problem. So we all -- we have shipped grids internationally and in some areas that are a bit further out, it's still on the way. We do have growth in some European countries and in the U.K. currently. The dealer uptake has been pretty strong. We're seeing that grid's got a really nice positioning for the dealers, the model itself in terms of the margins, it really does work at the dealer level. So that's been pretty good. In terms of the U.S., it's on the way, it should be in a couple of weeks, at which time we're going to do a full grip U.S. launch. We didn't want to hold back the launch for -- to make sure that everything was in every single country. But certainly, grid is on the way. And so far, the uptake has been very strong and very positive.

Great. That sounds good. And I believe last year, you pegged down the ADV segment revenue around 50% -- 15% of total revenue. given the expansion of that product range, the notable gains you've had in Helmet and footwear sales this year. Is that still a reasonable estimate? Or has ADD become a meaningfully larger share of the overall business?

Currently, slightly higher than that, not significantly higher. We're still less than 20%, but higher than 16%, it's obviously, that fluctuates on a quarterly basis, but we're more in the kind of 16% to 18% range right now, I do foresee that growing slightly faster than the other categories, although MTV is also growing really fast, and it's not that motors going backwards motor isn't quite -- growing quite as fast as ADV but I think ADV will continue to grow in terms of strength -- being a strength fully. And I think the percentage of our sales will continue to grow into the future.

Okay. Great to hear. And then lastly for me. Could you quantify the impact of the tariff free funds here in the third quarter, maybe just a dollar amount, so we could back into a normalized gross margin?

Sure. So I think -- I mean, I can give you the normalized gross margin. It impacted our margins by about 2%. So $500,000 to $600,000 in tariffs came back during Q3. So if you look at the normalized margin, it was in line with what we did last year. So you could say that normalized margin was stable. Our margins, there's been some pressure on the margins. primarily due to shipping costs that have obviously increased due to the geopolitical crisis that we've seen in the oil price increases. But we have managed to keep our margins relatively stable. If you are to strip out the impact of the tariff recruitment, you see that margins are still stable at roughly the same level as last year.

We will move next to Olivier Colombo, a Private Investor.

Congratulations on the fantastic Q3, reminds me of the good time of 2022. So another $20 million to go, and that will be your best year ever. Sean, I have actually 2 questions for you. The 1 is coming back to the grid question here. So for the moment, it is only available at distributors, you will not be able to -- or you're not selling it for the time being under the website, gripper Leatt.

It's on the way to those websites. So some of those websites will already have the stock -- in stock and are already selling it. And some of those websites, the stock is on the way, nearly there, and it will be available on those sites relatively soon. .

Yes. That's perfect. And you know what the size of this market is and who the bigger players are?

Sure. I mean there are some very big players in this market. I think what is limited in terms of the competitive landscape are players that have got distribution that is global. There's a lot of local players in the different markets that we see that have got a level of strength and there's many of those, and that differs depending on the geographical market that you're in. And -- but there's very few players that are actually global and have got the ability to distribute these kinds of products into motor, MTB and ADV. So in terms of that kind of a player is relatively limited. In terms of the local players, there are quite a few I would say, but the full offering that we have, the high-tech products that we have, I believe, sets us apart and of course, the global footprint that we are able to achieve in the different markets set us apart. It's -- it's a big opportunity. This is not only the kind of product that can be sold into motor ADV and MTB shops, Olivia. And we specifically marketed this as a bike product, and that could be any bike. There's a lot of opportunity outside of our core markets to expand grit. And at the beginning, of course, it's a stand-alone brand. I think it's called Kit, but it has the support of Leatt behind it. I'm very confident that it's going to be a strong category for us.

Okay. And when you report the will we be able to monitor the grid performance? Or will it be included in the vertical like your accessory line?

At this point, we're going to include it in other parts and accessories, but we will give information regarding how grid is going and how the sales of Grito progressing.

And we will move next to Aaron Gilman with Horton Street Capital.

Sean, Congrats on a great quarter and all the successful product launches. One question. The growth in direct kind of slow direct sales from your website slowed down a bit. We had been growing kind of 60% for a few quarters, 50%, 60%, and we kind of dropped down to 25%. Just curious what's kind of, if any, what changed there? Are you spending a little less on direct marketing? Or have you kind of shifted priorities or just kind of noise?

A strong priority. I mean, I expect that to continue to grow very strong double digits into the future. It's also a function of the price level that we decide to solve products at. It's a function, as you said, of the performance marketing and it's a function of the availability of stock that we have that we can sell on the website. But I don't think that there's any hand break when it comes to selling direct to consumers. And I would expect that to continue to accelerate into the future.

Got it. Great. And then I'm curious on the kind of restocking dynamics. Obviously, a lot of dealers were very destocked a couple of years ago, we're kind of maybe 2 years into them kind of restocking. Are we -- kind of if we're looking at your sales this year, -- how much of it is dealers going or distributors and dealers going from kind of like having less inventory than they normally would to a normal amount of inventory versus there's just increased end market demand and increased demand, in particular for Leatt products? I know it's not to quantify, but any kind of color on that would be helpful.