Chit Chat Stocks - Leatt Corporation (Ticker: LEAT) with Deep Sail Capital

Episode Date: November 24, 2022

Leatt Corporation develops and distributes personal protective equipment for participants in motorsports and leisure activities. The company produces helmets, body armor, braces, guards, hydration systems, and apparel. Listen as Brett and Ryan ask questions about the company, its business model, and valuation. Enjoy the show! ***************************** Interested in becoming a member of 7investing? Subscribe with code “MONEY” and get $100 off your annual subscription for life: https://7investing.com/checkout/ ***************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Interested to see more of Deep Sail Capital's work? Check out their Twitter here: https://twitter.com/DeepSailCapital?s=20&t=mGqtopmQ-1q-JrQio8jkTg Contact us: [e-mail] Timestamps Leatt | (4:12) eCommerce | (14:27) Management | (24:05) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday deep dive episode where we interview an analyst on a single stock. And today we are talking with Sean. He is also, he's the investment manager at Deep Sale Capital. His pseudonym or his name on Twitter is Deep Sale Capital. And this was a lot of fun. It's his first time on the show. We're talking about a pretty illiquid small cap stock called Liat Corp. I believe I'm saying that right. Yeah. It has the South African accent from the founder's name. So we do not know exactly, but we could be botching it. And he goes into what it does. And it's kind of a fascinating business, not only in terms of the opportunity that they have in front of them, but the valuation is pretty compelling as well. And

he knows the business pretty thoroughly. Do you have any highlights from the interview? Yeah. And I just want to warn again, this is a small cap stock. So none of us on the show are trying to change the price or anything. It's just analysis. So do not be going buying or selling like immediately after this report goes out, that's not what we're about. Or if you do, do it because it's your decision. It's your own decision. But yeah, I really liked talking about

their competitive positioning versus others in the space and why he thinks there is a sort of advantage here with their helmets, the established stuff with neck braces. The safety brand. Yeah, and then it's also the way he goes through it. We go through different parts.

So at the end, I kind of got the full story. story, they're at a moment where the cashflow and some of the dynamics with the business are making their cashflow look worse than it actually might be over the next three years. So we could be at an interesting inflection point. And also the industry is one that got hit by COVID. So right now, investors are having a tough time valuing it. And that's where opportunities can arise sometimes. All right. Well, before we get to the interview, we want to talk about our sponsor, our exclusive sponsor, Seven Investing. I know if you're a recurring listener, you hear us talk about them all the time, but Seven Investing is an investing service that

recommends seven stocks every month. For those of you that are maybe hearing this for the first time, they have more than 200 stocks that they've covered. Research reports on more than 200 different stocks that have built up in the portfolio over the years of recommendations. So using our code money, you get a hundred dollars off the annual subscription. You get all those reports and all the new ones to come as well. We think it's well worth the value and part of their strategy. I think it's worth kind of harping on this is letting the winners outperform the losers. And so this is kind of an opportune time to be looking at that strategy where you're going

to pick some, not all of these are going to be home runs, but the home runs that are going to compensate for the losses. You can score 100 runs on those. Yeah, absolutely. And I think they have a couple of businesses in here that certainly have long-term opportunities. We should say that the code is not permanent. It's through the end of 2022. So again, make sure to check them out before the end of the year. All right. And it's code money at checkout. But without further ado, here's our interview with Deep Sale Capital. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder,

Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Okay, welcome in. Today, we are joined by Sean, who is an investment manager at DeepSale Capital. You may know him from Twitter, at DeepSale Capital. And I believe it's the first time on the show. So welcome. Thank you. Thank you. Excited to be here, guys. Yeah, yeah. We're talking about Liat Corp, which is a company that I have to admit,

I've, I had never heard of. I'm not, not in the, not their consumer cohort. Um, so I guess maybe provide a little bit of background for listeners who have never heard you before. Um, and then kind of what's, how'd you come across Liat to begin with? Yeah, great. Yeah. So, um, so deep sale capital. So we're a U S based, uh, investment management firm. Um, so we, uh, We run a strategy that's a long-short strategy, biased towards net long. We focus mainly on quality, growth, and micro-cap companies. And we utilize kind of a similar framework to like Chuck Ackrey at Ackrey Capital or like Thomas Gaynor at Markel.

And we call it the four pillars of an exceptional investment. And so we look for things that have a high quality business models that have exceptional management that have a substantial long-term growth prospects and that have reasonable valuations. You guys can find more. You can check out my website or check me out on Twitter at a deep cell capital. We'll throw those in the show notes as well. Awesome. Great. So we at core, I found this, I, I tend to post a lot of questions on Twitter, trying to get feedback from my followers and

other people. And I think I posted a question on like, what's a company under $50 million or under $500 million that has a great management team? And I think there were a few people that actually posted Liat Corp. So this is part of my process. I kind of grabbed the name from there, checked them out, just made sure they kind of fit with my overall, uh, focus. So I usually kind of look through and I do kind of like, uh, make sure that things kind of match up with my sector focus and, uh, and this one did and make sure there's no immediate red flags. Um, so, uh, so I added to a watch list of mine and eventually just kind of screened well and, and, and dug in and really liked what I saw. And, and, um, and so, yeah, that's how I found it. All right. What does

Liat do and maybe add on any relevant history here? Because I think if any investor checks out that stock chart, they're going to see that I think it went down 98% or even more after the IPO two decades ago. So any history and what they do? Yeah. So I think the best place to start is kind of the origin story of Liat. So Liat was founded by Dr. Chris Liat, who's from South Africa. So about 2006, 2007, he was, so he's a motocross rider. So he was out riding with his son. I think it was his son's first ride actually. And he actually witnessed a fatality while they were out riding. And, you know, at the time, I think his son was like six, seven or eight, something like that. He basically said, you know, I can't let my son ride. It just doesn't make

sense. He was recently graduated doctor and was like, I got to figure out, basically, I need to figure out a way to make a brace that will make it okay that my son can ride again. And so that's the origin story of it is that he started this company basically because of this incident that he witnessed. And so they did IPO in 2007. It was a really small IPO. And yeah, if you look back at the chart, it does look really weird. I had to go back and actually do a little more research on exactly what happened here. So essentially, I think there was a couple of things going on. There was a restatement involving, they tried to issue some preferred shares basically to Chris and a couple of the other partners. And there was something that went wrong with the

issuance and they had to actually issue class A shares. So basically like right after the IPO, it kind of looks kind of, the chart looks crazy. I mean, this is way back in 2007. So nothing to deal with now. They ended up doing like a settlement where they issued them Class A shares or whatever, and some additional preferred shares later and basically made right on their original agreement with the original partners. And so that was like 2009-ish. At the time, though, there was also something to point out, which is relevant now. There was also a legal dispute that went on around the product design, essentially around the neck brace. And that came up in 2009 and now has since been resolved and they won that case in 2017. So basically they

won that legal case, which was around the neck brace design. So that's kind of what they do in kind of the beginning story there and why the stock chart may look a little crazy if you look way back in 2017. But I can kind of go into what the company is now. So it's really a design and distribution company for protective gear for the motocross and mountain biking space. They design and distribute neck braces, helmets, gloves, chest protection, and they've gotten into apparel recently, which is kind of like a newer segment for them. So they've got a ton of patents. I think they have 12 patents in the US and they claim, I think they have a total of 90 patents either granted or in progress globally. So the patent portfolio is pretty strong. It really revolves

around the neck brace and the chest protection. And then a new piece of technology that they recently patented that has just gotten into production, which is called the 360 turbine technology. And that is basically in their helmets. And that's kind of pushed their growth to a new level, especially this year. But yeah, so the company's based in South Africa. So like I said, it was founded by Dr. Chris Liat, who still owns about 34% of the company. And then the CEO has been with the company since 2010. His name's Sean McDonald. He's also the director and he's the CFO, which I do kind of find a little odd that he's CEO and CFO, but he seems to do a great job of it. Um, but yeah, that's kind of,

that's kind of what they, what they do, um, overall. So. What do, uh, I think listeners are probably wondering what kind of the economics look like for a business like this. So, you know, uh, manufacturing and distributing or designing, I should say, I don't know if the manufacturing's them as well, but, um, what are the economics look like for that? Yeah. So they don't do any of the manufacturing themselves. That's all outsourced to China, which is very similar to most of the industry. So all the manufacturing is basically done

in China. So they do all the distribution, which is kind of an important point here because they do have a significant amount of working capital associated with the distribution part of the business. So when I think of Leet, the value really comes from two places. It comes from the technology and it comes from the patents, which are all held in-house. So it's really a technology and a design company. So within that, they have a big R&D... Well, not big. It's actually a small team of about four R&D folks that Dr. Chris Leat still runs and manages. And they were the ones who developed the neck brace. And they were the ones who also developed the 360 turbine technology. So they basically have developed like two industry

leading safety technologies in the last 10 years. And the 360 technology, I'll get into a little later, but it is a big piece of why their 2022 has been so strong. But then the other piece is the distribution, right? So they outsource all their manufacturing, but they do all their own distribution, which is mainly distributed in Europe and in the United States, right? They just started a distribution facility in the United States, basically, as their main point of distribution, which is part of why they've basically scaled up their inventory levels over the last year or so. But overall, the economics, I mean, they look pretty good on paper. The gross margins are pretty consistently in the 40% range. The return on investment capital

generally is about 30% to 40% for the last four or five years. Their margins have been really stable. There is a little bit of margin, um, uh, degradation around their shift away from the neck brace. So historically their business has been mostly selling neck braces, right? And then over the years, they've added kind of all the additional pieces, um, that someone would kind of call like a kit for someone who's riding motocross, right? So they've added the helmets. Um, they've added all the protective gear, like the shin guards, um, chest braces, and then most recently apparel and the apparel gross margins are slightly lower than the neck braces. The neck braces are kind of like the highest gross margin product they sell. So there has been a little bit of margin coming

down, but only a few basis points or only a few percentage points. So it hasn't really been that material. So I think they can kind of hold those margins going forward just from the way that they've set up the business to kind of be, you know, the technology and patents up front and the kind of distribution on the other side. You know, they don't go all the way. They don't have retail or anything like that. So they've picked their two points within the value chain where they think they can garner the best margins and that's their plan to stick to it. So yeah, overall, I don't think there's too much that's going to change. I did touch on the distribution and we can get into that later around how that is one of the big pain points is their working

capital management um yeah we hit that on the cash flow section uh okay sell through yeah that was one follow-up i had to and are they doing e-commerce too i guess maybe things with that yeah so so they sell through like regional distributors and and they actually sell then to the retailers right so they have regional partners that do all the that that basically they sell through um so and and it gets to more your uh you know your more local uh you know shops that sell, uh, you know, all sorts of different apparel and, um, equipment for riders. And so it's a lot of like very specialty shops and things like that, that they sell through. They also do have an e-commerce channel that they do sell through, but it's still, um, like,

I think it's, um, it's based on the country and things like that, that do the actual distribution for them for that e-commerce channel. So it's still all it's, it's still all done. Um, most of their sales and the majority is in the U S and in Europe, there is a little bit in Asia, but it's all, uh, it's all pretty much focused, um, in kind of like the OECD countries. That's where most riders, uh, are from. Gotcha. All right. And what are your thoughts in the industry in general? We got sports gear and helmets kind of another, not selling baseball helmets, but what are the growth prospects here for their specific market? And are there any competitors Or do they have that technological and patent advantage here?

Maybe, I don't know, enlighten us on that. Yeah, so the space overall. So COVID was great for the space, right? You know, for mountain biking and for motocross, it was great there because you're socially distanced in both activities. So they saw ridership go up. So if you look at across the industry from 2020, basically all the way down now, the growth has been pretty tremendous. Now that started to slow, right? COVID has started to roll over. This last quarter across the industry, you saw a lot of really negative year over year numbers. Liat was not in the same, was not as negative, but just to give you a perspective.

So in 2021, Liat, their revenue was up 88%. And then the first nine months of this year, it was up 32%. But then if you look at just Q3, it's only up five. So the overall industry is rolling over from that big COVID bump. Now, where does it go from here? I think probably we see 2023 as kind of a flat to down year. and then you kind of long-term expect low single digit kind of growth in ridership now that i think though you still have to think about it where the most riders are really still in the

u.s and in europe so if moto you know really extends to kind of the rest of the world there could be kind of another leg up eventually in that and i i think that's why you see kind of ridership you know in the kind of like you know low single digit you know for the next few years but it could have kind of like some, some headwinds at some point in the future, um, in terms of the competitors. So the overall space there's, there's a number of different competitors. There's actually, if you're really interested, there's a, there's a, um, it's called racer X. They do a survey every year of all the different apparel and, and who actually, you know, what apparel each rider has. Um, so you can, you can get a really good idea of like within each

category, which company has which market share. So for Liat, overall, they dominate neck braces. They're over 50% market share in neck braces. But everything else, they're basically in the mid-teens to even like low uh you know low single digits depending on the category so um you know for neck braces the company their competitors are like atlas alpine star evs those are kind of the big ones um their their other big product is the helmet and let me just go through real quick on the helmet technology because it is kind of important so there's basically two different types of helmets that are sold in the space. There's helmets that lease what's called the MIPS technology, which is a Swedish company that basically patented this technology called MIPS.

It's like, I forget what it is, but it's like motion impact something system and protection system. And basically, they have to pay a licensing fee to MIPS for that technology, for their helmets, right? So Liat doesn't need to do that because they went out and developed their own technology, the 360 turbine technology. There's another company called 6D

that also has their own technology, but basically there's two types of helmet companies. There's the ones that are under this license agreement and there's the ones that have their own technology. And the ones that have

their own technology, obviously they don't have to pay the licensing fee, which I tried to do some research into exactly what the licensing fee is, but it probably costs them something like 3% to 5%. So Liat's in a better place there than their competitors that have to pay the fee. But the helmet-wise, Liat, the percentage that they actually have is,

I think in 2021, it was only 2.5%. Now their numbers are up about 88% year over year on helmet sales. So they're probably closer to 5% right now, but I mean, they could be 15, 20% of helmet sales, uh, you know, at steady state, no problem, I think. Um, so the helmets are going to keep growing, um, just from rider shifting, um, to, to, to their helmets. Um, even if the industry overall slows, their helmet sales are going to be strong for a number of years. And, And, you know, the other thing on some of the competition and some of the, you know, things that you'll see. So Liat is really known for their safety because of the fact that everybody knows them for the neck braces, which was like new technology at the time. That's kind of like their big thing is their safety is like top notch.

And so a lot of people have the, when they go out and they're buying a new kit, they have to get a neck brace. You know, if they're, you don't have to wear a neck brace, but if you want to wear a neck brace, basically half the people buy a neck brace from Liat. And so if you want the kit to all match, and if you look online, you'll see all the different kits, they're like all specialty colors, like purple, and you know, you want them to all match. So if you go out and you buy the neck brace, that's one specific color, you're going to go buy the helmet and you're going to buy the shin guards and, you know, you're going to buy the braces and everything and the gloves and the goggles.

Actually, the goggles come with the helmet, but you're going to buy all the same stuff so that it all looks the same. And, you know, it's not only about safety, but it's about looking good, too. So I think that's one of the big things that people don't understand is because of their dominant position in braces, people are going to go out and buy their helmets because they want them to all match. They're going to go out to buy their other equipment and their apparel as well. And I think that's kind of something that they'll, you know, they've got that tailwind for a while, I think so. Okay, so you kind of, I mean, you kind of touched on the brand there. How do they get, I guess, like, how do they get their brand out there? like are they marketing with like pro moto uh athletes kind of thing yeah so they have two so

they have a mountain bike team um which is through uh which is through i think it's called pivot cycles and that is more recent and then they have a long-going uh moto concepts team on the moto side that's that they sponsor right um and that's through the that's the pivot racing team um so So they have one on kind of each side, the moto side and the mountain biking side. They have made it a much bigger focus and a lot. And you'll notice some of the spend, the marketing spend has gone up. They're trying to really make it a full, like a brand in the space, like make it cool. You'll see a bunch of their videos online.

They're trying to really make it kind of like a cool brand in both spaces. So that's been a big push for them over the last two years is kind of getting their name out there, making sure that people know that they can get all of their apparel and all of their gear from them. And so they have put a lot of money into that. And I think that'll start paying off over the next few years. Um, but yeah, I think that is part of a moat. Although I always say, I, I don't believe that brand specifically is necessarily the best moat. Um, in their case, I think, you know, their marketing has been strong. I mean, you can go and check out their reviews and stuff. People seem to love all of their equipment and their gear. They have some lightweight gear, um, you know, that, that people really like. So overall, I think it can be a moat for them,

But really, in the end, their mode is their technology. And I think that's really where they're trying to push the brand is we're the safest technology out there. And, you know, now you can get a full kit from us. All right. Well, let's hit management again. I know you touched on it a bit. Yeah. Because we have the difference. The doctor is still, I guess the name of the corporation is still there.

Yeah, this new CEO slash CFO that came in. And I know you mentioned that for small cap, micro cap companies, management is important because there are a lot of shady people in that space. Should shareholders trust this management team? And if so, why? Yeah. So the main two people in charge are Dr. Chris Leatt and Sean McDonald. So Sean's been with the company since 2010. They basically built this from a neck brace that Chris designed into now they're going to sell over $100 million of equipment this year. So pretty significant what they've done. They have no need to raise capital. They've said that multiple times. They're self-funding from here on out. They've basically self-funded their whole distribution build, which I think we'll get into in a little bit, over the last few years. They've self-funded all of their warehouse. So they have shown that they're not serial capital raisers. They're not going to dilute you. They haven't really done any significant capital raises recently. And yeah, I think what this business eventually will start doing is it's going to start pushing off a lot of cash in the next few years. And I don't know that They're going to, they're probably going to reinvest some of it in marketing and things

like that, but they've, they've built out their distribution channel for the most part in the U S maybe they do something similar in Europe, but they don't really have any need for a lot of the capital. And so I think you know, I think it comes, it goes from kind of like consuming a lot of capital to build out this distribution channel to them kind of starting to be you know, heavily free cashflow positive. Well, it kind of leads into valuation. What do you think, I guess, what does the valuation look like today?

What do you think kind of needs to happen for it to generate good returns? And then with that cash flow that they theoretically generate, do you think they'll end up buying back stock or kind of issuing a dividend? What do you think they'll do with it? Yeah, yeah. No, all good questions there. So I think it's extremely cheap right now. if they can grow revenues at 20 to 30 percent which i think they can maybe maybe not next year

just because the industry headwinds but definitely kind of in the midterm um you know i think it's extremely cheap it trades at on a trailing 12 month basis like five times uh ev to ibida and i think it's like the pe is around eight so i mean it's it's really cheap um they they do have the holiday season coming up and they've almost done $2 in EPS this year already. I think they can get close to $3 this year. So you're looking at a $19 stock and they just did $3 in EPS. That screams cheap to me. What do they do with the free cash flow going forward? I don't think they've said that. At least I haven't read that anywhere or that question hasn't been asked on any of their earnings call um if you're ceo if i were ceo i mean we could we could get into it but

i i don't really i don't like dividends in in general so i would i would like to see them buy back shares honestly um you know at some point in the future or you know or really try to expand the brand um but i think there's only so much you can do in the space so you know if they're really pushing off a lot of free cash flow i'd love to see them buy back shares a few years down the line i forgot to put this question in there but if i'm not mistaken it's pretty thinly traded um are they yeah and that's another thing too there's absolutely no because there's well they're based in south africa right they're um you know they do an okay job with investor calls and things like that but like if you if you look at their recent investor call i think there were like two

questions asked um so there's there's not a lot of interest from investors for you know more information on them. It's not the sexiest business out there, right? But yeah, there's no coverage, no forecasts that I've ever seen of what next year's earnings or revenue could be. So at some point, will someone pick up coverage? They have talked about things like uplisting and things like that at some point in the future, but they're really focusing on rolling out this distribution channel that was kind of like their big focus for the last year that's now done it's up and running um so so we'll see kind of as we go into next year i'm i'm sure they're probably a little bit um just concerned at the overall industry where it sits right now um you know

they've been able to put up top line growth mainly just because of what i talked about with the helmets but um but you know overall how long is that going to last and you know so i'm sure they're they're kind of erring on the side of being cautious right now, as they see how the holiday season ends up and how we kind of go into 2023. All right. So let's talk about the working capital free cashflow stuff. Yeah.

Kind of look at the chart revenue gross profit have, you know, climbed higher, really inflected higher from 2020, but free cashflow hasn't you mentioned that they do have the distribution stuff. What do you think about, you know, any sort of handicap you got to put for a company that needs to have this working capital there all the time. And is this temporary or should we always expect to have this inventory build up in the future? Yeah. So I think it's temporary. If you look at the numbers, they've built significant amount of inventory and almost all of their free cash flow

has gone into their working capital over the last two years or so. And it really was around setting up the distribution channel and scaling that up. And I think they could do a better job on just managing working capital. If you notice in the most recent quarter, the AR and AP lines seem a little out of whack. And they could do a better job of collecting their AR, honestly. Um, but outside of that, you know, that's kind of my only big gripe at a certain point, right? You just can't fill it with, with more inventory, um, based on their sales. I mean, a lot of the inventory in 3Q is really for the holiday selling season.

And because of the way their distribution channel works, they do need to kind of, when they do grow, they do need to expand it and they do need to, um, kind of fill it, fill it up. Um, at this point though, I think it's pretty well scaled versus the, uh, amount, uh, you know, they expect to sell. And they have noted in their most recent presentation that working capital management is a priority of theirs, and it will be a focus going forward. And they've shared some ratios that they're looking to keep their overall working capital within in terms of their ratios to sales. So I think that is on their radar.

The management has responded to investors that have made that point. And so I expect that to not be an issue going forward. I don't think that you'll, you know, three years from now, you're going to have the same issue. Some of this, some of the, some of this net income is going to fall into the cash flow line for sure. Okay. Last question. And this has been a pretty, I guess, convincing pitch on Liat. But what could go wrong? What are like, pre-mortem, where, how could this turn out poorly? yeah so there's a couple different things that that come to my mind when you ask that question i think you know first is just the overall moto and mountain biking space like there was a covid bump you can clearly see it in all the numbers so how bad is that that that other side look like and i think that's what the whole industry is grappling with right now um so and and that's

why it trades at a times um you know because i don't think anyone believes that the numbers are going to stay as high as they are. I think, um, so, you know, there's definitely a question on how far down it's going to go next year. Uh, I don't think it's going to go that far down for Liat. Uh, the overall industry, uh, will probably see some downside, but they, I mean, 2022 with the helmet and it was just a really big transition year for them. Um, and I think they, they keep gaining share in the helmet market. So, um, so I, I'm not too worried about that, but, you know, overall, how, how does the industry go three, five years out? Um, you know, I mean, it's, it's got about, I think there's about seven and a half million riders on the moto side and on the

mountain biking side, it's got a one and a half or so, um, you know, where do the numbers go from there? I think the industry is still kind of young. And like I, like I mentioned, it's really only in the States and in Europe. So could it get a lot bigger? Yeah. But you know, could it Wayne. And that's kind of one danger right there. You know, they have talked a lot about adjacent products and things like that and other markets that they could potentially get into. And they've done a really good job over the last few years of expanding their product line from just the neck brace to all the other products to now have the full kit. And eventually they got to apparel as well. So I think they're kind of at a point where it's like, you know, what's the next thing

for them. There's not a clear answer to that. I think I have some ideas of what it could be, but I don't know that there's... And what they do might not work too. So there's that risk of, if you want to get that next leg up in growth, you might have to take a little bit further of a step out from your core markets and find a new market. And maybe that doesn't work. So they could fail there. And then just the third one I always have in the back of my mind is just like management doing something stupid, um, like doing some, uh, it happens more often than people. Yeah. It happens a lot. Yeah. Yeah. Yeah. No, I, yeah. So that, that one's always out there.

I don't think they seem like that type of management. They've never done any sort of MNA, so I don't think they'll do anything there. Um, you know, I, I, I can't think of what they could do. That would be bad, but they, they seem as long as the two guys that I mentioned are still involved, I think, um, you know, they'll do the right thing. um all right you mentioned earlier you may have hit on it and i just forgot but you wanted to follow up on that i'm forgetting the name the 360 so yeah that's the yeah so the three that was what i was talking about with the um with the license helmets versus the the 360 technology that they

own themselves um so that is a big differentiator uh within the helmet market and it does it does help their margins but also i think it does i mean like people know them for their safety and they're in, in the, and that's why the helmet sales have been like as, as crazy as they have been this year, um, is they, the, the technology is relatively new. I think they just came out with it in like February and their helmets. Um, and that's why you see kind of like, you know, everybody's out there trying them. Um, you know, they have their, their high end helmet is kind of like this carbon fiber helmet that, uh, you know, if you check any of the review sites, it gets rated really high. Like I think it's number one on a few of them. Um, so, so their products are

pretty highly rated and seem to be doing really well um especially on the helmet side um and the neck braces are kind of the go-to as well um they're kind of well known in the industry as as the go-to for neck braces so are those neck braces higher margin than the helmets yeah the neck braces are the highest margin uh products that they have the helmets are slightly below that and then it kind of gets into the body armor uh is all kind of below that and then apparel at the at the low end but still i even with the mix that they have like i said it's it's not going to be a material even if they really get into apparel more it's not going to be that material of a of a hit to their gross margin line um the helmets are are still up there i think they're kind of above

the the average so all right well i think that's all the questions we have uh for listeners who want to keep keep up with you uh we already mentioned the twitter but where where are the best places to do that? Yeah. So you can follow me on Twitter at DeepSaleCapital. You can go to my website, www.DeepSaleCapital.com. Those are the two best places. Yeah. Like I said, I follow a lot of small microcaps. So always interested, especially if you find a company like Liat where you think they got great management, always looking for things like that. So the only other thing I'll throw in on Liat, which we kind of talked about a little bit, and I talked about MIPS. So they're kind of like the competing technology in the helmet space. And one thing

I think is interesting is if you look at MIPS, they have additional verticals that they sell through that Liat does not. So they sell through like more casual bike helmets, and they also do occupational helmets. And so that's something where Leap could easily get into those markets, I think if they wanted to either get into them themselves or even license the technology that they have similar to the way that MIPS does, and they could license their technology maybe into a different vertical. So they're still selling their own helmets within the moto and the mountain biking space, but maybe in a different vertical, their licensing technology. I think that's something they're thinking about. And if they did that, I mean, it would only be accretive to the

company valuation for sure. All right. All right. Well, I think that's going to do it. And I'll give another shout out. I've read some of DeepSale or Sean, your quarterly letters. I recommend going to the website and checking them out. There's a lot of good information on there. And there's an industry deep dive as well on cell and gene therapy, which I thought was good. So feel free to go and check those out. Listeners, if you want, we'll try to provide all the links in the show notes, but that is going to do it. So we want to remind you guys that Brett and I are not financial advisors. Anything we say or discuss here on Chitchat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital, so clients may have positions in the securities

discussed in this podcast. Thank you all for listening. Thank you, Sean, again, for coming on the show, and we'll see you guys next time. Hey, Simon, we wanted to ask you a few questions about 7investing so listeners could get an idea of what they're getting. What inspired you to start the company and what exactly is 7investing? Well, hey, Ryan, thanks again for having me. From years of working in the investing industry, it was inspired by conversations with people that would just always have kind of the same negative perception of the stock market, right? It's too hard or I don't have time for this, for this to stack against me. And those conversations kind of led me to say, hey, we need to create a site that actually does inspire people to say, you can

take control of your financial future. You can invest in stocks. You can find good stocks to buy and hold for long periods of time. And at the end of the day, too, we know that everybody is different. We don't believe that there is one stock that fits for everyone, right? Maybe you're very dividend loving, you know, paycheck cashing income investor that might want an option that's going to be a lower risk dividend paying stock, especially right now with the economy being what it is. And then other people might say, hey, you know, I'm ready to hold on for 20 or 30 years. I want to take some swings for the fences. Let's go after those high growth opportunities. And so I said, you know, this would be something that would be even more fun

rather than just doing educational and by myself. I said, what if I brought together a team of seven advisors, all with a diverse background and a diverse perspective of the stock market. So we could uncover more stones and look at a bunch of different stocks with a bunch of different investing styles and a whole bunch of different industries. And so 7investing is kind of the genesis of all of those that we started in March of 2020. And we said, let's look at a whole bunch of different stocks. Let's do the legwork of the analysis. and let's present our seven favorite actionable ideas

every month for investors to choose from. And let's start the conversation about which of these stocks is right for you and which one might be the right fit for your portfolio, knowing that investing is a very personal thing. All right, if you are a subscriber of 7investing, what do you get? Can you give an overview of what subscribers get?

On the very first of every month, Brett, we release our seven new recommendations. So we are coming up on October 1st here, at least in the recording of this. And on October 1st, we'll release seven recommendation reports. Some of them will be low risk. Some of them will be high risk. Some of them will be biotech. Some of them will be financial services. We run the full gamut. And as a member, you get immediate access to all of the new reports. But you also get access to all of our old recommendations as well. We track all of them in real time on our scorecard at 7investing.com slash recommendations.

And we also provide company updates on all of those previous recommendations as well. We check in on how things are going. And sometimes we even see red flags that we think people should be aware of. There's risks for any opportunity at the time that you recommend it. And sometimes it's really needed for investors to kind of understand the risk and reward relationship. And then the last part of it is, in addition to issuing new recommendations and providing updates on them, is we know that this is a long-term journey.

We know that investing is something that we want to take years, if not decades, to accomplish whatever we want to get to as the end goal. And so we always, every month, make it a point to be very available for our subscribers to ask us questions. We have a members-only call right in the middle of every single month. We have a community discussion forum that we have available 24-7 to not only talk to our advisors, but also other investors. I think that's one of the key differentiators for 7investing is that, you know, we know this is a long-term journey. We know it's a very personal thing. We know they're going to have questions along the way.

We don't want to just broadcast stock picks and disappear. We want to be here with you throughout this entire journey. And you mentioned, so seven recommendations each month. Sometimes those might be repeats, but obviously there's a lot of companies now in the 7investing universe. So how do members get a grasp on the advisor's conviction around certain ideas? Like which ones do they have a way of knowing whether advisors like certain ones more? That's the most common question we've gotten, actually, since we started is what's your

favorite ideas right now? We've done the diligence on almost 200 unique companies now and put them on the scorecard and people would say, hey, this is too much to keep up with. How do I even know where to start? And so we've kind of evolved as a company. One thing that we've started doing is best buys every month. Each advisor gets to pick any of their or another advisor's previous recommendations and put the flag on it that says, this is my best buy for October.

And we publish those for subscribers. The other thing that we've started doing is issuing conviction ratings on companies that are also right there on the scorecard. So if you see a previous recommendation, we go everything from potential sell, which is the most negative flag we can put on a stock, to strong buy, which is the most positive bullish flag that we can mark things with. And you can filter through all of those to really quickly see, here's some of our favorite opportunities. And we've taken this even one step further now, Ryan, which is we've created a strong buy portfolio, where every quarter now we've gone ahead and self-selected as a team. through a pretty methodical process, our 20 favorite ideas, our 20 highest scoring companies that we've collectively come up with, our favorites of the entire scorecard. And we put

these into what we're calling a strong buy portfolio that we publish each quarter. Also available as an added benefit for no extra charge for seven investing members. All right. Last question here. What does it cost to become a seven investing subscriber? And as we'll talk about, or we have talked about before, if you're a listener, use code money to get $100 off your annual subscription. That's right. We do have a monthly option. You can come in and check out the entire scorecard for a month just to see what you're looking at for $49 a month. But our most popular plan is actually the annual option because it's at a discount to that. In fact, we've got a discount on the discount, like you mentioned, Brett. $399 for the year is our annual option

price. But if you use money, the chitchat money promo code, it's down to 300. So you're basically getting the subscription for half price. If you sign up for the annual offer with that promo code, that does not expire after the first year. As long as you remain an active subscriber, you get to lock in that $100 off a year benefit. All right. Well, as he mentioned, use that code money. Thanks for joining us, Simon. Thanks very much for having me.