ToughBuilt Industries (NASDAQ:TBLT) Inc. reported its third-quarter 2023 financial results in an earnings conference call, with the company's Chief Financial Officer, Martin Galstyan, and President and Chief Executive Officer, Michael Panosian, leading the discussion. The company reported a 9% quarterly increase in revenue to $20.6 million and a 33% decrease in SG&A expenses to $12.5 million. However, the gross profit for the third quarter decreased by 20% to $4.9 million compared to Q3 2022, primarily due to a decrease in demand in the overall sector.
Key takeaways from the call include:
- ToughBuilt reported a third-quarter revenue of $20.6 million, a 9% increase compared to the prior quarter.
- The company's SG&A expenses for the third quarter were $12.5 million, a 33% decrease compared to the prior quarter.
- Gross profit for the third quarter decreased by 20% to $4.9 million compared to Q3 2022, primarily due to decreased demand in the sector.
- The company launched a new product line, the StackTech mobile stacking toolbox system, which it expects to contribute to future net sales.
Despite the challenging macroeconomic background affecting the industry, ToughBuilt has continued to streamline the organization and focus on driving efficiencies. The company recently launched the StackTech mobile stacking toolbox system, an innovative product line that has allowed the company to break into new market sectors. The company expects this new product line to drive it closer to its profitability target and contribute significantly to future net sales.
The company's revenues for the three months ended September 30, 2023, and 2022, were $20.6 million and $30.2 million, respectively. The decrease in revenue in the third quarter of 2023 over the same period in 2022 was primarily due to a decrease in demand for the tool sector. Cost of goods sold for the three months ended September 30, 2023, and 2022, was $15.7 million and $22.3 million, respectively.
Looking ahead, ToughBuilt plans to expand its product portfolio prudently, selectively adjust prices, and focus on efficiency throughout the organization. The company aims to create new revenue streams by increasing its global reach, launching additional new product categories, and moving closer to profitability. The company believes it can enforce its position as a leader in the industry by meeting demand and evolving customer needs.
InvestingPro Insights
Drawing from InvestingPro's real-time data and tips, it's clear that ToughBuilt Industries Inc. is navigating some financial challenges. The company's Market Cap stands at a modest 6.52M USD, and it has struggled with a negative P/E Ratio of -0.07 as of Q2 2023. The Price / Book ratio for the same period was low at 0.4, indicating that the market valuation is currently lower than the company's book value.
Two key InvestingPro Tips provide further insight into the company's financial health. Firstly, ToughBuilt may face potential difficulties in making interest payments on its debt. This aligns with the company's recent financial results and could be a result of its rapidly depleting cash reserves. Secondly, it's important to note that while the company is trading at a low Price / Book multiple, its revenue growth has been slowing down recently.
Despite these challenges, the company has shown resilience in consistently increasing its earnings per share. This, along with the launch of new products, could provide a much-needed boost to ToughBuilt's financial performance in the future.
InvestingPro offers 17 additional tips for ToughBuilt, providing a comprehensive analysis of the company's financial health. These tips are invaluable for investors seeking to make informed decisions about their investments.
Full transcript - TBLT Q3 2023:
Operator: Good afternoon, everyone. And welcome to the ToughBuilt Industries Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note today’s event is being recorded. And at this time, I would like to turn the floor over to Martin Galstyan, Chief Financial Officer. Sir, please go ahead.
Martin Galstyan: Good afternoon. And thank you all for joining us today to discuss ToughBuilt third quarter 2023 financial and operating results. Again, my name is Martin Galstyan and I am the Chief Financial Officer of ToughBuilt. Joining me on today’s call is Michael Panosian, ToughBuilt’s President and Chief Executive Officer. Michael will begin today’s discussion by providing operational and financial highlights from the third quarter. I will then review our financial performance. Michael will conclude the discussion with our growth plans for the upcoming fiscal year and beyond. Before turning the call over to Michael, I would like to remind you that forward-looking statements made by management during today’s call and that any forward-looking statements are covered under the U.S. Private Securities Litigation Reform Act of 1995. Actual results could differ materially from what is described in those statements and are subject to the changes, risks and uncertainties as described in our press release and in our SEC periodic and other filings. Additionally, information on risk factors that could cause results to differ is available in the company’s most recent Form 10-K filed with the SEC. In addition, during the course of the call, we may be inadvertently use or refer to financial measures that are not prepared in accordance with accounting principles generally accepted in the United States and that may be different from non-GAAP financial measures used by other companies. If any GAAP financial measures are mentioned in today’s call, the company will promptly file a Form 8-K with the SEC reconciling such non-GAAP numbers to GAAP. I will now turn the call to Michael.
Michael Panosian: Thank you, Martin, and thank you all for joining us today. For the third quarter of 2023, the company reported revenue of $20.6 million, a 9% increase compared to the prior quarter. We are very aware of the challenging macroeconomic background that has been affecting our industry. As a result, we continue to work diligently to decrease overhead. For the third quarter, SG&A expenses were $12.5 million, a 33% decrease compared to the prior quarter and a decrease of 30% compared to the same quarter last year. Our gross profit for Q3 decreased by 20% to $4.9 million compared to the third quarter of 2022. Although the gross margin decreased this Q3, however, on first nine months comparison basis, it only declined 0.32%. The decrease in gross profit margin in 2023 third quarter was primarily driven by a decrease in demand in the overall sector. We are focused on improving gross profit margins in the quarters ahead. During the last quarter, we continued to streamline the organization and focus on driving efficiencies on our planned path towards profitability by focusing on innovation and sustaining and scaling customer partnerships. We believe our 22 product lines provide a strong foundation for growth. Even as we introduce additional new products, we believe that a significant portion of our major new design work has been completed and we will begin to reap the rewards of what we have built so far in years to come. We recently launched the newest product line, our StackTech mobile stacking toolbox system. The StackTech line is not only the world’s first auto locking stacking tool storage solution, but with the launch, we were able to break into new market sectors. We anticipate our entrance into the stacking tool storage and toolbox market will drive us closer to our profitability target and we expect to see a strong contribution to future net sales. I will now turn the call back to Martin to cover our financial results in greater detail. Martin?
Martin Galstyan: Thank you, Michael. Revenues for the three months ended September 30, 2023 and 2022, were $20.6 million and $30.2 million, respectively, which consisted of metal goods, soft goods and electronics goods sold to customers. Revenues decreased in the third quarter of 2023 over the same period in 2022 by approximately $9.6 million or 31.8%, primarily due to a decrease in demand for the tool sector. Cost of goods sold for the three months ended September 30, 2023 and 2022, was $15.7 million and $22.3 million, respectively. Cost of goods sold as a percentage of revenues in the third quarter of 2023 was 76%, up from 74% in the same period prior year. SG&A expenses for three months ended September 30, 2023 and 2022, were $12.5 million and $14.7 million, respectively. SG&A expenses as a percentage of revenues for the third quarter of 2023 was 61%, compared to 49% for the same period prior year. We implemented cost cutting strategies in preparation for an anticipated decrease in demand. We have and will continue to seek examine further operating expense leverage in the coming quarters. Research and development costs for the three months ended September 30, 2023 and 2022, were $2.9 million and $2.8 million, respectively. The year-over-year increase was primarily due to the development of new innovative tools for the construction industry. For the third quarter of 2023, we recorded a net loss of $5.9 million, as compared to a net profit of $8 million for the three months ended September 30, 2022. As of September 30, 2023, ToughBuilt’s cash position was $1.8 million, accounts receivable and inventory for the period totaled $10.6 million and $27.5 million, respectively. This and a reduced net loss helped drive an 80% improvement in net cash used in operating activities for the first nine months of 2023, compared to net cash used of $6 million for the first nine months of 2022. Management anticipates that our capital resources will improve as our products gain even wider market recognition and acceptance. We seek to further improve our gross margins and we continue to work to decrease costs. I will now turn the call back to Michael for his final remarks. Michael?
Michael Panosian: Thank you, Martin. I would like to reiterate that ToughBuilt has tremendous market opportunities ahead and the infrastructure we have built to capitalize on those opportunities is sound. We are satisfied with our current operating structure and do not plan to add significant headcount in 2023. Moving forward, we plan to expand our product portfolio prudently, selectively adjust prices and focus on efficiency throughout the organization. We are pleased to report that our commitment to innovation and market responsiveness has resulted in impactful product expansion, building a stronger foundation from which we believe can achieve sustained growth and long-term profitability. We anticipate that these efforts will enable us to create new revenue streams by increasing our global reach, launching additional new product categories and moving us closer to profitability. We aim to enforce our position as a leader in the industry by meeting demand and evolving customer needs. In closing, I want to thank our shareholders and our team for helping grow ToughBuilt into a high quality brand that has a bright future. With that, I’d like to turn it over to our Operator.
Q -:
Operator: Ladies and gentlemen, we do thank you for joining today’s presentation. That does conclude today’s conference. You may now disconnect your lines.
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