ToughBuilt Industries, Inc. (TBLT) on Q1 2022 Results - Earnings Call Transcript
Martin Galstyan: Good afternoon and thank you all for joining us today to discuss ToughBuilt's first quarter 2022 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, President and Chief Executive Officer of ToughBuilt. Michael will begin today's discussion by providing operational and financial highlights from the first quarter. I will then review our financial performance for the same period. Michael will conclude the discussion with our growth plans for 2022 and beyond. Before turning the call over to Michael, I would like to remind you that any forward- looking statements made by management are covered under the U.S. Private Securities Litigation Reform Act of 1995 and are subject to the changes, risks and uncertainties described in the press release and in our U.S. security filings. In addition, during the course of the call, we may refer to non-GAAP 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. Investors are encouraged to review ToughBuilt's current report on Form 8-K furnished with the SEC for ToughBuilt's reasons for including those non-GAAP financial measures and its earnings releases and presentation. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in our earnings press release issued earlier today, unless otherwise noted therein. I will now turn the call to Michael.
Michael Panosian: Thank you, Martin, and thank you all for joining us on today's call. The first quarter of 2022 was very strong for ToughBuilt, culminating in revenues of 17.2 million and approximate 40% year-over-year increase compared to 2021. Revenue growth in the first quarter was driven by a combination of onboarding new retail customers, demand to expand new categories within our existing customers, and the introduction of new products. ToughBuilt continues to be a leader known for innovation and for developing some of the most unique products for the construction and home improvement industry. We believe that much of our success is due to our ability to attract the best talent. Our unique platform has proven to be a tremendous draw for professionals eager to join our organization known for its creativity, and the ability to quickly and efficiently bring ideas from concept to shelves in a matter of months. To help combat logistic related costs in 2022, we have negotiated improved shipping rates, as well as working with our large retail partners to implement direct import ordering where possible. Direct import ordering would result in our retail partners taking ToughBuilt products directly from the port and shipping to their own warehouses. In the months to come, we anticipate that this will decrease our shipping costs by shifting several supply chain steps from ToughBuilt to our partners. This is a win-win scenario in which our larger partners can leverage their existing logistics infrastructure to ship at cheaper rates, while allowing us to focus on designing and manufacturing innovative products, thereby enabling more lines or products to be shipped. I will now turn the call back to Martin to cover our financial results in greater details. Martin?
Martin Galstyan: Thank you, Michel. Revenues for three months ended March 31, 2022 were approximately 17.2 million, an increase of 40% compared to the same period in 2021. The increase in sales for both periods was mainly attributable to the continued demand for our portfolio of products and international expansion. Cost of goods sold for three months ended March 31, 2022 were approximately 14.2 million compared to 8.8 million for the same period in 2021. Cost of goods sold increased primarily due to industry-wide supply chain disruptions, which have led to historically high shipping costs, and increases in the cost of materials. Selling general and administrative expense for the three months ended March 31, 2022, were approximately 15.9 million, compared to 7.9 million for the same period last year. SG&A expenses increased primarily due to the hiring of additional employees, and the increased use of independent contractors, which when combined now include 198 people. Research and development costs for the three months ended March 31, 2022 were approximately 2.5 million, compared to 1.4 million for the same period in 2021. We expect to maintain similar levels of R&D costs as the company continues to develop new tools for the construction industry. In the first quarter of 2022, we had a net loss attributable to common stockholders of approximately 12.2 million or a loss of 14.04 per share. The net loss is mainly attributable to build out of our design and engineering team inflated shipping costs. As of March 31 2022, the common basic and diluted weighted average common shares outstanding totaled 861,997 shares. I will now turn the call back to Michael for his final remarks. Michael?
Michael Panosian: Thank you, Martin. Before I open the call for questions, I would like to reiterate the tremendous market opportunities that exist at ToughBuilt, and the infrastructure we have in place to capitalize on those opportunities. Right now, the top retailers around the world are selling ToughBuilt products, and we continue to expand to new retailers and strengthen our existing relationships. Through our growing amazon.com sales and repeat orders from our strong retail base. We are seeing increased demand for ToughBuilt products across professional contractors and globally. As demand for our products increase, we continue to expand our capabilities and are currently in a position to launch five to 10 product lines every year. To capture additional international ecommerce demand, we will be offering ToughBuilt products on Amazon in Europe and Latin America. As we look ahead, our future revenue opportunities can be broken into three buckets, expanding the existing relationships with retail partners, adding new retail partners, and introducing new product categories. These revenue opportunities are dependent on one another, but ultimately driven by end user recognition of our brand, quality and innovations. For example, when we onboard a new retail partner, the first order typically includes a select portion of ToughBuilt SKUs. As underlying customer demand for these products grows, the retailer is likely to expand the number of products offered in their stores or made available online to their customers. Furthermore, as we introduce new products that are differentiated from their current offerings, our existing retail partners are more likely to expand their offerings to increase those newest items. The result of this process and positive customer experiences is increased revenue on recurring basis for the long-term. To us, this demonstrates the longevity of ToughBuilt’s brand, and products. Even our oldest product lines are still increasing in revenue year-over-year with peak revenue potentials ahead of us. We are building something great at ToughBuilt and I truly believe that we have the potential to disrupt many categories in the entire home improvement industry. I along with the entire ToughBuilt organization including our best-in-class design engineers that work on never-before-seen products for home improvement, have full confidence in our ability to operate and design unlike any other company in the world. With that, I would like to turn it over to our operator to begin the question-and-answer session.
Operator: Thank you. And our first question comes from the line of Kevin Dede with HC Wainwright. Please proceed with your question.
Kevin Dede: So, Martin, I apologize. I hadn't expected to hear some of the numbers you offered. Would you mind give me the cost of goods again for the quarter and operating expenses for the quarter?
Martin Galstyan: Sure. Cost of goods was 14.2 million. Gross profit was 3 million.
Kevin Dede: Okay. And what was your OpEx?
Martin Galstyan: OpEx was 12.1 million net loss.
Kevin Dede: Okay. When do you think you'll have your Q filed?
Martin Galstyan: That was filed about 15 to 20 minutes ago, I believe we get –
Kevin Dede: Okay. Yes. I just checked. I just I'll take a look again later. I'm sorry. I will just check that. Go ahead and see it up. Okay, no problem. I'll figure that out. Not a big deal. Michael, could you say a little elaborate a little bit on the direct import ordering plan? When do you expect to implement that? And what sort of savings do you think you might see?
Michael Panosian: Sure. Well, we are implementing it right now. It just hasn't hit our books yet. So a lot of our purchases now are being -- we are asking our clients to basically take it directly from the factories, those who can will have more savings on their part. And instead of ours, which is more expensive than their shipping costs. And that allows us to reduce inventory and allows us to save money. How much effect they will have? I can't give you an exact number right now. But there is a lot of things that we're doing to reduce costs this year.
Kevin Dede: Okay, good. Could you highlight some of the other initiatives? I know you mentioned them at the year-end call. But I just please help refresh my memory.
Michael Panosian: I'll be happy to. This is important because I don't want our shareholders to think that we don't think about these things, or we're not serious about these things. We absolutely are. We need to get to profitability and we will. We are making a global run. And also, we are launching a lot of lines. That's why our costs are high right now but it's not forever. Now some of the initiatives is, we are going to reduce our shipping costs, mostly because we are negotiating a contract that will drastically reduce our costs from what it was last year. And I mentioned that before now it's coming to fruition. We are bringing in less inventory as last year we loaded up because of safety and we wanted to make sure we could service the customers. So we are going to bring in less inventory so there'd be less spending on that. We are also looking for different avenues of inventory financing actively. We just haven't found the right one that is good for the company yet. Also, we brought in all the marketing and social media in-house and that's going to save us quite a bit of money as well. And we're not hiring as many people as before.
Kevin Dede: Okay. Do you still expect to be able to introduce products as you had hoped or you think it make some sense to –
Michael Panosian: Yes, somewhere between five to 10 lines. The fastest way to get profitable is to participate in categories that we're not currently in. That opens a lot of doors within our current existing customer base, as they love our products, and they're taking more and more. So to generate more revenue to cover more of our costs, the fastest way is that. Secondly, we are adding new customers and each new customer, we add is taking a wider range of product lines. And that's why we do continuous development. Just to make sure that everyone understands, again, this is important, we are building two platforms, once these platforms are complete, the flywheel is going to be very strong. And growth is going to keep being dynamic, while we are profitable. The two platforms are our sales platform globally, and our internal design and engineering team so that we can launch over 20 lines of products per year. So in general, imagine somewhere roughly a $5 million revenue per every new product line that's introduced. So once we are launching 20 of them, every year, we'll have $100 million growth, so on so forth, it's painful to build this platform. I understand it. But we must do that.
Kevin Dede: Both Michael -- both Walmart and Target seem to think that some of the logistics issues are in sourcing, I guess, are working some of the kinks out. Now, I completely understand that. Your sourcing is 100% different than theirs. But I was wondering if you might be able to just sort of talk to the trends that you've seen over the past, say six months?
Michael Panosian: Sure. Well, we have actually reduced some of our costs before we were paying somewhere around $21,000 a container when this whole thing started this pandemic and the demand. And then it went down, we pushed it down as far as around 14,000. And then now we're pushing it down another considerable amount, which I hope to announce sometime within the next month or so. I see it also going back towards normal, but it's far from being normal before we used to pay somewhere between $3000 or $5000 a container.
Kevin Dede: Okay. Are your manufacturers able to find the material that they need any easier in building the products for you?
Michael Panosian: Yes, in general, but there's some of them that have issues in rising costs in materials, even metal costs go up and down in different regions of the world. The hardest materials to get our hands on with viable costs are the electronics. We have a lot of electronic products that are developed. We are not launching them moment for right now. Because the costs are extremely high for the microchips and other electronic parts, which are also very difficult to get even with the high costs. So for those products, we kind of holding on until things normalize. And it is normalizing, it's just not in my hands, how quickly it can normalize.
Kevin Dede: Understood. I apologize, I haven't seen the Q yet. But you mentioned electronic products. I know they contributed in the fourth quarter, was March similar sales level or has -- pulling back a little bit for tailed sales of electronics.
Michael Panosian: It went down a little bit but that's just one quarter. We look at the success of a product two ways, what it does over a year, and what it does, how much life it has over the years. So most of our products are still generating new revenue. Even our oldest products are generating more and more revenue. But some of the electronics right now are lower but this is just for last quarter.
Kevin Dede: Okay. Last question for me if I may, please, sir. Could you talk a little bit about the distribution side obviously, it's penetrating deeper into existing customers and bringing new products on board. But give us a little insight on how you're building relationships with new customers?
Michael Panosian: Sure. That's a great question. New customers, because of all the hard work, investment, and exposure we've given, are becoming faster to add-on. We have over 15,000 doors now and is growing quite rapidly. Our goal is to do around 70,000 doors globally. So the way we do that is as our portfolio is wider, they take us in easier, rather than having one or two lines of items, and then convincing them to take us. So we are doing that mostly throughout Latin America, all over Europe, which is 40 countries plus, we are just starting efforts in the Middle East. And as there is a lot of distributors that are calling us to partner with us. We are not making any investments in Middle East. We're working with distributors that already have all the channels and warehousing. So there shouldn't be any cost. We also selling into the East, in Korea, starting to sell into Japan and other surrounding countries as well. And possibly thinking of opening markets in China to take advantage of all the market there as we already have legs there. So we are also trying to capitalize on that.
Kevin Dede: Thank you very much, Michael, appreciate you taking the questions.
Michael Panosian: Thank you, Kevin.
Operator: And we have reached the end of the question-and-answer session. I'll now turn the call back over to CEO, Michael Panosian for closing remarks.
Michael Panosian: Thank you, operator. In closing, I want to thank our investors and our employees for growing ToughBuilt into a quality first brand that customers can rely on and remaining dedicated to our mission, even through a global pandemic. I'm excited for what the rest of 2022 has in store and confident in our ability to execute on our growth and upcoming cost reduction plans. Thank you.
Operator: And this concludes today's conference. And you may disconnect your line at this time. Thank you for your participation.
