ToughBuilt Industries, Inc. (TBLT) on Q2 2021 Results - Earnings Call Transcript
Operator: Greetings and welcome to the ToughBuilt Industries Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Martin Galstyan, Chief Financial Officer. Thank you. You may begin.
Martin Galstyan: Good morning and thank you all for joining us on our quarterly call to discuss ToughBuilt’s second quarter 2021 financial and operating results. 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 open our call with an overview of ToughBuilt’s journey from inception to where we are today, as well as provide operational and financial highlights from the second quarter. I will then review our financial performance for the quarter. Michael will conclude the discussion with our vision for the future. 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. Securities 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 SEC for ToughBuilt’s reasons for including those non-GAAP financial measures, and its earnings release 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’d now like to turn the call over to Michael. Michael?
Michael Panosian: Thank you, Martin. And thank you all for joining us on our conference call to discuss ToughBuilt’s operational and financial results. Before I discuss the quarter, I will provide a brief review of our history and where we are today. We launched ToughBuilt in 2012 as a group of industrial designers and engineers that had identified an innovation and quality gap in the home improvement industry. While the advancement of technology and design was being embraced by many other industries throughout the world, professional builders remained stuck using tools with the same functionality that has existed for decades. Our goal then, which remains intact today, was to usher in the next generation of advanced innovation and quality-first home improvement supplies, one product line and one SKU at a time. As part of our long-term goal, we began building our brand, ToughBuilt, introducing products that put innovation, quality, durability and functionality above all else. As a result of these efforts, we have experienced incredible demand for our products and strong brand loyalty. Currently, ToughBuilt products are sold in over 13,000 stores globally with shelf placement in leading retailers in the U.S., Canada and across Europe. In terms of revenue, we have gone from $1 million in 2013 to over $39 million by 2020. We are seeing a growing portion of our revenue driven by e-commerce demand, indicated from record Amazon sales in the first half of 2021. Considering the tremendous growth we’ve experienced across our product lines, we’ve continued to expand and strengthen our company to support R&D sourcing, manufacturing and to support the continued evolution of our pipeline of innovative products. For context, in the beginning of 2020, our worldwide headcount was approximately 30. And as of June 30 2021, our headcount totaled 121 strong. Since 2012, we have made significant progress in building ToughBuilt’s business platform for the long-term and a lasting brand that end-users can rely on. Against that backdrop, allow me to review our operational and financial highlights for the quarter. In the second quarter of 2021, we generated revenues of approximately $15.9 million, a 132% year-over-year increase, compared to $6.8 million in the second quarter of 2020. The increase in revenue was driven by demand from leading retailers across all our product lines. During the second quarter alone, we expanded our footprint adding just under 900 new storefronts, increasing our total store-count to 13,000. In addition, we continue to introduce new SKUs within our existing product lines with fantastic feedback from our retail partners and customers alike. Shortly after the second quarter ended, we introduced a new product line, 1 of 3 product lines we expect to introduce in 2021. The two-in-one scraper/utility knife is a highly versatile tool for all professionals and represents a significant innovation in the $1 billion dollar utility knife market. Already we’ve received extremely positive feedback from our marketing efforts with accelerating orders from retailers and customers. We believe this globally patented line will be a significant contributor to ToughBuilt for years to come. In the second quarter, we increased our market penetration in Europe by adding several new large customers. As a result, we increased international revenue from $2.5 million in the second quarter of 2020 to $4.3 million in the second quarter of 2021. Additionally, we expanded our capabilities by hiring additional employees and consultants to support our engineering, marketing and operational efforts. 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 3 months ended June 30, 2021 were approximately $15.9 million compared to $6.8 million in the same period last year, representing a year-over-year increase of 132%. This significant increase was primarily the result of wide acceptance of our products in the tool industry by new customers, combined with follow-on sales orders of metal goods and soft goods from our existing customers. Cost of goods sold for 3 months ended June 30, 2021 were approximately $12.5 million compared to $4.5 million for the same period in 2020. Cost of goods sold increased in 2021 over 2020 by approximately $8 million, primarily due to industry-wide supply chain disruptions, which have led to historically high shipping costs, as well as increased material costs and high labor costs. Cost of goods sold as a percentage of revenues in 2021 was 78.85% as compared to cost of goods sold as a percentage of revenues in 2020 of 65.2%. Selling, general and administrative expenses for 3 months ended June 30, 2021 were approximately $9.2 million compared to $4.1 million for the same period last year. SG&A expenses increased in 2021 over 2020 by approximately $5.1 million, primarily due to the hiring of additional employees and engaging independent contractors, and consultants to grow our existing business and advance our expansion efforts. We expect SG&A expense growth to decelerate as business matures and we develop economies of scale. Research and development costs for the 3 months ended June 30, 2021 were approximately $1.4 million compared to $422,000 in 2020. We expect to maintain similar levels of R&D costs as the company continues to develop new tools. In the second quarter of 2021, we had a net loss attributable to common stockholders of approximately $7.4 million, or a loss of $0.09 per diluted share, compared to a net loss of approximately $2.5 million or a loss of $0.11 per diluted share in the second quarter of 2020. As of June 30, 2021, the company’s diluted weighted average common shares outstanding totaled 81.6 million. On July 14, 2021, we completed a registered direct offering for net proceeds of approximately $36.3 million. The funds from the registered direct offering are to be used for working capital purposes, including inventory builds for product launches, marketing and operations. As of June 30, 2021, ToughBuilt’s cash position was $20.2 million. Based on the company’s current cash balance coupled with anticipated cash flow from operating activities, we have no plans to raise additional capital for the remainder of 2021. The company continues to control its cash expenses as a percentage of expected revenue on an annual basis, and thus may use its cash balances in the short-term to invest in revenue growth. I will now turn the call back to Michael for his final remarks. Michael?
Michael Panosian: Thank you, Martin. As we look at the second half of 2021 and beyond, our goal is to deliver next generation technology-enabled equipment and gear for professional and DIY builders. To reiterate, we expect to launch 2 additional product lines by the end of 2021 with a pipeline of over 20 lines of products to be released over the course of next several years. These products will incorporate technology that saves builders time and money throughout each step of a project, while maintaining the quality-first focus of ToughBuilt products. To support the success of our product launches, we will continue to strengthen the foundation of our business with a robust manufacturing and distribution network, a best-in-class marketing team and the industry’s best designers. I want to give a special thanks to our employees, who have relentlessly executed through the global pandemic, without whom we could not have made it this far. Thank you all for your hard work and dedication even in the hardest of times. Finally, I want to thank all of ToughBuilt’s shareholders for supporting us along this journey. And I can’t wait to show you all the exciting developments that we have in store. Operator, if you would please conclude our call.
Q -:
Operator: Ladies and gentlemen, this does conclude today’s teleconference and webcast. We thank you for your participation, and you may disconnect your lines at this time.
