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TI

Toughbuilt Industries, Inc (TBLT)·Q2 2023 Earnings Summary

Executive Summary

  • Revenue of $18.88M increased 5.6% year over year (Q2 2022: $17.89M) but declined sequentially from Q1 2023 ($20.21M) as seasonality and channel mix shifted; gross margin improved to 31% (+330 bps YoY) on mix and pricing actions .
  • Net loss narrowed to $5.73M (vs. $12.14M YoY; vs. $8.28M in Q1), with operating expense leverage as SG&A fell as a % of revenue; COGS ratio improved to 69.1% from 72.3% YoY .
  • Liquidity remained tight (cash $2.21M at 6/30) though the company completed a June equity offering (management referenced ~$4.5M raised; 10-Q shows ~$3.8M net), and H1 operating cash burn improved markedly; going‑concern uncertainty persists .
  • Execution catalysts: stable Amazon sales ($3.61M in Q2; +2% YoY), expanded U.K./EU distribution (Howdens, CEF; La Plateforme du Bâtiment, Prolians), reduced headcount (200 from 248) and normalized freight costs support margin trajectory into 2H23/2024 .
  • Risks center on capital constraints limiting inventory financing (management cites demand outpacing capital), a lease dispute accrual, Nasdaq minimum bid notice, and continued going‑concern emphasis, which can overshadow operational improvements near term .

What Went Well and What Went Wrong

  • What Went Well

    • Gross margin expanded to 31% (+330 bps YoY) driven by mix and selective pricing; freight costs normalized “below normal prices,” aiding margin tailwinds .
    • Operating expense leverage: management noted operating expenses declined YoY despite revenue growth; SG&A as a percentage of revenue fell versus prior-year periods .
    • Channel and geographic expansion: U.K. (Howdens, CEF ~1,200 locations) and EU (La Plateforme du Bâtiment, Prolians) distribution announced after quarter-end, positioning for broader reach in 2H/2024 .

  • What Went Wrong

    • Sequential revenue decline vs. Q1 2023 ($18.88M vs. $20.21M), with continued net losses despite progress; electronics category also slowed sequentially in Q2 .
    • Capital constraints limiting growth: management stated inventory financing limits ability to meet demand, guiding to “modest” growth in 2023 and targeting profitability next year .
    • Balance sheet and compliance risks: going‑concern uncertainty, lease litigation (accrual ~$0.375M, loss range $0.25–$0.5M), and Nasdaq minimum bid-price deficiency notice increase execution risk .

Financial Results

  • P&L snapshot vs. prior periods
MetricQ2 2022Q1 2023Q2 2023
Revenue ($)$17,887,655 $20,212,711 $18,879,569
Gross Profit ($)$4,948,416 $3,557,272 $5,840,973
COGS as % of Revenue72.34% 82.40% 69.06%
Gross Margin %——31%
Net Loss ($)$(12,136,051) $(8,275,162) $(5,725,370)
Basic & Diluted EPS ($)$(9.45) $(0.56) $(0.36)
Cash & Equivalents ($)—$2,357,204 $2,206,565
  • Category (Product) revenue mix
Revenue by CategoryQ2 2022Q1 2023Q2 2023
Metal Goods ($)$7,259,924 $8,449,294 $8,012,855
Soft Goods ($)$10,160,625 $9,807,138 $9,913,780
Electronic Goods ($)$467,106 $1,956,279 $952,934
Total Revenue ($)$17,887,655 $20,212,711 $18,879,569
  • KPIs and operating indicators
KPIPrior PeriodCurrent Period
Amazon Gross Sales (Quarter)Q2 2022: $3.56M Q2 2023: $3.61M
Amazon Gross Sales (H1)H1 2022: $7.01M H1 2023: $7.41M
Doors/Portals ServedQ4 2022: >17,300 stores/portals Q2 2023: ~>20,000 doors (management est.)
AR and Inventory ($)Q1 2023 AR $12.47M; Inv $32.66M Q2 2023 AR $7.82M; Inv $31.41M
Net Cash Used in OpsH1 2022: $(12.89)M H1 2023: $(2.15)M
Capital Raise—June 2023 net proceeds ~$3.8M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2023None“Modest” growth in 2023; larger in 2024 (qualitative) —
ProfitabilityFY 2024NoneTargeting profitability next year (qualitative) —
Gross MarginFY 2023NoneFocus on mix/pricing; freight normalization benefits (qualitative) —
OpEx/HeadcountFY 2023NoneNo significant headcount additions in 2023 (qualitative) —

Note: No formal numerical guidance was issued; management provided directional commentary only .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2022, Q1 2023)Current Period (Q2 2023)Trend
Supply chain/freightNegotiated shipping rates down ~70% in 2022; direct import to cut costs Shipping costs “down drastically,” below normal; margins higher as a result Improving cost tailwind
Macro/financingGrowth despite inflation; capital raises in 2022 Banking/borrowing “not easy”; exploring financing; avoid ATM where possible Tighter funding
Product performanceMultiple new SKUs (pliers, wrenches, screwdrivers) launched in Q1 Continued launches; larger lines slated for later this year/2024 Broadening lineup
Regional distribution>18,500 portals worldwide Q1 U.K. (Howdens/CEF ~1,200), EU (La Plateforme/Prolians) expansion Expanding footprint
Cost discipline/headcountSG&A % down in Q1; cost controls Headcount reduced to ~200 from 248; savings to be visible next 2 quarters Leaner org
Manufacturing footprintTariffs pressured prior years Diversified across VN, KH, IN, TW, TH, PH, BD, plus CN Diversification progressing
Amazon/online channelQ1 Amazon $3.8M (+10% YoY) Q2 Amazon $3.61M (+2% YoY); H1 up 5.3% Stable growth

Management Commentary

  • “Revenues increased by approximately 5.5% to $18.9 million... Our gross profit... increased by 18% to $5.8 million... gross margin improved by 330 basis points year-over-year to 31%... driven by improving product mix and select pricing adjustments.” — CEO .
  • “Operating expenses declined year-over-year, even as we grew revenues... streamlining... will be more visible in the quarters to come.” — CEO .
  • “We are now roughly over 20,000 doors... huge opportunities... in 2024.” — CEO (Q&A) .
  • “Globally, we were at 248 [team members]. Now we are down to 200... trucking and shipping... negotiated... to below normal prices.” — CEO (Q&A) .
  • “It’s not the market... we don’t have the financial arms to bring in all the inventory... sometimes, it’s good to take half a step back... as we become more bankable then... grow faster.” — CEO (Q&A) .
  • “We are in Vietnam, Cambodia, India... Taiwan, Thailand, Philippines, Bangladesh... and China... we source per line to get the best deal.” — CEO (Q&A) .

Q&A Highlights

  • Distribution/doors and SKU breadth: >20,000 doors globally; product lines performing and rolling out across U.S. and internationally .
  • Cost actions and headcount: workforce cut to ~200 from 248; savings to accrue over next two quarters; price increases implemented after years of fixed contracts .
  • Product pipeline: multiple hand tool categories launched; larger lines slated for late 2023 and 2024 to drive new revenue streams .
  • Macro/financing stance: expecting modest growth in 2023, bigger in 2024; focused on financing vehicles other than ATM; balancing shareholder dilution vs. inventory needs .
  • Supply chain/manufacturing: multi‑country sourcing strategy to mitigate tariffs/costs and improve resiliency .

Estimates Context

  • S&P Global consensus estimates could not be retrieved for TBLT due to missing mapping; therefore, a beat/miss analysis versus Street estimates is unavailable at this time. As a result, estimate comparisons are not presented here.

Key Takeaways for Investors

  • Margin trajectory improved: COGS ratio down to ~69% (gross margin 31%) aided by mix, pricing, and sharply lower freight, with management intent to continue margin focus into 2H/2023 and 2024 .
  • Operating leverage is emerging: SG&A burden eased versus prior periods; headcount reductions and cost controls are set to be more visible over the next two quarters .
  • Channel expansion underpins 2024 setup: U.K./EU distribution additions and stable Amazon demand (Q2: $3.61M; H1 up 5.3%) support sustained top‑line opportunities despite near‑term financing frictions .
  • Capital remains the gating factor: growth is constrained by inventory financing capacity; management is prioritizing non‑dilutive financing where possible and targeting profitability in 2024 .
  • Liquidity/compliance risk needs monitoring: low cash ($2.21M), lease litigation accrual, going‑concern language, and Nasdaq bid‑price deficiency create overhangs until capital and profitability milestones are clearer .
  • Sequential softness likely transitory: Q2 revenue declined from Q1 but remained up YoY; product/category pipelines and geographic expansion aim to reaccelerate in late 2023/2024 .
  • Note on offering proceeds: management cited ~$4.5M raised in June; 10‑Q reports ~$3.8M net—interpret difference as gross vs. net; reinforces importance of capital discipline near term .

Appendix: Source Documents Read

  • Q2 2023 10‑Q (filed Aug 21, 2023): detailed financials, liquidity, risks .
  • Q2 2023 Earnings Call Transcript (Aug 22, 2023): revenue/margin commentary, cost actions, distribution expansion, financing outlook .
  • 8‑K (July 11, 2023) with Amazon sales press release for Q2 2023: Amazon gross sales metrics (quarter and H1) .
  • Prior quarters for trend analysis: Q1 2023 10‑Q and call (May 22, 2023) ; Q4 2022 call (Mar 15, 2023) .