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Toughbuilt Industries, Inc (TBLT)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 revenue was $20.6M, up 9% sequentially but down ~32% year over year; gross margin fell to 23.8% amid softer sector demand and mix, while SG&A declined meaningfully with continued cost discipline .
  • Net results were mixed: the press release reported a net loss attributable to common shareholders of $8.4M ($0.27 EPS), while management on the call cited a $5.9M net loss; the discrepancy should be reconciled in the 10-Q .
  • Management emphasized ongoing expense reduction, reduced shipping costs, and the launch of StackTech (mobile stacking toolbox system) as strategic catalysts for future growth and margin recovery .
  • The company announced a dividend of Series H preferred stock to common shareholders; no formal quantitative revenue or margin guidance was provided for Q4/FY .

What Went Well and What Went Wrong

What Went Well

  • SG&A fell to $12.5M, down ~33% q/q and ~30% y/y, reflecting disciplined cost control and organizational streamlining .
  • StackTech launched with more than seven SKUs; management expects entry into stacking tool storage to broaden addressable markets and contribute to net sales growth .
  • Management highlighted lower freight costs versus pandemic levels (containers down from >$25,000 to below-normal pricing), supporting margin improvement efforts longer term .
    • “By prioritizing cost discipline and operational efficiency, we are successfully steering the company on a path towards sustained profitability.” — CEO Michael Panosian .
    • “We anticipate our entrance into the stacking tool storage and toolbox market will drive us closer to our profitability target.” — CEO Michael Panosian .

What Went Wrong

  • Revenue declined ~32% y/y to $20.6M due to decreased demand in the overall tool sector; gross profit fell to $4.9M and gross margin to 23.8% from 26.1% y/y .
  • COGS as a percent of revenue rose to 76% in Q3 (vs. 74% prior year), pressuring margins despite cost actions .
  • Net loss widened versus the prior-year press release (Q3 2022) and remained sizable q/q; uncertainty persists given conflicting figures between press release ($8.4M loss) and call ($5.9M loss) .

Financial Results

Quarterly P&L and Operating Metrics

MetricQ1 2023Q2 2023Q3 2023
Revenue ($USD Millions)$20.2 $18.9 $20.6
Gross Profit ($USD Millions)$3.6 $5.8 $4.9
Gross Margin (%)N/A31.0% 23.8%
COGS as % of Revenue82% 69% 76%
SG&A ($USD Millions)$15.1 $14.9 $12.5
R&D ($USD Millions)$3.5 $2.9 $2.9
Net Income/Loss ($USD Millions) – Call-$8.3 -$5.9 -$5.9
Net Loss Attributable to Common ($USD Millions) – Press ReleaseN/AN/A-$8.4
Diluted EPS ($USD) – Press ReleaseN/AN/A$(0.27)
Cash ($USD Millions)$2.4 $2.2 $1.8
Accounts Receivable ($USD Millions)$12.5 $7.8 $10.6
Inventory ($USD Millions)$33.0 $31.4 $27.5

Notes:

  • Management also reported nine-month revenue of $59.7M, nine-month gross margin of 23.96% ($14.3M gross profit), and an 80% improvement in net cash used in operating activities vs. $6.0M in 9M’22 .

Year-over-Year Snapshot (Q3)

MetricQ3 2022Q3 2023
Revenue ($USD Millions)$30.2 $20.6
Gross Margin (%)26.1% 23.8%
Net Income/Loss ($USD Millions) – Press Release$0.539 -$8.4
Diluted EPS ($USD) – Press Release$0.05 $(0.27)
COGS as % of Revenue74% 76%

Segment/Category Context

Product/ChannelDisclosure
Revenue compositionRevenues consisted of metal goods, soft goods, and electronics goods; no formal segment revenue breakdown disclosed .
Amazon gross sales (context)Q2 2023: $3.61M; 1H 2023: $7.41M (+5.3% y/y) .

Selected KPIs

KPIQ1 2023Q2 2023Q3 2023
Doors (global distribution)18,500+ (stores/online portals) ~20,000+ (management indication) N/A
SKU count550+ total catalog Ongoing expansion across categories StackTech launched (7+ SKUs initial)
Europe/UK distributionExpansion to Howdens UK & City Electrical Factors (1,200 locations), plus EU (La Platforme du Batiment, Prolians) ——

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4/FY 2023Not providedNot providedMaintained: no formal guidance
Gross MarginQ4/FY 2023Not providedAim to improve margins; focus on mix/pricing/efficiency Qualitative only
SG&A / OpExFY 2023Not providedContinued cost reductions; no significant headcount additions in 2023 Qualitative only
PricingFY 2023N/ASelective price adjustments to support margins New qualitative initiative
DividendN/AN/AAnnounced dividend of Series H preferred stock to common holders New corporate action

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2023)Previous Mentions (Q2 2023)Current Period (Q3 2023)Trend
Macro demandStrong y/y growth, expanding SKUs and distribution Growth y/y; improved mix/pricing despite macro challenges Sector demand decline driving y/y revenue and margin compression Deteriorated y/y; stabilizing q/q
Cost disciplineSG&A down; hiring slowdown Streamlining; visible in coming quarters SG&A down 30%+ y/y and 33% q/q; ongoing efficiency push Improving
Pricing/mixCatalog expansion; initial pricing actions Gross margin +330 bps y/y via mix/pricing Margin pressure; continued selective pricing adjustments Mixed
Supply chain/freightCOGS 82% of revenue Logistics diversified; UK/EU distribution expanded Freight costs normalized vs pandemic; multi-country sourcing maintained Positive tailwind
Product innovationNew SKUs across tools Multiple categories launched; more lines coming StackTech launch; 22 product lines foundation for growth Ongoing
Financing/working capitalCash $2.4M; inventory $33.0M Cash $2.2M; inventory $31.4M; raised $4.5M in June Cash $1.8M; inventory $27.5M; focus on financing vehicles; cautious inventory build Tight but improving ops cash burn
Manufacturing footprint—Diversified to VN, KH, IN, TW, TH, PH, BD Continued multi-country sourcing strategy Stable diversification

Management Commentary

  • “For the third quarter of 2023, the company reported revenue of $20.6 million, a 9% increase compared to the prior 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.” — Michael Panosian .
  • “The StackTech line is not only the world's first auto-locking stacking tool storage solution… we anticipate our entrance into the stacking tool storage and toolbox market will drive us closer to our profitability target.” — Michael Panosian .
  • “By prioritizing cost discipline and operational efficiency, we are successfully steering the company on a path towards sustained profitability.” — Michael Panosian (press release) .
  • “Revenues decreased… by approximately $9.6 million or 31.8% primarily due to a decrease in demand for the tool sector… COGS as a percentage of revenues… was 76%, up from 74%.” — Martin Galstyan .

Q&A Highlights

  • The Q3 2023 transcript did not include a Q&A section; prepared remarks focused on demand softness, expense reductions, and the StackTech launch .
  • For context from Q2: management discussed global distribution reach (~20,000 doors), freight cost normalization, staffing reductions (to ~200 from 248), and multi-country sourcing strategy (Vietnam, Cambodia, India, Taiwan, Thailand, Philippines, Bangladesh) .

Estimates Context

  • S&P Global consensus estimates for Revenue and EPS (Q3 2023) were unavailable for TBLT via our data connection; therefore, comparisons to Wall Street estimates could not be made. We will update if S&P Global mapping becomes available and consensus is published.

Key Takeaways for Investors

  • Sequential stabilization: Revenue rose 9% q/q to $20.6M, suggesting near-term stabilization despite a tough macro backdrop; however, y/y contraction remains material (~32%) .
  • Margin dynamics: Gross margin compressed to 23.8% (COGS 76% of revenue), driven by sector demand softness; medium-term margin recovery depends on mix, pricing, and continued freight normalization .
  • Cost actions are tangible: SG&A fell to $12.5M (down 30%+ y/y), and inventory reduced to $27.5M, supporting lower cash burn and operational efficiency .
  • New product catalyst: StackTech broadens TAM in tool storage; successful adoption could improve mix and margins and offer a sales catalyst into 2024 .
  • Data reconciliation needed: Conflicting Q3 net loss figures (-$8.4M press release vs. -$5.9M call) warrant confirmation in the 10-Q and future filings; trade cautiously until clarified .
  • Financing/watch liquidity: Cash of $1.8M with ongoing efforts to secure financing vehicles; tighter working capital limits pace of inventory build and growth initiatives .
  • No formal guidance: With estimates unavailable and no numeric guidance, trade around execution milestones (StackTech adoption, margin improvements, distribution wins) and monitor freight and demand signals .

Appendix: Additional References

  • Press release highlights include eight-K furnished disclosure and Series H preferred dividend .
  • Amazon channel: Q2 Amazon gross sales were $3.61M; 1H Amazon sales +5.3% y/y to $7.41M .