ToughBuilt Industries, Inc. (NASDAQ: TBLT) is a company that has weathered its fair share of storms, but remains committed to innovation, adaptability, and strategic positioning within the highly competitive tools and construction accessories market. With a storied history spanning over a decade, ToughBuilt has showcased its resilience and a steadfast determination to carve out a unique niche for itself.
Business Overview and History Incorporated in 2012 as Phalanx, Inc. and later rebranded as ToughBuilt Industries, Inc. in 2015, the company has undergone a transformative journey. Initially focused on designing and distributing innovative tools and accessories for the construction and home improvement industries, ToughBuilt has steadily expanded its product portfolio and global reach.
The company’s core offerings include a diverse range of products across three major categories: Soft Goods (e.g., tool bags, pouches, and kneepads), Metal Goods (e.g., sawhorses, tool stands, and workbenches), and Electronic Goods (e.g., utility knives, aviation snips, and levels). ToughBuilt’s products are designed and engineered in the United States, with manufacturing primarily carried out in China, India, and the Philippines under the company’s quality control supervision.
In September 2018, ToughBuilt effected a 1-for-2 reverse stock split of its common stock. The company then consummated its initial public offering pursuant to a registration statement on Form S-1 that was declared effective by the SEC on November 8, 2018, becoming an Exchange Act reporting company. This was followed by additional reverse stock splits: a 1-for-10 split on April 15, 2020, and a 1-for-150 split on April 25, 2022.
Throughout its history, ToughBuilt has faced numerous challenges, including supply chain disruptions and inflationary pressures. To combat these issues, the company increased the prices of its products in 2022 to offset higher manufacturing and shipping costs. Additionally, ToughBuilt invested in IT systems to enhance its operational and financial reporting and internal controls, addressing material weaknesses identified in its internal control over financial reporting.
Despite these obstacles, ToughBuilt has made significant strides in growing its business. The company has expanded its product offerings, launching new lines of pliers, clamps, and screwdrivers. ToughBuilit has also focused on increasing its marketing campaigns and distribution programs to strengthen the demand for its products globally. As a result, the company’s products are now available in major retailers ranging from home improvement and construction stores to major online outlets in the United States, Canada, Australia, and South Korea.
Financial Overview and Performance Financials ToughBuilt’s financial performance has been a mix of successes and challenges. In the fiscal year 2022, the company reported total revenue of $95.25 million, a significant increase from the $70.03 million generated in 2021. However, the company has also grappled with substantial operating losses, reporting a net loss of $39.30 million in 2022, compared to a net loss of $37.53 million in 2021. The operating cash flow for 2022 was negative $37.29 million, while free cash flow stood at negative $42.39 million.
The most recent quarter (Q3 2023) showed a concerning trend, with revenue declining to $20.63 million, a 31.8% decrease compared to Q3 2022. The net loss for the quarter was $14.25 million, with operating cash flow at negative $1.96 million and free cash flow at negative $3.03 million. This decline in revenue was attributed to a decrease in demand across all product segments.
Looking at the first nine months of 2023, ToughBuilt’s revenue declined 8.6% year-over-year to $59.72 million. The company’s cost of goods sold decreased 8.0% to $45.41 million, leading to a gross profit margin of 24.0% for the period, compared to 24.3% in the same period of 2022.
Breaking down the performance by product segment for the first nine months of 2023:
Soft Goods Segment: Reported revenues of $25.94 million, down 4.8% year-over-year. The cost of goods sold was $16.53 million, leading to a gross profit margin of 36.3%.
Electronic Goods Segment: Generated $3.31 million in revenue, down 11.5% compared to the same period in 2022. The cost of goods sold was $3.15 million, resulting in a gross profit margin of 4.8%.
Geographically, ToughBuilt operates primarily in the United States, with 79% of revenues coming from the US in Q3 2023. It also had 16% of revenues from Europe and 3% from Canada in the same quarter.
Liquidity The company’s liquidity position has been a point of concern, with cash and cash equivalents standing at $2.56 million as of the end of 2022, down from $7.47 million at the end of 2021. As of September 30, 2023, the cash balance further decreased to $1.83 million. This has led to ongoing challenges in funding the company’s operations and growth initiatives.
ToughBuilt’s working capital position has also been under pressure, with a current ratio of 0.74 and a quick ratio of 0.21 as of September 30, 2023. The company’s debt-to-equity ratio stood at 0.18 as of September 30, 2023, indicating a relatively low level of leverage compared to its equity.
To address its liquidity needs, ToughBuilt entered into a short-term loan in May 2023 for $1.25 million, maturing in February 2024.
Navigating Challenges and Exploring Opportunities ToughBuilt’s journey has not been without its challenges. The company has faced supply chain disruptions, inflationary pressures, and increased competition from larger, well-established players in the industry. These factors have contributed to the company’s operational and financial difficulties, as evidenced by its recent operating losses and liquidity constraints.
However, ToughBuilt has demonstrated a commitment to innovation and adaptability. In 2023, the company launched several new product lines, including a comprehensive range of handheld screwdrivers and wrenches, as well as a revolutionary StackTech® mobile toolbox system that has garnered significant market interest.
Furthermore, ToughBuilt has taken steps to strengthen its financial position, including securing a line of credit from King Trade Capital in 2024 to enhance its procurement and fulfillment capabilities. The company is also actively exploring opportunities to expand its distribution channels, both domestically and internationally, to drive revenue growth and improve its overall financial performance.
Risks and Uncertainties Despite its efforts, ToughBuilt faces several risks and uncertainties that could impact its future performance. The highly competitive nature of the tools and construction accessories market, coupled with the company’s limited operating history and financial resources, pose significant challenges. Additionally, the company’s reliance on a limited number of large customers, as well as its dependence on foreign suppliers, exposes it to supply chain disruptions and potential macroeconomic shocks.
The recent decline in demand across all product segments, as evidenced by the decrease in revenue in Q3 2023, presents a significant challenge for ToughBuilt. The company will need to address this trend through targeted marketing efforts and product innovations to regain market share and drive growth.
Industry Trends and Outlook The global toolbox and tool storage market, in which ToughBuilt operates, is projected to grow at a Compound Annual Growth Rate (CAGR) of 8.3% from 2022 to 2032, reaching a market size of $6.8 billion by 2032. This growth is primarily driven by increasing construction and DIY activities globally, presenting potential opportunities for ToughBuilt to capitalize on industry trends.
As ToughBuilt navigates the road ahead, the company’s ability to execute its growth strategies, address its liquidity concerns, and adapt to industry changes will be crucial. The successful launch and market acceptance of its new product lines, as well as its efforts to diversify its customer base and supply chain, will be key drivers of the company’s future performance.
While ToughBuilt has faced its fair share of obstacles, the company’s commitment to innovation, its established brand, and its expanding global footprint suggest that it may be well-positioned to capitalize on the growing demand for high-quality tools and construction accessories. However, the company will need to overcome its current financial challenges and reverse the trend of declining revenues to fully benefit from the projected market growth.
Investors and industry observers will keenly follow the company’s progress as it continues to chart a path towards sustainable growth and profitability. ToughBuilt’s ability to leverage its product innovation capabilities, expand its distribution network, and improve its financial performance will be critical factors in determining its success in the competitive tools and construction accessories market.
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