Start Time: 17:00 January 1, 0000 5:26 PM ET
ToughBuilt Industries, Inc. (NASDAQ:TBLT)
Q4 2021 Earnings Conference Call
April 18, 2022, 17:00 PM ET
Company Participants
Michael Panosian – President and CEO
Martin Galstyan – CFO
Conference Call Participants
Kevin Dede – H.C. Wainwright
Operator
Greetings. Welcome to the ToughBuilt Fourth Quarter and Full Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded.
I would now turn the conference over to your host, Martin Galstyan, CFO. Thank you. You may begin.
Martin Galstyan
Good afternoon, and thank you all for joining us today to discuss ToughBuilt’s fourth quarter and full year 2021 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 fourth quarter and full year. 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. 2021 was a very strong year for ToughBuilt culminating in record revenues of 70 million, an approximately 78% year-over-year increase compared to 2020. The fourth quarter revenue came in at a record 24.7 million, representing a 105% increase compared to the prior year. Please keep in mind that based on seasonality, the fourth quarter is typically the highest volume period of the year.
Revenue growth in the fourth quarter as well as for the full year in 2021 was driven by a combination of onboarding new retailers, the introduction of new SKUs and continuing demand for our existing 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 an organization known for its creativity and ability to quickly and efficiently bring ideas from concept to shelves in a matter of months. Our 2021 results are a testament to the importance of establishing a platform of strong teams, demonstrated by our numerous product launches, including our first technology-enabled tool, the ToughBuilt laser line.
One of ToughBuilt’s major differentiating features, which we are confident will result in continued demand for our products, is the integration of technology which empowers our customers to expedite projects, automate processes and track information all in one place. To help combat logistic-related costs in 2022, we are negotiating 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 ports and shipping to their own warehouses. This would significantly 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 of products to be shipped.
Based on our current inventory and accounts receivable levels, as well as the revenue we expect to generate from new product lines in 2022, we expect our cash burn to significantly decrease in the second half of 2022.
I will now turn the call back to Martin to cover our financial results in greater detail. Martin?
Martin Galstyan
Thank you, Michael. Revenue for the three months ended December 31, 2021 increased over 105% to approximately 24.7 million compared to 12 million in the same period last year. Revenues for the 12 months ended December 31, 2021 increased 78% to approximately 70 million compared to 39.4 million in the prior period. The increase in sales for both periods was mainly attributable to continued demand for our portfolio of products, international expansion and demand for new products into the holiday season for the fourth quarter.
Cost of goods sold for the 12 months ending December 31, 2021 were approximately 50.9 million compared to 24.7 million for the prior period. Cost of goods sold increased in 2021 over 2020 primarily due to industry-wide supply chain disruptions, which have led to historically higher shipping costs as well as inventory builds in the fourth quarter and increases in cost of materials.
Selling, general and administrative expenses for the three months ended December 31, 2021 were approximately 19.9 million compared to 12.2 million for the same period last year. Selling, general and administrative expenses for 12 months ended December 31, 2021 were approximately 58.4 million compared to 29.9 million for the 12 months ended December 31, 2020. SG&A expenses increased in 2021 over 2020 primarily due to hiring of additional employees, increased use of independent contractors, and increases in marketing and advertising related to new product lines.
Research and development costs for the three months ended December 31, 2021 were approximately 1.6 million compared to 790,000 in 2020. Research and development costs for the year ended December 31, 2021 were approximately 10 million compared to 5.1 million in 2020. We expect to maintain similar levels of R&D costs as the company continues to develop new tools for the construction industry.
In the fourth quarter of 2021, we had a net loss attributable to common stockholders of approximately 14.5 million or a loss of $0.09 per diluted share. In the full year of 2021, we had a net loss of 37.5 million compared to 17.3 million in the prior period. The net loss is mainly attributable to the build out of our design and engineering team and inflated shipping costs. As of December 31, 2021, the company’s diluted weighted average common shares outstanding totaled 122 million.
Following the quarter end, we completed a registered direct offering for net proceeds of approximately 5 million, the proceeds of which will be used for working capital purposes. Although management is exploring alternative capital raising options, the team determined that due to the market volatility and the company’s low cash position from inventory buildup in Q4, it was opportune time to support its cash position.
As of December 31, 2021, ToughBuilt cash position was 7.4 million. We expect our cash position to increase in the first quarter as we collect on our accounts receivable and translate our inventory into sales. This cash flow and addition to the recent capital raise will be sufficient to support our near-term revenue growth.
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 DIY-ers globally. As demand for our products increase, we continue to expand our capabilities and are currently in a position to launch 5 to 10 product lines every year. To capture additional international e-commerce 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 existing relationship with retail partners, adding new retail partners, and introducing new products. The revenue opportunities are dependent on one another, but ultimately driven by end users’ recognition of our brand and innovations.
For example, when we onboard a new retail partner, the first order typically includes a selection or portion of ToughBuilt’s catalog of numerous SKUs. As underlying consumer demands for the product grows, the retailer is likely to expand the number of products offering 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 include 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 products. Even our oldest products are still increasing in revenue year-over-year with peak revenue potential ahead of us. We are building something great at ToughBuilt, and I truly believe that we have the potential to disrupt 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 prototypes 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 over to our operator to begin the question-and-answer session.
Question-and-Answer Session
Operator
Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Michael and Martin, we appear to have questions from a few private investors. Will we be taking those questions?
Michael Panosian
Yes.
Operator
Okay. Our first question is from Sayed Hassan [ph], a private investor. Please proceed with your question.
Unidentified Analyst
Mr. Chairman, I’m very much interested in your company’s potential and your stewardship. I’m an 84-year-old guy. I put all the money for my grandchildren. Only one question I have. When do you think we will become truly profitable, meaningful full profitability will be achieved when? Thank you for your thoughtful answer.
Michael Panosian
Thank you, Mr. Hassan. This is Michael. See, the old ToughBuilt, I appreciate your investment and your support in ToughBuilt. We are very aware of being profitable. I’m hoping that within the next year or two, we can achieve profitability, sir. The goal here is to create meaningful profitability. That means enough profitability that we don’t have to raise too often at least and we need to build our platform of people so that I can put out enough products and cover the global landscape. After that, I’m going to stop hiring. We’re not trying to make 100,000-person company, I just need to complete the sales platform and the product development platform so that we can put out products fast enough and enough of them to get us to a green profitability, but meaningful profitability. We can cut back today and become profitable, but that profitability will not sustain meaningful growth for the company. So that’s why we are raising from time to time is just to complete those two platforms.
Unidentified Analyst
Okay. Can I have one follow-up question, then I’m done. Thank you for your very thorough answer. Can I ask the follow-up question, Mr. Chairman?
Michael Panosian
Sure. Please go ahead.
Unidentified Analyst
My follow-up question, sir, is I read you are — I’m very much interested in your company. In your mission statement or your vision statement, you used two very, very profound and meaningful promises. Those two words are emerging growth. Could you explain to me what does it mean? Did you say the — ToughBuilt is an emerging growth company or an entity? I understand little bit, but you have been very much active in transnational and multinational and you spent a lot of time in China, and China is going to be a very important competitor. So could you kindly explain for me, I’m an old man, and to our other investors, explain the concept of emerging growth company versus an ongoing regular company?
Michael Panosian
Sure. Emerging growth company, what I meant, at least in my view of the language, is really we are an up and coming, fast growing company. Once we create this platforms that I’m speaking about, the sales and development platforms around the world, you will see a rapid launch of numerous lines of products, which in turn generate much bigger revenues. And when we are saying we are an emerging company, that’s what I mean. We are becoming — our flywheel is becoming bigger and faster. And once that flywheel is at full force, we instead of launching a few product lines a year and generating revenue, by that time we will have a lot more retailers around the world and launch hopefully 10, 20 30 lines of products a year which will generate a completely different level of revenue.
Unidentified Analyst
Okay. Thank you, sir, for your good and thorough answer. I wish my company and your leadership produce some results for us. I appreciate your answers.
Michael Panosian
Thank you. We are working day and night to be able to do that, sir.
Unidentified Analyst
Keep it up, sir. Thank you. I’m obliged. Bye-bye.
Michael Panosian
I appreciate it. Thank you.
Operator
Our next question is from Kevin Dede of H.C. Wainwright. Please proceed with your question.
Kevin Dede
Thank you. Hi, Michael. Hi, Martin. Thanks very much for taking my question. Curious about a couple of things. Michael, you mentioned switch up in distribution. How long do you think it takes to implement that? And do you see it hindering or, I don’t know, just help me understand how you see it helping I guess the flow of goods into the U.S. and other sales locations?
Michael Panosian
Sure. As far as manufacturing is concerned, we obviously started in China. We are in around six countries currently. And we are trying to do more near-shoring where possible. Please understand that expertise is necessary. The idea of bringing factories home or doing near-shoring or going other places, it’s all well and good, but the expertise and the quality and the craftsmanship of that factory must be available plus components, plus raw materials. So not every company is set up to provide all those details for meaningful manufacturing. If we are not careful, the price of goods will be much higher, because either they are missing the components they have to import from China or materials or their infrastructure is more expensive or shipping is through the roof. So we are gradually taking steps. Gradually doesn’t mean slowly. But the world also has to catch up with China before we can fully implement the full international manufacturing base. I hope that answers your question.
Kevin Dede
Yes, it helps. Can you talk to your SKU count now and your retailer count now? And where do you expect those numbers to be at the end of the year?
Michael Panosian
Sure. Currently, we have over 350 SKUs and launching a lot more products. The reason we are launching products is because the professional demands a wide spread of product lines. They don’t want to go buy a screwdriver from such company and then drill from another company. That’s not how they operate. They want quality innovative products. So we have about 350 SKUs. Retailers buy into it. Then we get recurring orders. And once the doors are open with each retailer, then we constantly introduce new lines and new products. So even the smallest account becomes a meaningful account down the line, let alone the big box retailers. So that’s basically how we are trying to increase our portfolio and widen the offering to the professionals and serious DIY-ers.
Kevin Dede
Okay. Thanks, Michael. But can you give us hard numbers on your — the number of retail partners you have and expect to have at the end of the year and where your SKU count goes to the end of the year?
Michael Panosian
Sure. The second part of the question was how many retail? We have currently something over 15,000 doors that we are servicing over 110, 120 different customers around the world. And we are trying to get to thousands and thousands of more doors. There’s approximately 120,000 targeted retail doors with over 350 to 400 customers that are in our target. And then the third part of the question, which is how many SKUs? We will be adding many lines of products throughout the years. This year, we will be launching minimum 5 to 10 lines. Some lines have 10 SKUs, some lines have 72 SKUs. So on average, I don’t want to give a guidance because of the world situation. It’s kind of hit and miss to the exact detail, but we should be launching about 5 to 10 new lines of products. So we will be adding another 400, 500 pieces of products.
Kevin Dede
Okay. Thank you, Michael. I need to turn the call over to other people, but I’ll hop back in the queue.
Michael Panosian
Okay. Thank you, Kevin.
Operator
We have reached the end of the question-and-answer session. I will now turn the call back over to Michael Panosian for closing remarks.
Michael Panosian
In closing, I want to thank our employees for giving ToughBuilt all their efforts and turning ToughBuilt into a quality first brand that customers can rely on and remaining dedicated to our mission even through this pandemic and difficult time of distribution globally. I’m excited for what 2022 has in store for us and very confident in our ability to grow the company and get it to its profitability down the line.
Operator
This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.
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