ToughBuilt Industries Inc. $TBLT Company Analysis
We will update this page after Q4 2023 earnings.
"State below in reasonable detail why Forms 10-K, 20-F, 11-K, 10-Q, 10-D, N-CEN, N-CSR, or the transition report or portion thereof, could not be filed within the prescribed time period."
- "The Registrant could not complete the filing of its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”) due to a delay in obtaining and compiling information required to be included in the Form 10-K, which delay could not be eliminated by the Registrant without unreasonable effort and expense. In accordance with Rule 12b-25 of the Securities Exchange Act of 1934, as amended, the Registrant will file the Form 10-K no later than the fifteenth (15th) calendar day following the prescribed due date." (emphasis is ours)
The stock price is in a relative free-fall while we wait for their 2023 10-K and announcement of Q4 2023 results, with the stock falling from $8.155 on January 5, 2024 (close) to $2.30 on April 18, 2024 (close), which values the company at under $2 million based on 770,000 shares outstanding (not counting outstanding warrants). The stock price decline continues despite the April 2, 2024 press release of a purchase order financing deal with King Trade Capital for a minimum of $30 million, and a pickup in social media interest in the stock.
In our opinion, the 10-K and management's discussion during the earnings call are important near-term milestones for gaining increased investor interest.
- They sell heavy-duty, modular, mobile tool storage (new StackTech TM) and rolling Massive Mouth TM tool bags.
- They sell soft goods like tool bags, tool belts and pouches, business organizers, and knee pads.
- They sell metal goods such as hammers, saw horses, mitre saw tables, knives, screw drivers, ratchet sets, saws, tape measures, wrenches, pliers, and levels.
- They sell electronics like a distance finder, angle finder, and a room laser leveler (we saw one at Lowe's).
- Lowe's is their best product showroom, with multiple products in stock in every store in Chicagoland we visited. We have seen 'near perfect' displays of StackTech which are now running low on inventory. We have seen walls and shelves full of ToughBuilt tools and soft goods narrow down to key, core products which are well stocked. We did not see sawhorses, tables, nor mitre saw tables. Our January 2024 stopping was all full-price, then sales appeared in February and March, but in April we are back to full price. We have seen some products with price hikes.
- Menards in Long Grove, Mt. Prospect, Vernon Hills and Kenosha, Wisconsin carry their branded tool belts and pouches in an attractive floor to ceiling display. They also carry MasterForce TM private label ToughBuilt knee pads.
- Mutual Ace Hardware in Highland Park carries the knife cutter / scraper in the store, and the Zion store also has additional soft goods (but are poorly displayed).
- Home Depot does not carry ToughBuilt products in-store.
- Craftwood Lumber & Hardware in Highland Park, a Do it Best store, sells the cutter / scraper and replacement blades.
- Menards was fully stocked but Lowe's has been clearing out soft goods and hand tools.
- Lowe's was de-prioritizing of mobile storage products competitive to StackTech, Klein and Craftsman.
- At Lowe's, we see significant clearance and clearing out in their non-powered tools section.
- In April 2024, only Lowe's carries StackTech. Lowe's is carrying the full line of ToughBuilt although we we see stock-outs and unavailable products.
- Menards is selling the full line of soft goods online, with some sales.
- Home Depot sells ToughBuilt knee pads.
- Amazon carries a full line of new ToughBuilt products sold by the ToughBuilt store, although there are also stock-outs.
- Walmart has many products for sale, with pricing above and below retail.
- Falabella dot com, affiliated with Sodimac, a Latin America and South America hardware retailer, carries 55 products.
- Harbor Freight carries knee-pads.
- eBay is all small vendors and resellers. There is an active set of new product sellers, but prices tend to be higher.
- Many other job-lot tool resellers online carry ToughBuilt products, but small quantities only.
- Craftwood Lumber & Hardware has four SKUs of knee pads available.
- These online tool sellers do not stock, list and sell ToughBuilt Products: B.E. Atlas, Northern Tool & Equipment, Contractorsdirect.com, Contractor Tool Supply by Very Tools, Construction tool Warehouse, Jim and Slims Tool Supply, Professional Contractors Supply, Ilini Contractor Supply dot com.
ToughBuilt: We Don't Build Ordinary
About Seller
WE CREATE INNOVATIVE PRODUCTS THAT HELP YOU BUILD FASTER, BUILD STRONGER, AND WORK SMARTER.
How do we do it? We listen, we research how professionals work, then create tools to help them save time, save hassle, and save money. If it is not better, we don't make it. It's as simple as that.
TOUGHBUILT INNOVATION
When you check out a ToughBuilt product, you'll probably think "I wish I'd thought of that." In a way, you did. Because before we start designing, we spend hours watching hard working professionals like you at work. Then we figure out how to make your life work easier, better, faster.
TOUGHBUILT QUALITY
You probably own a tool that belonged to your Dad. It's been sharpened, oiled, worn smooth and still works like the day it was made. That's the kind of tools we make. We design every ToughBuilt product to last.
We invent, engineer, test, and verify every ToughBuilt product in the USA, manufacture every one to our strict quality standards and back them up with a Limited Lifetime Warranty.
TOUGHBUILT VALUE
Some people think that to get the best of anything, you have to pay a lot. That doesn't work for us. We're tradesmen, designers, engineers, and manufacturing experts. We take pride in value engineering every ToughBuilt tool to give you unprecedented performance. Like you, we work hard to work smarter. We take pride in providing building quality and innovation, at a price affordable to nearly everyone. Innovation made affordable.
YOUR TOUGHBUILT
ToughBuilt is inspired by you and is designed from its inception to make your work easier and more efficient. We are dedicated to delivering "Affordable Innovation" to you. The journey of creating the best tools is just the beginning. Our intention is to provide an avenue for each of our customers to have a voice in improving what we do. We welcome your participation and any constructive criticism or comments that may help us improve and build better tools.
Please feel free to send us your suggestions and comments.
Here are a few videos to give a sense of the company's marketing and positioning.
My sense is of a technology incubator / startup / fast-paced firm that pays well, but expects teams to create innovative tool designs that are brought through production and global distribution.
There is one job opening at Toughbuilt in-person at Irvine, CA today:
- Global sourcing buyer (open, $90k to $100k, the range comes from another website, not ToughBuilt Careers.)
We recently reviewed online reviews by self-declared, but unverified current and previous employees.
Key takeaways:
- A fast-paced environment with high expectations. People are expected to work nights, weekends and travel for business when needed. This is not an early-morning office.
- People liked the culture, and the chance to work with passionate, committed, driven design experts.
- People liked the office and coffee/food perks. People work in the office.
- Pay and benefits are good. More than competitive.
- Few human resources formal processes (e.g., annual reviews).
- Solid design shop. They win design awards for innovation.
- Tool developers own the process end-to-end (we infer this).
- No formal project management processes and no micromanagement.
- Opportunities to create cool and innovative products.
- There is always more to do as someone completes a project. The demand for design work is there.
- The company recently laid off ~20 workers.
- This is a high-growth environment and that can be tough on the organization.
Source: Job reviews and job descriptions we could view for free, get our hands on, for free and without signing up. This included Glassdoor dot com (thank you).
- ToughBuilt Industries serves the professional trades by delivering extraordinary products through a Southern California-based technological incubator.
- We have an ardent and growing community of pros and enthusiasts, and have earned technical awards, rave reviews, and formed a global community of professional users.
- Buyers are expected to maintain existing relationships, build new supplier relationships, and to manage competitive bidding efforts including RFI, RFQ, RFPs and vendor negotiations.
- This is a global role, with responsibility to support multiple international business units and travel internationally.
ToughBuilt has many competitors who are significantly larger and better capitalized.
- Their competitors dominate tool and accessory retailers.
- Their competitors have a history of tool brand acquisitions.
- Their competitors have a wider selection of products, including power tools.
Primary Competitors:
- Techtronic Industries (Milwaukee Tools, Ryobi, Ridgid)
- Snap-on Incorporated (Snap-On)
- Stanley Black & Decker (Dewalt, Craftsman, Black & Decker)
- Bosch (Bosch, Diablo, Dremel)
- Chervon (EGO, SKIL, Flex)
Competition Insights:
- This is a profitable industry that favors the largest companies. Most large competitors have positive earnings, pay dividends and enjoy high PE ratios.
- Competitor equity market capitalizations are in single or double-digit billions (vs. ToughBuilt in millions)
- ToughBuilt Industries tools recently expanded distribution from North America into Europe and South America. They identified and signed agreements gaining access into South America, the U.K., France and Spain in 2023 with large-footprint retailers and supply houses (and their eCommerce arms) that target the professional trades.
- ToughBuilt UK, located in London, is led by Vahe Der Kureghian, Managing Director.
ToughBuilt Industries competes in the DIY and Professional (PRO) tools and accessories markets. As they sell most of their products in home improvement retail stores (Lowe's, Ace Hardware and Home Depot, and brick & mortar retailers in Europe and Latin/South America). They also sell their products online on Amazon, eBay, and through online stores of their retail partners.
The industry is riding a downturn expected to bottom in Q3 2024. The causes will be falling long-term interest rates and mortgage rates, and a consumer sentiment shift back to investing in the home. Until that time, ToughBuilt will grow by taking market share as opposed to riding a home improvement upturn. We believe they can do it with their broad product lineup.
We track Home Depot and Lowe's performance in their public earnings releases and calls. Here is what we see:
1. Q4 was very weak for home improvement, primarily due to fewer large home improvement projects and flat PRO backlogs.
2. January 2024 was weak for home improvement due to extreme U.S. weather
3. The sector declines are due primarily to consumer shift to experiences from goods (e.g., travel and dining), and slow home sales. This is a downtrend that has not yet reached rock-bottom. Home Depot is calling an upturn in H2 2024, and Lowe's says we may have an upturn in H2 2024, but is not counting on it.
We may also see this in earnings calls from direct competitors, but would expect the net-net to be the same.
- Discussed in the Q3 2023 earnings call and 10-Q.
- Evidenced by a lawsuit against ToughBuilt in the Superior Court of California for vacating their offices at 8687 Research Drive, Suites 100, 150 and 250. From the lawsuit, this looks to have cut future SG&A expenses by $2.5mm (through 2027).
- They occupy a 15,000 sq. ft. single tenant headquarters at 8669 Research Drive. Irvine, CA, which lease expires March 31, 2025.
- We saw a post about 20 job cuts in 2023 and we see minimal job postings (1 or 2 positions at a time).
- Not sure about product COGS cuts. We read in the latest Registration Statement (February 15, 2024) that all products are manufactured in China, India and the Philippines. We caught a glimpse of a lead from an import/export data services provider that ToughBuilt may be moving some manufacturing to Vietnam from China. This would lower labor costs and import tariffs, but is not supported by company filings. Maybe this effort at cost reduction has been terminated?
Inventory Management:
We did data gathering by shopping at physical stores in Chicagoland and shopping online. We see explicit choices on where inventory investments are made:
- Inventory levels are declining with visible out of stocks at Lowe's for StackTech TM mobile modular storage line. The inventory investment in Q4 2023 requires replenishment of the initial wave of products, while the second and third wave of products are initially stocked. We see StackTech is still sold at full price, but certain key products (e.g., 4-wheel dolly) are currently unavailable.
- All stores have an assortment of ClipTech soft goods (belts, pouches, and knee pads).
- Hand-tools SKUs are down, there are fewer products in stock.
- Lowe's has sold down on inventory of most ToughBuilt hand tools, accessories, tool bags, knee pads, and is out of stock on saw horses, mitre saw tables, electronics, and other other large items. We saw one room laser leveler across six stores as the only large item, and it was on clearance.
- The 1,300 pound capacity saw horses are unavailable everywhere. We see the 1,100 pound capacity models available online.
- We see very few heavy-duty rolling tool bags, massive mouth bags, and no tool totes (the yellow & black bags). We saw no business organizers in stores.
Based on Chicagoland and online only, the Q4 bet was on StackTech, ClipTech, and hand-tools. Q1 sees products being sold out, whether via clearance, sales or lack of replenishment.
ToughBuilt is liquidity constrained. It has an ongoing concern statement in its 10-Q filing. It had $1.8mm in cash on hand on September 30, 2023, and has no access to traditional bank lending (Source: CEO on Q3 2023 earnings call). ToughBuilt has borrowed via short-term, one-year loans in 2022 and 2023, which are paid back monthly with principal and interest. The May 2024 maturity "May Note" from May 2023 was in the amount of $1,254,000 and bears interest at 9.49%. In April 2024, the company announced a letter of credit from King Trade Capital for purchase order financing of $30 million dollars, which is a significant boost to their ability to restock retail inventory based on firm purchase orders.
Fresh capital in the millions of dollars can only be raised by achieving profitability (or at least positive cash flow from operations).
We rode the stock down from $8.00 to $4.00 as it worked through its latest share offering. Here is our understanding of how it concluded:
- 140,000 shares sold
- 632,628 shares worth of pre-funded warrants sold (execution price of $0.0001 per share)
- 1,098,264 shares worth of warrants sold (execution price of $4.405 per share).
We rode the stock down from $4.00 to $2.50 while we wait for the 10-K and for news of progress towards profitability.
One investor, Jeffrey Easton, purchased most of the shares and warrants of this offering (source: SEC filing). The warrants cannot be exercised as long as the investor maintains his 9.9% share stake, so this helps reduce the dilution in the short term.
We would like to build a C700 sawhorse table in our garage once we can buy them from Lowe's, We hope some of the share offering proceeds goes towards ordering and shipping more Spring season merchandise against committed orders (trade self-financing).
This company completes primarily against larger competitors in the U.S. metal hand tool (non-powered), nylon tool bag and totes, knee pads, and mobile storage product areas. Their competitive edge is to design and import gear with significant technological and design advantages. However, ToughBuilt, their competitors and their primary retailers all see revenue declines due to a cyclical decline in housing sales caused by rising U.S. mortgage rates.
An 'everything goes well' strategy is to circle the wagons (cut costs) and aggressively grow revenue in already designed products. The new StackTech mobile storage line could provide the revenue boost, along with increased global distribution, and 20 layoffs and terminating HQ leases is evidence of cost cutting.
For ToughBuilt to reach profitability, or at least EBIT neutrality, it has to both grow revenue and/or shrink expenses.
Path forward to profitability (this is our opinion):
1) If the company maintains their absolute cost position (SG&A and R&D), and their COGS percentage (76.2%), they reach break-even EBIT at a quarterly revenue of $65.3mm.
2) If the company improves COGS to 72.5% and maintains their absolute cost position (SG&A and R&D), they reach break-even EBIT at a quarterly revenue of $56.5mm.
3) If the company reduces SG&A and R&D expenses, it reduces the revenue required to break even.
Social media coverage of their products is great. We saw product reviews across the net, read the comments, and added a few ourselves about the products we bought or saw at Lowe's. Anything about the product seems positive, and the few hiccups that one would expect seem to get handled quickly. More recently, we are reading about products being out of stock at Lowe's.
Social Media coverage of their stock is the darkest, most negative, pessimistic, and even personally insulting towards anyone who is bullish on the stock or company.
ToughBuilt Industries Stock Price Valuation & Analysis
Jeffrey Cohen, President and Investment Advisor Principal, will spend time with you (up to four hours during one day) to openly discuss our valuation of ToughBuilt Industries Common Stock, ticker sign $TBLT. Valuation includes more than financials, but also looks at the market and strategic positioning of the firm.
We will discuss our due diligence performed on this stock, which is 100% based on publicly available information. We will review recent press releases and SEC filings and our take on the company's progress towards profitability.
We will discuss our current spreadsheet with the valuation of ToughBuilt Industries common stock.
However, we will not share any non-public or confidential information.