FGI - Earnings call transcript Q2 2022

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Operator

Thank you for standing by. This is the conference operator. Welcome to the FGI Second Quarter 2022 Earnings Call.

As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there’ll be an opportunity to ask questions. now Managing turn Director. would to conference I Bartolai, Paul Instructions] like the to over [Operator Please ahead. go

Paul Bartolai

Thank may which, to you. President Welcome like that Lin. market results Bruce; conference management’s you closed to Chief their We FGI recent Industries Leading and and questions release today’s uncertain call of second issued the yesterday our a today after on Officer, detailing remind are Financial and and operational press statements, financial the David to results. call. CEO, Perry include quarter the conference are nature, company’s call and by I responses forward-looking would outside commentary control. XXXX

on these and current expectations results Although, based beliefs, statements forward-looking management’s may are actual differ materially.

of results cause some from final the that a our filings our to refer the public discussion to please Factors the offering. the actual section Risk of prospectus initial with latest of could factors including differ, SEC, For

a review will for the Dave from strategic followed review that, I’ll remarks, Bruce, With Additionally, discussed of please At we and note that over questions. to non-GAAP in the press call begin and performance the Perry Dave. our from this open call Lin. conclusion issued with by in to prepared update these line of during financial financial release we yesterday will the appendix reconciliations the the historical the Today’s turn call presentation. you can find measures

David Bruce

revenue solid in adjusted coming Paul, results Thanks, operating to morning quarter expectations. We of quarter and good and our ahead operating another everyone. with second generated of income

facing housing market as moderation some of market. seen the a the have R&R some we broader forecasted, we As result of the headwinds in

by is strong and of organic to and despite we continuing to the generate margin the during revenue encouraged the products growth growth. market I’m very recovery, our favorably We solid innovative for half portfolio outlook be quality first experienced quarter. third continues business, ability remain our So as momentum order our of growth proud received into high the slower sequential the by continued consumers

will achieve with track key driven XX% remained categories. to result, a for revenue during full year-over-year quarter, Sanitaryware on our second increasing steady demand we financial at believe we a Demand product As by by a year newer remain trends the across total our product guidance. on continued categories our and strong growth basis,

Our the in XX% growth, quarter. Cabinetry Kitchen Sanitaryware business second primarily strong with Custom the over and and business XX% product which the our Other in retail grew channels our both quarter, Systems wholesale category, is generating grew while Shower

seen I within broader seeing Bath product biggest mentioned, some segments impact R&R our our market As have we the the moderation portfolio. Furniture in with

order channel business Our Bath impacted due some to pockets supply and inventory. by delays issues was chain of also negatively elevated Furniture continued

business encouraged trends our strong by the remain a we softness result market the Furniture However, a categories Bath to broader in product quarter expect the growth in improved our as coming and resilience results categories. in product our year. in continue broader through key to Overall, resilient of grow growth share ability and highlights products the of products on organic Based and end half to expect growth we innovative of back organic new market momentum new expansion gains, growth portfolio new into markets initiatives, of the our quarters. our our encouraging

roughly market. be that the repair to tends calls, remodel market, to was on new highlighted past and have it stable important and tied XX% revenue of we the our construction is predictable As to remember more than which

sales fell the new R&R June stable. more remained market home XX% year-over-year, has While

costs through other pricing We elevated efficiency efforts continue to offset our and measures. make good to progress chain in initiatives supply

we increased expect the of pricing year, improved in margin adjusted from operating the actions, first basis XXX XXXX as continued roughly result see the improvement of points operating adjusted While are margin ongoing to down and quarter, a margin scale, saw of improvement the and year-over-year back sequential gains. mix was quarter in we half of efficiency

While is growth, Consistent above driving improvements we innovation, value growth focus the with the creating of capital industry rates deployment. creation market efficient and above drive strategic FGI environment. intends environment, to on a continue averages, on our regardless macro market our and our monitor plan operational focus value to long-term growth to balanced product compound through organic

accomplishments these key initiatives against are our the follows. of quarter during second Some as

which strategy, organic strategy. is channels VPC key our and is products the growth driver brands, stands of First, for

be bridge pursuing highlight over and would We is includes of to medium-term. cabinetry growth Custom covered craft which nice Cabinetry and our potentially One near- are a organic number area main Kitchen growth and our can the brands. contributors that I to programs organic meaningful business, like

business, generates of before, a as growth have in needs base, gross we growth, margins manufacturing dealer As result capacity for discussions the our than large rapid to as in stated which the with higher well as this we ongoing future FGI invested have and growth current future of average. incremental customers address

our wholesalers recently making and Hajoca progress building are relationship as and as expansion channel We Corporation, products with industrial in supplies one the expanded United with of well, States. the our we the largest

expand expanded relationship important partner. We have products significantly and Hajoca available we of with number are to through our the excited this

driving margin focus Second expansion. on is our

margin despite inflationary margin disruptions pressures. mix. and We make sequential generated headwinds on the offsetting negative during by the continue operating caused strong the impact second supply improvements to chain We progress quarter,

operating margin gains we XXXX, sequential believe expect and more back mix, term, to the leverage. margins longer in to further half we improvement a an of opportunity expand through have efficiency continue and We profitable

to dedication on we strategies be towards capital Finally, in the near-term. our to capital deploying continue quarter, will organic is primary last focus growth stated deployment, as our efficient

potential have exciting the with targets, Meanwhile, conversations a programs development best to Custom of as potential on in Kitchen investment opportunities the Cabinetry manufacturing a transaction in do this we believe timing pursue when could of number although bolt-on continue our not engaged business. have of currently by occur. highlighted We is and are we capital, actively use and in our clarity

We on that, these community our update are of early detailed to priorities I the more goals. review against over will our our With look excited strategic continuing forward to it turn the and financials. progress progress a investment on by we for Perry to important

Perry Lin

year, totaled Thank our growth negative year you, an on provide second strong benefit some during $XX.X compared quarter, additional mix. strategic of give it morning, will our I offset up good everyone. an increase volume XXXX, the prior million details and Dave, benefit, and by full by the the to of on continued XX.X% action, the driven wrap pricing quarter and and Revenue with liquidity our XXXX guidance. update

revenue prior both second quarter, the XXXX, as the XX% the compared the as price strong Bath result to revenue of a channel, line. decrease wholesale increase factors compared the the our There retail Sanitaryware benefits quarter. was our segment period, growth $XX in couple increase. at the prior an Looking well during volume to second and in a million our by million the business driven quarter XX% that of $X.X of were Furniture during period. was impact of

normalize year. challenges to of the to and key expect due inventories experience customer some during quarter we First, half in issue order the elevated we in and channel to chain this pushback supply from back the continue

business. moderation seen Bath the by some demand outlook we encouraged Furniture the slight in Second, remain Furniture bath of broader trends market. our we in have Overall,

XXXX, volume a order, and X% second compared we solid quarter during XXXX, gains. profit increase was revenue impact was through to to system, in our XX.X% during the of decrease was by in result, an the biggest timing as gross second margin period. the in the in quarter elevated costs, profit of of was this Kitchen freight chain Custom the system which with expect the coupled business Gross disruption growth normalize year second was prior of quarter shower period. from by resulting the prior Hajoca result. Other prior million a quarter, growth offset $X.X during the and XX.X% million supply quarter down driven Cabinetry pricing A issue our compared So to revenue coming worked period, XX% of improved $X.X as

year-over-year, increase was other reduction first outperformed to efforts. as continue progress elevator margin offsetting in the quarter was gross and While make the cost a price through it down the we cost

are good and that we back pricing retail increases our in will capture year. continue pricing action benefit the to on implement additional the We half seeing of the

was while by effect Our masked the margin the was initiative recovery mix increasing somewhat of few impactful negative mix bags sales in progress second as we particularly on Sanitaryware. we are our of quarter. Negative sold [inaudible],

improvement $X.X GAAP XXXX, to last of useful competent offset product, We some from prior had and repeated look Other half investment the organic margin our customer income in second continue in growth during by the also we within in expect was was year back pressure, a shower the generate gross large volume in one remain trend this growth sequential costs. margin $X.X year. forward the of not million year. was segment, pull-forward to and company period. comparison our year operating margin which the our gross quarter million public While initiative of Strong revenue down

reduction As year, sequentially during the about a from result, of GAAP our XXXX, in period million quarter, share period but the second in was increase $X.X $X.XX $X.X pricing second X.X% operating margin action year. diluted up as quarter The to were income count. our in an diluted same which $X.XX as X.X% continued from income, the hold. reflects share XXXX, the operating first decline XXX-basis-point well or last quarter net the million last per during the down same take or in was down from as

sheet liquidity. balance to turning and Now our

of had at the of our the $XX.X XXXX, the letters of the equivalent million net debt XX, had June credit. million with company and of Combined cash, of XXth. of and facility, under quarter of At $X.X end the total As was million total $X.X June cash company liquidity credit $X.X million. availability cash

We liquidity than our growth are initiated. sufficient is in fund a more to position that solid

this Our to elevated, level remained capital current work but expect months. three over months we next the six down to working

need X% to expect remain of revenue. around We capital our spending

we confident margin recovery trajectory look initiatives. on we of into remainder execution XXXX, our As growth remain in our and

in continue modestly in perspective have industry prudent expectation some slowing in volume demand to which with and XXXX. assume is down our to it at that we broader has the start the industry, in believe to We operated relatively line started the from is of been year the see

to million million. remarks. we now our of we income result, a are be prepared to our operating million are which to for $X to net $XXX in revenue $XXX of call ready call. portion the and of our million the question-and-answer XXXX, in That $X.X $X.X range for for guidance a range of income the completes Operator, financial range be million million, As reaffirming to $X

Operator

comes [Operator go Please you. first from ahead. Instructions] Benchmark. Our of Thank Gardner question Reuben

Reuben Gardner

Thank morning, you. everybody. Good

David Bruce

Good morning, Reuben.

Perry Lin

Good morning.

Reuben Gardner

your space has of is late, there are a mentioned, half how product excluding that excluding is what drawdown building is drawdown own that for I it and much the drawdown bit broader underlying the talk inventory been big much the So think, elevated. like Perry channel little in volume whatever inventory about guide assumptions growth of in second is, the and too or adjustment? what think and decline, looks inventory Can I inventory you baked topic the in volume into a your your inventory terms

David Bruce

Yeah. about talk This little a Dave. I can is first. that bit

have of based knew had and going A that on inventory slower of program strong. down the good down Bath So, entering at with of of majority couple But shower a that we program our beginning drawing this one retail obviously, product but were the slowly. bath year, into and the new customers. the our QX been levels a wall been base yeah, that’s we, drawing the because larger of inventory and inventory sales level sales, the we’ve shower Furniture quite POS things, spikes slowly also higher

year as fully continue customers smaller that and as to that continue new penetrate we market the well. draw down we to So as product with share to and inventory take expect on goes

So we’re Reuben? about as enter not concerned half. we the second that as continuing

Reuben Gardner

Okay.

David Bruce

Okay.

Perry Lin

$XX we Dave this for million from so like, for back continue -- year-end quarter mentioned, the we already will far the $XX pick and million can time just trend XXXX. expect see, inventory, to the fully as the first be Yeah. the And you half dropped during of

Reuben Gardner

Okay.

at versus end they’ll the have think clear, much how be at think you be how today you to to level, much year? excess the do just do customer -- product where of they So, want the

Perry Lin

Well, again…

David Bruce

working. been Yeah. We’ve

Perry Lin

Sorry. Go ahead, Reuben.

Reuben Gardner

ahead. Go

David Bruce

this seen to No. I -- the of the going No. beginning was say, we’ve we already year. from

very been we’ve we and working closely their have. customers inventory our with So what on levels

are to half the of biggest the some So right? see Bath Furniture, already up we has in second an in which the first we’re -- been half, starting as year, open of example, our challenge that here movement a as year. going, as into to replenishment going go definitely prepares So the into everybody had needs half, we’re next we now, particularly QX, second they see for into as starting little

the even the product just from half be to the from Sanitaryware, as our market just going go Furniture into despite a So product we for anyway. to need continue strong the Bath the -- Other there’s could replenish on categories demand, side, to And are inventory side. second the be shower, demand the

we So as much into there. didn’t an issue of run

you’re as is market seen like beginning about of the we, this in not inventory, inventory So, backed the the year. hearing now. I that said, this this -- We’ve out from

momentum I like see Furniture into first we’re this of already were movement, QX. side going a we So the into the on ahead starting the the of already into half we would have and to But knew that year, particularly challenge. said, going and --

Reuben Gardner

mentioned the one rates slides down above into ocean to Perfect. the year -- of levels the year. the next of release the press pre-COVID of talks in and you through end but What… And remain about expected coming and kind

David Bruce

Yeah.

Reuben Gardner

down? flows events you how to of those benefit more costs that to savings? and is P&L those actually I of portion the it’s -- come to only you before business, what more a that your know through of see that’s that, XXXX I start remind Can kind us you assume of a recognize cost a could as

David Bruce

of and it part into freight much be call of would those. larger chunk guidance. Not a as them reductions our half necessarily. We’ve affected second a bit the likely most But in baked little XXXX. I’ll

is direct freight inventory product ocean cover costs. reducing we’re freight customers, our receiving we’re then which costs. we centers, many slowly better have, our cost And shipped containers we at distribution As also rates into we that obviously, several overall customers where averaging product,

too. immediately, So those down costs are coming

moves, year So affect the us will it as second half. this it in

had Some expected. second upside our half mentioned I potential time And even of that’s we think that last not was may we a into that us be more that than guidance. that for forecasted

-- and XXXX, most continue decline, So if larger sure. a to there’ll likely, your for impact on things be much enter point, in the

Reuben Gardner

next a you Cabinets that talked then Okay. your you for sense And year? kind can Custom as And into of Great. what can move the edition that have us on about, impact business give we products, I quarter terms that in then, potential is were Cabinets else is in that is business you opportunity, the though? that alluding the last that’s something or to -- think larger of new works,

David Bruce

are the Yeah. large There’s in we outside works Cabinets. really Cabinets. really, have a of particular next couple for Cabinets fast do things year in growing and But opportunity

had tremendous businesses we’ve Cabinet a increase since in quarter-by-quarter just Specifically, the QX.

end this with going Kitchen we well. And -- had in but our higher Kitchen the that’s the XXX-basis-point previously, gross think mentioned as a business cab we like that in and sales business especially last high incremental overall Covered our addition think opportunities I quarter, we’ve in the main margins gain bounds. have, some to to Bridge leaves continue I comes

not to this sizably we’re second that year, material only see year in with new the newer into going some with as growth but half are we business. going enter see, of we’re we growth next to programs to going So some continued customers that see

Reuben Gardner

a there Okay. customers, or customers did And quantify ones? or how How go-to-market us one ones or we the new this? I or, a little larger products lot is that, for well, there to these do is new any frame mean, two way of

David Bruce

Yeah.

discussions whether we country, which a discussions execute -- traditionally unit or unit throughout has been that to with multi that be to might programs, we larger couple the been be we’ve do dealer But single base. the we’re some So able having marketed Kitchen dealer the dealers, of with and business great in they’re what locations. customers we the would of the national multiples now think that on base

Reuben Gardner

it Okay. on… leave Great. I’ll there. Congrats

David Bruce

Yeah.

Reuben Gardner

the going … forward look solid and guys. results

David Bruce

Great. Thank you.

Operator

ahead. go Northland of Greg next comes Securities. from Our Gibas question Please

Greg Gibas

Hey. taking and Good the quarter. on morning, the Dave Thanks and for questions congrats Perry.

David Bruce

you. Thank

Perry Lin

Thank you.

Greg Gibas

across large it’s to, whether to, seeing, maybe there’s wanted base if others? any or that versus guess, you’re e-commerce just categories I segments first your different I or see retailers customer trends

David Bruce

Yeah. range Europe. say, the Pro all really strong Sanitaryware of as Kitchens, side growth customers, continues to extremely QX the For about see this sinks, expand and I grown with Me all seen has the but has points, this and It only first across the side thing. of We’ve continue at year the no on just with add ending categories, way mentioned to talked the has sight and Shower program And Sanitaryware same in the Do done entered we in broad we business. would and and business, particularly how a quarter through based business toilets, the be Shower we not we I at happened for least America on balance from that’s the the North the The Systems And price customers too. current that’s same whole point.

softening say, and been to up the piled Furniture, the we starting last of we eventually Bath was more see only and would the backchannel softening I So that into real mentioned we’re an that this end and really beginning of that that the but seen out. has at flush of the XXXX effect on inventories of XXXX have time,

housing through We consistency customers We that seeing business, side. of continue particularly housing has still I lot lot there’s say multifamily For come know projects the that do in of comes there a balance that year. is have So strongest see and as, builder been It would into now multifamily. out and we it even that to relatively that of when easily to these lot a speaking, shortage Pro Sanitaryware from are completed. be still going the our do that Do we Right lot have there’s the a the our we’re softening, channel though business, market that have of Me continuing a business, of

So that at we end through point. just really started no this to to year this the end see of

Greg Gibas

over think, but it I mix just wondering margin you we the of part and if back miss half see the helpful. you the Great. why commentary in improved on this, and you then would about maybe expect know your half, I could I I you Very in gross don’t on back go some… apologize talked pricing with if is assumptions trends And saying, your similar were

David Bruce

Yeah.

Greg Gibas

supply of chain easing. disruption … the

kind you what if the higher can highlight move of wondering -- Just maybe margins that would there?

David Bruce

Yeah.

looked mix our you QX a next skew a a in only large we buy-in large were -- if So our kind Shower at for was our retailer on national comping percentage business. because of of,

So the And are the incremental growing, for to while is of the kind percentages we to were with. gross are growth, the -- us we -- the come lower, that. mentioned, your like, the up numbers margins Sanitaryware, -- because and that large. volume begin of dollars higher with have margin getting back the the because why programs very higher, are But margin distorted Kitchens Shower

be dollars half, we’re that on margin to in now. the is first those still end which capture implemented last in mentioned and So, trying be will think by the ultimately, happening have year. -- I gross second place right pricing And we actions of call, pricing actions effect the taking additional the our would we take half. implementing We we’ve

that. maybe So we’re But taking we’re importantly, more demand, on of share. confident organic

product they still through our products. talked asking issues as we’re these categories struggles all us, to are coming have of assistance and we -- with much customers we chain pretty and pieces for had having are through -- We sourcing and as have about, COVID some the share resilience supply products. getting me, and product forward moving still small our we all excuse taking We’re

it’s market and of resilience pricing action, then So having new combination inventory. share, taking introductions, and a course, of

take are share supply us partners, in continued on inventory our take additional position a factory also additional allowing to We from and and great that’s here customers. consistently to we’ve relatively

Greg Gibas

Got it. caller the Thanks for there.

David Bruce

Yeah.

Greg Gibas

I lastly, or if guess, more… I I two could guess,

David Bruce

Yeah.

Greg Gibas

cash strategy I balance. the your you changed seeing am valuations there comfort guess, at level if all, liquidity trended? have how has could maybe are And you then, balance the targets I and attractive M&A or sort wondering and existing address of with

David Bruce

Yeah. Okay.

Perry Lin

Yeah.

capital first. address me of facility Let the working

we First working start end. program kind use cash We XXXX, in lot not very business is recovering back of capital half program, half the a of a costs on believe our of capital back inventory our of We just that these the for our sufficient. the right is organic working year. now

David Bruce

expectations. M&A, some release, we’ve that make changes. in activity been off of our we that’s the to of in I maybe with looking regarding maybe high. robust But ask a bit that out has seems some They’re for the say good there a Yeah. and numbers relatively future there some are they’re maybe maybe would mentioned be people been, to coming like, opinion, basing judgment And off active, call. unrealistic some the

hurdle conditions pretty the a on better acquisitions we’re how we’re and some I at able approach will and at we pull to I call as we these confident back We anything makes things good on anybody, be had possible have going that in soon we’re a any expectations -- sense but mentioned, the rate, we of is, we look a that QX, some and lot I company, high think things depending gain for for looking think for of M&A that lever we’re it, I’ll market pretty and we depending starting had to to we’ll roadshow we’ve news -- experience gain, a and But experience us. to focus would deal good if again, of and on relatively far, in so have of the have think our during would some these high work. little approach little

Greg Gibas

sense. Right. Makes

Sounds good guys.

David Bruce

Yeah.

Greg Gibas

and again congrats. thanks Well,

David Bruce

you. Thank Great.

Operator

to conference Dave question-and-answer like the I would This Bruce closing back concludes the remarks. any for session. turn to over

David Bruce

quarterly to support on and Thank call. of look you forward your We appreciate we interest with time continued the connecting today. next Stay FGI. our and for you well

Operator

This concludes today’s call. conference

for day. you pleasant lines. and participating Thank your have disconnect may a You

FGI Industries (FGI) 14 Aug 222022 Q2 Earnings call transcript