Earnings call transcript Q1 2023

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Operator

Good morning and welcome to the FGI Industries, Inc., First Quarter 2023 Earnings Call. All participants will be in listen only-mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Paul Bartolai, Managing Director, Vallum Advisors. ahead. go Please

Paul Bartolai

issued to financial call. Welcome CEO, first XXXX our Lin. quarter Bruce; market after Thank yesterday closed the FGI call conference detailing We Perry Officer, Leading Chief operational and press today results release and the and you. recent Financial Industries a results. are David President

nature, outside would to remind forward-looking responses the today’s on questions may like you include and and I conference which, statements are company’s control. their by to of that management’s uncertain call commentary

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

For a refer cause to of the our factors please actual Factors Risk that with section of discussion could of some the latest differ, results to filings the SEC.

find in financial historical and can reconciliations issued this yesterday Additionally, of the the release please measures appendix of in presentation. that non-GAAP press note you

performance will remarks, for Perry Bruce, financial by begin a with call questions. conclusion Today’s these and the a David from the strategic line followed will open At of from update review review Lin. we prepared

With call Dave. over the that, to I’ll turn

David Bruce

growth gross to the during growth position headwinds and despite remains Thanks, should profitable and quarter our conditions to improvement, morning normalize. strong margin a pressuring return our progress challenging execution call initiatives strategic first destocking to pleased with with meaningful while organic Even focus our inventory able everyone were quarter, Good revenues, thanks were our the generate we as operational our to consistent company on for continued our market environment. against today. the Paul. first We initiatives joining very very what

and points to quarter, during basis versus which period, prior witnessed repair first was the correction ongoing a uneven quarter fourth of and reported gross demand trends up up the XXX market and the the in inventory quarter. XX.X%, remodel basis the compared customer We XXX despite points year margin

actions, year’s the benefit product better, a our been best biggest and product helped focus lower strategy, While freight margin factor on good, pricing in were last has our gross our of mix. costs higher has product which the by margins and categories improved significantly resulted

gross place drivers While expect for the we year sustainable the margin strong term, in full margin remain last favorable for gross margin likely compared first not and gross the XXXX the year. levels are quarter to long improvements

that first the taking pressure The reduce to persisted levels of below inventories last our expected over XX% a into uncertainty inventory large historical compared our where with caused inventory macro quarter headwinds, growth strategy particularly correction by cautious prolong many customers large our the is the has to the revenue the a year extend to will looking likely half second The correction to many pro and into revenue has to been another inventory cautious XXXX, averages. of are adding to This stance the destocking very headwind layer of decline in year. the year. last channel, more as customers

While the and pressuring demand near-term. persistent the destocking are environment, headwinds in top-line uncertain inflation results

the of our continuing initiatives, quarter. invest our priorities the and made strategic invest last growth quarter. retail continue discussed key we organic new we be to with that coming in program will quarters, in programs the cabinetry and that key contributors kitchen to several partners organic product the awarded during are proud were very we progress We growth in new to have I’m on We

through making and growth progress our on brands, We BPC. initiatives our strategy, channel organic in remain we are confident the products or

delivering the successes to to customers as our to strong is strategy customer capitalize commitment a value we future. to in confident Our our ability testament and it BPC performance to are in satisfaction, these and innovation and relates our continue our on

product business model offering the where and the our It customer diversified strengths longstanding like experiencing are evident, we is environments our one relationships. during challenging of now, notably market are

best participants products, priced given challenges we good, many are well While better, consumers industry positioned lower our due to to down portfolio. product facing trading are

offset some good, this private higher growth seeing partially but are in stronger pressure We on our by better, in Bath label end offerings. particularly our being is products, Furniture,

we In our and from key a who or times. with not difficult support FGI relationships customers, for losses. to benefit product And line addition, deep cancellations longstanding customer as we have result, during any look suffered

requirements. can out inventory broader their to inventory strategy see given Now, I as a during further large as be destocking they more level and many continue looking this reduce at expect market, by to base R&R XXXX, a we extend discussed headwind earlier, conservative the we customers

While up end our key has the product categories. across challenge, has been inventory market held demand a correction relatively well

business Bath market overall is seen expect performing environment. on and the the Furniture remodel pressure, the would we but current repair Our as macroeconomic has based most

players new is meaningful selling is the most with trends that market spring construction new been buyers constructive been not The quarter, mortgage during a as appears first to key residential from the season, of adjust there it starting part business, of public higher the but a to has rates. builders market are improved order signs the some more our have Commentary noting normal bottoming. during

to in markets are to high-single-digits consistent we decline XXXX. in our end with and year, trends our to our continue into expect the the during the end expectations Overall, coming markets mid-

strong expected on growth financial XXXX organic we drivers trends, start inventory our we targets to our the the year. the margin in more progress end pronounced first were on we the than stable during provided quarter performance remain and pressures market confident based While

kitchen to outlook inflation, invest remodel and and, our in the the persistent consumer continue therefore, clearly the for rates, optimistic FGI’s macro headwinds. industry spending current impacting despite the are mortgage levels business uncertainty and position but repair in near-term, market higher in bath the regarding The remain and and longer-term we

our are drive long-term the As a environment. market focused market value strategic create growth in and regardless result, we on efforts remain our to above dedicated and the plan of

efficient using organic operational BPC is driving and strategic initiatives, a reminder, As strategy; our growth plan our long-term improvements; key on deployment. X include: focused which capital

including initiatives quarter, accomplishments. first strategic key progress We the the during against following made important these

to the it were growth new and our program As relates our important programs we quarter. several initiatives, BPC organic awarded during

for agreement with secured a September large of with product an line, company in-store First, sanitaryware a new of its in new commence Canadian XXXX. retailer to the rollout toilets, expected including refresh

we kitchen successful our continue. XXX the program. interest After continue in show bringing Second, the generate dealers to & custom of first an at the January, dealers additional XX a to quarter count added expected dealer additional Baths Kitchen our active growth strong have portfolio, with in total to end dealer we to

And We retail an June online program for is shower to third, important an door business. commence which in XXXX. for shower our expected we large added Canadian of won several partner, programs existing

with customer, set program customer quote is to immediately for FGI revolutionize design and large that store with collaboratively the Additionally, U.S. experience to in-store the a enables a associates, along unique retailer to and experience take a expected shower and for is allow margin sales. seamless FGI’s incremental custom shower orders new for shower doors. shopping door will higher tool online configuration add door

in wall will finishes, the locations which to XXXX. further will the program’s design Finally, we a were shower shower second industry program program This rollout well recently as shower of of awarded new for unique begin systems, leading portfolio. stock national U.S. based online feature half as program just with in and with XXX a an wall retailer, which large expands our a up

drive We programs market that confident growth and market us strategy, are under we these our against remain will BPC extremely organic normalize. excited by organic help growth our initiatives conditions continued above our execution as

typical initiatives efficiency our The the our is significant our historical gross are creation evolving benefits XX.X%. product we first don’t on margin our is business focus margin clearly operating progress strategy of higher to to levels maintain once This during be by value execution second and strong made expansion. improvement margin expect term, our these mix of shift we on of as and categories. We above and well reported quarter, we able while levels, the driving longer towards again margin encouraged

Finally capital on deployment. efficient is focus our

the and Following has in bolstered position progress liquidity recent working This which and the chain flexibility. disruptions reducing conversion. made flow improved our solid free capital in our by quarters, in pressures, resulted caused financial usage inflationary meaningful further challenges we cash supply

result, capacity we organic invest in initiatives. to a As our have ample growth

execution were margin of progress another Overall, important we during our business and programs, I goals. the quarter made very on quarter. we new strategic strong proud of several our was expansion, awarded We generated

disappointed our remain and first strategy were quarter that coming are growth quarters. confident we organic our we in top-line positioned While in invest for results, well continue in we the to growth improved

a With that, detailed I of financials. will to it review Perry, over our turn for more

Perry Lin

morning, I balance year our details good it additional quarter provide XXXX given everyone. will and Thank liquidity Dave, and on update full some with up our wrap and an on sheet guidance. you, the

inventory Currency X.X%. decrease destocking well of during and Revenue first demand. headwind quarter in the totaled year, prior of $XX.X impact to continued the during primarily some compared customer as due by revenue XX% negatively XXXX, to a million as quarter was softening

line, of was becoming channel, has have key our channel down regarding some business remained partners, Looking inventory customer levels, in sanitaryware levels. driven revenue relatively quarter, to reduction overall softness, increasingly some period. reducing during customers as the decline There large by historical pocket from at their million level cautious customers particularly pro inventory The year the are been normal during demand at below revenue with inventory but steady. end prior $XX.X the first $XX.X of was million

Furniture business from the revenue demand. Furniture been last continued by to also impacted during elevated be first Bath down $XX.X was prolonged by levels, weakening $X channel million Bath quarter, modest negatively The some which has year. inventory of million

in during is momentum expected million strong, business down national half System System several million Shower revenue was partners The remains year. Shower XXXX. rollout of $X will highlighted temporary from first in that to decline awards begin retail with XXXX, revenue in $X the be quarter by last second as

from quarter, during Other year, more cabinetry offset in lower growth kitchen of was cost. $X.X the million from during X.X% only mix custom the freight up last Gross experienced decline XXXX, and as was the million during driven business. the down favorable by was our $X.X last $XXX,XXX year, quarter quarter revenue first first by revenue profit

quarter, gross quarter XX.X% result, of XXXX. last the during a in first and the to year XX.X% As margin first from improved XX.X% up

we in quarter positive expect the XXXX, we during gross While levels. place to to remain sustain this margin first in to expect factor be able don’t

XXXX continue from expect to improve levels. XXXX we to margin However, meaningfully gross

last initiative, show, our for opportunity. during expenses year, costs Our to we near-term Australia operating from million as to the expenses initiative trade expenses continue $X.X reflect up invest development first & new higher $X.X for marketing and growth despite to business operating to The expansion, support revenue million our and UK Kitchen kitchen headwinds. expense Bath the increased quarter, spending new product the tied

during the from $X.X period. down breakeven $X,XXX, loss nearly was in first income operating the million was year with operating GAAP quarter prior

quarter first the onetime expansion XXXX. Excluding business of related IPO in legal during and $XXX,XXX expenses, expenses

down during Adjusted million, operating the of year incremental income in growth gross period, prior combined the driven income was $X.X $X.X decline million adjusted from investment. with profit the operating by

loss was first in of million the GAAP diluted $X.X of share during income last the same XXXX, or GAAP $X.XX per period net $X.X down year. net or $X.XX from million quarter

for adjusted quarter was both adjusted diluted income $X.XX last in periods, $X.X item net one-time Excluding net XXXX year. loss over down from million, of the $X.XX $X.X per first share, of over million

with Now, and our of the of company under the cash had and at of $XX.X as liquidity, end million. million cash total equivalent, end. sheet million of combined of the At March letter credit $X.X million quarter our facilities. $XX.X a turning total was and XXXX, credit had Net $X.X debt liquidity availability of of we XX, to cash, balance quarter, the

[ph] debt initiative. $XX.X of position solid of $XX.X growth net million has improvement at XXXX. challenge. to chain supply which continue and with free has pleased We The quarter to liquidity million XXXX our last is reduction more an elevated strong we pickup in to be net are cash our believe we second We currently X are capital improvement million, flow the to that driven owing $X levels, in in of sufficient capital our a conversion during the over working working fund the the compared been in debt quarters, position than

Finally, the guidance. turning into

had impact has customer our first demand bigger-than-expected While largely our and we in improvement remained end benefit margin from with inventory initiatives. expectations continue during destocking quarter, the line

initiative We the with set continue launch to year. half the by of in to organic our programs new be several second encouraged

in to kitchen initiative. the as our additional investment $X.X reminder, program investment our a As million that’s well in new roughly reflect related total XXXX as growth guidance

non-recurring are adjusted $X.X Please the million. in income maintaining million guidance, excludes we in basis an With that adjusted this income note range income range to and factor a million as backdrop, of is net $X.X provided adjusted $XXX XXXX the financial our and and of million, operating in of to the million to the guidance $XXX $X.X revenue income range total being items. for $X operating on million, net

we the are ready completes our That remarks. our of for now Operator, prepared question-and-answer call. portion

Operator

Thank you.

now [Operator first Our session. will We from ahead. Please the question Greg question-and-answer go with Northland Gibas Instructions] begin comes Securities.

Greg Gibas

year Perry. below your can was and the to David Congrats maybe on bit confidence the in that environment. given morning, seemed you good I and the revenue for Thanks kind the the anticipated outlook? maintain expectations little perhaps Hey, revenue too. QX in of taking nice ongoing challenging destocking that you worse guess, What ask, a I performance full wanted execution than questions. you gives

David Bruce

things. It’s Thanks, Greg. Dave. couple there’s a Yeah, of

is softening looking which reduced destocking of extending levels move, base, because sure I and cautionary to also customers they the our inventory seen with inventory where is. destocking in we R&R definitely have demand that as mentioned forward, a period. move that think, to we are as at market I also larger some as more line And, they the that are like make a want right, also as extend, is mentioned, of the the part So of due levels

said, to now which effect, call are though, second inventory to expect fully bullwhip going be the customers we what to and for to used going that I you’re replenish. that to in have With half, going need need a a is see

pressure some for builder the on trickling last seen to the business. the think retail that comments we’ve we’ve But heard I and and second destocking of heard, positive ease. half our seen the from in that of pro more mentioned the more on you would seen I the We’ve expect side. call from as business, that side we

heard, fully mentioned execute shower [ph] our in to market incremental of second expect as as those you I four a where despite our have well than Secondly, that three mentioned I execute or but new growth today’s as the business and business, programs just the new on the call, kitchen the more for lot today, what additional business, we is more we half.

into those you lot that not the when of a QX, lighter baked our them many were take of initiatives, So guidance. business,

that So we our to year. we expectation actually have a able would meet continue the be guidance revenue good for to

that that of reordering goes destocking closer depending to For be on the coupled with would sure, incremental far bullwhip we expect low us effect probably destocking and sales end new of how that we’d getting that guidance that ending out. But gives confidence.

Greg Gibas

I Great. also of was that That’s improvement. much extremely helpful, Dave. I shift wanted result on freight to versus guess, a result costs the And maybe versus wanted lower the increases of follow-up, gross mix year-over-year? I and maybe How price margin the to…

David Bruce

ahead. that’s Go Yeah, good question. a

Greg Gibas

you’re to to I guess, levels why – about thinking forward. was difficult your of these margins gross of I think around comment just it’ll that? going also wanted I be a maintain sense get

David Bruce

I Yeah, to want that. clarify

I’ll tell for improvement been various, first, rapid you margins in we’ve why. seeing our So a

freight We the actions to shift. part took large our mix and pricing of has have do had also A reductions. with with impact, change, obviously, though, we from

shower business You higher to a kitchens to can for margin us. see business where those has sizable were now, our our all continues portion grow, and grown of businesses

deviating mid-term, from years. And as expect, of Perry prior our get BPC really, we like term going to mentioned, strategy. as move our move to we we’re expect saying with compared improve high-single-digit EBIT forward fully fully our along to longer we had not meaningfully And margin to we guidance margins – we’re mid-

in So that’s place. still

we these to especially most And more gross margin side, these accretion. happen and when as margin talk of the think what down order add then the and The further come about we mentioned when improvement some pro some, will the more we on dollar likely from will quarters. margin promotional the see to activity but will our overall of longer-term, some product expect to I expect is get lower dollars demand go we that’ll product sanitaryware. categories maintain increase, And still I as through obviously margin can’t percentages in

that fully term longer we So continue. our will margins expect

we continue mentioned Part now, referencing not because the really see I today, were which going the more and as when growing margin those grow. it business, of lower, lot will the margins margins are with will more of is kitchen that out the that margins of BPC fact think the that some improve. volume. are mentioned and lower we’re right, I mix, product our revenues overall, a today, create like speed as execute our a shower categories, we to growth, that I grow But to as strategy,

Greg Gibas

We guess, helpful. And, new that last your on me. programs partners, several want those said retail of those did coming guess, I That’s question great. see was hear are this product I in. I on think, would with great the you effect. follow-up those to for your be timing, one commentary those Okay, the would back year to to first half around when maybe start

of And, you QX ones three to along you four? key I think, there’s think about trying QX maybe lines, much guess said how I more. there, versus maybe of the Just those talked

trying growth the half a mover or Just a to into the needle get sense be how or next of there’ll on back much year? organic in magnitude of

David Bruce

Asia meaningful. sets business partners finalized Yeah, completely us far store that is our on when some timing but is and are here. retail The us, timing arrived, issues understanding and they’ll with business, with that’s I to anybody’s as shipping that – mean, in things things operational up be domestically of from as our go with

of straight-line year knowledge XXXX have I would we over that’s of of half, we and, business that why could some month-by-month. a expect sometime of QX, more mentioned QX if would the we it, next second course, QX, do into So trickle bit

ones too, the say, for you margins hopper, our to the meaningful opportunities. in that the in I they say way. to in half I will mentioned are our meaningful Other up material sure. to just would meaningful and as I impact because you business to today, second again, start these a in all they’re I top-line But ones And would the brought

Greg Gibas

great. I Okay, appreciate color. the

Operator

you. Thank

As there turn any David are to to questions, Bruce for the no question-and-answer further conference remarks. would I over our session. back this closing concludes like

David Bruce

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

Operator

Industries has attending you. FGI you conference Thank of presentation. concluded. The now today’s for Thank

your You lines. may now disconnect

FGI Industries (FGI) 11 May 232023 Q1 Earnings call transcript