FGI - Earnings call 3 2023 | FGI Industries Ltd.

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Operator

Good morning, and welcome to the FGI Industries, Inc.

Third Quarter 2023 Earnings Call. [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.

Please go ahead.

Paul Bartolai

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

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

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

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

a David call turn performance update line open review with strategic for of the financial a will questions. begin Bruce, I'll Dave. by Perry prepared With and from the Lin. from At the over your these to conclusion review will call we followed remarks, Today's that,

David Bruce

Thanks, our call thanks Paul. today. for joining everyone, morning Good and to

We some normalization and levels inventory certain signs patterns are in see in order categories. of to beginning

However, inventory impact continues destocking results. to our

macro recent well impacting the demand expected headwinds inventory as categories. recovery across as our prolonging overall the With

points top basis the from results continue margin last third the our margin challenges, improvement during XXX to facing year. benefits we While line are see initiatives our gross of quarter improving with

the sustainable term, focus we believe quarter channel and we short-term profile owing a drop pro declined to categories variability furniture result, our the as should improved growth gross X% on revenues. despite in scale. our margins our invest initiatives XX% As and We our higher-margin profit but see margin in strategic rebound gross in operating business, during a in our could see and our some improved gross only longer be bath

in to players to the XXXX a correction industry-wide participants on demand layer below pro R&R looking levels has in headwinds, pressure. another of inventory with half inventories the macro historical uncertainty, reduce discussed persisted As has into take averages. prolonged the we quarters, stance and channel. cautious recent with very that the in adding XXXX, have inventory began levels particularly of in caused uneven industry many back the This many This has destocking key to channel

homes addition, our In destocking centered of has roughly long-term macroeconomic industry the in to are is our FGI headwinds and median pressures high remain the combination the on Germany, in European in we along levels high remain XX United with due States. business, years Despite particular. Home country. staying pressure rates. faced outlook in of owner-occupied equity that interest homeowners age The near-term for to a headwinds, bullish longer and these due

demand. of long-term All favorable for backdrop provides remodeling a this

term, may demand the remain which are our while market enable focused our our in strategic investments. in the As years. confident growth a to steadfast in near growth strategy, products we on efforts brands, result, we us we uneven remain drive continue And be above-market to and coming will channel

formula creation changed. value has our Our confidence not long-term in

to our quarter, made key accomplishments. include am I As capital key of strategic excited a would strategy, growth which third on through the driving very long-term the focused I reminder, by our so efficient deployment. improvements, look operational initiatives X is progress plan and some organic these our BPC using we strategic during like initiatives, against

quarter. important were our awarded to initiatives, new an our relates BPC during program expansion programs. We on recent continue organic execute geographic to partnership, and As expansion our continued on recently it we awarded growth our and we the

Bath technology at industry-leading show. our wear new excited forward utilizing into overflow Kitchen products, to licensing for agreement sanitary very extended technology are launching & we look toilet First, this Canada. an to have the We XXXX

our continue the India, signed Europe, footprint, providing the we agreements on to U.K. Second, Australia geographic and into expand Eastern recently entry building

our in partnership quarter, for third in a distribution a partner. first the construction use partner initiated commercial company India, new while were we national large During projects with approved our for products

as are to new rimless Third, toilets regarded platforms in a and popular will sinks, such an including FGI's exciting exclusive this excited U.K. highly products announce unveiling featuring I'm that as toilet. base. collaboration Vurtu.uk, and showcase a extending sanitaryware, arrangement, on supplier we sole the distributor ManoMano, range with exceptional Vurtu.uk FGI entire Base the customer offering be this Under e-commerce to the B&Q, technology company's well bath innovative of as Home their will of

XXXX. retailer significant Several with furniture FGI. new configurations bath new a won expand collections quarter new to agreed we XX award that business and second of new their styles that for featuring over will items of assortment will consisting and brand added, with U.S. the Fourth, has bath a in into exciting be major stores furniture finishes, in-store roll

national was at at also the wholesaler. This will major awarded updates toilet announced offerings while FGI product toilet recently new overflow U.S. new the unique current to toilet program customer, to a a Next, include adding this program program.

program We shipping in begin XXXX. QX will expect this

bringing Finally, to XX count to grow the brand at the end total third quarter. business with Bridge rapidly continues the cabinetry our adding Covered new dealers custom far in XXX active thus our premium of XXXX, dealer

display expected & new We showcases digital kitchen to large Bridge its investment, our Bath custom cabinetry custom XXXX that plan a Covered We Kitchen in on have is which kitchen also launch formally line. to at XXXX. the cabinetry progress show to make continue early

help that and we market are our confident strategic conditions this normalize. excited by We growth very our above-market progress as on will organic us drive initiatives, remain

driving creation our on margin expansion. strategy value The of operating second efficiency is focus and

quarter strong focus by pleased have once categories. to on gross driven margin to in again another reported improvement, of are higher-margin our We year-over-year part strategic decision large

focus is deployment. efficient Finally, third capital our on

and bolstered and liquidity lower flexibility. made usage net conversion further solid meaningful flow quarters which debt in reducing has working levels. free We in recent improved financial This in position our cash have resulted progress capital our

investment remains prolonging is our repayment to results initiatives mid- year, in The the strategic has industry improvement the that been destocking forecasters we continue several spending headwinds and evaluate our which While demand home in in predicting bolt-on XXXX. high to uneven, over priority, organic have last with single-digit opportunities. impacted acquisition main declines debt industry environment

While opportunities we we quarters. should exciting faced improved have that initiatives, headwinds in continued achieved several strategic our progress markets, have the growth have end our proud to programs coming the contribute growth in of on and we I'm

previous relative recent expectations, to have, which fact, opportunities. we in initial have to during continue that to business invest our our our we demonstrates investments our weakness confidence feel XXXX in and indicated We market the we on plan despite our calls in growth increased

customer a incremental investments, for XXXX. in the with However, including lay future QX growth investment that to groundwork a expected is growth opportunities, our for major we retail the made have outlook strategic impacted

demand, caused and growth, year future have investments to with outlook. coupled consumer destocking our for revise continued us full Softening

million million, of $X.X $X we million a operating As now million $X to result, adjusted income of and net $X.X expect to full to million revenues $XXX of XXXX million. adjusted $XXX year income

in strategic our initiatives, and of our our in coupled drive execution we efforts outpace are should recent organic investments, continue to committed promising investments FGI coming growth BPC allow to results, our the the in we will growth market with enable strategic and disappointed we revenue the us strategy, We While our this direction. year. believe remain excited BPC to about predictions our negative are by

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

Perry Lin

$XX.X on some the year an detail a prior our due Thank update home the some full other you, XX% as provide our weakness liquidity wrap Dave, and in the totaled guidance. with sheet broader XXXX decrease improvement additional during and good to quarter, on million it morning, as market. quarter of everyone. give inventory I year and balance third continued Revenue will well destocking XXXX, compared of to up

take customer demand We given correction. continue inventory prolonging which stance regarding level, trends, to sluggish a inventory cautious see the is large

and business demand at due quarter, Looking revenue muted the from our $XX.X during million the the pro channel $XX.X down particularly million more was year sanitaryware headwinds, prior the trends. during destocking period in to lines, third

sequential our and quarter, furniture benefiting market to more customer sanitaryware bath Furniture by $X.X new XX.X% patterns the the beginning the to during $X.X XXXX, Bath are was increased consecutive revenue revenue broader year customers of second However, product impacted quarter gains to one million third from million down be are in the results. some continues quarter from The order the normal macro return period. revenue most category headwinds. second of programs of sequentially the as prior

market product mix higher is in result which causing of higher is ticket in weakness change. challenges more Our more end on the the a price recent focused pronounced additional point, given as bath item furniture

demand. current offering We the are our product to address in category mid-tier better expanding

year system million sequentially the from million Shower $X.X but revenue XX% XXXX. $X.X quarter, of from second was quarter the third up during down last

modest remain rollout the as shower large demand new as well destocking, While the programs main launched wall as momentum. recently door experienced include shower U.S. some business inventory at with retailer trends new the as steady a program are large XXX online retailer. programs These gaining Canadian a shower and systems has locations many of

in XXXX. awarded recently new improved drive to to and continue the half We of trends programs expect into XXXX back

to we in the was down strong, the consists custom the $X in continue million business, is XXXX. initiative modestly launch which early quarter, of we during primarily from revenue, network and million add remains Momentum new new cabinetry third for have year. to track cabinetry on Other as discussed dealers kitchen $X.X last kitchen business

revenue during higher-margin costs XXXX. compared actions year Gross products, full third benefit decrease during pricing profit of in the of taken only was lower shift last to toward $X.X million quarter, mix a logistic X.X% due and a to the

As from improved prior up gross XX.X%, the year. XXX a basis margin points to result,

to during from increased last million expense $X.X third operating the Our million quarter, year. $X.X up

business discussed. overflow line, tied to opportunity well expense investment as The strategic continue growth higher kitchen product the with invest spending initiative. operating recently major new custom launched Dave reflect as toilet to We for our a retailer large development cabinetry the that marketing expense

$XXX,XXX quarter, the during $X.X million income GAAP in year. down third from the of operating income was prior

The adjusted in gross continued tied improved $XXX,XXX a by partially expenses, growth third operating nonrecurring income of result the was the quarter. revenue margin. and initiative certain operating offset Excluding investment the the to in was income expenses decline decline during operating

GAAP $X.XX net $X.XX and adjusted period period net $X.X year. third the result, same the was of during X% quarter quarter, million X.X% third versus share share income margin $XXX,XXX or a same of down XXXX last per was As per diluted or year. the during the income diluted in from in operating last

Excluding the $X.X XXXX items, million diluted adjusted or was certain third of $X.XX share. quarter per income nonrecurring of

balance and into turning liquidity. Now the our sheet

credit cash, our $X.X the end million. had $X quarter, XXXX, of XX, end. letters September with million debt total of of and $XX.X initiative. We availability million sufficient cash we are million of to under position liquidity believe is we than of our At equivalents in net at growth company credit. solid Combined had quarter the cash liquidity total facility, of As the and fund more that of good was $XX.X a

Finally, turning into guidance.

volumes investment industry macro our to As Dave headwind that full with have growth for pressuring detailed,our led are the year. us incremental the combined outlook lower

range income $XXX call for operating million basis million, the revised of $X.X an million. income adjusted range and operating guidance adjusted revenue and $X to $XXX nonrecurring for that Our excludes $X.X in income note and income certain being $X on range million million net the of adjusted of between provided to million the net is to Please items. in

expect our approximately $X.X to a major our investment new quarters. attractive spend as in support includes of million toilet in in as quarter opportunity guidance third our kitchen retail the technology well for opening cabinetry to overflow marketing customer for during initiative, expense increased the the addition, new lead we incremental growth incremental that In incoming

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

Operator

from come Garner Instructions] And Benchmark. today first will the [Operator question from Reuben

Reuben Garner

let's with customers. from what and seeing -- start you're the Maybe your hearing

detail? going dependent you normal So of the What it on it that Can some kind more in there? sounds it There's on, showing to order maybe you little through signs on some conflicting. returning channel? Is bit us a talk like the but are Is little still a are dependent patterns. of destocking seeing customers product?

David Bruce

it's No, a great Reuben. Yes. And question, yes.

product So of base have a as our you each relatively categories, and broad offering. broad know, we a within category we have

our bit been many moderation inventory in moderation we've we more highlighted high-end mentioned us. inventory destocking has that I of sense the we broad spot think In been to the is think Bath a due or little sore affected that for So of in uneven assortment. cases, cabinetry, a I Furniture more have a and such has of cabinetry particular assortment the

So longer. many of We're of our taking customers those are and shifting a reengineering lot assortments with us. it's

fact levels mentioned, look growth. as but If Those categories. sanitaryware, quarterly is and we it the see to impacted have moderating, sequential Perry shower also inventory those at within assortments due that we're starting you are to broad

we going to cadence we're we're getting -- confident see prior to we year, issues. levels expect more that more exit into So QX next to fully a as -- improved used to would back into destocking were normalized order these we that

Reuben Garner

kind And year. there like X impacted impacting of I we you it are not seems out buckets parse be that year's could me, of to what's can items quantify hoping results. for Okay. was next try to them this going so negatively

piece. had you the destocking So

but you those of year those Can in come numbers that had behind so future X with some of it? You the investments us maybe will to didn't next a come realize buckets tied didn't walk XXXX, element. kind opportunities then this And benefits that cost year. potential investments you revenue through

David Bruce

not Well, very to you is -- -- our about going numbers, not of but can I'm the specific Sure. first of to into XXXX. entering that get tell that about about be all feeling which discussed QX. I investments all, But XXXX. to our are will those and for we that in inventory a our We've we launched venture, digital return on natural feel And you realize They XXXX which just show organic of going we the launch February. beyond. the we is that start our were are a not many in XXXX technology, investments made KB going for of in toilet going We've is in new there's talking be Difficulty] kitchen mentioned to almost back to sort going at situation to talked that [Technical destocking, XXXX

Operator

seems proceed. by. there? lost Pardon from stand you me, Okay, be our little Bruce, bit Please do a this conference line cutting main operator. is presenting Please, to out the location. audio We've Mr. your there.

David Bruce

you there? still are Reuben, Hello,

Reuben Garner

am I here.

of kind early cut You answer. off in the

wouldn't So mind... if you

David Bruce

I must apologize, have technical a issue. we

couple we yes, a next that So see fully of we're going expect things. year into going to

I would investments, So from -- next regarding beyond. year obviously for inventory the and we next for as the sort And perspective, an not investments They're XXXX of in we are just then year. mentioned, organic just cadence. normal expect normal to enter cadence opportunity to to more get sort for growth back And be XXXX. we a that's see start to us going order as almost to natural more of

quarterly Covered continued down XXXX. that would to digits, predicted the we're expect negative our able insiders momentum our single to our shower sequential are already. in to I quarter-over-quarter seen market industry discussing, the market sanitaryware growth of -- now. high to market we've be the kitchen R&R programs mentioned outpace we've opportunities but where again, possibly we the And right many predictions in despite in be expansions, incremental opportunities, the new Bridge mentioned, any I is the new release, As going think we've And new growth are shower in and as business, we that to by be incremental mid- mentioned fully

Reuben Garner

like that to next early together? the kind but and have not trying where giving mid-single how less or maybe or what I put year? down look backdrop we when it's about digits kind and margins think -- what down think guys for of down you what know takes we're to puts that more, are are we you're guidance, Okay. about And do maybe that? of than markets in Like

David Bruce

great No, excited pretty it And it's actually. question. a about we're

XX%. a previous about, businesses margins. already to opportunities to as shower get the technologies like We're our starting lot a we a in are our We're higher-margin margin. was mentioned, -- XX% degree our range in such it's years is with between If IPO kitchen itself now. to the XX% focused right? in margins the ago, in investing, only quarters, on our the near on you and spoke to to businesses, couple and but talked there higher we've about business, kitchen impact larger the And go first which is a above of now and of So we midterm goals this we back digital the not when -- scale to a went of to quarter that having

EBIT some So some to will percentage mid-priced vanity have business, with margins the of our high margin gross more as previously goals same that's profit contribute the of back that which business gross we've and our growth, to with the impact fully going see may we which as discussed mid- may those would in had higher-margin to discussed. the growth, our our getting single time, again, pro that margin combination dollar at some expect, we're And here come categories EBIT dollar some larger dips we but there, digits. to on the into we along of way to targets,

Reuben Garner

clear, be -- revenue in year? level to certain next to I flattish digits there, revenue to mid- kind do mean of potentially Or to those a just level? that you it can And get high single you down volume a need is environment there

Perry Lin

Well, Reuben, this is Perry.

think us generate, we the operating of goal on margin we the can product gross our can scale, are working working But we I margin so dollar margin see the higher to a in that that our and on the categories because more mix are in because channels. we the it's bottom. volume, different

Operator

is question Gibas from Northland Securities. next The Instructions] [Operator Greg from

Gregory Gibas

in of and have seems I recovery maybe and It a in wanted sense trends destocking a underlying get your QX. how guidance, just assumptions assuming to of there QX like into little implied a bit continued

David Bruce

-- a in see point, little recovery. of come start those make what started on But had majority that we is as I guidance the in larger to orders to in trickled a of outsourced mentioned, think inventory and Asian quarter quarters what our I discussed. due we XX% see, that the moderation Asia had December. to have would beginning know, is and last X first in our based seen, some continued preparation The for in -- of historically Well, bit which come think new the source won't historically of new next would over of spike as we we some year. as to -- -- think orders the in for -- we we some going destocking. programs inferences we've holidays you products some in have I had your mentioned We've don't end we've the you year, larger we're we saw expect, can hope at to QX of you we've will

We don't where remains macro we still as also where used those upon, right, as go, but and a think end we'll to depending where the go. levels is levels to, see be are seen markets large that and spike again, inventory

So and we've think inferences -- just you if could based Q. I time on some still QX, guidance say we that about our the you make want got what we to I but could But seeing, pretty feel we're new your to go. as entered good

Gregory Gibas

then margin levels that or up well. movement any a sense. pressure? And I pretty demand little the seeing result reducing a margins as on Makes pricing destocking it. are looks Got basically curious you're gross surprised levels. of holding like if inventory And mean, or lower like still just it

Just that as movement really little result. margins we a see surprised on a didn't much

David Bruce

partners most were then partners SKU that our when probably There hate in trying adjustments that from And wholesale side. out became marketplace. have to has many back lot But an strategic that collection furniture a regards been in constantly, to partners, issue our retail the rightsize focus business. focus, that furniture really we've category where on pretty a assortment we a to broad have perspective bath we've that are and offerings that. bath of Well, is to so made been price. and our price. of in had market go the That I within this And product inventory the we perspective. And but Yes. about necessary most

mostly of from mentioned, At we but most focused assortments been the on ran think the best, higher gamut good, Again, Perry focused a certain better, the I best. on end. point, our was it have

a lot rightsizing those of we're So programs.

higher-margin going our I impact strategy, of think That's won I of like we've to the add the customers mentioned shower right? next expanding that retail I where our our one been there year. just So new to big big having -- in assortments. the kitchens, businesses. scale we've overall while more a collections award starting happened, margin said, that's size a The it's business, to and are to part

And that absolutely We to continue year. enter to continue. next as we that's going expect

part margins up that's why well. of held So have the the reason

our a helping job our customers think I fantastic [Technical done have teams Difficulty]

Operator

once just gentlemen, and of have little Mr. we lost ladies there. loss And again, we Bruce, bit a audio you. an

I back Please proceed. now. think we're

David Bruce

apologize. I Greg,

Gregory Gibas

problem. no Dave,

think I full we've the got kind of out. answer

very end, and you're sense. summarizing just think makes I the kind but of total at helpful then

early, initiated curious, I expanding market you Great we partnership that distributor the but the to still in think it's if first about India. your opportunity into you thinking it? rollout in discuss Lastly, and maybe see how should could know about you're that How there.

David Bruce

Yes.

into foray sanitaryware business. primarily initial going our large is focused to opportunity. a There's our on So be India

only and could done the mean, local I obviously, United category convert with there given the what a have world. to when largest rebates of there flow. one higher growing with government to were it's in a example, national toilets, for similar Sanitaryware low lot some markets expansion. incentive is municipal from States There's of You imagine. the flow

our that's So focus. main

is with our as We're market to airports, at and a and local spec as that buildings, approved at into our that so commercial looking And very programs. some building it -- sort now take the apartment we're for national opportunities hospitality into larger has right our formidable construction ourselves specking new hotels, product at two-pronged such product into I'll expand the initially time, as it, mentioned, and And will we're a larger partnering, we same fork. larger aligning opportunities. call with, distributor local far, least company projects of products showrooms

in enter we've made place program broken set to those we've do. execute with so of And we we those next our leg QX year. to lot there's plans initial have upcoming as So down to the initial still distributor But work meetings in speak. -- barriers, to a this

excited about we're So it.

Operator

ladies closing this David to over remarks. to back for our session. and the would And turn Bruce question-and-answer I gentlemen, concludes like conference any

David Bruce

continued you of we note And Thank on we be your interest Discovery Please during quarter, time on appreciate don't our FGI. the that will the speaking December support for quarterly to and look connect with well. attending today. next if Stay We Benchmark the you Conference we forward X. call.

Operator

Thank you, sir. The conference has now today's concluded. Thank presentation. you for attending

You disconnect. may now

FGI Industries (FGI) 9 Nov 232023 Q3 Earnings call transcript