Q1 2024 FGI Industries Ltd Earnings Call

Operator: Good day, and welcome to the FGI Industries Inc. first quarter 2024 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Jay Chung, Vice President of FGI Industries. Please go ahead.

Good day and welcome to the F. G. I Industries, Inc. First quarter 2024 results conference call all participants will be in a listen only mode should you need assistance police Signally conference specialist by pressing the Starkey followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then too.

Jay Chung: Please note. This event is being recorded I would now like to turn the conference over to J Chung Vice President of F. G. I industries. Please go ahead.

Jay Chung: Thank you. This is the FGI Industries 2024 First Quarter Results Conference call. Leading the call today are President and CEO David Bruce and Chief Financial Officer Perry. We issued a press release after the market closed yesterday detailing our recent operational and financial results. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements which, by their nature, are uncertain and outside of the company's control.

Jay Chung: Thank you welcome to F. G I industry 2024 first quarter results conference call.

Speaker Change: Leading the call today, our president and CEO, David Bruce and Chief Financial Officer person.

Jay Chung: We issued a press release after the market closed yesterday detailing our recent operational and financial results.

Jay Chung: I would like to remind you that management commentary and responses to questions. On today's conference call May include forward looking statements, which by their nature are uncertain and outside of the companies control.

Jay Chung: Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of our latest filings with the SEC. Additionally, please note that you can find reconciliations of historical non-GAAP financial measures in the press release issued yesterday and in the appendix of this presentation, which is available on the company's website.

Jay Chung: Although these forward looking statements are based on management current expectations and beliefs actual results may differ materially.

Jay Chung: For a discussion of some of the factors that could cause actual results to differ please refer to the risk factor section of our latest filings with the SEC.

Jay Chung: Additionally, please note that you can find reconciliation of historical non-GAAP financial measures in the press release issued yesterday and in the appendix presentation, which is available on the company's website.

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

Jay Chung: Today's call will begin with a performance review and strategic update from the April followed by a financial review from Paraguay.

David Bruce: At the conclusion of these prepared remarks, we will open the line for questions with that I'll turn the call over to Dave.

David Bruce: Thank you, Jay. Good morning, everyone, and thank you for joining us on our call today. I'm delighted to share our positive first quarter results reflecting the strategic investments we've made in our organic growth initiatives across our brands, products, and channels where BPC strategy. While the industry outlook anticipates modest declines in the R&R segment, we remain confident in our ability to outpace market trends through innovative products and programs. During the first quarter, we witnessed growth across most of our businesses, primarily fueled by volume and sustained demand from end markets, alongside gradual normalization of inventory levels.

David Bruce: Thank you J good morning, everyone and thank you for joining our call today and.

David Bruce: I'm delighted to share our positive first quarter results, reflecting the strategic investments we've made in our organic growth initiatives across our brands products and channels or B P. C strategy.

David Bruce: While the industry outlook anticipates modest declines in the R&R segment, we remain confident in our ability to outpace market trends through innovative products and programs.

David Bruce: During the first quarter, we witness growth across most of our businesses, primarily fueled by volume and sustained demand from and markets alongside Radziwill normalization of inventory levels, notably.

David Bruce: Notably, our sanitary ware and shower businesses demonstrated year-over-year growth. While our bath furniture segment faced subdued demand due to a shift toward lower-priced offerings, we are excited about our upcoming bath furniture assortment that is more aligned to new market pricing and design trends.

David Bruce: Notably aerostats everywhere in the shower businesses demonstrated year over year growth.

David Bruce: While our best furniture segments faced subdued demand due to a shift towards lower priced offerings. We are excited about our upcoming bath furniture assortment that is more aligned to new market pricing and design trends.

David Bruce: Additionally, our shower systems business benefited from new customer program introductions, while the professional sanitary ware business rebounded as inventory levels stabilized and order flow improved. We are particularly pleased with our operational performance, reporting a total revenue of $31 million for the quarter, marking a robust 13.2% increase year-over-year. Our gross margin also improved to 27.4%, reflecting our sustained focus on higher-margin products.

David Bruce: Additionally, our shower systems business benefited from new customer program introductions, while the pro cemetery, where business rebounded as inventory levels stabilized and order flow improved.

David Bruce: We are particularly pleased with our operational performance reporting a total revenue of $31 billion for the quarter.

David Bruce: Marking a robust 13.2% increase year over year, our gross margin and also improved to 27.4%, reflecting that were sustained focused on higher margin products.

David Bruce: As we continue to invest in our growth initiatives, we are encouraged by the positive momentum witnessed in the first quarter. Furthermore, our geographic expansion plans in India and the United Kingdom hold significant promise for driving growth. In India, we are optimistic about leveraging new distribution partners to establish our presence in the burgeoning bath market. We are also excited about the imminent launch of Isla Porter, our high-end custom kitchen cabinetry business based on an innovative digital platform.

David Bruce: As we continued to invest that our growth initiatives. We are encouraged by the positive momentum witnessed it in the first quarter. Furthermore, our geographic expansion plans in India, and the United Kingdom hold significant promise for driving growth in India. We are optimistic about leveraging new distribution partners to establish our presence in the burgeoning bath.

David Bruce: Market.

David Bruce: We are also excited about the imminent launch of high laporte or or high end custom kitchen cabinetry business based on the innovative digital platform.

David Bruce: With its emphasis on premium trend-setting products and cutting-edge AI software, Isla Porter is poised to redefine cabinetry personalization, convenience, and design. Our strategic growth initiatives are progressing well and are expected to fuel above-market organic growth in the future. I commend our FGI team for their dedication to our long-term objectives, positioning the company for success in 2024 and beyond. With that, I'll hand it over to Perry for a more detailed financial review.

David Bruce: With its emphasis on premium trendsetting products and cutting edge AI software I look order is poised to redefine cabinetry personalization convenience and design.

Perry: Strategic growth initiatives are progressing well and are expected to fuel above market organic growth in the future.

David Bruce: I commend RFG I team for their dedication to our long term objectives positioning the company for success in 2024 and beyond with that all handed over to Perry for a more detailed financial abbreviate.

Perry Lin: Thank you, Dave, and good morning, everyone. I will begin by providing additional details on the quarter. Next, I will update you on our current liquidity and balance sheet. Finally, I will conclude with our guidance for the fall of 2024.

Perry: Thank you day and good morning, everyone I won't became by providing additional details to on the courtroom next I will update you on our current liquidity and banishing finally, I will conclude with our guidance for the full year 2024.

Perry Lin: For the first quarter of 2024, revenue totaled $31 million, an increase of 13.2% compared to the first quarter of 2023, driven by continued momentum in our shell system business and a rebound in our pro sanitary business. Our base furniture business continues to be weak, but it's showing signs of improvement. As Dave mentioned, the best furniture market continues to be impacted by weak demand and a trade-down to lower-priced offerings. In response, we are launching mid-tiered products to better address the current demand environment. Demand Trends in the Shower Category Remain Static. We continue to expect our new program and product to continue driving growth in 2024.

Perry Lin: For the first quarter of 2024 rapidly a total of 71 mean, an increase of 13.2% compared to the first quarter of 2023, driven by containing a momentum you know what shall assist them basis and rebound in our pro stand out until reasons all the basic furniture. These and these continued to.

Perry Lin: Will be weak, but is showing signs of improvement.

Perry Lin: Steve mentioned, the best furniture market contain names to be impacted by weak demand and the trade down to lower price the overweight.

Perry Lin: Response, we all want you mid tier product to pay to address the current demand environment.

Perry Lin: The main trained in the shallow Kid ago remains safety, we continue to expect the our new programs and products to continue driving squirrel in 2024 girls.

Perry Lin: Growth profit was $8.4 million in the quarter, an increase of 16.8% year over year, driven by growth in our higher-margin product. Growth margin improved to 27.4% in the quarter, compared to 26.5% the prior year. Our operating expense increased to $8.7 million from $7.2 million the prior year due to inflation and ongoing investment in our growth initiatives, including marketing spend for flashcards, idler porters, and kitchen cabinets. Gap operating income was negative 0.3 million in the quarter, down from break even year over year.

Perry Lin: Gross profit, what's eight full mean quota an increase of 16.8% year over year driven by growth in our higher margin products gross margin improved to 27.4% in a courtroom compared to 26.5. The prior you all.

Perry Lin: Upgrading expense increased to $8.7 million from 7.2 medium the prior year due to the inflation and ongoing embarrassing in our growth initiative, including marketing spending a full <unk> I look forward to and Keygen cabinetry.

Perry Lin: Get operating income was negative 0.3, Mimi in the corporate down from breakeven year over year higher operating expenses due to investing in old growth initiate it.

Perry Lin: Higher operating expenses due to investing in our growth initiative accounted for the loss as overall revenue and gross margin were higher in the quarter. Moving to our balance sheet, at the end of the first quarter, FGI had 17.8 million of total liquidity, which we believe is more than sufficient to fund our growth initiative. The decline in total liquidity from year-end 2023 was largely driven by an increase in working capital requirement, which is seasonally highest in the first quarter of the year.

Perry Lin: Count data for the loss us overall revenue.

Perry Lin: Squirrel, some module will hire in the courtroom.

Perry Lin: Moving to our balance sheet at the end of the first quarter. After July 17th a median of total liquidity, which we believe is more than sufficient to a form to our gross initiated the decline in total liquidity from ER and 22000 was largely driven by an increase in work.

Perry Lin: Capital requirement, which is that she doesn't know the highest you know first quarter of the year.

Perry Lin: We are leaving 2024 guidance unchanged, with revenue in the range of $115 to $128 million, adjusted operating income in the range of $2.8 to $3.8 million, and adjusted net income in the range of $1.2 to $2 million. Please note that the guidance for adjusted operating income and adjusted net income excludes certain non-recurring items.

Perry Lin: We are leaving 2024 guidance unchanged with <unk>.

Perry Lin: [noise] range of 115 to 128 million adjusted operating income in the range of 2.8 to 3.8 million and adjusted his name come even the range of 1.2 million produced and all of that the guidance for adjusted operating income and adjust their name is.

Perry Lin: Through certain non-recurring items that companies all we're prepared remarks, operator, we are now ready for the question and sub culture of a whole cult.

Operator: That completes our prepared remarks. Operator, we are now ready for the question and answer portion of our call. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then two. At this time, our first question comes from Greg Gibas with Northland Securities. Please go ahead.

Operator: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.

Gregory Thomas Gibas: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.

Gregory Thomas Gibas: At this time.

Operator: [laughter].

Gregory Thomas Gibas: Our first question comes from Greg Gibbous with Northland Securities. Please go ahead.

Gregory Thomas Gibas: Hey, good morning, David Perry. Thanks for taking the questions. Congratulations on the result! You know, I guess for the sake of touching a little bit more on kind of your outlook remaining unchanged. Curious about any changing expectations, you know, kind of implicit in that maintained range, you know, kind of drivers of where there was some upside in Q1, and maybe if anything's changed on a quarterly cadence basis relative to your expectations. Sure. Yeah,

Gregory Thomas Gibas: Hey, good morning day preparing thanks for taking the questions. Congrats on the result.

Speaker Change: Okay perfect.

Gregory Thomas Gibas: Cut a little bit more on cutting your outlook remaining unchanged curious you know.

Speaker Change: Any changing expectations, you know kind of implicit in that 19 range, you know kind of drivers of where there was some upside in Q1, and maybe if anything's changed that a quarter vacated basis relative to your expectations sure. Yeah I. It's a good question and good morning, Greg Yeah, Eh Q1 went as.

David Bruce: Sure. Yeah, it's a good question and good morning, Greg. Yeah, Q1 went as expected. I think we've talked previously as we entered the year. We did expect some organic rebound. We didn't want to mention the word T-stocking anymore, and I think we've gotten past that.

David Bruce: Expected I think we've talked previously as we entered the year. We did expect some organic rebound we didn't want to mention.

David Bruce: Mention the word destocking any more and I think we've we've we've gotten past that so we saw a nice rebound in our pro sanitary aware business. We're also seeing the.

David Bruce: So we saw a nice rebound in our pro-sanitaryware business. We're also seeing the results of some new implementation of our new shower program rollouts that we mentioned on some previous calls. So the momentum going into Q2 is as expected, and it aligns with the guidance that we've put in place. That's why we haven't made any adjustments, and we continue to look forward to some of the additional new programs, rollout, that we expect will be executed primarily in the second half. So as of now, I would say our order cadence and pipeline are positive, and we're looking forward to continuing in Q2.

David Bruce: The results of some new implementation of our our new shower program Rollouts that we have had mentioned on some previous calls so the momentum building in queue too as as expected you know it it aligns with the guidance that we've put in place. That's why we haven't made any adjustments and we continue to look forward to some of the.

David Bruce: Additional new programs.

David Bruce: Rollouts.

David Bruce: That we expect that will be executed primarily in the second half. So as of now I would say are the cadence order cadence and pipeline Ah are positive and we're looking forward to continuing and cute too.

David Bruce: Okay, got it. And, you know, you alluded to it a little bit in your pro channel, but I was wondering if you could just kind of discuss the high-level trends that you're seeing in your key channels, you know, whether anything is kind of standing out or changing favorably or unfavorably. Unknown Speaker Yeah, I think what we're

Speaker Change: Okay got it and you don't you alluded to it a little bit and your pro panel, but wondering if you could just kind of discuss.

David Bruce: High level of <unk> that you're seeing in in your P. Channels, you know whether anything is kind of standing out are changing favorably or unfavorably.

David Bruce: Yeah, I think what we're seeing. We're seeing and hearing things. So we're starting to see a moderation of inventory levels, which is a bright spot. Again, we talked a lot last year about the heavy inventory positions that our customers faced throughout the year, and a lot of that has been moderated for the most part. And I think I mentioned on our last call that there are still some pockets in the market with individual customers or individual areas that that base will be persistent. But for the most part, that's not going to be material to our business.

David Bruce: Yeah, I think what we're seeing we're seeing and hearing things. So we're we're starting to see a moderation of inventory levels, which is the the the bright spot again, we talked a lot last year about the heavy heavy inventory positions that are customers faced.

David Bruce: Throughout the year and and a lot of that is moderated for the most part and I think I mentioned on our last call you know there's still some pockets in the market.

David Bruce: Individual customers, who are individual areas that that that base there'll be persistent but for the most part that's not gonna bit material on our business and so what we're seeing as we are seeing more organic rebound on the pro side and there's some optimism mayor as well the pros are looking at the builder side of the business, especially in the second half going into Q.

David Bruce: And so what we're seeing is we are seeing more organic rebound on the pro side, and there's some optimism there as well. The pros are looking at the builder side of the business, especially in the second half, going into Q4, as positive. Some of the builders have discussed that in some of their reporting, as far as their confidence in building recovery. And we're feeling some of that momentum in our pro business.

David Bruce: For as a positive some of the builders have.

David Bruce: Discuss that and some of their reporting as far as their confidence in building recovery and we're feeling some of that momentum on our pro business, So and I and I would say just generally on the sanitary aware side I think the the momentum with.

David Bruce: And I would say, just generally on the sanitaryware side, I think the momentum due to the lack of destocking now is going to rebound. And that's again, something that we have in our guide because it was sort of expected as we entered Q1.

David Bruce: Due to the lack of the Destocking now is gonna is gonna rebound and that's again, that's something that we we have in our guide because it was it was sort of expected as we entered you know keep keep too.

David Bruce: Perfect. Appreciate the color there. And as it relates to maybe your gross margin expectations, or how those you expect trend relative to Q1, should we think about kind of continued expansion just due to these product lines, this trend? Yeah.

Speaker Change: Perfect I appreciate the color of their and and as it relates to make your gross margin expectations or how all those your friend.

David Bruce: Friend relative to Q1 can we think about kind of continued expansion just due to that product lines.

David Bruce: Okay.

David Bruce: Yeah, we believe we will maintain, you know, our gross margins, but we're pretty confident based on a lot of the new business that we see coming our way that we'll be able to maintain those margins. And we've talked about this before, you know; we will accelerate our overall gross margin dollars as we scale a lot of the higher margin businesses like Shower, which we are doing, but particularly kitchens, you know, not only the covered bridge kitchens but also the new digital venture with Isla Porter.

Speaker Change: Yeah. We we we we believe we will maintain you know our gross margins Ah, but we're we're pretty confident based on the a lot of the new business that we see coming our way that will be able to maintain maintain those watches them and we've talked about this before you know.

David Bruce: We we we will accelerate our overall gross margin dollars as we as we scale a lot of the higher margin of businesses like shower, which were doing but particularly kitchens you know not only the covered bridge kitchens, but also the new digital adventure with I Laporta. So as those scale you're gonna see a continued you know more than a dollar growth.

David Bruce: So as those scale, you're going to see continued, you know, margin dollar growth. And I think we've also mentioned pro-business rebounds, and as we grow our sanitary ware business, while the sanitary ware business has lower gross profit percentages overall, we would expect, which is our midterm and long-term goal, to grow our EBIT percentage and our dollars, our gross margin dollars, right? So as you combine the dollars from the sanitary ware business along with the higher gross profit percentages from our kitchens, we think we're going to be able to have a healthy profit.

David Bruce: And I think we've also mentioned as pro business rebounds that as we grow our saboteur everywhere business, while the sanitary where business has lower gross proper percentages overall, we we would expect which is our our mid term and long term goal is to grow already but the are either percentage on our dollars are gross margin dollars right. So as you combine the dog.

David Bruce: From the from the south to everywhere business loan with a higher gross proper percentages from our kitchens are we think we're gonna be able to have a healthy growth in the short term.

Gregory Thomas Gibas: Great. I appreciate the color. Thanks, guys. Sure.

Speaker Change: Great I appreciate the caller think that's true.

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

Gregory Thomas Gibas: This concludes our question and answer session I would like to turn the conference back over to David Bruce for any closing remarks.

David Bruce: Thank you for your time and interest today. We appreciate your continued support of FGI. Stay well, and if we don't connect during the quarter, we look forward to speaking with you on our next quarterly call.

David Bruce: Thank you for the time and interest today. We appreciate your continued support of F. G I stay well and if we don't connect during the quarter. We look forward to speaking with you on our next quarterly call.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.