Q2 2024 FGI Industries Ltd Earnings Call

August 8, 2024

Operator: Good morning, ladies and gentlemen, and welcome to the FGI Industries Inc. 2nd quarter 2024 results conference call. At this time, all lines are in listen-only mode.

good morning ladies and gentlemen as welcome to the fgi in this treess in second quarter two thousand and twenty-four results conference call

Operator: Inc., second quarter 2024 results conference call. This time, all lines are in listen-only mode.

Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press zero for the operator. This call is being recorded on Thursday, August 8, 2024.

Operator: at this time all lines are listen only mode

Operator: Following the presentation, we will conduct a question and answer session.

Operator: If at any time during this call you require immediate assistance,

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 8th, 2024. I would now like to turn the conference over to Jae Chung, Vice President of Investor Relations at FGI.

Operator: please breast starszero for the operator

Operator: This call is being recorded on Thursday, August 8, 2024.

Jae Chung: I would now like to turn the conference over to Jae Chung, Vice President of Investor Relations at FGI Industries.

Unknown Attendee: Hey! It's okay. Do you want your milk? Mommy left the milk for you. Do you want to see your milk? Here it is.

Speaker Change: i would now like to turn the conference over to j chunong

Jae Chung: Vice President of Investor Relations at FGI Industries.

Jae Chung: Please go ahead. Thank you.

Jae Chung: Thank you. This is the FGI Industries 2024 second quarter results conference call. Leading the call today are President and CEO David Bruce and Chief Financial Officer Perry Lin. 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.

Unknown Attendee: Want Mommy to warm it up?

Jae Chung: Welcome to FGI Industries 2024 2nd quarter results conference call. Leading the call today are President and CEO David Bruce and Chief Financial Officer, Perry Lin. We issued a press release after the market closed yesterday detailing our recent operational and financial results.

Unknown Attendee: Want mommy to warm it? Yes? Okay, you want to sit down while mommy warms it? Yeah? Okay, sit down. Mommy is going to warm it now. No?

Speaker Change: Please go ahead.

Speaker Change: thank you welcome to fg i industries two thousand and twenty four second quarter results conference call

Jae Chung: Leading the call today are President and CEO David Bruce and Chief Financial Officer Perry Lin.

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

Jae Chung: 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. 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 FCC.

Jae Chung: 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

Jae 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 FCC. 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.

Jae 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 of this presentation, which is available on the company's website. Today's call will begin with a performance review and strategic update from Dave Bruce, followed by a financial review from Perry Lin.

Jae Chung: 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

Jae 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.

Unknown Attendee: No?

Jae Chung: today's call will begin with a performance review and strategic update from dave bruce followed by a financial review from perrylin at the conclusion of these prepared remarks we will open the line for questions with that i'll turn the call over to days

Jae Chung: At the conclusion of these prepared remarks, we will open the line for questions.

Jae Chung: With that, I'll turn the call over today. Thank you, Jay.

David Bruce: Thank you, Jae. Good morning, everyone, and thank you for joining our call today. I am pleased to share our second quarter results, which reflect the strategic investments we've made in our organic growth initiatives across our brands, products, and channels for BPC strategies. FGI reported total revenue of $29.4 million in the quarter, representing a year-over-year increase of 0.6 percent. Gross profit was 9 million, reflecting growth of 11.9% compared to our

Operator: Welcome to the conference center. May I know which conference you are joining? Unknown Attendee, Perry Lin, Jae Chung, John Chen, Perry Lin, Jae Chung, John Chen, Perry Lin. Okay, can I have your first and last name please?

Rachel Smith: Rachel Smith. This is from Ayara. Yes, it is. Thank you. Okay. I'll drag you out now. Thank you. It's raining.

David Bruce: Good morning, everyone, and thank you for joining our call today. I am pleased to share our second quarter results reflected the strategic investments we've made in our organic growth initiatives across our brands, products, and channels, or BPC strategy. FGI reported total revenue of 29.4 million in the quarter, representing a year-over-year increase of 0.6%. Gross profit was 9 million, reflecting growth of 11.9% compared to our prior year. Gross margin improved to 30.5%, an increase of 310 basis points compared to the second quarter of 2023. The industry outlook remains relatively flat overall, with our customers forecasting minimal growth in 2024.

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David Bruce: Thank you, Jae. Good morning, everyone, and thank you for joining our call today. I am pleased to share our second quarter results reflected the strategic investments we've made in our organic growth initiatives across our brands, products, and channels for BPC Strategy.

Operator: Good morning, ladies and gentlemen, and welcome to the FGI Industries, Inc. second quarter 2024 results conference call. This time, all lines are in listen-only mode.

David Bruce: FGI reported total revenue of $29.4 million in the quarter, representing a year-over-year increase of 0.6 percent.

David Bruce: gross profit was nine million reflecting growth of eleven point nine percent compared to our prior year

David Bruce: Gross margin improved to 30.5%, an increase of 310 basis points compared to the second quarter of 2023. However, the industry outlook remains relatively flat overall, with our customers forecasting minimal growth in 2024. During the second quarter, some of our shipments experienced extended lead times and delays, due in part to our transition to SAP Enterprise software and continued industry-wide import logistics challenges. This impacted our second quarter results. We expect to fulfill the delayed shipments in the second half of the year. Sanitary ware revenue declined 8% year over year in the quarter.

David Bruce: Gross margin improved to 30.5%, an increase of 310 basis points compared to the second quarter of 2023.

David Bruce: The industry outlook remains relatively flat overall, with our customers forecasting minimal growth in 2024.

David Bruce: During the second quarter, some of our shipments experienced extended lead times and delays, due in part to our transition to SAP Enterprise Software and continued industry-wide import logistics challenges. This impacted our second quarter results. Freight rates have more than doubled since December 2023, and we are closely tracking prices for the remainder of 2024. We expect to fulfill the delayed shipments in the second half of the year.

David Bruce: During the second quarter, some of our shipments experienced extended lead times and delays due in part to our transition to SAP enterprise software and continued industry-wide import logistics challenges. This impacted our second quarter results.

David Bruce: freight rates have more thandoubledsince december two thousand andtwenty three and we areclosely tracking prices for the remainder of two thousand and twenty four we expect to fulfill the billing shipments in the second half of the year

David Bruce: Don't tell you where our revenue declined 8% year-over-year in the quarter. We remain optimistic about Plushguard in the second half of 2024. We continue to shift towards lower priced offerings in our bad furniture segment and are excited about our assortment and new programs that are more aligned with the market pricing and design trends. The shower systems business benefit from new customer programs, reporting an increase in revenue of 37% compared to the same period last year. In custom kitchen cabinetry, covered bridge revenue increased 66% in the quarter, driven by continued strong dealer and customer expansion across the U.S.

David Bruce: We remain optimistic about FlushGuard in the second half of 2024. We continue to shift towards lower-priced offerings in our BAT furniture segment and are excited about our assortment and new programs that are more aligned with the market pricing and design trends. The shower systems business benefited from new customer programs reporting an increase in revenue of 37% compared to the same period last year. In custom kitchen cabinetry, covered bridge revenue increased 66% in the quarter, driven by continued strong dealer and customer expansion across the US.

David Bruce: Sanitary ware revenue declined 8% year-over-year in the quarter. We remain optimistic about flush guard in the second half of 2024.

David Bruce: We continue to shift towards lower-priced offerings in our BAT furniture segment and are excited about our assortment and new programs that are more aligned with market pricing and design trends.

David Bruce: The shower systems business benefited from new customer programs reporting an increase in revenue of 37% compared to the same period last year.

David Bruce: in custom kitchen cabinmetry covered bridge revenue increased sixty-six percent in the quarter driven by continued strong dealer and customer expansion across the us

David Bruce: Isla Porter, our digital-only custom kitchen joint venture, is setting the stage for its official launch. Isla Porter aims to establish a relationship with the premium designer community with on-trend products via an AI-backed digital sales platform. Our geographic expansion plans in Europe and India hold significant promise of driving growth. During the quarter, we opened an office and showroom in India and engaged new distribution partners in the burgeoning bath market. Our strategic growth initiatives are progressing well and are expected to fuel above-market organic future growth.

David Bruce: Ile Porter, our digital-only custom kitchen joint venture, is setting the stage for its official launch. Ile Porter aims to establish a relationship with the premium designer community with on-prem products via an AI-backed digital sales platform. Our geographic expansion plans in Europe and India hold significant promise of driving growth. During the quarter, we opened an office in the showroom in India and engaged new distribution partners in the burgeoning bath market. Our strategic growth initiatives are progressing well and are expected to fuel above-market organic future growth.

David Bruce: Isla Porter, our digital-only custom kitchen joint venture, is setting the stage for its official launch.

David Bruce: Isla Porter aims to establish a relationship with the premium designer community with on-trend products via an AI-backed digital sales platform.

David Bruce: Our geographic expansion plans in Europe and India hold significant promise of driving growth. During the quarter we opened an office in a showroom in India and engaged new distribution partners in the burgeoning bath market.

Speaker Change: Our strategic growth initiatives are progressing well and are expected to fuel above-market organic future growth. I commend our FGI team for their dedication to our long-term objectives, positioning the company for success in 2024 and beyond.

David Bruce: I commend our FGI team for their dedication to our long-term objectives, positioning the company for success in 2024 and beyond.

David Bruce: 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 analysis. Thank you, Dave, and good luck.

Perry Lin: With that, I'll hand it over to Perry for a more detailed financial review. Thank you, Dave, and good morning, everyone. I will begin by providing additional details on the quarter, followed by an update on our current liquidity and balance sheet.

David Bruce: With that, I'll hand it over to Perry for a more detailed financial review.

Perry Lin: Thank you, Dave, and good morning, everyone. I will begin by providing additional details on the quarter, followed by an update on our current liquidity and balance sheet. Finally, I will conclude our guidance for the fall year 2024. For the second quarter 2024, revenue totaled $29.4 million, an increase of 1% compared to the second quarter of 2023. As Dave mentioned, FGI experienced delayed shipments due in part to our transition to SAP Enterprise Software and ocean freight disruption. We expect to fulfill delayed shipments in the second half of the year.

Perry Lin: Finally, I will conclude our guidance for the four-year 2024. For the second quarter of 2024, revenue total 29.4 million, an increase of 1% compared to the second quarter of 2023. As Dave mentioned, FGI experienced deletionment due in part to our transition to SAP enterprise software and ocean freight disruption. We expect to fulfill deletionment in the second half of the year. Growth profit was 9 million in a quarter, an increase of 11.9% year over year, driven by our higher margin products. Our growth margin improved to 30.5% in the quarter compared to 27.4% in the prior year.

David Bruce: Thank you, Jae. Good morning, everyone, and thank you for joining our call today. I am pleased to share our second quarter results, which reflect the strategic investments we've made in our organic growth initiatives across our brands, products, and channels for BPC. FGI reported total revenue of $29.4 million in the quarter, representing a year-over-year increase of 0.6 percent. Gross profit was 9 million, reflecting growth of 11.9% compared to our prior

Perry Lin: for the second quarter two thousand and twentyfour revenue total twenty-nine point four million an increase of one percent compared to the second quarter of two thousand and twenty three

Perry Lin: As Dave mentioned, FGI experienced delayed shipments due in part to our transition to SAP Enterprise Software and ocean freight disruption. We expect to fulfill delayed shipments in the second half of the year.

Perry Lin: Gross profit was $9 million in the quarter, an increase of 11.9% year-over-year driven by our higher-margin product. Our growth margin improved to 30.5% in the quarter compared to 27.4% in the prior year. We expect some moderation in the growth margin as delayed shipments of lower-margin products are fulfilled in the second half. Our operating expenses increased to $9.4 million from $7.4 million in the prior year due to inflation and ongoing investment in our growth initiatives, including marketing spend for FlashGuard, Isla Porter, Carver Bridge Kitchen Camper Tree, and our Canadian wholesale business.

Perry Lin: Growth profit was $9 million in the quarter, an increase of 11.9% year-over-year, driven by our higher margin products.

David Bruce: Gross margin improved to 30.5%, an increase of 310 basis points compared to the second quarter of 2023. However, the industry outlook remains relatively flat overall, with our customers forecasting minimal growth in 2024. During the second quarter, some of our shipments experienced extended lead times and delays, due in part to our transition to SAP Enterprise software and continued industry-wide import logistics challenges. This impacted our second quarter results. Freight rates have more than doubled since December 2023.

Perry Lin: Our growth margin improved to 30.5% in the quarter compared to 27.4% in the prior year.

Perry Lin: We expect some motivation in the growth margin of deletionment of lower margin products are fulfilled in the second half. Our operating expenses increased to 9.4 million from 7.4 million in the prior year due to inflation and ongoing investment in our growth initiatives, including the marketing spend for Fresh Garden, Island Porter, Cover for Each Kitchen Cabin Tree, and our Canadian wholesale business. We expect operating expenses to decline in the second half of the year. As the certain expense in the first half will now recur in the third and fourth quarter. Get operating income was negative half million in the quarter, down from 0.6 million the prior year.

David Bruce: And we are closely tracking prices for the remainder of 2024. We expect to fulfill the delayed shipments in the second half of the year. Sanitary ware revenue declined 8% year-over-year in the quarter.

Perry Lin: We expect some moderation in the gross margin of sterilization of lower margin products are fulfilled in the second half.

David Bruce: We remain optimistic about PlusGard in the second half of 2024. We continue to shift towards lower priced offerings in our budget furniture segment and are excited about our assortment and new programs that are more aligned with the market pricing and design trends. The shower systems business benefited from new customer programs reporting an increase in revenue of 37% compared to the same period last year. In custom kitchen cabinetry, covered bridge revenue increased 66% in the quarter, driven by continued strong dealer and customer expansion across the US.

Perry Lin: our operating expenses increased to n point four million from seven point four mion

Perry Lin: in the prior year due to inflation and ongoing investment in our growth initiatives, including the marketing spend for FreshGard, Isla Porter, Covered Bridge Kitchen Camper Tree, and our Canadian wholesale business.

David Bruce: Isla Porter, our digital-only custom kitchen joint venture, is setting the stage for its official launch. Isla Porter aims to establish a relationship with the premium designer community with on-trend products via an AI-backed digital sales platform. Our geographic expansion plans in Europe and India hold significant promise of driving growth. During the quarter, we opened an office in a showroom in India and engaged new distribution partners in the burgeoning bath market.

David Bruce: Our strategic growth initiatives are progressing well and are expected to fuel above-market organic future growth. 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. Thank you, Dave, and good

Perry Lin: We expect operating expenses to decline in the second half of the year, as certain expenses in the first half will now recur in the third and fourth quarters. Gap operating income was a negative half million in the quarter, down from 0.6 million the prior year. Higher operating expenses due to investing in our growth initiative accounted for the loss, as overall revenue was largely free and the gross margin was higher in the quarter.

Perry Lin: We expect operating expense to decline in the second half of the year. As a certain expense in the first half will not recur in the third and fourth quarter.

Perry Lin: Gap operating income was negative half million in the quarter, down from 0.6 million the prior year. Higher operating expenses due to investing in our growth initiative. Accounted for the loss.

Perry Lin: Higher operating expenses due to investing in our growth initiative, account data for the loss as overall revenue was largely free and the growth margin will higher in the quarter. Moving to our balance sheet, at the end of the second quarter, if you have had 17.4 million in total liquidity, which we believe is more than sufficient to fund our growth initiatives. Total liquidity decreased slightly from 17.8 million in the prior court.

Perry Lin: Thank you, Dave, and good morning, everyone. I will begin by providing additional details on the quarter, followed by an update on our current liquidity and balance sheet. Finally, I will conclude our guidance for the fall year 2024. For the second quarter 2024, revenue totaled $29.4 million, an increase of 1% compared to the second quarter of 2023. As Dave mentioned, FGI experienced delayed shipment due in part to our transition to SAP enterprise software and ocean freight disruption. We expect to fulfill delayed shipments in the second half of the year.

Perry Lin: As overall revenue was largely frayed and the gross margin was higher in the quarter.

Perry Lin: Moving to our balance sheet, at the end of the second quarter, FGI had $17.4 million in total liquidity, which we believe is more than sufficient to fund our growth initiatives. Total liquidity declined slightly from $17.8 million in the prior quarter. We are leaving 2024 guidance open to change, 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.

Perry Lin: Gross profit was $9 million in the quarter, an increase of 11.9% year-over-year driven by our higher-margin product. Our growth margin improved to 30.5% in the quarter compared to 27.4% in the prior year. We expect some moderation in the growth margin as delayed shipments of lower-margin products are fulfilled in the second half. Our operating expenses increased to $9.4 million from $7.4 million in the prior year due to inflation and ongoing investment in our growth initiatives, including marketing spend for Fresh Guard, Isla Porter, Carver Bridge Kitchen Camper Tree, and our Canadian wholesale business.

Perry Lin: We expect operating expense to decline in the second half of the year as a certain expense in the first half will now recur in the third and fourth quarter. Gap operating income was a negative half million in the quarter, down from 0.6 million the prior year. Higher operating expenses due to investing in our growth initiative accounted for the loss as overall revenue was largely free and the growth margin was higher in the quarter.

Perry Lin: Moving to our balance sheet, at the end of the second quarter, FGI had $17.4 million in total liquidity, which we believe is more than sufficient to fund our growth initiative.

Perry Lin: Moving to our balance sheet, at the end of the second quarter, FGI had $17.4 million in total liquidity, which we believe is more than sufficient to fund our growth initiatives. Total liquidity declined slightly from $17.8 million in the prior quarter. We are leaving 2024 guidance open to change 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.

Perry Lin: total liquidity declined slightly from seventeen point eight minute in the prior quarter

Perry Lin: We are leaving 2024 guidance on change, which revenue in the range of 115-128 million. Adjusted operating income in the range of 2.8-3.8 million, and adjusted income in the range of 1.2-2 million. Please note that the guidance for adjusted operating income and adjusted income is through certain long-reconning items. That completes our prepared remarks.

Perry Lin: We are leaving 2024 guidance on change, 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.

Perry Lin: Please note that the guidance for adjusted operating income and adjusted net income excludes certain non-recurring items. That completes our prepared remarks. Operator, we are now ready for the question and answer portion of our call. Thank you.

Perry Lin: Please note that the guidance for adjusted operating income and adjusted net income excludes certain non-recurring items.

Operator: Operator, we are now ready for the question and answer portion of our call. Thank you.

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

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star one in your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question.

Perry Lin: and

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star one on your touchtone phone; you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press start. If you are using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Your first question comes from Reuben Garner of Benchmark. Your line is already open.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline, from the polling process? Please press start. If you are using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. The first question comes from Reuben Garner of Benchmark. Your line is already open.

Reuben Garner: Thank you.

Operator: Ladies and gentlemen, we will now begin the question and answer session.

Operator: should you have a question please press our one in your touchstone phone

Operator: You will hear a prompt that your hand has been raised.

Operator: Should you wish to decline from the polling process?

Operator: please press star 2.

Operator: If you are using a speakerphone, please lift the handset before pressing any keys.

Operator: One moment, please, for your first question.

Reuben Garner: Your first question comes from Ruben Garner of Benchmark. Your line is already open. Thank you. Good morning, everybody.

Operator: Your first question comes from Reuben Garner of Benchmark. Your line is already open.

Reuben Garner: Thank you. Good morning, everybody. Good morning Reuben. Good morning.

Reuben Garner: Thank you. Good morning, everybody. Good morning, Reuben. Good morning.

David Bruce: Good morning, Ruben. Good morning.

Speaker Change: Thank you. Good morning everybody. Hey, good morning Reuben. Good morning.

Reuben Garner: So, just a quick one on the SAP enterprise switch. When did that happen? Can you quantify what the impact was? And then any comments on how that may be beneficial to you guys going forward?

Unknown Attendee: So, just a quick one on the SAP enterprise switch. When did that happen? Can you quantify what the impact was? And then any comments on how that may be beneficial to you guys going forward?

David Bruce: So, just a quick one on the SAP enterprise switch: when did that happen? Can you quantify what the impact was, and then any comments on how that may be beneficial to you guys going forward? Yeah, we implemented SAP at the end of May 1. Technically, Q2 May 1st was our official implementation date. We are excited about what it is going to do for us. We were using a very old, outdated ERP system at the company, and we are already seeing benefits of the rollout and the efficiencies it is going to bring to our business.

Reuben Garner: So just a quick one on the SAP Enterprise switch. When did that happen? Can you quantify what the impact was and then any comments on how that may be beneficial to you guys going forward?

David Bruce: Yeah, we implemented SAP at the end of Q1. Technically, though, Q2, May 1st was our official implementation date. We're excited about what it's going to do for us. We were using a very old, outdated ERP system at the company, and we're already seeing benefits of the rollout and the efficiencies it's going to bring to our business. But of course, like many companies have experienced with a new rollout, there were some hiccups, and it did absolutely impact our domestic shipments as well as some of our direct import shipments for the quarter. But those are not lost sales. That's business that we expect to fully spill over into Q3.

Unknown Attendee: Yeah, we implemented SAP at the end of Q1, technically Q2, May 1st was our official implementation date. We're excited about what it's going to do for us. We were using a very old, outdated ERP system at the company, and we're already seeing benefits of the rollout and the efficiencies it's going to bring to our business. But, of course, like many companies have experienced with a new rollout, there were some hiccups, and it did absolutely impact our domestic shipments as well as some of our direct import shipments for the quarter. But those are not lost sales. That's business that we expect to fully spill over into Q3.

David Bruce: Yeah, we implemented SAP at the end of Q1, technically Q2, May 1st was our official implementation date. We're excited about what it's going to do for us. We were using a very old outdated ERP system at the company and we're already seeing benefits.

David Bruce: But of course, like many companies have experienced that on a new rollout, there were some hiccups, and it did absolutely impact our domestic shipments as well as some of our direct import shipments for the quarter. But those are not law sales; those are, that's business that we expect to please bill over into Q3.

David Bruce: of the rollout and the efficiencies it's going to bring to our business.

David Bruce: But of course, like many companies have experienced on a new rollout.

David Bruce: There were some hiccups and it did absolutely impact our domestic shipments as well as some of our direct import shipments for the quarter, but those are not lost sales. That's business that we expect to fully spill over into Q3.

Reuben Garner: Okay, and then I understand you guys have been moving down price points a little bit.

David Bruce: Okay, and then I understand you guys have been moving down price points a little bit. We've heard that there's been a little bit of weakening in the consumer, particularly at the entry level. Are you seeing any signs of that? We've seen a couple of categories where there have been destocks take place, not exactly related to you guys, but just in the broader big box channel. Any risks there? How do you feel about where inventory is and that consumer in particular? Unknown Attendee Sure, no.

Unknown Attendee: Okay, and then I understand you guys have been moving down price points a little bit. We've heard that there's been a little bit of weakening in the consumer, particularly at the entry level. Are you seeing any signs of that? We've seen a couple categories where there have been destocks take place, not exactly related to you guys, but just in the broader big box channel. Any risks there? How do you feel about where inventory is and that consumer in particular? Unknown Attendee Sure.

David Bruce: Okay, and then I understand you guys have been moving down price points a little bit, we've heard

Reuben Garner: We've heard that there's been a little bit of weakening in the consumer, particularly at the entry level, or you've seen any signs of that. We've seen a couple categories where there's been destox take place, not exactly related to you guys, which is in the broader big box channel. Any risk there? How do you feel about where inventory is, and that consumer in particular? Sure, no, it's a great question. I think I mentioned, I think it was on the Q4 call, we didn't really anticipate talking about destocking this year as an issue, and that's still the case.

David Bruce: that there's been a little bit of weakening in the consumer, particularly at the entry level. Are you seeing

David Bruce: Any signs of that? We've seen a couple categories where there's been destocks Take place not exactly related to you guys, but just in the broader big box channel any risk

Speaker Change: there. How do you feel about where inventory is and and and that consumer in particular?

Unknown Attendee: Sure, no, it's a great question. I think I mentioned on the, I think it was on the Q4 call, you know, we didn't really anticipate talking about de-stocking this year as an issue, and that's still the case. I think we went through most of our pain last year going into this year. Our inventory position has increased a bit only because we're backing up for a lot of new program launches that are anticipated in the second half, and I think I mentioned that last time.

David Bruce: Sure, no, it's a great question. I think I mentioned on the, I think it was on the Q4 call, you know, we didn't really anticipate talking about de-stocking this year as an issue, and that's still the case. I think we went through most of our pain last year going into this year. Our inventory position has increased a bit only because we're backing up for a lot of new program launches that are anticipated in the second half, and I think I mentioned that last time.

David Bruce: Sure, no, it's a great question. I think I mentioned at the, I think it was on the Q4 call, you know, we didn't really anticipate talking about destocking this year as an issue, and that's still the case.

David Bruce: I think we went through most of our pain last year, going into this year. Our inventory position has increased a bit only because we're backing up for a lot of new program launches that are anticipated in the second half, and I think I mentioned that last time.

David Bruce: I think we went through most of our pain last year going into this year. Our inventory position has increased a bit only because we're backing up

David Bruce: for a lot of new program launches that are anticipated in the second half, and I think I mentioned that last time. From a customer perspective, we actually are in our customers are in a very good position with us on the majority of our product categories.

David Bruce: From a customer perspective, we actually are in, our customers are in a very good position with us on the majority of our product categories, and I think that I've mentioned before that the most affected category that we had when it came to destocking and as far as trade down was the bath furniture. But we've actually now, finally, I've talked about how we've been implementing and we debuted a lot of our newer, more mid-priced product strategy at the kitchen and bath show in February, and that's now taking effect, so we're starting to place that product, and we're starting to see a little bit improved order cadence from our larger customers as it relates to the bath furniture, going into the second half.

David Bruce: From a customer perspective, we actually are in a very good position with us on the majority of our product categories, and I think that I've mentioned before that the most affected category that we had when it came to destocking and as far as trade down was bathroom furniture. But we've actually now finally – I've talked about how we've been implementing – debuted a lot of our newer, more mid-priced product strategy at the Kitchen & Bath show in February, and that's now taking effect.

Unknown Attendee: From a customer perspective, we actually are in a very good position with us on the majority of our product categories, and I think that I've mentioned before that the most affected category that we had when it came to destocking and as far as trade down was bathroom furniture. But we've actually now finally – I've talked about how we've been implementing – debuted a lot of our newer, more mid-priced product strategy at the Kitchen & Bath show in February, and that's now taking effect.

David Bruce: And I think that I've mentioned before that the most affected category that we had when it came to de-stocking and as far as trade down was the bath furniture. But we've actually now finally, I've talked about how we've been implementing and we debuted a lot of our newer, more mid-priced.

David Bruce: product

Unknown Attendee: So we're starting to place that product, and we're starting to see a little bit of improved order cadence from our larger customers as it relates to bath furniture going into the second half. So I think to answer your question about de-stocking, no, we're not seeing that. We're actually seeing the exact opposite, sort of, we've already hit the floor, and I think we're only going to see improvement from here.

David Bruce: So we're starting to place that product, and we're starting to see a little bit of improved order cadence from our larger customers as it relates to bath furniture going into the second half. So I think to answer your question about de-stocking, no, we're not seeing that. We're actually seeing the exact opposite, sort of, we've already hit the floor, and I think we're only going to see improvement from here.

David Bruce: Strategy at the Kitchen and Bath show in February and that's now taking effect. So we're starting to place that product

Speaker Change: Unknown Attendee, Jae Chung, Paul Bartolai, David Bruce

David Bruce: So I think to answer, go back to your destocking question, no, we're not seeing that; we're actually seeing the exact opposite. We've already hit the floor, and I think we're only going to see improvement from here.

Reuben Garner: Okay, very helpful. And then, in terms of next year, I guess, R&R market aside, we can kind of take our best guess at that.

Unknown Attendee: Okay, very helpful. And then in terms of next year, I guess, the R&R market aside, we can kind of take our best guess at that. Can you remind us what you have within your control between new products, new customers, any way to quantify that yet? Or is it still too early to kind of get an idea of what that might look like?

David Bruce: Okay, very helpful. And then in terms of next year, I guess, the R&R market aside, we can kind of take our best guess at that. Can you remind us what you have within your control between new products, new customers, any way to quantify that yet? Or is it still too early to kind of get an idea of what that might look like? Yeah, if I

David Bruce: OK, very helpful. And then in terms of next year.

David Bruce: Can you remind us on what you have within your control between new products, new customers, any way to quantify that yet, or is it still too kind of early to kind of give us an idea of what that might look like? Yeah, if I can quantify 2025, I'd be a genius, I think, Reuben. But we feel good. Here's let me say this. We feel really good about the moment that we have right now, as we're in Q3, going into Q4, of many of the newer program launches that we talked about are in play right now.

David Bruce: I guess R&R market aside, we can kind of...

David Bruce: Take our best guess at that. Can you can you remind us on what you have within your control between new products new customers any Any way to quantify that yet, or is it still too kind of early to kind of give us an idea of what that might look like

David Bruce: Yeah, if I could quantify 2025, I'd be a genius, I think, Reuben. But we feel good. Let me say this.

Unknown Attendee: We feel really good about the momentum we have right now as we're in Q3, going into Q4. Many of the newer program launches that we talked about are in play right now. They're actionable items for our sales teams as we speak.

Unknown Attendee: Yeah, if I could quantify 2025, I'd be a genius, I think, Reuben, but we feel good. Let me say this.

David Bruce: Yeah, if I could quantify 2025, I'd be a genius, I think, Reuben, but we feel good. Here's, let me say this. We feel really good.

David Bruce: about the momentum we have right now as we're in Q3 going into Q4. Many of the newer program launches that we talked about are in.

David Bruce: We're actually actionable items for our sales teams as we speak. We like the fact that on the bath furniture side, we're starting to see it turn around. We really like what we're seeing in our kitchen business. Our kitchen business is really moving full steam ahead, probably it's fastest momentum in many years since we've had the program. So I think that would sort of imply that our, you know, head into 2025 outside of macro issues, obviously, between half the monitor, but we're excited where things are going right now. We're finally, you know, it's been a lot of discussion about these new programs and new customers coming on board, but now that they're sort of starting to be executed, you know, as of now, I mean, it's very early to talk about next year, but we're cautiously optimistic about next year as well.

Speaker Change: Unknown Attendee, Jae Chung, Paul Bartolai, David Bruce

David Bruce: We feel really good about the momentum we have right now as we're in Q3, going into Q4. Many of the newer program launches that we talked about are in play right now. They're actionable items for our sales teams as we speak. We like the fact that on the bath furniture side, we're starting to see a turnaround. We really like what we're seeing in our kitchen business. Our kitchen business is really moving full steam ahead, probably its fastest momentum in many years since we've had the program.

Unknown Attendee: We like the fact that on the bath furniture side, we're starting to see a turnaround. And we really like what we're seeing in our kitchen business. Our kitchen business is really moving full steam ahead, probably its fastest momentum in many years since we've had the program. I think that would imply that we're heading into 2025 outside of macro issues, obviously, which we'd have to monitor, but we're excited where things are going right now.

David Bruce: We like the fact that on the bath furniture side we're starting to see a turnaround. We really like what we're seeing in our kitchen business. Our kitchen business is really moving full steam ahead, probably its fastest momentum in in many years since we've had the program. So I think that would that would sort of imply that our, you know, heading into 2025

David Bruce: So I think that would sort of imply that we're heading into 2025 outside of macro issues, obviously, which we'd have to monitor. But we're excited about where things are going right now. We're finally, you know, there's been a lot of discussion about these new programs and new customers coming on board. But now that they're starting to be executed, you know, as of now, I mean, it's very early to talk about next year, but we're cautiously optimistic about next year as well. Again, let's see the macro issues, how they affect things. But, you know, our expectation would be to, you know, outpace any of those issues in the first place with our new business.

Speaker Change: Unknown Attendee, Jae Chung, Paul Bartolai, David Bruce

Unknown Attendee: It's been a lot of discussion about these new programs and new customers coming on board, but now that they're starting to be executed as of now, it's very early to talk about next year, but we're cautiously optimistic about next year as well. Again, we'll see the macro issues and how they affect things, but our expectation would be to... outpace any of those issues in the first place with our new business.

David Bruce: as of now, I mean, it's very early to talk about next year, but we're cautiously optimistic about next year as well. Again, let's see the macro issues, how they affect things, but our expectation would be to outpace any of those issues in the first place with our new business opportunities.

David Bruce: Again, let's see the macro issues, how they affect things, but you know, our expectation would be to, you know, outpace any of those issues in the first place with our new business opportunities.

Reuben Garner: Greg can grab guys and good luck on board.

Unknown Attendee: Great, congrats guys, and good luck going forward. Thank you.

Reuben Garner: Great, congrats guys, and good luck going forward. Thank you.

Greg Keepus: Thank you. Your next question comes from Greg Keepus of Northland Securities. Your line is already open.

Speaker Change: breaking grassys and good lo important

Greg Gibas: Your next question comes from Greg Gibas of Northland Securities. Your line is already open.

Gregory Gibas: Your next question comes from Greg Gibas of Northland Securities. Your line is already open.

Greg Gibas: Thank you.

Speaker Change: Your next question.

Speaker Change: It comes from Greg Gibas of Northland Securities. Your line is already open.

Greg Keepus: Hey, good morning, David Barry. Thanks for taking the questions.

Gregory Gibas: Hey, good morning, Dave and Perry. Thanks for taking the questions.

Unknown Attendee: Hey, good morning, Dave and Perry. Thanks for taking the questions.

Unknown Attendee: Hey Greg, good morning. Good morning.

Gregory Gibas: Hey Greg, good morning. Good morning.

David Bruce: Hey Greg, good morning. Good morning. You know, given I guess you reiterated guidance, sorry, anything that surprised you, you know, positively or negatively in the quarter, and maybe into Q3, just trying to get a sense of puts and takes on, you know, maintaining expectations for the remainder of the year. Yeah, I mean, I think though, you know, maintaining our guidance sort of gives you an idea about sort of what we expected. We know that from an expense perspective, we know that our first half is heavily weighted on our OPEX and generally our sales tend to have a spike in the second half normally.

Gregory Gibas: Hey, good morning, Dave and Perry. Thanks for taking the questions. Hey, Greg, good morning. Good morning.

Gregory Gibas: You know, given, I guess you reiterated guidance, sorry. Anything that surprised you, you know, positively or negatively, in the quarter and maybe into Q3, just try to get a sense of puts and takes on maintaining expectations for the remainder of the year.

Greg Gibas: You know, given, I guess you reiterated guidance, sorry. Anything that surprised you, you know, positively or negatively, in the quarter and maybe into Q3, just try to get a sense of puts and takes on maintaining expectations for the remainder of the year. Yeah.

Gregory Gibas: You know, given, I guess you reiterated guidance, sorry, anything that surprised you, you know, positively or negatively in the quarter, and maybe in the Q3, just try to get a sense of puts and takes on, you know, maintaining expectations for the remainder of the year.

David Bruce: Yeah, I mean, I think, you know, maintaining our guidance sort of gives you an idea about sort of what we expected. We know that from an expense perspective, we know that our first half is heavily weighted to our OPEX, and generally, our sales tend to have a spike in the second half normally, and then, as we had spoken about, a lot of our newer businesses coming in the second half of this year. So we weren't really too surprised. I think we did mention some of the shipping delays in the SAP. That definitely affected them to some degree, and we don't know specifically how.

Unknown Attendee: Yeah, I mean, maintaining our guidance sort of gives you an idea about sort of what we expected. We know that from an expense perspective, we know that our first half is heavily weighted to our OPEX, and generally, our sales have a spike in the second half, normally.

David Bruce: Yeah, I mean, I think, you know, maintaining our guidance sort of gives you an idea about sort of what we expected. We know that

David Bruce: From an expense perspective, we know that our first half

David Bruce: is heavily weighted on our OPEX and generally our sales.

Unknown Attendee: And then, as we had spoken about a lot of our newer businesses coming in the second half of this year, so we weren't really too surprised. I think what we did mention were some of the shipping delays in the SAP that definitely affected us to some degree. And we don't know specifically, I mean, again, we're not really worried about it because we know it's trilling over. But you know, that that would have impacted Q2 numbers. We probably could have shown a better Q2 had we not had those issues. But that's just a short-term blip. We're really not nervous about it.

David Bruce: And then, as we had spoken about, a lot of our newer businesses coming in the second half of this year. So we weren't really too surprised. I think what we did mention the some of the shipping delays in the SAP that definitely impacted to some degree. And we don't know specifically. I mean, again, we're not really worried about it because we know it's drilling over, but you know, that would have impacted Q2 numbers. We probably could have shown a better Q2 had we not had those issues, but that's just a short term blip. We're really not nervous about it.

David Bruce: tend to have a spike in the second half normally.

Speaker Change: Unknown Attendee, Jae Chung, Paul Bartolai, David Bruce

David Bruce: I mean, again, we're not really worried about it because we know it's trilling over, but that would have impacted Q2 numbers. We probably could have shown a better Q2 had we not had those issues, but that's just a short-term blip. We're really not nervous about it.

Speaker Change: Unknown Attendee, Jae Chung, Paul Bartolai, David Bruce

David Bruce: So, yeah, I mean, that's why we reiterated the guidance. We kind of are moving along sort of as expected. I think. for us. One of the positives is, despite macro issues, you do hear a lot of our peers are talking about flat business or down single digits. R&R was looking like it was in a rebound in Q4, maybe not as much, but it's not going to—we don't feel that's going to affect us as much because a lot of our business is going to be new incremental sales, and that's something we've preached for quite a while, which is how pace that market right, despite you know that these single digit decline.

David Bruce: So yeah, I mean, that's why we reiterated the guidance. We kind of are moving along sort of as expected. I think for us, one of the positives is, despite macro issues, you hear a lot of our peers are talking about flat business or down single digits, R&R was looking like it was going to rebound in Q4, maybe not as much, but it's not going to, we don't feel that it's going to affect us as much because a lot of our business is going to be new incremental sales.

Unknown Attendee: So yeah, I mean, that's why we reiterated the guidance; we kind of are moving along, sort of as expected, I think. For us, one of the positives is, despite macro issues, you hear a lot of our peers are talking about flat business or down single digits, R&R was looking like it was going to rebound in Q4, maybe not as much, but it's not going to, we don't feel that it's going to affect us as much because a lot of our business is going to be new incremental sales.

David Bruce: So, yeah, I mean, that's why we reiterated the guidance, we kind of are moving along, sort of as expected, I think.

David Bruce: For us, one of the positives is, despite macro issues, you hear a lot of our peers are talking about flat business or down single digits, R&R.

David Bruce: was looking like it was going to rebound in Q4, maybe not as much, but it's not going to, we don't feel that's going to affect us as much because a lot of our business is going to be new incremental sales. And that's something we've preached for quite a while, which is outpace that.

David Bruce: And that's something we've preached for quite a while, which is to outpace that market, right? Despite these single-digit declines. So we're feeling pretty good about it. And yeah, so to go back to your original question, I don't think there was anything completely unexpected that we've seen through the first half at this point.

Unknown Attendee: And that's something we've preached for quite a while, which is to outpace that market, right? Despite these single-digit declines. So we're feeling pretty good about it. And yeah, so to go back to your original question, I don't think there was anything completely unexpected that we've seen through the first half at this point.

David Bruce: So we're feeling pretty good about it, and yeah, there's so to go back to your original question, I don't think there was anything completely unexpected that we've seen through the first half at this point. Great to appreciate the color there, and I guess, you know, regarding you know what you're seeing with rate, rate, you know, how is I guess is that trending in Q3? Do you expect a similar impact in Q3 relative to what you saw on Q2? It's just curious, I guess, your outlook on that and then whether you expect to maybe improve or kind of stay the same.

David Bruce: that market right despite you know that these single digit decline so we're feeling pretty good about it and yes there's to go back to your original question i don't think there was anything completely unexpected that we've seen through the first half at this point

Unknown Attendee: Great. Appreciate the call there, and I guess, you know, regarding, you know, what you're seeing with interest rates. You know, how is that trending in Q3? Do you expect a similar impact in Q3 relative to what you saw in Q2? I'm just curious, I guess your outlook on that and then whether you expect it to maybe improve or kind of, Unknown AttendeeYeah, yeah, the freight the freight.

Gregory Gibas: Great. I appreciate the call there.

Gregory Gibas: And I guess, you know, regarding what you're seeing with freight rates, you know, how, I guess, is that trending in Q3? Do you expect a similar impact in Q3 relative to what you saw in Q2? I'm just curious, I guess, your outlook on that and then whether you expect it to maybe improve or kind of, Unknown AttendeeYeah, yeah, the freight, the freight

Gregory Gibas: Great, appreciate the call there.

Gregory Gibas: And I guess, you know, regarding, you know, what you're seeing with freight rates,

Speaker Change: How is that trending in Q3? Do you expect a similar impact in Q3 relative to what you saw in Q2? Just curious, I guess, your outlook on that and then whether you expect it to maybe improve or kind of stay the same.

David Bruce: Yeah yeah, the freight business is always sort of a guessing game, you know. It was a lot different a couple years ago when things went off the wall, which was, you know, very unusual. We're not in that situation now. I think we're definitely seeing continued rate climbs. There's a mixed conversation in the industry until when they're going to come down. You know, some of the industry insiders that we've been talking to, we've been saying Q3 into Q4; some have been saying early 2025. So we're monitoring it. We're not particularly concerned. We have to be very careful, you know, as our inventory mix starts to be affected by higher landed cost product. We'll have to take a look to see how do we protect our margins. Again, you know, a lot of our customers handle their own freight. They, you know, we ship them directly from Asia, so we don't have to worry too much there. But we have to be competitive in the marketplace, right? So we'll always be competitive and we'll always monitor costs. And as of now, we're not in any sort of, you know, worry mode. I think it's just a monitor, wait and see approach to see where the market goes.

David Bruce: Yeah, yeah, the freight business is always sort of a guessing game, you know. It was a lot different a couple years ago when things went off the wall, which was, you know, very unusual. We're not, we're not in that situation now. I think we're definitely seeing continued rate climbs. There's a mixed conversation in the industry as to when they're going to come down. You know some of that. Some of the industry insiders that we've been talking to have been saying late q3 into q4. Some have been saying early 2025, so we're monitoring it. We're not particularly concerned. We have to be very careful, you know, as our inventory mix is Unknown Attendee, Perry Lin, Jae Chung, John Chen, Perry Lin, Jae Chung, Unknown Attendee.

Unknown Attendee: Yeah, yeah, the freight business is always sort of a guessing game. It was a lot different a couple years ago when things went off the wall, which was, you know, very unusual. We're not, we're not in that situation now. I think we're definitely seeing continued rate climbs. There's a mixed conversation in the industry as to when they're going to come down. You know some of that. Some of the industry insiders that we've been talking to have been saying Q late Q 3 into Q 4. Some have been saying early 2025, so we're monitoring it. We're not particularly concerned.

David Bruce: Yeah, yeah, the freight business is always sort of a guessing game, you know, it was a lot different a couple years ago when things went off the wall, which was, you know, very unusual. We're not in that situation now. I think we're definitely seeing

David Bruce: Continued rate climbs. There's a mixed

David Bruce: conversation in the industry as to when they're going to come down.

David Bruce: You know, some of that, some of the industry insiders that we've been talking to have been saying late Q3 into Q4, some have been saying early 2025. So we're monitoring it. We're not particularly concerned. We have to be very careful, you know, as our inventory mix.

Unknown Attendee: We have to be very careful, you know, as our inventory mix starts to be affected by higher-landed cost products. We'll have to take a look to see how we protect our margins. Again, you know, a lot of our customers handle their own freight. They, you know, we ship them directly from Asia, so we don't have to worry too much there, but we have to be competitive in the marketplace, right?

Speaker Change: Unknown Attendee, Jae Chung, Paul Bartolai, David Bruce

Unknown Attendee: So we'll always be competitive, and we'll always monitor costs. And as of now, we're not in any sort of, you know, worry mode. I think it's just a monitor, wait and see approach to see where the market goes.

Greg Keepus: Got it that's fair.

Gregory Gibas: Unknown Attendee Great. And I know we've talked about the, you know, Indian market in the past. Curious, you know, kind of the updated outlook on penetrating that market. You know, I saw you open an office there. Yeah, it's curious if you could address that opportunity. And, you know, maybe the next steps in that. Sure. So

Unknown Attendee: Unknown Attendee Great. And I know we've talked about the, you know, Indian market in the past. I'm curious, you know, kind of the updated outlook on penetrating that market. You know, I saw you open an office there. It's curious if you could address that opportunity and, you know, maybe the next steps in that. Sure.

David Bruce: Great, and I know we talked about the, you know, Indian market in the past. Curious, you know, kind of the updated outlook on penetrating that market. You know, I saw you open an office there. Yeah, curious you can address that opportunity and, you know, maybe the next steps in that market. Sure, so I think I mentioned on one of the calls, you know, our strategy initially is to secure some key distributors in some key markets. We've already secured one; we have two just about ready to close, and those distributors will begin the process to see the dealer and build a market for us in the north and the south of India.

Speaker Change: Got it. That's fair.

Gregory Gibas: Great, and I know we've talked about the, you know, Indian market in the past. I'm curious, you know, kind of the updated outlook on penetrating that market. You know, I saw you open an office there. I'm curious if you could address that opportunity and, you know, maybe the next steps in that market.

Unknown Attendee: Sure. So, I think I mentioned on one of the calls that our strategy initially is to secure some key distributors in some key markets. We've already secured one. We have two just about ready to close, and those distributors will begin the process of exploring the dealer and builder market for us in the north and the south of India. But one of the key components of that was us registering in India as a company, which we did, and opening our office slash showroom.

David Bruce: Sure, so I think I mentioned on one of the calls that our strategy initially is to secure some key distributors in some key markets. We've already secured one.

David Bruce: short so i think i mentioned on one of the callsyou know our strategy initially is to secure

David Bruce: We have two just about ready to close, and those distributors will begin the process of exploring the dealer and builder market for us in the north and the south of India. But one of the key components of that was us registering in India as a company, which we did, and opening our office slash showroom. It's primarily a showroom with a small office, and the showroom is critical because it allows us to, for the first time, invite architects, the designers, the builders, the dealers to see our product, and we will have an official sort of company launch there sometime this fall.

David Bruce: some key distributors in some key markets we've already secured one we have to just about ready to close and those distributors will begin the process to see the dealer and builder market for us in the north and the south of india

David Bruce: But one of the key components of that was us registering in India as a company, which we did, and opening our office. Last showroom, it's primarily a showroom with a small office, and the showroom is critical because it allows us to, for the first time, invite in the architects, the designers, the builders, the dealers to see our product. We will have an official sort of company launched there sometime this fall. It's not quite ready on the day yet, but the showroom should be ready. September October timeframe, so you know before your end will have that launch, and what that's going to do is going to really get our name out into the market. It's going to help us see the market, and once we do that, we expect a lot more speed and growth, and we'll be able to talk more about that as we go into next year about, you know, we'll get into a little more detail maybe in each particular market that we're in.

David Bruce: but one of the key components of that was us registering in India as a company which we did and Opening our office slash showroom. It's primarily a showroom with a small office and the showroom is critical because it allows us to for the first time

Unknown Attendee: It's primarily a showroom with a small office, and the showroom is critical because it allows us to, for the first time, invite the architects, the designers, the builders, the dealers to see our product, and we will have an official sort of company launch there sometime this fall. It's not quite ready for the date yet, but the showroom should be ready in the September-October time frame. So, you know, before year-end, we'll have that launch, and what that's going to do is really get our name out in the market.

David Bruce: invite in the architects, the designers, the builders, the dealers to see our product and we will have a an official sort of company launch there sometime this fall. It's not quite ready on the date yet but the showroom should be ready.

David Bruce: It's not quite ready for the date yet, but the showroom should be ready in the September-October time frame. So, you know, before year-end, we'll have that launch, and what that's going to do is really get our name out in the market. It's going to help us seed the market, and once we do that, we expect a lot more speed and growth, and we'll be able to talk more about that as we go into next year. You know, we'll get into a little more detail maybe in each particular market that we're in.

David Bruce: September-October timeframe so you know before year-end we'll have that launch and what that's going to do is going to really get our name out into the market it's going to help us seed the market and once we do that we expect a lot more speed

Unknown Attendee: It's going to help us seed the market, and once we do that, we expect a lot more speed and growth, and we'll be able to talk more about that as we go into next year. You know, we'll get into a little more detail maybe in each particular market that we're in.

David Bruce: and growth. And we'll be able to talk more about that as we go into next year about, you know, we'll get into a little more detail maybe in each particular market that we're in.

Gregory Gibas: Great. I appreciate it, Dave.

Unknown Attendee: Great. I appreciate it.

Speaker Change: greatappreciative churt

David Bruce: There are no further questions at this time. I would hand over the call to David Bruce for closing comments. Please go ahead. Thank you for your time.

David Bruce: There are no further questions at this time.

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

David Bruce: I would hand over the call to David Bruce for closing comments. Please go ahead. Thank you for your time and interest today, everybody. We appreciate your continued support of FGI. Stay well, and if we don't connect during the quarter, we certainly look forward to speaking with you on our next quarterly call.

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

David Bruce: Thank you for being with you on our next quarterly call.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Speaker Change: Unknown Attendee, Perry Lin, Jae Chung, John Chen, FGI Industries Unknown Attendee, Perry Lin, Jae Chung, John Chen, FGI Industries

Operator: Good morning, ladies and gentlemen, and welcome to the FGI Industries Inc. 2nd quarter 2024 results conference call. At this time, all lines are in listen only mode.

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press zero for the operator.

Operator: This call is being recorded on Thursday, August 8, 2024.

Jae Chung: I would now like to turn the conference over to Jae Chung, Vice President of Investor Relations at FGI Industries. Please go ahead. Thank you.

Jae Chung: Welcome to FGI Industries 2024 2nd quarter results conference call.

Jae Chung: Leading the call today are President and CEO David Bruce and Chief Financial Officer, Perry Lin. 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. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially.

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

David Bruce: Thank you, Jay.

David Bruce: Good morning, everyone, and thank you for joining our call today. I am pleased to share our second quarter results reflected the strategic investments we've made in our organic growth initiatives across our brands, products and channels, or BPC strategy. FGI reported total revenue of 29.4 million in the quarter, representing a year-over-year increase of 0.6%. Gross profit was 9 million reflecting growth of 11.9% compared to our prior year. Gross margin improved to 30.5%, an increase of 310 basis points compared to the second quarter of 2023.

David Bruce: The industry outlook remains relatively flat overall, with our customers forecasting minimal growth in 2024. During the second quarter, some of our shipments experienced extended lead times and delays due in part to our transition to SAP Enterprise Software and continued industry-wide import logistics challenges. This impacted our second quarter results. Freight rates have more than doubled since December 2023, and we are closely tracking prices for the remainder of 2024. We expect to fulfill the delayed shipments in the second half of the year.

David Bruce: Don't tell you where our revenue declined 8% year-over-year in the quarter. We remain optimistic about Plushguard in the second half of 2024. We continue to shift towards lower priced offerings in our bad furniture segment and are excited about our assortment and new programs that are more aligned with the market pricing and design trends. The shower systems business benefit from new customer programs reporting an increase in revenue of 37% compared to the same period last year.

David Bruce: In custom kitchen cabinetry, covered bridge revenue increased 66% in the quarter, driven by continued strong dealer and customer expansion across the U.S. Ile Porter, our digital only custom kitchen joint venture, is setting the stage for its official launch. Ile Porter aims to establish a relationship with the premium designer community with on-prem products via an AI-backed digital sales platform. Our geographic expansion plans in Europe and India hold significant promise of driving growth.

David Bruce: During the quarter, we opened an office in the showroom in India and engaged new distribution partners in the burgeoning bath market. Our strategic growth initiatives are progressing well and are expected to fuel above market organic future growth. I commend our FGI team for their dedication to our long-term objectives, positioning the company for success in 2024 and beyond.

Perry Lin: Finally, I will conclude our guidance for the four-year 2024. For the second quarter of 2024, revenue total 29.4 million, an increase of 1% compared to the second quarter of 2023. As Dave mentioned, FGI experienced deletionment due in part to our transition to SAP Enterprise software and ocean freight disruption. We expect to fulfill deletionment in the second half of the year. Growth profit was 9 million in a quarter, an increase of 11.9% year over year, driven by our higher margin products.

Perry Lin: Our growth margin improved to 30.5% in the quarter compared to 27.4% in the prior year. We expect some motivation in the growth margin of deletionment of lower margin products are fulfilled in the second half. Our operating expenses increased to 9.4 million from 7.4 million in the prior year due to inflation and ongoing investment in our growth initiatives, including the marketing spend for fresh garden, island porter, cover for each kitchen cabin tree, and our Canadian wholesale business.

Perry Lin: We expect operating expenses to decline in the second half of the year. As the certain expense in the first half will now recur in the third and fourth quarter. Get operating income was negative half million in the quarter, down from 0.6 million the prior year. Higher operating expenses due to investing in our growth initiative, account data for the loss as overall revenue was largely free and the growth margin will higher in the quarter.

Perry Lin: Moving to our balance sheet, at the end of the second quarter, if you have had 17.4 million in total liquidity, which we believe is more than sufficient to fund our growth initiatives. Total liquidity decreased slightly from 17.8 million in the prior court.

Perry Lin: We are leaving 2024 guidance on change, which revenue in the range of 115-128 million. Adjusted operating income in the range of 2.8-3.8 million, and adjusted income in the range of 1.2-2 million, please note that the guidance for adjusted operating income and adjusted income is through certain long-reconning items. That completes our prepared remarks.

Operator: Operator, we are now ready for the question and answer portion of our call. Thank you.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star one in your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment please for your first question.

Ruben Garner: Your first question comes from Ruben Garner of Benchmark. Your line is already open. Thank you.

David Bruce: Good morning, everybody. Good morning, Ruben. Good morning. So, just a quick one on the SAP enterprise switch, when did that happen? Can you quantify what the impact was, and then any comments on how that may be beneficial to you guys going forward? Yeah, we implemented SAP at the end of May 1, technically Q2 May 1st was our official implementation date. We are excited about what it is going to do for us.

David Bruce: We were using a very old outdated ERP system at the company and we are already seeing benefits of the rollout and the efficiencies it is going to bring to our business. But of course, like many companies have experienced that on a new rollout, there was some hiccups and it did absolutely impact our domestic shipments as well as some of our direct import shipments for the quarter, but those are not law sales, those are those, that's business that will, we expect the police bill over into Q3.

David Bruce: Okay, and then I understand you guys have been moving down price points a little bit. We've heard that there's been a little bit of weakening in the consumer, particularly at the entry level, or you've seen any signs of that, we've seen a couple categories where there's been destox, take place, not exactly related to you guys, which is in the broader big box channel, any risk there, how do you feel about where inventory is, and that consumer in particular? Sure, no, it's a great question.

David Bruce: I think I mentioned, I think it was on the Q4 call, we didn't really anticipate talking about destocking this year as an issue and that's still the case. I think we went through most of our pain last year, going into this year. Our inventory position has increased a bit only because we're backing up for a lot of new program launches that are anticipated in the second half, and I think I mentioned that last time.

David Bruce: From a customer perspective, we actually are in, our customers are in a very good position with us on the majority of our product categories, and I think that I've mentioned before that the most affected category that we had when it came to destocking and as far as trade down was the bath furniture, but we've actually now, finally, I've talked about how we've been implementing and we debuted a lot of our newer, more mid-priced product strategy at the kitchen and bath show in February, and that's now taking effect, so we're starting to place that product, and we're starting to see a little bit improved order cadence from our larger customers as it relates to the bath furniture, going into the second half. So I think to answer, go back to your destocking question, no, we're not seeing that, we're actually seeing the exact opposite, we've already hit the floor, and I think we're only going to see improvement from here.

David Bruce: Okay, very helpful. And then in terms of next year, I guess, R&R market aside, we can kind of take our best guess at that. Can you remind us on what you have within your control between new products, new customers, any way to quantify that yet, or is it still too kind of early to kind of give us an idea of what that might look like? Yeah, if I can quantify 2025, I'd be a genius, I think, Reuben, but we feel good.

David Bruce: Here's let me say this. We feel really good about the moment that we have right now, as we're in Q3, going into Q4, of many of the newer program launches that we talked about are in play right now. We're actually actionable items for our sales teams as we speak. We like the fact that on the bath furniture side, we're starting to see it turn around. We really like what we're seeing in our kitchen business.

David Bruce: Our kitchen business is really moving full steam ahead, probably it's fastest momentum in many years since we've had the program. So I think that would sort of imply that our, you know, head into 2025 outside of macro issues, obviously, between half the monitor, but we're excited where things are going right now. We're finally you know, it's been a lot of discussion about these new programs and new customers coming on board, but now that they're sort of starting to be executed, you know, as of now, I mean, it's very early to talk about next year, but we're cautiously optimistic about next year as well. Again, let's see the macro issues, how they affect things, but you know, our expectation would be to, you know, outpace any of those issues in the first place with our new business opportunities.

Greg Keepus: Greg can grab guys and good luck on board.

Greg Keepus: Thank you. Your next question comes from Greg Keepus of Northland Securities. Your line is already open. Hey, good morning, David Barry. Thanks for taking the questions. Hey Greg, good morning, good morning.

David Bruce: You know, given I guess you reiterated guidance, sorry, anything that surprised you, you know, positively or negatively in the quarter, and maybe into Q3, just trying to get a sense of puts and takes on, you know, maintaining expectations for the remainder of the year. Yeah, I mean, I think though, you know, maintaining our guidance sort of gives you an idea about sort of what we expected. We know that from an expense perspective, we know that our first half is heavily weighted on our OPEX and generally our sales tend to have a spike in the second half normally.

David Bruce: And then as we had spoken about a lot of our newer businesses coming in the second half of this year. So we weren't really too surprised. I think what we did mention the some of the shipping delays in the SAP that definitely impacted to some degree. And we don't know specifically. I mean, again, we're not really worried about it because we know it's drilling over, but you know, that would have impacted Q2 numbers.

David Bruce: We probably could have shown a better Q2 had, we not had those issues, but that's just a short term blip. We're really not nervous about it. So yeah, I mean, that's why we reiterated the guidance. We kind of are moving along sort of as expected. I think, for us. One of the positives is despite macro issues, you do hear a lot of our peers are talking about flat business or down single digits R&R was looking like it was in a rebound in Q4 maybe not as much but it's not going to we don't feel that's going to affect us as much because a lot of our business is going to be new incremental sales and that's something we've preached for quite a while which is how pace that that market right despite you know that these single digit decline.

David Bruce: So we're feeling pretty good about it and yeah there's so to go back to your original question I don't think there was anything completely unexpected that we've seen through the first half at this point great to appreciate the color there and and I guess you know regarding you know what you're seeing with rate rate you know how is I guess is that trending in Q3 do you expect a similar impact in Q3 relative to what you saw on Q2 it's just curious I guess your outlook on that and then whether you expect to maybe improve or kind of stay the same. Yeah yeah the freight business is always sort of a guessing game you know it was a lot different a couple years ago when things went off the wall which was you know very unusual we're not in that situation now I think we're we're definitely seeing continued rate climbs there's a mixed conversation in the industry until when they're going to come down you know some of that some of the the industry insiders that we've been talking to we've been saying Q3 into Q4 some have been saying early 2025 so we're monitoring it we're not particularly concerned we have to be very careful you know as our inventory mix starts to be affected by higher landed cost product we'll have to take a look to see how do we protect our margins again you know we're a lot of our customers handle their own freight they you know we ship them directly from Asia so we don't have to worry too much there but we have to be competitive in the marketplace right so we'll we'll always be competitive and we'll always monitor costs and and as of now we're not in any sort of you know worry mode I think it's just a monitor wait and see approach to see where the market goes. Got it that's fair.

David Bruce: Great and I know we talked about the you know Indian market in the past curious you know kind of the updated outlook on penetrating that market you know I saw you open an office there. Yeah curious you can address that opportunity and you know maybe the next steps in that market sure so I think I mentioned on one of the calls you know our strategy initially is to secure some key distributors in some key markets we've already secured one we have to just about ready to close and those distributors will begin the process to see the dealer and build a market for us in the north and the south of India.

David Bruce: But one of the key components of that was us registering in India as a company which we did and opening our office last showroom it's primarily a showroom with a small office and the showroom is critical because it allows us to for the first time invite in the architects the designers the builders the dealers to see our product and we will have an official sort of company launched there sometime this fall it's not quite ready on the day yet but the showroom should be ready. September October timeframe so you know before your end will have that launch and what that's going to do is going to really get our name out into the market it's going to help us see the market and once we do that we expect a lot more speed and growth and we'll be able to talk more about that as we go into next year about you know we'll get into a little more detail maybe in each particular market that we're in.

David Bruce: Thank you for your time and interest today, everybody. We appreciate your continued support of FGI. Stay well.

David Bruce: And if we don't connect during the quarter, we certainly look forward to speaking with you.

David Bruce: Thank you for being with you on our next quarterly call.

Q2 2024 FGI Industries Ltd Earnings Call

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