Q3 2024 FGI Industries Ltd Earnings Call
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Speaker Change: Good day, and welcome to the FGI Industries 3rd Quarter 2024 Results Conference Call. All participants will be in listen-only mode.
Speaker Change: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2.
Speaker Change: Please note, this event is being recorded. I would now like to turn the conference over to Jae Chung, Vice President of FGI Industries. Please go ahead. Thank you. Welcome to FGI Industries' 2024 Third Quarter Results Conference Call.
Speaker Change: Leading the call today are President and CEO David Bruce and Chief Financial Officer Perry Lin.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Today's call will begin with a performance review and strategic update from Dave Bruce, followed by a financial review from Perry Lin.
Speaker Change: At the conclusion of these prepared remarks, we will open the line for questions.
With that, I'll turn the call over to Dave.
Dave Bruce: Thank you, Jae. Good morning, everyone, and thank you for joining our call today. I am pleased to share our third quarter results reflect the strategic investments we've made in our organic growth initiatives across our brands, products, and channels, or BPC strategy.
Dave Bruce: FGI reported total revenue of $36.1 million in the quarter, representing a year-over-year increase of 20.6 percent.
Dave Bruce: Gross profit was a record $9.3 million, growing 18.9% compared to the prior year.
Dave Bruce: Gross margin was 25.8% compared to 26.2%, a decline of 40 basis points compared to the third quarter of 2023, due in part to a higher mix of sanitary ware and bath furniture, and higher freight costs in the bath furniture and cover bridge segments.
Dave Bruce: The industry outlook remains relatively flat overall with our customers forecasting minimal growth in 2024, but our investments have driven revenue growth well above the market.
Dave Bruce: FTI's third quarter revenue increased significantly compared to the third quarter 2023 due to growth across all our businesses and geographies.
Dave Bruce: Revenue grew 21%, 9%, and 39% in the quarter for the U.S., Canada, and Europe markets respectively.
Dave Bruce: Sanitary wear revenue increased 3% year-over-year in the third quarter reversing the decline in the prior quarter compared to the prior year period.
Dave Bruce: Our bath furniture revenue increased 64% year-over-year as our shift towards lower-priced offerings and new programs that are more aligned with the market pricing and design trends gain traction.
Dave Bruce: The shower systems business reported an increase in revenue of 45% as demand trends remain positive driven by new customer programs.
Dave Bruce: In custom kitchen cabinetry, covered bridge revenue increased 93 percent in the quarter, driven by continued strong dealer and customer expansion across the U.S.
Dave Bruce: Isla Porter, our digital custom kitchen joint venture, is off to a strong start establishing relationships with the premium design community with on-trend products via an AI-backed digital sales platform.
Dave Bruce: Our geographic expansion plans in Europe and India hold significant promise of driving growth in coming quarters.
Our strategic growth initiatives are progressing well.
Dave Bruce: 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 for the remainder of 2024 and beyond. 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.
Perry Lin: Finally, I will conclude with our guidance for the Fall Year 2024.
Speaker Change: As Steve mentioned, for the third quarter 2024, revenue totaled $36.1 million, an increase of 20.6% compared to the third quarter of 2023.
Speaker Change: Gross profit was a record $9.3 million in the quarter, an increase of 18.9% year-over-year. Our gross margin declined to 25.8% in the quarter, compared to 26.2% the prior year.
our operating expense.
Speaker Change: increased 27.6% to $9.4 million from $7.3 million in the prior year due to ongoing investment in our growth initiative in the kitchen cabinet business.
Speaker Change: which includes Carver Bridge and Isle of Porter, and investing in distribution for our Canada business.
Gap operating income was negative.
Speaker Change: 0.1 million in the quarter down from a positive 0.5 million the prior year. Lower gross margin and higher operating expense due to investing in our growth initiative accounted for the loss.
Speaker Change: Moving to our balance sheet, at the end of third quarter, FGI has $16.3 million in total liquidity, which we believe is more than sufficient to fund our growth initiative.
Speaker Change: We are updating our 2024 guidance as follows. Our revised revenue guidance is 127 to 131 million compared to the previous range 115 to 128 million
from the previous range 2.8 to 3.8 million.
Speaker Change: The new adjusted net income balance is negative $1 million to break even.
from the previous guidance of 1.2 to 2 million.
Speaker Change: Please note that the guidance for adjusted operating income excludes certain non-recurring items.
Speaker Change: Adjusted net income excludes certain non-recurring items and includes an adjustment for minority interest. That concludes our prepared remarks. Operator, we are now ready for the question and answer portion of our call.
Thank you for watching. Bye.
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Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
and David Bruce. Thank you. Thank you.
Speaker Change: And the first question comes from Reuben Garner with the Benchmark Company. Please go ahead.
Thank you. Good morning, guys.
Good morning.
Speaker Change: Wondering if you could help us with the components of the growth year-over-year in the quarter. How much...
Speaker Change: of the outperformance. I mean, I certainly think it was still a down market and you grew 20%. How much of that was that new product?
Speaker Change: offering within the the bath furniture, was that a one-time kind of stocking benefit that goes away or is that an ongoing?
ongoing item, and I've got a couple follow-ups.
Speaker Change: A nice revenue bounce based on what we've been talking about the last couple quarters, which is really re-engineering that assortment to meet more of the pricing trends in the market, which we've talked about. Higher ticket.
higher retail
Speaker Change: Furniture has suffered more recently in the last year or so and we've been working Diligently to to change that assortment and we're starting to see the results. We're getting new placement. We're taking some share We've had a couple large customers also do the same
Speaker Change: by adding a new product into the mix, and we would fully expect to see that type of growth continue as we start to comp this new business.
Okay, and then can you talk about the impact on...
Paul Bartolai, David Bruce, Jae Chung
Speaker Change: unique in the quarter that dragged it down? Yeah, there was. We don't expect these margins in the quarter that you saw continue. We fully would anticipate to get back to where we were in previous quarters. Mostly what drove the margin
Speaker Change: change in Q3 were a couple things. One, ocean freight rates did spike. They have been going up this year. They were higher in Q3, and we did have
Speaker Change: larger cabinet shipments from our kitchen business, as you saw in the results.
which impacted Gross Margin.
as well as the growth in the bathroom furniture.
Speaker Change: and other products that we you know had brought in. So there was impact on freight at the same time there were some promotional costs associated with launching some of the new bathroom furniture.
Speaker Change: which impacted margin but we're very confident with the cadence that we have going into Q4 with the gross margin that we're going to get back to where we were in that 27 plus range for gross margin.
Thank you for watching.
Speaker Change: Okay and then so does that mean that the that's the primary difference between your profitability guide from
I mean, you've outperformed on the revenue front.
Speaker Change: You raised your revenue guide. The profitability side comes in some. Is that...
Speaker Change: entirely driven by the change in the the freight component and the the promotional piece that and I guess was the promotional piece not expected before or was there new even new wins sort of post last quarter that that impacted that? Yes so I think there's two ways to look at this so so from a gross margin perspective you know looking at that 25
0.6 number, whatever it was, 25.8.
Speaker Change: That's like I said, we're very confident we're going to get back to that 27 plus number based on our mix and you know with freight normalizing again We don't anticipate freight rates to be as spiked as they were in Q3
Speaker Change: But I think you're also talking about operating expense, which impacted our bottom line, right?
Speaker Change: We expect, and I think I mentioned this on one of the last calls, is we fully expect that we'll be able to leverage a lot of our operating costs. We have some good leverage here.
Speaker Change: and we fully expect that we'll be able to, in the short-term, in the near-term, and the mid-term...
Speaker Change: continue to reduce our operating expense ratio, which is really critical, and leverage what we are investing, particularly in the new businesses such as Isla Porter and the kitchen growth, which is a large area of investment for us.
Speaker Change: which have, you know, in the short term, negatively impacted our bottom line, but as you're starting to see, is now starting to...
Speaker Change: impact positive results on the revenue side, which in turn will drive gross margin and gross profit dollars. So, you know, it's a twofold thing in the quarter that the continued investments in what we feel are some of our key core growth categories, as well as that little bit of uplift with promotional costs and freight on the gross margin perspective.
Speaker Change: Okay, great. I'm going to sneak one more big picture question in. What are your customers saying, you know, today as, I know it's early, but kind of initial thoughts.
Speaker Change: For next year, I mean, I think there was a lot of optimism over the last couple of months that rates coming in could have a meaningful impact, but it seems that in the near term, at least, rates have actually gone.
Speaker Change: The other direction is a muted outlook for 25, for the industry. Still the right way to look at it, or do you sense that there is, you know, increasing optimism from your customers? I would say there's cautious optimism. I do think muted is a good term.
Speaker Change: I believe, you know, some of our industry comps for some of our customers, you know, you're looking at zero to low single-digit growth potential next year. For us, however, you know, we're starting to take share in some of the key categories we do business with.
Speaker Change: that we do business in, and so we're not necessarily tied to where the market goes.
Speaker Change: But to answer the question, I think the industry is cautiously optimistic about some improvements.
Speaker Change: and I think if rates which we would it seems everybody expects that rates will improve and that should that should spur a little bit of market activity beyond just the the incremental growth that we're expecting.
Speaker Change: Okay, great. Thanks, guys. Congrats on the progress and good luck in the year end. Great. Thank you.
Speaker Change: With no further questions, 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.
Thank you for watching.
Speaker Change: All right, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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