Q4 2024 FGI Industries Ltd Earnings Call

Speaker Change: Good morning and welcome to the FGI Industries Inc. 4th, 2024 Results Conference Call.

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 the performance review and strategic update from Dave Bruce followed by a financial review from Harry Linda at.

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. Thank.

Speaker Change: Thank you Jay good morning, everyone and thank you for joining our call today.

Speaker Change: I am pleased to share our fourth quarter results reflect the strategic investments we've made in our organic growth initiatives across our brands products and channels or BPC strategy.

Speaker Change: Chi I reported total revenue of $35 $6 million in the quarter, representing a year over year increase of 15%.

Speaker Change: Profit was $8 7 million a decrease of three 2% compared to the prior year gross margin was 24, 6% compared to 29, 2% a decline of 460 basis points compared to the fourth quarter of 2023 due in part to customer marketing support and costs related to new Biz.

Speaker Change: And associated promotional expenses and Bath furniture.

Speaker Change: The industry outlook remains relatively flat overall with our customers forecasting minimal growth in 2025, but our investments have driven our revenue growth well above well above the market F. G. I as fourth quarter revenue increased significantly compared to the third quarter 2023 due to growth across all our businesses.

Speaker Change: N geographies revenue grow grew 14, 7% nine 9% and 23, 3% in the quarter for the U S, Canada, and Europe markets, respectively Senate everywhere revenue increased five 8% year over year in the fourth quarter compared to the prior year period.

Speaker Change: Our bath furniture revenue increased 42% year over year as our shift to Mark It aligns program pricing and design outpaced our sales expectations driven by new business wins.

Speaker Change: The shower systems business reported an increase in revenue of 17% as demand trends remain positive further supported by our new customer programs and continued order growth from a broader customer base.

Speaker Change: In custom kitchen Cabinetry covered bridge revenue increased 68, 3% in the quarter driven by continued order momentum expanded geographies and higher dealer count.

Speaker Change: I look quarter or digital accustomed kitchen joint venture continues to establish relationships with the premium design community with on trend products.

Speaker Change: AI backed digital sales platform.

Speaker Change: Our geographic expansion in Europe, and India holds significant promise of driving growth in coming quarters.

Speaker Change: Our strategic growth initiatives are progressing well and are expected to fuel above market organic growth I commend our F. Gi team for their dedication to our long term objectives positioning the company for success for the remainder of 2025 and beyond.

Speaker Change: Before I hand, it over to Perry I want to say a few words about tariffs the increasing tariff environment in 2025 remains fluid.

Speaker Change: F. G. I is working with our suppliers and customers to support one another as we navigate the new normal together, we went through a similar process. During the first Trump administration's tariff increases. So this is not new to US. We are confident that we can work through what comes given the close relationships, we have cultivated over the years with our vendors.

Speaker Change: And customers with that I'll hand, it over to Perry for a more detailed financial review. Thank you.

Perry: And good morning, everyone.

Perry: 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 with our guidance for the full year 2025.

Perry: Dave mentioned for the fourth quarter of 'twenty 'twenty four revenue totaled $35 6 million, an increase of 15% compared to the fourth quarter up 20 stores.

Perry: Gross profit was eight point stay about media in the quarter, a decrease of three 2% year over year, our gross margin declined to 24, 6% in the quarter compared to 29.2% the prior year.

Perry: Our operating expenses increased 28, 4% to 10 million from $7 8 million in the prior year due you wideband nobody investing in initiative related to our P. B C growth strategy.

Perry: GAAP operating income was negative 1.3 media in the quarter down following the path of people one point too many in the prior year.

Perry: Lower gross margin and higher operating expenses due to investing in our growth initiatives accounted for the loss.

Perry: Moving to our balance sheet at the end of fourth quarter, but you guys had $15 6 million in total liquidity, which we believe is more than sufficient to fund our growth initiative.

Perry: Providing our initial 2025 guidance US follow all revenue guidance is 135 to 145 million the adjusted.

Perry: Adjusted operating income guidance is a negative $2 million two parts people, one 5 million the adjusted.

Perry: Adjusted net income guidance is negative $1 9 million to pause people 1 million. Please note that the guidance for adjusted operating income excludes certain nonrecurring items.

Perry: Adjusted net income is scoop certain recurring item and in crew and adjustment for minority interest.

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

Perry: We will now begin the question and answer session to ask a question.

Perry: You May press Star then one on your telephone keypad.

Perry: If you are using a speaker phone.

Perry: Please pick up your handset before pressing the keys.

Perry: If at any time. Your question has been addressed and you would like to withdraw your question. Please.

Perry: Please press Star then two.

Perry: At this time, we will pause momentarily, while we assemble our roster.

Perry: Yeah.

Speaker Change: The first question comes from Greg <unk> with Northland Securities. Please go ahead.

David Perry: Hey, Thanks, Good morning, David Perry, Thanks for taking the questions.

David Perry: Wanted to follow up on your tariff commentary.

You know I guess, if you could elaborate maybe more on the expected impact of the business.

David Perry: How you may be working or remediate the impacts as well.

David Perry: Yeah.

David Perry: Are you sort of mentioned we've been through this before and you see the the news like we do.

David Perry: And you know we've been working closely with our suppliers.

David Perry: As well as our customers to mitigate as best we can.

David Perry: Through some support on costs.

David Perry: Obviously some of the tariffs are quite high we're not going to be able to obviously support all of that but we will do our best and at the same time, we continue as we've spoken before to look at.

Diversifying sourcing and we're in the midst of doing that now with certain things in.

David Perry: Certain categories and I think that you know, we feel pretty comfortable based on our expectation of where the tariffs are going to go in and how we can partner with our suppliers and our customers to navigate through this.

David Perry: And you know well this is not new and we feel pretty comfortable with our planning right now going into the middle of the year.

Speaker Change: Okay got it and yeah, Hey, if I could just follow up through on kind of the outlook.

David Perry: I'm wondering if you could just expand on the I guess kind of your assumptions that go into that.

David Perry: As it relates to you know obviously some of the headwinds, but you know you talked about still expecting I guess projections are for roughly flat industry related growth in 2025. So.

David Perry: Just I guess your assumptions and confidence that you can kind of continue to see growth in your DTC strategy.

David Perry: Yeah, No. It's a great question and it's something we've mentioned before is that you know we do expect the industry you'd be relatively flat.

David Perry: But as we demonstrated in Q4.

David Perry: We have a lot of new programs out there, we're expanding in our markets and channels and that's all incremental growth and quite frankly.

David Perry: That's where we see the majority of.

David Perry: The growth that you saw Perry mentioned on our guide right. So we're.

David Perry: We're very happy and confident with the new programs that are.

David Perry: Many of which have been already agreed to and are now in our implementation stage and there's others, but hopefully we get to that point in the second half of this year.

David Perry: And that's pretty much how we built our guide.

David Perry: And despite a flat market and that's something we've talked about for quite a while how our expectation has been with the BPC strategy to outpace the market. Despite any flattening out there and for sure. That's what we anticipate for the broader part of the market this year.

Speaker Change: Got it that's helpful I'll pass it on.

David Perry: Okay.

Moderator: The next question comes from Reuben Garner with benchmark. Please go ahead.

Reuben Garner: Thank you good morning, guys and excuse any duplicate questions I missed the first few minutes of prepared remarks.

Reuben Garner: The just a question on your outlook.

Reuben Garner: For operating income I guess kind of flattish or breakeven at the midpoint.

Reuben Garner: If I can.

Reuben Garner: Can you just kind of help me with the components of how you get there you're probably going to have I don't know roughly $8 million in incremental revenue, so a million and a half and incremental profits on that I thought there were some things that occurred in 24 that were kind of nonrecurring and may maybe would reverse or are you.

Reuben Garner: Get back this year or are there other offsets are you, including kind of tariff pressures already in that outlook can you just walk me through the bridge on the earnings side.

Reuben Garner: Yeah, no. It's a great question yeah. The majority of the what you're seeing here is we are looking at tariff pressure.

Reuben Garner: In the guide.

Reuben Garner: You know and there's a potential upside to that depending on that on on where that lands, but we are we obviously are trying to be relatively conservative with the outlook and understand that.

Reuben Garner: It is real the tire pressure, that's coming you know.

Reuben Garner: At the beginning of the year. If you remember there was not a lot of understanding in the market as to win 10.

Reuben Garner: <unk> may be impacted in the industry and things have moved a lot quicker. So you know we've we've sort of adjusted for that to understand that that's going to impact business for more time in the calendar year. So that's the majority of why you see that sort of flattish range too.

Reuben Garner: Slightly positive because of tariffs outside of that you know, we're we're very like I mentioned just on the previous call comment we're.

Reuben Garner: We're quite happy with our new growth.

Reuben Garner: Particularly some of the new markets on some of the newer programs and some of the larger new customers. We have so that's our that's the upside right. So and now it's a matter of just balancing that that tariff headwind.

Reuben Garner: And trying to maximize what we can to mitigate that as best we can.

Reuben Garner: So you guys went public.

Reuben Garner: Last time, we went through this or solve this is ed.

Reuben Garner: As an industry or country you didn't can you talk about how it works I mean or do you use surcharges for things like this are or do price increases go through and then if that's good I understand it's a fluid.

Reuben Garner:

Reuben Garner: Dynamic right and so one day, it's a 20% tariff of next day, it's a 45, how do you operate.

Reuben Garner: The pricing side and that sort of volatile backdrop.

Reuben Garner: Yeah. It's a great question, it's a little complex, but you know we generally work closely with customers customers also need help as to how they implement something like this and then we work with our suppliers on trying to maximize any cost that we can get and support from from their side and then we had when we adjust for timing on both sides that we work with our.

Reuben Garner: And understand that there is you know an inventory mix when product starts to come in at the tariffs cost so.

Reuben Garner: So we work with them on timing and yeah I wouldn't you know there are some companies that would.

Reuben Garner: I'm, calling it a surcharge they might even surcharge on invoice, but it's generally a little bit more consistent for us to adjust price.

Reuben Garner: As necessary when we determine what that price would be and then if things change we can make that adjustment as well you know our new Esa P system of course, we implement that makes that a bit easier now that's part of the reason we implemented it allows us for some flexibility.

Reuben Garner: And it allows us flexibility for our customers and our suppliers as well.

Speaker Change: And do the specific tariffs on China, and make it likely or possible that you would need to find.

Speaker Change: Product elsewhere or is it not to that level yet.

Speaker Change: Are there sort of other sourcing.

Speaker Change: Adjustments are all sets that can be made or is this all strictly you will have to put through price to keep up with the cost pressures you see.

Speaker Change: No as a matter of fact, we've been active in diversifying our sourcing so some of that.

Speaker Change: Diversification will positively impact this situation as far as how much and how do we account for that.

Speaker Change: That into some degree, but that's a fluid situation as far as moving some of our sourcing to.

Speaker Change: To impact 2025, but yeah, we've already been doing that and there's probably more to come as we navigate through this we have other options and things, but as you can imagine that's quite a fluid situation. That's a day to day week to week type thing.

Speaker Change: Great and then last one for me is the kind of flattish end market outlook I recognize you guys are mostly exposed to kind of the R&R.

Speaker Change: Panel what are your thoughts on risks versus upside there consumer confidence has obviously taken a big hit here of late.

Speaker Change: Is the feeling just that it's been a tough couple of years and so we're kind of.

Speaker Change: Likely to bottom out even if consumer confidence isn't so great or does that put that outlook at risk I know, it's kind of developing just over the last 30 days or so here.

Speaker Change: Yeah, I think I think originally if you went back to the later part of last year everybody was looking at this year is sort of a level set year.

Speaker Change: For the particulates to talk about the R&R market in particular, and if you look at some of the forecasts in R&R. It was essentially forecasted flat to down a couple of points. It's still there it's anywhere from down to one or two points up to up one or two points by the end of the year I think what's may be muted some optimism for the second half has been the tariffs and the.

Speaker Change: The unknown with macro environment with what's what's going on now.

Speaker Change: So I don't think.

Speaker Change: The overall R&R outlook has changed much other than maybe being extended flat through the whole year, but it's such a fluid situation two to three months from now that whole outlook could change for the back half. So are our saving Grace is sort of what I mentioned before our new programs in implementation.

Speaker Change: <unk>, our new business wins in our new market growth is our buffer to that flat market outlook right. So we're comfortable that these implement these new programs will be implemented.

Speaker Change: And help us outpace that market as per our guidance.

Speaker Change: And so the last one for me just a clarification on that I mean is it fair to say that the new business wins are.

Speaker Change: And the range of that.

Speaker Change: That kind of $8 million at the midpoint in your guide and the rest is just kind of flattish.

Speaker Change: Flattish market or is it something lower than that and there is some price in there from the tariffs yes.

Speaker Change: Yes, it's well, it's all a blend I mean, because theres going to be tariff pricing impact there is going to be.

Speaker Change: A little bit of organic growth with some of our larger customers and then of course, we have the incremental share growth from the new programs right. So we've we've blended all of that together.

Speaker Change: And again, each one of those elements outside of the new stuff I mean outside of the new programs a lot of that is fluid, we look potentially for us as we implement the new programs.

Speaker Change: We feel so confident about the success of them if they ramp up quicker than we had expected and they performed better than we expect we might even have an upside but of course, we're being cautious because again the market.

Speaker Change: Is it a little Topsy turvy right now and it's just it's just a little unknown. So we want to make sure that we're not you know over exaggerating or wins here.

Speaker Change: And just to make sure that we can outpace the market as we expect.

Speaker Change: Great. Thanks for the detail guys and good luck.

Speaker Change: Sure. Thank you.

Speaker Change: 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 really do appreciate your continued support of F. G. I stay well and if we don't connect during the quarter. We look forward to speaking with you on our next quarterly call.

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

David Bruce: Yeah.

David Bruce: Okay.

David Bruce: [music].