FGI Industries (FGI) 15 May 222022 Q1 Earnings call transcript

Greetings. Welcome to the FGI First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. the to turn Bartolai. host, now will conference your over Paul I

may You begin.

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

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

our of final results a please Risk initial refer from of some could of the that the our to filings including SEC, the latest For prospectus public with the differ, actual cause offering. to discussion section factors Factors

call you will of discussed release please find call Today's during Additionally, Bruce, the by questions. strategic call the historical measures we we to a At from Lin. prepared in our Perry these can that the turn of conclusion open from press followed performance review begin non-GAAP I'll the that, yesterday. the Dave. financial line will update and note With financial for reconciliations with issued the review Dave over remarks,

Thanks, to everyone. good Paul, morning and

the our and the and of operating highlighting key we start our first initial full our to partners commitment initiatives, stability income, Our model quarter consumers, markets. business portfolio, of and expectations recovery margin our strategic and strength as got off end of product exceeded including our our key ongoing channel the as adjusted both a a solid our company to public for overall revenues strength

million, a product offset growth shower $X.X and categories, kitchen by well costs. volume as as momentum from million strong income Our XX% as driven issues, Furniture generated our newer revenue both adjusted continued pressures chain our $X first lines, year-over-year We quarter supply cabinetry quarter first which systems by in was first in was as and last Sanitaryware and by operating company such Bath of organic business. custom quarter, increased basis, strong revenue across our growth public inflationary year's on down our

And expect the continue areas near-term and stability increased inflation, the markets through the driven basis the core priority improve continue underlying we that consistently highlighting XXXX, home by home. quarter, market points confident will Perry XXX kitchen against mix for rates will plan these improvement these the our sequential and as in areas most margins Despite scale, gains. solid important strong our bath generated shortly, to bath as efficiency headwinds, discuss the second rising quarter. nearly of in made progress initiatives to have and in we a in improved margin We to Homeowners ranked remain of gross As improvement of and place we within we uncertainty highest spending first the these cost market from margin fundamentals good longer in spending. kitchen gross term, of XXXX. for the and fourth half remain recover expansion

So better up we uncertainty. during hold times are to of these home improvement the surprised not segments see of market

remember repairs for solid that Studies great and at has XXXX XXXX only improvements the XX% indicator Our forecasts revenue of XXXX the important consistently The at over homeowner to X% to recession in and X% our by the range Housing Center during is decades Joint to on the by rates. and R&R market, to the stable It remodel repair supported be for in than several University, market. last the new leading is expenditures market XXXX. with tied which throughout Harvard grown roughly of grow the to view is to of recent remodeling more activity calls also published tends construction double-digit which exception predictable being into

higher During ownership, of existing times may of to the in typically homeowner rising rates, continues home. invest when to slow existing their home new cost and sales due

in new we a homes often consumers to fact, during financially more kitchen as a then higher upgrade In see mortgage. step bathroom rates, increase of feasible their into investments existing it's for times family or a higher-cost

long-term by trends incomes encouraged at household to spending by growth we declining growth business, an the As of long-term continue demand housing be activity, with outlook The supportive sales home and of demographic market. in stock. and in aging housing the household strong improvement spending, fundamentals in our look driven consumer we the drivers remain underlying home debt

innovation, the While we focused in near remain are creating term, above-market value growth above plan of significantly averages, value focus product the environment. our rates trends strategic the long-term compound growth on to demand risks deployment. organic creation our capital efficient Consistent improvements market operational to balanced teams growth, potential driving regardless industry to our and on with cognizant FGI and through a intended drive of

during of quarter key follows. accomplishments against are these as first Some the our initiatives

our innovation. beginning to product with First, commitment

During valve Craft Jetcoat will shower wall that by bases the of complement decor bath tile through first our launch ADA be collection. decorative Shower a any new number shower & quarter, product thermostatic we also will line Main the and patterns continued to systems of and expand our accompanied

expect can Additionally, that growth Sanford our Contrac with in some most we to a new high-efficiency our touchless coming organic product few Contrac popular which will Pro examples toilet tank well of Sense the are series our Toilet contribute X-piece toilet, as be These launched just quarters. of our integrated flush continued introductions bowls. we as also innovative

strategy, Brands, growth the our is strategy. stands driver BPC for Channels, Second key and Products, of organic which is and our

no We are pursuing Systems we we recently Kitchen presence, and such Cabinetry. within exciting Bath including product have as and our core existing Kitchen entered where or categories very limited markets categories Shower

as we Kitchen and will Cabinetry continue to other acceptance and well We System products, we positive consumer do product continue new within and where these participate. to see our expand verticals Wall Shower not Bath currently in categories, as of Kitchen

forward growth We to FGI, and of for exciting that we lot the we develop. continue meaningful a drive as believe in to initiatives look organic market have updating these development programs could

our is performance. Headwinds impacted supply from inflationary on Third have margin and focus disruptions negatively recent chain pressures margin expansion. driving

offsetting the continue company these headwinds to efficiency sequential make increases we gross seasonal lower the revenues. quarter However, price strong through progress generated during despite And margin and margin other improvements measures. first

To half generate sequential an of will are gains, to in implementation we we margin have accelerate this process, profitable mix, we confident continued are margins more SAP and leverage. or expand planning this a term, of QX opportunity improvement XXXX, we efficiency the though longer and in We on back an believe gross starting further year. help operating QX

dedication is Finally, deployment. capital to our efficient

on continue to deploying growth capital towards will Our organic strategies. primary focus be

to exciting same in term. initiatives continue time, our near as have into we although the any At and hope opportunities. numerous bolt-on We shifted we and to development growth XXXX be new in be balance think bolt-ons we the announcements opportunities, to able further pursue beyond make may

our Perry important forward excited are the priorities, for on early community strategic will of turn over detailed We to continuing against look the it progress I by our investment progress With financials. a more to that, review goals. these our and update to on we

in provide good year it sheet, liquidity up Dave Revenue million Sanitaryware on benefited an our on during morning and of increase our and to year, both from full mix. you XXXX details driven benefit additional wrap will give totaled update everyone. I the with growth and the and $XX.X X% XX% prior balance by and XX% first quarter volume Thank a guidance. some Revenue the an compared quarter, growth XXXX, price volume Furniture. Bath from

a revenue the favorable in in However, Bath quarter. overall resulted in a less mix decline Furniture

respectively, growth resulting our were newer Other US responses strong modestly. revenues. Revenue with from Europe while down revenue was our and We up strong Canada favorable continued in to in experience across and customer XX% markets core our products, trends XX%,

our Sanitaryware growth the was business from growth supply and XXXX, chain order period, from $XX favorable by volume XX% first was Bath prior million period, pro in lines. during customers our quarter prior some an $XX at Volume Furniture driven push-out during quarter a primarily XX% driven should issues to X% strength XXXX, to of of mix. volume growth and revenue experienced compared during continued the the of offset challenges, quarter during We Furniture mix. Bath less XX% reverse logistics price was key by the as first channel. was the warehouse by million compared quarter increase which decrease quarter. to benefit due in second Looking

volume growth XXX% million million the While of System the quarter as the was demand Gross trend underlying offset the XXXX, was in an prior the pressures. revenue chain growth of timing solid. our revenues increase impacted profit disruptions during first during remained strong Jetcoat quarter, first by orders period, to compared the was Shower price year first X% XXXX, increase Wall by inflationary of quarter Other supply driven an improved in the revenue to period, the compared $X.X business and negatively and mix. prior of $X.X

gross result XX.X% was quarter. margin a As factors, of profit the these during

as points down While from the from quarter, period, to headwinds. supply the our on we year margin fourth the it are to was this and nearly XXX up chain initiatives starting was traction in see recover inflationary from basis XX.X% the lost prior

the in further pricing the income look as first million increases, down We pricing to sequential in million continued the implementing will We back needed. capture gross period. half prior from and during GAAP confident our on improvement our margin are plans, was seeing good operating quarter year. and year expect fully generate we remain XXXX, actions into $X.X margin into the $X.X of

income income costs, to bonuses and million, prior-year quarter, was Excluding by gross expenses period, costs. $X $X.X strong revenue $X.X growth public adjusted operating first the margin of million selling, million pressure, stock-based distribution higher as compensation and was one-time during company IPO the offset operating compared adjusted and in of

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

net after-tax or share net $X.XX of $XXX,XXX, compensation $X.XX was $X.X per million versus income and $X.X diluted adjusted impact of IPO Excluding the or of income year. adjusted bonuses stock-based diluted last per share expenses million

balance turning our sheet to the Now, liquidity. and

$X.X $X.X cash total and our million Company at under XX, net million March of end the cash, of million March the of total the had Combined Company and of of was credit. At the debt quarter, equivalents cash $XX.X credit $XX.X of liquidity of facility, As XX. million. availability with letters XXXX, had

to capital a expenditure light position from Our free business than with current conversion sufficient with cash needs. fund We low more our together is benefit model initiatives. capital strong our flow liquidity relatively growth

limited in capital during the resulted have a investments has working lean management We inventory system that recent challenges. even

Our over X we capital expect level but are current work this working months. X to to elevated, next down the

X% We capital to remain expect our around of spending needs revenue.

our into trajectory XXXX, on recovery the remain we initiatives. growth we remainder look As confident our of and margin in execution

to it in perspective Additionally, volume a we believe to continue XXXX based backdrop. current industry is assume down market to modestly from the the is prudent flat on

financial million, a operating for prepared income $X.X portion be As in now range call. revenue a $X completes our of re-affirming are $X range million the we ready calls $X.X million are our for our of to question-and-answer which million, Operator, and be of million. we remarks. income to net million for the of in This $XXX guidance $XXX to range to result, XXXX, to the

is question with [Operator Gardner Co. first your Please Instructions] Reuben The Our proceed question. from Benchmark with

Thank morning you. everybody. Good

morning. Good

top very you're start, that very in trends the growth consumer the think quarter. Canada QX. seeing maybe concerns more you I probably US and very, that in started with the late the about line? talk in recently both to rate just and move strong on the Maybe Can the

So, early would comment on QX anything in great. you be could

spend still already improvement baked share forward, in of of beginning by into going consistent gains what getting detail. a Dave, already our lot We're X% seeing the from products a our of new this very we've realizing a – is this order without guidance, lot seen pattern we're of been happy far launching. at mean, incremental We've I that very in through on in and reduction QX our Yeah. home way. was gains that sort customers incremental point. the we're with a We've so the

of lot the in for and move continued share gain that we seeing the ability a have forward. to we as us we're demand So, confidence

that can number that Dave, basis And a just improvement on the clarify X% the year-over-year home to industry you're you off is X%, assuming just... XXXX or

Yeah. No, conservative no. home the been improvements We've in side.

more such high Cabinetry than our DIY of issues bit businesses, the flat business, a the the Cabinetry previously because there the mentioned a been more last balance and year. been obviously. Perry R&R chain have business is our sales side little has think supply it I cabinet were is primarily than was affected of that There our side,

yeah, small business that forward. So a in we for going decrease baked

Our pro already we business, end year, year, have much a let point also particularly has the see all outlined, through going last even the been we of of going up don't at as really XXXX. second we quarter strong into which to as of at at expect through this go this

Got it.

Thank for you Okay. that.

room and So the now margin is run tell offsetting for you year-over-year dollar higher or on a basis an good Can to catch standpoint? the price from basis, year-over-year where costs the contraction still gross cost? on and stand and just is revenue progress there Are up dollars per inflation on margin front. from mix, a you on us you dollar

Yeah. we're which probably inflation should QX, still there of further. some material maybe, XX% say, impact impact adjustments captured there's still We've I that that that actions I taking implementing. in mean, whether I we're roughly that freight. are our But price be we're would still raw or around say, - will cost

that we through You improvement enter we roll QX, particularly. and second from the expect into we QX, the see margin we XXXX had only continue as but QX sequential as fully of half not can to

lot can thoughts on And R&R. about Okay. discussion talk maybe your about you a of

in there, endeavor? about wholesale mortgage more are within picture anything good Did some you longer the else plans US. so change in rise maybe in do that of economy invest feel towards into long-term or investments think the or the on continue term I rates your to the geared going going and channel the you'll

that's question. good no, Yes, a

and rates, business. Regarding in really where real decrease had we've correlation never a rising a between rates our

back, Recession, their home about which want to the XXXX dropped go Recession, business activity. even to all so market it, Great maybe was happens we rise, reverse just And back and purchases, from you extreme. if to trough they reinvest into through off house, to think was people XX%, go new start we talked peak that to capture rates is only I and to the as right, on back back business, our the Great our XXXX, that

even very I order So, I impact issues mentioned environment with we We of point. balance we're opening on in now on like don't market patterns going and at demands the are and know see year the our when the for caution, are still us rates what cautious this But the as very, in any now, rates. in would the Europe. like macro rising, are of about course. There's think remarks the Asia, steady. our really I rising looks right in COVID of optimistic over still what's we that still

quarter? last given move something then the that we year, provide you first those persist through just Are Or you Europe, was expect And you in into me, what of maybe something Great. in to you the one can but as kind a just there? the for bit uncertainty? touched one-time there color nature more little saw on trends

the both. some A had little in orders of disruption back of potential COVID bit XXXX very retail key in the We've Europe Asia. anticipation in placed large further of customers half in of

out shifted of later that obviously, the end the - of received product beginning in QX. their they that And So, POs for the year at and demand QX.

shift. orders were go a many a will we been lower we some of QX degree, supply for to what We to priced in into product to there, or those so margin of Part There customers higher as second some as point place want we've also well, as didn't didn't that. year. Europe, to looking we'll they So a that of reflected - expected. let were back making goods as in half is the me because mix be price opening which shift that call the mix go

and we you going don't a in expect there Europe the with of The a about impact in on So, was in cadence Ukraine. don't uncertainty those at concerns QX, but in impact. expect going QX on the obviously two the we right order things - part based is the that what in third volume bigger bit But dramatic changed what's that is due China was on to that point. have that's to now saw going

to said one last going Great. one; can. more I'm sneak I if in I

me made You think of something…

Sure…

or So if about a Is what, the the of rest products? what's up? two And hearing in still the customers the then expectations - and the right lean for now running summer North from guess guess it’s been part extremely What's America anything, I your to able your I question. retailers inventory are like have for you year? it catch

Yeah, because out orders a coming starting were QX, in to call we'll the of lot in degree the in the that. flush a situations to later year of of QX inventory of some it and we're effect a see of bullwhip clogged beginning but

example, as up out particularly the very large expect season to flush thing and see business happen absolutely saw in been inventory a the Canada, We've Just we a pulling started just wholesale as shower been quickly, our of business lot inventory. an watching of same But builder we in our in and accelerate to that's the US. break.

we the the by see would beginning we've easing inventory, we exactly expected we what that on had of QX, and that as and So a - seen. that's pull

would what normal we get on dependent longer COVID to seen on far, middle so two roller the fully of so by a no last the back like expect years going that consider the of to We're we've to hopefully what is we cadence the based So speak. year. order coaster,

the questions, guys. taking for Thanks Got it.

problem. Thank No you.

Thank you.

with Greg Gibas Securities. question Northland Our Please your is proceed with next question. from

question. and Dave taking for the Thanks Hey. Perry. Good morning,

Good morning.

morning. Good

maybe of visibility if kind I talk guidance. follow-up I level guess could on if high you I first on orders. wondering was could of

You I that, the about along solid your growth you assume half? being with do of pricing kind a into kind QX of guess generally the off does levels volume talked visibility but increases. of versus to same start, back have guidance

X% it this and think XX% I from on then side was pricing volume the mix? the quarter

it's so Yes, a question. great

all, First our of visibility.

at X we from going X have month visibility, customers. out on call least our data I’ll We that based to solidly, have

to confident work we're year right that. At we're patterns on However, our XX, one order are same that reversal margins have largest a understand last come at year. them customers, seeing our what Last you lower based very lot last We of we demand XXXX, the on in QX, rolling the so with and now so out much of side massive this shipping what that's of end on on delays much, a year. feel time, flip that far, orders forecasting, sort at only constantly the updating because was so in the of we looking and had were the year, coming. happened in were

this bit beginning to and last think improve. And of at volumes that starting outlined the the lower margins the on our were the I we as a call. then year, are we year, little moved forward

our in But And relatively traditionally talked seeing, I this what we may traditionally, supply conservative on we QX, In we quarter. change. QX COVID current half right essentially about a has what largest now. our guidance, think our these always get with back based So, quarter. we're built last traditionally, which interruptions, chain volume, on very based been smallest on and forecast optimistic our without and want guidance has interruptions see, to we're the we is call, for been because through that

update determinations the that of far on optimism make out current need we once lot But a get the guidance QX, have entering we in confidence whether QX. we there. guidance so that into We about we have based to through will we have

steady? maybe kind of which guess could to could the I you or I to If forward? worsening, chain improve was degree staying level on on pressures. maybe wondering I those guess just high gross I kind helpful. margins Very comment follow-up lessen you're the guess improve And seeing Great. supply they're maybe if you expect I or or if would whether going of

see to Yeah, regarding the improvement China from the on containers. shipping chain, some supply cost we're starting

We haven't expect Southeast of seen rest We that from the too follow. would that of that much Asia. would

know same. how times sense, obviously, now this of In of getting Regarding are but that The longer has the I those where learning the before, lead we're a kind shipments, learning deal to the been. a really still think we're they've consistent. also stayed times they're We're with bit lead I lead we mentioned working longer, cadence with times. that

So cost the see lead big tell I and times I portion the we're don't start can know logistics the that some the in expect just, going But the you second now apologize... we where we're we to shipping in going change shorten. when a right half. reduction to get if to move you do as I Can into hope of

Gross margins.

The gross margin.

gross Margin, yeah. Okay,

jump So, as to We've taking mentioned. pricing QX. QX from we've actions that sequential had been we've margin gross

expect We of to second half see that into the XXXX. going

we're So based seeing I that we taking, the what on far, we would coming gross expectation, of our that at the implemented, so to mean, XXXX. margins and to back actions what's we is what we're close where with beginning were get expect, we've with our

growth liquidity deployment on expand the organic you case, initiatives, it. or were just maybe guess uncertain the is beyond. maybe that for? Got up If Is primarily and that just Any kind of hoping on thoughts market to of not any there? you could there it's Or expecting comments And those seeing liquidity? capital you're bolt-ons relating to your maybe seeing in kind driven opportunities of strategies? side, until what maybe that's so those I terms maybe preserving helpful. focus follow you if XXXX on could I not want on you're Very the

not Yes, bolt-ons. the on of lack to it's opportunity Sure. due definitely

actively are looking. We

coming investment organic opportunities on wouldn't that very maybe happen we The will time said will potential to reason obviously. obviously would can't lot much business, the our opportunities of is it be have large plate. right now. also XXXX we and up in fruition, into detail now have large close those quite of but are take fruitful which to We sort and for we our some But potentially really growth quite that a be get

not entertaining doesn't it bolt-on. mean that So, we're

is that stuff guess come out, it has opportunities it all nothing do push to to Our now, with some right all. talking nothing with not we’re naturally probably of we're just the but things with involved liquidity. the to fruition that that It opportunities quickly, being available if the about, of has do at would

Got it. Thanks for color. the

Sure.

next with Our question follow-up with Co. The question proceed Benchmark your Gardner Reuben Please a is from

Thanks. Dave, I couldn’t of on Is of it help geography? opportunity? but when jump back you on product, on that customer, timing last large give can kind Any know organic and new more? one. will potential we new Any incremental us color maybe new insight that thoughts

things. talking get and strategy, couple a our products of our really been of follows we But into BPC at this can’t new channels. necessarily, do lot go Yeah. I not expanding It’s too BPC We’ve our detail of our it point. expanding of about outside our what There’s product, a different strategy. today. much to It’s brands, the detail over.

So, right talking the some in Street. once that have more we’ll I be of that would we’ve fits say been of the strategy we able out detail, about, there and to a share that with little sort it

Thank guys. Understood. for Appreciate that. you it,

Sure.

for We to will call question-and-answer the the end now session. Bruce David have of reached remarks. over the turn closing I

very on well, Thank next you We and call. to we appreciate your look it, connecting and the FGI. Thank interest you and quarterly Stay much. continued with time we you of our today forward for everybody. support appreciate

at This conference, you concludes participation. this you your today’s for and disconnect time. your lines Thank may