FGI Industries (FGI) 14 Nov 222022 Q3 Earnings call transcript

Good morning and welcome to FGI Industries’ Third Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Paul Bartolai. Please go ahead.

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

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

of factors of the SEC. that some filings actual of to differ, to cause the discussion refer results Risk a For the with our could please section Factors latest

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

Paul Thanks, to good and morning everyone.

progress on Our our and during to execute significant quarter, recovery third the margin market our advancements organic continued conditions growth we made made the solid uneven initiatives as team despite well on programs.

revenue entering in significant year-over-year still by two overcome these the facing exacerbated to the headwinds during quarter seen forecasted the growth. some and market to owing pressures We second and moderation destocking the were quarters. have we year, we able the R&R housing As trends in issues the generate were demand broader inventory these last market

in key the versus at too causing reduction revenues third customers come year was below in decline to the However, significant our expectations. of level inventory prior and to some our period quarter, overcome the of channel our

levels including organic believe margin both of by recovery return quarter. the continue, our our While it normalized product we destocking channel XXXX. and business. strong in which We to we evidenced customers by inventory on that should We predict current factors growth we difficult how our to as the with excellent custom quarter, on categories the in growth on can more remain initiatives, based during focused control, bridge progress in programs will and our cabinetry continued long inventory systems is purchases our of kitchen key discussions we remain programs other includes growth Jetcoat the third which organic encouraged covered made our Shower

we momentum initiatives track growth and to Our order our near-term inventory normalized. levels headwinds on return pattern remain once market expect channel despite the

momentum, continued our margin higher pricing to margins strong margin the In addition year newer costs drive lines, margin to with in quickly reduction over a and the the performance, gross organic in progress points margin on recovery by initiatives well, XXX profit growth in Strong growth significant revenues. programs, basis prior made our in disruptions to ago. levels expanding decline a basis the as on returning a to just supply sequential our we despite chain strides the gross witnessed freight product combined with

during up We decreasing destocking to revenue owing total maintain a and revenue trends well weighed key the inventory demand over quarter, our higher margin relatively across held XX% on on and product trends growth move in operating the our to End gross higher are categories but leverage. expect in year-over-year categories, third these furniture market margins to by and ability product least bath of basis. our margins time at confident our with operating levels rebound

remodel business, to the up Roughly demand. stable declines market, the business more be fall in in end current saw trends corrections market inventory bath market was the the repair declined expect XX% some custom which softer headwinds, our during the is cabinetry this XX% business stable resilient Despite primarily our time. being kitchen more is grew by and part our Canadian over shower primarily of which Our our and product hold focus impacted drive kitchen more the Overall, to period construction and in tends our And and more of severely sanitaryware XX% quarter. revenues bath business third our is systems market. well market as furniture to the we XX% than still driven predictable revenue and new sanitaryware business tied our the category, on by other uncertainty. and by in seeing should quarter business also

and on using long-term compound strategic balanced company-wide industry while to our uncertainties. capital is the plan, Our its with value of regardless efficient deployment. environment growth focus creating creation growth our driving intend at growth averages above a Consistent at organic focus and above market we improvements strategy, driving value through operational on and market VPC

key initiatives key third the quarter strategy The channels. stands these are our growth against follows. as accomplishments initiative, organic our is VPC brands, to key our and products during of which Some for

VPC quarter progress items. few nice and through wanted to the these made our program of have during a I We highlight

to have we our this program around third recent make the great quarter. and our Covered opportunities the business calls on custom we discussed the kitchen First, during progress brand cabinetry Bridge under continued on

September expected significant in the growth at channel dealer We XX XXX to network, dealer the up in of increased to growth at start continue into continue from XXXX, the XXXX. year, to XX the generate which strong with

well. and customers reached have custom certain beyond incremental national preliminary suppliers, generate act kitchen as with also We in which would key large their as agreements to growth XXXX

have we support opportunities. last development anticipated manufacturing business to As new we quarter, the invested capacity stated in

positioned in incremental well growth So, this for we business. are

make easier while a strength XXXX. business. the the see will purchase program System the Roth Shower Beginning Jetcoat continued the material called expected co-branded to momentum the of new in in-store is our market be be purchase fourth of we Jetcoat FGI incremental in brand bases shower-wall with systems The marketing together of will by private to shower Second, growing process, much brand Jetcoat. drive Lowe’s in also at walls with and sales Jetcoat have label Allen of XXXX, their the quarter will Wall company’s shower into & point

Additionally, that officially wall November. we Jetcoat are wholesale Canadian will our market line in in shower launch excited to announce the

to notable assortment new highlight including new geographic be be Craft first of product one and a will quarter XXXX launching price points FGI’s shower various in FGI to across toilets, features. toilets & of like program of would the branded and products, of to And a Third, more Main design. electronic we at initiatives are our [indiscernible] of Jetcoat branded contract new toilet our which In new brand the brand several bidet day quarter the piece will entire line, give of I flagship two-piece our in an launch exciting and kicking XXXX addition Canada, company along avenue lines launch the announce excited with the fourth company’s off few wall will complete more programs. the of footprint. our

investors focus The exhibit FGI to feet by of Show history exhibit our some of confident systems. channels square to including important followed on include and and started the the This Bridge to years incremental our of expansion these Australia. end In product branded showroom comfort, the at over we the would several our and product Germany, and features, company highlight bathroom to Bath our with the new footprint water the help the XXXX geographic & and stop new efforts the strategy, an to both which launch brands, and Craft that X,XXX Kingdom attending company styles our its innovation further capitalize is highlight of growth. that on our item the that new to in incremental Las Jetcoat Contrac, XXXX. is launch in Main VPC I be presence, continues international a January upgrade new largest cleaning first sales shower Covered like should growing United offerings as and have The in the FGI strategy in to ago kitchens, further or major wholesale all profit is products company also like step displaying VPC show will ease into to successfully should wall exhibit space, will any of by saving, announced and benefits drive has will product see and operational products tremendous National coordinated these welcome in would the into new cycle under FGI in grow that final products drive Germany Canada FGI we to sanitaryware and opportunities Canada. With product products. regions. base and Kitchen many Vegas, see development. a drive product Nevada within of will analysts of exciting user We leverage I’d introductions and geographic sales we existing expect these our

success markets largest improvement these early as Bunnings, seeing recent by for already retailer in the are evidenced sanitaryware of the new by in award market. a home XXXX program Australian We our

both growth We in and look meaningful local to in talent are opportunities base ahead. these countries our actively years building long-term forward the

strategy extremely organic remain these excited normalize. our growth our market market above confident and We initiatives help conditions are that our by growth will organic we drive against programs as us under continued VPC execution

strategy driving focus efficiency on The creation our second operating and is expansion. value of margin

XXX during made witnessed pleased we to year supply just with margin chain the I levels initiatives been margin year-over-year. gross basis very significant XXX a drive margins to the by previously, that have disruptions our gross points basis and on mentioned we to basis As on ago. am I progress points over prior able a sequential improving back quarter, recovery

capital dedication is Finally our deployment. efficient to

development growth That very coming the use in have evaluate these we meaningful the of initiatives to various opportunities partners. capital years discuss should to bolt-on growth are organic the opportunities We primary excited and in contributors and with programs near-term. that be we will about be continue continue and to potential and of quarters stages in said, several

our by disappointed that, to are detailed against and we progress on our of forward goals. for progress look investment remain financials. to these we priorities continuing the a line the our by quarter, to over results strategic will Perry With we community review our the turn I important on more While top excited it update during

primarily XX% were cabinetry as year business. freight to growth up compared by liquidity and of details decrease given sheet our additional third and year wrap Dave the will the quarter XXXX bath I morning the our volume factors our the it kitchen other prior provide primarily costs everyone. as some well offset strong These million $XX.X market. good during you, partially with guidance. shower due full destocking our XXXX, continued by balance furniture by driven inventory in to on Thank update totaled in segment and Revenue updated air on the system and a quarter weakness

our of primarily at lines, inventory decrease XXXX, reduction prior Looking $XX a revenue channel key by decline was partners third demand quarter relatively during remained a in has was of revenue the the business The compared sanitaryware largely XX% to End stable. million channel. customer period. pro the retail –

we million some pressure recent from Furniture rebound compared was revenue a us to Bath Furniture Bath period. the decrease XX% third business So to has destocking of inventory begun in the quarters. The quarter, expect level adjusted. volume see $X.X during prior to

expecting we So in trends the normalize back see of begin were half the there year. to to

system. compared rebound optimistic and as However, normalize. pressure XX% million revenue third XX.X% Bath improved was year our to basis the improved while the the in our offset decrease the revenue that as on Furniture such labor largely to was in business by $X in quarter percentage prior margin pressure points quarter, remain level, is as period some prior and reduction reduce gross third will our XX% the shower third costs quarter XXXX, further growth decline during improvement system Other market. We X% for period Jetcoat quarter, increase experienced attributable have The the volume margins, we the from we customers which in million during the to of continue by year this received of and kitchen significantly a kitchen [indiscernible] broader strong compared Gross in see XXX which was prior higher gains solid a up margin last cabinetry, inventory driven in chain to demand period. modest an primarily custom pricing continued $X.X year. quickly wall the versus inventory cabinetry growth XXXX profit shower product gross freight revenue during to elevated in

to Furniture factor the positive by from the which gross same gross the diluted share operating reflects drive retail The Bath to period third $X.X Other income in offset with the expect additional performance share net reduction margin segment, the remain gain $X.XX over revenue or income strong as improvement operating in in $X.X was during in $X.XX decline period rebound from the XXXX, year. was the last year count. significant million $X.X down operating million in third was the in X.X% drove We place, million The in year. partially the driven period. expected GAAP which was in enable by or X.X% this income quarter, quarter down during our as during quarter margin an increase margin. in diluted company should combined same the the million margin the prior well from quarter per operating income up last in time. decrease GAAP $X.X in third the decline XXXX,

balance the to turning liquidity. our and sheet Now

has the million. end of chain of working elevated At of the was credit, cash in $X an million quarter. reduction As net total of $X conversion pleased supply improvement XX, during in quarter, equivalent cash our facility quarter, owing which total September $XX flow of million $XX credit The been strong our to the company XX. million working of the September liquidity the with cash, and capital drove recent We availability XXXX, cash under free quarter, the to debt of as combined company letters had in has level the were and capital in see the challenges.

initiative. margin revenue. the believe we our third in the by were be that We We X% initiatives. liquidity fund position is to on were with remained in sufficient of quick the quarter capital around spending than our more a growth we solid and performance our the progress need pleased We growth extremely expect organic to remain during our rebound encouraged

the the in inventory However, this half destocking back was offset the seeing not to significant are enough we year. of

and As $X.X million, range million $X.X revenue a net to to adjusting range we of the $XXX to result, now the are to expect range operating income financial to million be million, $X our guidance $XXX the in $X in XXXX be of and in million. of income

progress are that income we roughly we less lowering net our pleased we lowering we are that million the guidance, by made remarks. are margin are than question-and-answer disappointed we midpoint revenue This range of in for owing to our our completes guidance now initiative. in the reduction million strong portion are $XX range, at of ready While $X a the prepared we our call. have Operator, improvement despite our

Thank Gardner is you very Instructions] first question of much. [Operator Please from the Benchmark. line from ahead. The Reuben go

morning, you. Thank Good everybody.

Reuben. morning Good

Good morning.

return start where sounds to So standpoint maybe today sell what for market I growth or seen X today with expecting through or volume it stands me, dynamics channel just there the mean, more you the excuse destocking. maybe you’re guys, to inventory is with you help – with in the way things us the understand X, gauge or years from stand – inventory X with but maybe Is – inventory like normalize, versus where just “normal”? line line in after volume volume any ago any versus can

that times, process out chain us obviously. many in takes months, supply one the improved sort it you’ve Sure. And the mean, us. It’s Yes. with building has will take of too flush the of greatly we on a faced destocking on of and issue as cases, I In part customers right. the over up our the QX. companies industry because that of throughout has seen didn’t have many probably other middle while with not a have been year, lead has many process to crept

have least an started flush restocking not QX But we’re in as of destocking, almost our QX, Furniture at new end a still is that we passive starting orders from orders our year, in beginning mean, anticipation and would effect change going right. meaning I probably a our is heading in very there customers what some that as in situations some getting the we tail are seeing some that inventory coming active, on, to in degree some some the business which happen I lot still into are affected for we go to because older was for are is delayed. the enter of Bath perspective need, the to don’t with had there particularly are by will see call, inventory of see already that a segment, that they improvement with there most technically into QX. starting coming So placing of that our to out slow they they

it’s out for. level enter most waiting are we off. that and is see again, that to happening period the likely So It QX XXXX, of going a we just flush we are as

is is I that’s that the like, there just And am sounds as anymore? lower gives the it a just took do much destocking, the The earlier know step to ask you level can’t step it you that helpful point with history? there. – anything where mean any channel? what I further I in of mean, furniture they stands how there it Is I mean, is had confidence isn’t conversations I I reason piece another there relative Is year, customers? where in like curious it it some lower. another they inventory

Yes, there is.

fact, As market destocking good is as the end news this lower. is matter phase, the demand moderately during of only

end miss dip the user the behind of And seeing not destocking. this revenue market driver are demand point. and the a in because of at We is main severe end majority the

see mainly other the And to user of is stocking going your demand. end So, share us comments growth that are technology increasing taking our our the of positive new there, we moderation system. confident that feel you and answer question, because the incremental still for dramatic, toilet why not newer shower things we to categories, pretty our and are have covered or kitchens bridge sales are some on opening driving we heard product within about the my new the

increase demand, more and incremental a demand. or – there in sales So, softness should in even I offset if end the user additional alone in was mind, say, decrease any than larger growth would our

for are have margin into the line. you de-stock, are move we than and improvement previous help is face And Okay. progression price, takes how volume drive flowing pretty top ‘XX? I the to coming other there, kind is in the if as room softer, impressive still what in us you increases costs on to more can or then inventory recovery, talk into price and as Do just there update continue about, much year, through higher, of the of next move we margin that going that the puts obviously, even the guess

Sure. Yes.

or it’s let’s Southeast So, point. the for from based comes freight that great the your We on about are our absolutely and logistics rates been freight products Asia, a merchandise for improving. rates day the freight China those that have, that But understanding specifically that primarily shipped. rates, talk obviously

is the So, right. received product ago, negatively affected with might months rates be cost being from obviously, today example, marketplace in for three freight higher

pricing the QX we see throughout carrying At are have and year. we mentioning, next year. we costs customers just have reduce to you go we into time, access continue to inventory same flow and as the going upon, with taken touched as been So, our QX through

recent. were those of fairly Some

middle QX So, QX. QX into of full impact the of going again, won’t have and sort the really, until

that, grow, top back which So, our pretty them although we margins, strategy, to not, can we to on I VPC expect our we our least confident are of if mentioned. maintain margin, that because at

the and expect focused we margin in higher kitchens growth And for are categories, tremendous particularly sales right, We the there. shower. our growth new example, on incremental

picture, things all roll next up together, we are year. margin will pretty you into So, our confident going those

me. great. last business then And products, couple have we potential Okay, new The last wins. for talked quarters, of one for about new

the those? release, that we Is of are come? still curious, those a opportunities about announcements on in the these Just that separated, in the that related the Are have to was press is there thing the talked couple past?

Absolutely. Yes.

have opportunities. We multiple

are of course, and we we well. as we expanding added markets heard Now, today,

would And detail. cover getting of probably but Australia. likely, multiple opportunities of into the likely So, those current come opportunities getting lines I those say to within product XXXX. most And channels are are fruition, most course, the majority would and the now. out also many our and right announce UK global in are beginning they those there that of multiple more, our in multiple all QX, of in back new Timing we product to yes, footprint pushed of categories and with. essence, is But of dealing vast our channels to the was,

luck will Okay, leave Good I great. guys. going forward. it Thanks there.

Thank you.

Thank you, Reuben.

the you. Securities. Please next is question from ahead. from Greg The Thank line Gibas of go Northland

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

Good morning. Thank you.

in could of I Yes. follow-up confidence QX think I kind a when kind prolonged little snap we bit what that relatively be would Reuben’s of improvement. gives to kind kind you of questioning, or If – of guess XXXX, you correct, time? of first about of of on more the to seeing Just inventory mentioned line quickly? trying correction I back of it maybe But have you think think expect it, it would a

at of it geographic November and bit I little the will I as this, here, think region, in mean also varies, little it bit now month we product QX, say anticipation is, varies Yes. varies it also look a by a and in our by I category.

leveling and having for sort So, impossibly early I back, I sure, call to Canada, normal. QX will off for back of example, get it but QX, the de-stocking, see

and earlier, systems by into to business. end And sanitaryware I see where more normalize. much Here, things have cabinets, a it’s QX QX our I we product the are shower the of bit here. being would the thing, it that longer only But our the little even of business, when because more larger, only that is challenge sanitaryware, same shower our cabinet is even I with a program we our And diversified could anticipate the business, believe category. so comes because and much a see broad might cabinets

to the I QX latest, going the So, is little a going. but if bit it be I longer, anything would see cabinetry, would would take say the longest,

Very helpful. of it. demand does did are I to staying Got this if if your see ask, end maybe you your to of is you almost remarks, guess seeing surprise I And that customers? also happening, wanted I from relatively kind them level strong, And missed why cautious? we market in think the probably being see de-stocking that’s prepared really but you it just it do

have they to in get look, make to deliver we you of point the a I a good word speak, times. containers. sure seen tremendous logistics There you a product. to was to about There this lot that I customers, guests, for ocean be directly there a but years have get ourselves, stay hard from container were panic, And job to don’t lot in did have before, delivery unknown to got And we so was very right. what not predict, of But to products customers you and stock past. want so use snag in to And unknown about this delivery, on in our could the also degree right. age availability. is it’s when customers prepared are happens to to stock. of we And a our

those are they of things get pick situation lot to the when is time, was spread all placed up sudden, excess out. happens what the as right. really bad, And and one spread start then out in all unknown, degree anticipation of was and delivered at delivery orders of to orders start So, some are

as in, product that you you the product and you the So, get right. needed later, product you they to time, products and the at start sometimes to start happens get get is than need wrong coming didn’t same quickly just what

we happened always chasing bullwhip realize what’s So, call By chasing a where the it it demand chasing now coming And are all is time in containers. to always I when said, you are It creates take those and at, only oh, right. wow, you And come products, the going, in our side. are have what’s to trucks, you there look inventory you like, backlog, effect. all have I time, always moderated and start are But have from you you the one wasn’t got to demand you that slightly. demand like at right. disaster see

So, I you think market the that’s have that seen in. the situation

Some some faced. I think ours year. as people the that of We bit experienced don’t have industries the is But experienced the have I it’s other severity, sure, it a for earlier a to may in manageable, later. think are see And it situation, of relief I not I point. mentioned, more to a QX, realistically, isn’t at it’s that’s But this some now. disaster QX starting manageable. believe easing already we like this

Got out product of then products driving sense. that of And what in and category, on it. follow-up are to the of other nice Makes there growth? seeing lines growth segment, the you terms wanted that just more of success kind in

Yes.

will I more kitchens, our give and a systems color. shower little our both So,

doubled details, again, just our are with dealer you custom we with think see market, will into than which September, the very talks but to on take this we we year our more changer be it. a special large kitchen a game I in just doubled expanded will well being through is our our national program are XXXX. dealer customer So, received base, for us. this business almost anticipation can’t And Already any going is announce very, and base, that we in for program, this have going great

new walls. shower the items or exciting systems bases, doors launching – our On side, some are shower shower new on shower are we seeing we

you to of product, a show. You it if lot the will out see KBIS this make

have got products. We already placement for some people this pre-ordering are of

of lot there there. So, excitement a is

volume brands right. maybe for harped us, our better right. Those it, new on important always of have strategy. we product higher And part again, quality, VPC and most the ticket, margin but of our what’s higher So, in only course, brands, is and that’s not higher

see these So, into opportunities are going that incremental XXXX. we all

Okay, on great. markets. wanted I your follow-up last, Australian the to guess into just entrance UK and

forward? do If to the what’s how that guess I – business business. and expanding maybe to markets you – expand expect going strategy those that you maybe new

I example say what I general Germany. is, our statement, would Well, would as Yes. in use a

road of I talked we German model, some doing when through were think conferences. shows our our about and investor we our

Manager, light to We and reason capital and people, a a Sales And right. in leverage couple logistics were team, able have to installed because already President we work very a that have Vice place, able very platform Germany. in the was model a global is they product little We that a overhead. small

all a we have partners our had for we time. long of have So, manufacturing that very

in our country, product Asia. our have And course, and we each together teams everything over teams geographic product. is within central location, product is about region, company our of each merchandising markets one a for decentralized. from teams, things dictate don’t unique that’s development that develop And that We to our the our of global have work of marketing we

allow we they markets need. to So, what create the

you product operating they very into quality experience but customers. those do those don’t experience model, easily, their at what UK, take say allowing $XX to if to where want the million, replicate we German in at what in of about went managers our sort that. years, zero to merchandising I XX that Australian you also our those leveraging nothing could X So, replicating are in And and can teams which our sales model for and think market. trying the that easy, looked and we markets, years business the from or and experience, our have and is is develop to small we need we and

have take markets are market. with because it about extremely we our and we into from And now. bring are we what just experienced new German it these to excited going we learned, have So, it,

we piggyback to a bit Yes. we of in in also like successful have the successful German, Canada. I have very it. Besides model model would a

have UK, can we that for whatever over we existing and Australia, opportunity gold model the So, ticket. there, good business replicate the

to Thanks Good Okay. hear. guys.

Thank you.

Ladies gentlemen, you. conference would and remarks. for closing no to Thank like question-and-answer as any David are to questions, concludes this further there session. Bruce, turn the our Mr. I back

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

you. Thank

for Thank presentation. attending you. concluded. The has you conference today’s now Thank

disconnect. now may You