FGI INDUSTRIES ANNOUNCES SECOND QUARTER 2023 RESULTS
SECOND QUARTER 2023 HIGHLIGHTS
(As compared to the second quarter of 2022)
- Total revenues of
, ($29.2 million 38.9% ) y/y - Gross profit of
, ($8.0 million 4.9% ) y/y, Gross margin of27.4% , +980 bps y/y - Net Income of
$0.1 million - Adjusted net income of
*$0.1 million - Adjusted operating income of
*$0.6 million
* Adjusted net income and Adjusted operating income constitute non-GAAP financial measures. Please see the attached appendix for details.
MANAGEMENT COMMENTARY
"While uneven demand trends and inventory headwinds pressured results, we maintained our focus on the long-term and made important progress on our growth and margin initiatives during the second quarter," stated David Bruce, President and Chief Executive Officer of FGI. "We continued to execute on our recently announced growth initiatives and added several new awards and programs during the second quarter, including a new licensing agreement that should drive incremental growth in our sanitaryware business, as well as new sales programs that will allow us to expand our footprint into
"A key focus of our BPC strategy is to increase the contribution from branded products and prioritize higher-margin markets and categories, with our success under these initiatives having been a critical factor in the meaningful gross margin improvement in recent quarters, which continued into the second quarter with record gross margin of
"Our strict financial discipline and focus on working capital management enabled us to maintain a strong financial position at the end of the second quarter despite the supply chain and inventory challenges of the past year," stated Perry Lin, Chief Financial Officer of FGI. "We ended the second quarter with a cash balance of nearly
"We have successfully executed on our strategic growth initiatives during the first half of 2023, and I remain extremely confident in our longer-term positioning; however, the uneven market demand in our sales geographies and conservative inventory positioning from key customers is prolonging the de-stocking pressures and proving to be a more significant headwind than we anticipated at the start of the year," continued Bruce. "As a result, we now expect full-year 2023 revenues of
STRATEGIC UPDATE
FGI intends to drive long-term shareholder value through execution of its Brands, Products and Channels strategy to drive organic growth, enhanced financial performance, and efficient capital deployment. Some of the key accomplishments during the second quarter of 2023 were as follows:
- BPC Strategy: FGI has continued to invest in its BPC strategy during the second quarter despite the market challenges, which we believe will help drive improved organic growth longer-term. Some of the key successes during the quarter were as follows:
- FGI entered into a 5-year licensing agreement that will provide the Company access to an industry leading overflow toilet technology, which should provide a key differentiator in the market. FGI expects to launch new sanitaryware products utilizing this technology at the 2024 Kitchen & Bath Show.
- In line with the Company's commitment to geographic expansion, FGI signed separate agreements that will enable it to expand its footprint into the high-growth Indian and Eastern European markets. FGI has engaged MurA India, a sales organization based in
Mumbai, India with offices in Ahmedabad,Bangalore , Kochi andDelhi , to serve as a catalyst for geographic expansion and heightened market presence inIndia . MurA India will exclusively focus on marketing and selling FGI's sanitaryware line of products to both wholesale and hospitality trade channels across the country. In addition, FGI has recently formed a strategic partnership with "MIA Partner" to extend the Company's presence inEastern Europe . Leveraging their expert resources located in the target customer countries, MIA Partner, working with FGI's international sales team, is now actively identifying potential customer targets in the region, prioritizing cultural relevance, and understanding throughout the process. This collaboration aims to significantly enhance FGI's market penetration and growth prospects in theEastern Europe region to further support the BPC strategy. - The Company continued to execute on recently announced awards, including its online shower door program for an existing large Canadian retail partner that commenced in June 2023, and the roll-out of FGI's industry leading shower wall program into as many as 300 locations of a large
U.S. retailer. Both programs are on track and should contribute to improved shower systems orders in the second half of 2023 and into 2024. - FGI's custom-cabinetry business continues to grow rapidly, with significantly higher incremental gross margins than the group average. The premium Covered Bridge brand has added 57 new dealers thus far in 2023, bringing the total dealer count to 180 by the end of the second quarter.
- Enhanced Financial Performance: FGI generated another period of strong gross margin performance with second quarter gross margin of
27.4% , up from17.6% in the same period last year. The Company's strategic decision to focus on higher-margin categories and improved product mix has been the main driver of the improved performance. Lower freight costs and effective pricing actions have also contributed to the margin improvement. - Efficient Capital Deployment: The Company will continue to prioritize capital deployment in support of organic growth opportunities, while continuing to evaluate strategic M&A opportunities. With total liquidity of
at June 30, 2023, the Company believes it has sufficient financial flexibility to fund its organic growth strategy.$22.6 million
SECOND QUARTER 2023 RESULTS
Revenue totaled
- Sanitaryware revenue was
during the second quarter of 2023, down from$18.8 million in the prior-year period, due to continued inventory headwinds, particularly in the pro channel. The Company continues to see large customers take a cautious stance regarding inventory levels given uneven demand trends, which is prolonging the inventory correction. However, Sanitaryware revenue increased$32.3 million 23% sequentially from the first quarter of 2023, as some customers are beginning to return to more normal order patterns, and the Company is hopeful for a continued rebound in order trends in the back half of the year as inventory levels normalize and demand rebounds driven by the recent improvement in housing industry fundamentals. - Bath Furniture revenue was
during the second quarter of 2023, a decline from revenue of$4.8 million in the prior-year period. The broader bath furniture market, in particular bath cabinetry, has continued to experience sluggish demand trends, causing inventory levels to remain stubbornly high. In response to the ongoing demand headwinds, FGI is preparing for new product line rollouts and has made some modest pricing adjustments on certain bath furniture products, all of which is expected to drive improved demand.$7.7 million - Shower Systems revenue was
during the second quarter, down from$4.3 million last year, due to some modest inventory de-stocking and the impact of order timing. The overall momentum in the business remains strong, with recently awarded programs expected to drive improved trends in the second half of 2023. These new programs include the online shower door program with a large Canadian retailer, as well as the new shower wall systems roll-out at up to 300 locations of a large$6.5 million U.S. retailer during the second half of 2023. - Other revenue, which consists primarily of the custom kitchen cabinetry business, was
during the second quarter, essentially flat from the prior year. While there was a modest lull in orders following the strong pace of new business coming out of the Kitchen and Bath show at the start of the year, momentum in the business remains strong.$1.3 million
Gross profit was
Operating income was
The Company reported a GAAP net income of
FINANCIAL RESOURCES AND LIQUIDITY
As of June 30, 2023, the Company had
FINANCIAL GUIDANCE
FGI believes the long-term outlook for the repair and remodel markets remains attractive, and the Company continues to be encouraged by the progress achieved on its organic growth initiatives through the BPC strategy. The Company has made excellent progress on its margin improvement initiatives, offset by near-term inventory de-stocking pressure from key customers and uneven demand trends across our sales geographies. As a result, the Company has revised its fiscal 2023 guidance as follows:
- Total Revenue of
and$120 million $ 130 million - Total Adjusted Operating Income of
and$ 3.5 million $ 5.0 million - Total Adjusted Net Income of
to$ 2.0 million $ 3.0 million
The Company's 2023 guidance includes roughly
SECOND QUARTER CONFERENCE CALL
FGI will conduct a conference call on Thursday, August 10 at 8:00 am Eastern Time to discuss the quarterly results.
A webcast of the conference call and accompanying presentation materials will be available in the Investor Relations section of the Company's corporate website at https://investor.fgi-industries.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register and download and install any necessary audio software.
To participate in the live teleconference:
Toll Free: | 1-844-826-3035 | |
International Live: | 1-412-317-5195 |
To listen to a replay of the teleconference, which will be available through August 24, 2023:
Domestic Replay: | 1-844-512-2921 | |
International Replay: | 1-412-317-6671 | |
Conference ID: | 10180606 |
ABOUT FGI INDUSTRIES
FGI Industries Ltd. (Nasdaq: FGI) is a leading global supplier of kitchen and bath products. For over 30 years, we have built an industry-wide reputation for product innovation, quality, and excellent customer service. We are currently focused on the following product categories: sanitaryware (primarily toilets, sinks, pedestals and toilet seats), bath furniture (vanities, mirrors and cabinets), shower systems, customer kitchen cabinetry and other accessory items. These products are sold primarily for repair and remodel activity and, to a lesser extent, new home or commercial construction. We sell our products through numerous partners, including mass retail centers, wholesale and commercial distributors, online retailers and specialty stores.
Non-GAAP Measures
In addition to the measures presented in our consolidated financial statements, we use the following non-GAAP measures to evaluate our business, measure our performance, identify trends affecting our business and assist us in making strategic decisions. Our non-GAAP measures are: Adjusted Operating Income, Adjusted Operating Margins and Adjusted Net Income. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles in
We use these non-GAAP measures, along with
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as "anticipate," "expect," "could," "may," "intend," "plan", "see" and "believe," among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements regarding FGI's guidance, the Company's growth strategies, outlook and potential acquisition activity, the effect of the COVID-19 pandemic and the associated impact on the national and global economy, the company's planned product launches and new customer partnerships, the effect of supply chain disruptions and freight costs and estimates of customer de-stock and timing of market recoveries. These forward-looking statements are based on currently available operating, financial, economic and other information, and are subject to a number of risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. A variety of factors, many of which are beyond our control, could cause actual future results or events to differ materially from those projected in the forward-looking statements in this release. For a full description of the risks and uncertainties which could cause actual results to differ from our forward-looking statements, please refer to FGI's periodic filings with the Securities & Exchange Commission including those described as "Risk Factors" in FGI's annual report on Form 10-K for the year ended December 31, 2022, and in quarterly reports on Form 10-Q filed thereafter. FGI does not undertake any obligation to update forward-looking statements whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
FGI INDUSTRIES LTD. | ||||||
As of | As of | |||||
June 30, 2023 | December 31, 2022 | |||||
USD | USD | |||||
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash | $ | 6,894,762 | $ | 10,067,428 | ||
Accounts receivable, net | 14,306,312 | 14,295,859 | ||||
Inventories, net | 9,834,353 | 13,292,591 | ||||
Prepayments and other current assets | 4,169,249 | 2,588,081 | ||||
Prepayments and other receivables – related parties | 8,642,263 | 5,643,649 | ||||
Total current assets | 43,846,939 | 45,887,608 | ||||
PROPERTY AND EQUIPMENT, NET | 1,426,832 | 1,269,971 | ||||
OTHER ASSETS | ||||||
Operating lease right-of-use assets, net | 15,964,503 | 9,815,572 | ||||
Deferred tax assets, net | 1,355,800 | 1,265,539 | ||||
Other noncurrent assets | 1,865,678 | 2,128,240 | ||||
Total other assets | 19,185,981 | 13,209,351 | ||||
Total assets | $ | 64,459,752 | $ | 60,366,930 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
CURRENT LIABILITIES | ||||||
Short-term loans | $ | 7,863,680 | $ | 9,795,052 | ||
Accounts payable | 12,806,789 | 14,718,969 | ||||
Accounts payable – related parties | 1,323,099 | 104,442 | ||||
Income tax payable | 142,461 | 33,350 | ||||
Operating lease liabilities – current | 1,348,041 | 1,543,031 | ||||
Accrued expenses and other current liabilities | 3,818,209 | 3,580,359 | ||||
Total current liabilities | 27,302,279 | 29,775,203 | ||||
OTHER LIABILITIES | ||||||
Operating lease liabilities – noncurrent | 14,330,405 | 7,847,317 | ||||
Total liabilities | 41,632,684 | 37,622,520 | ||||
COMMITMENTS AND CONTINGENCIES | ||||||
SHAREHOLDERS' EQUITY | ||||||
Preference Shares ( of June 30, 2023 and December 31, 2022) | — | — | ||||
Ordinary shares ( outstanding as of June 30, 2023 and December 31, 2022) | 950 | 950 | ||||
Additional paid-in capital | 20,732,415 | 20,459,859 | ||||
Retained earnings | 3,465,026 | 3,679,920 | ||||
Accumulated other comprehensive loss | (1,371,323) | (1,396,319) | ||||
Total shareholders' equity | 22,827,068 | 22,744,410 | ||||
Total liabilities and shareholders' equity | $ | 64,459,752 | $ | 60,366,930 |
FGI INDUSTRIES LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | ||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
USD | USD | USD | USD | |||||||||
REVENUES | $ | 29,189,913 | $ | 47,809,014 | $ | 56,352,179 | $ | 91,384,254 | ||||
COST OF REVENUES | 21,179,511 | 39,388,061 | 41,139,619 | 75,438,715 | ||||||||
GROSS PROFIT | 8,010,402 | 8,420,953 | 15,212,560 | 15,945,539 | ||||||||
OPERATING EXPENSES | ||||||||||||
Selling and distribution | 4,800,518 | 4,362,707 | 9,511,607 | 9,040,059 | ||||||||
General and administrative | 2,252,503 | 2,093,162 | 4,394,748 | 3,935,969 | ||||||||
Research and development | 377,106 | 235,735 | 728,857 | 549,416 | ||||||||
Total operating expenses | 7,430,127 | 6,691,604 | 14,635,212 | 13,525,444 | ||||||||
INCOME FROM OPERATIONS | 580,275 | 1,729,349 | 577,348 | 2,420,095 | ||||||||
OTHER (EXPENSES) INCOME | ||||||||||||
Interest income | 4,047 | 102 | 5,422 | 133 | ||||||||
Interest expense | (293,711) | (107,440) | (543,348) | (239,192) | ||||||||
Other (loss) income, net | (10,684) | (66,074) | (30,241) | 32,771 | ||||||||
Total other (expenses), net | (300,348) | (173,412) | (568,167) | (206,288) | ||||||||
INCOME BEFORE INCOME TAXES | 279,927 | 1,555,937 | 9,181 | 2,213,807 | ||||||||
PROVISION FOR INCOME TAXES | ||||||||||||
Current | 181,761 | 298,300 | 314,554 | 469,799 | ||||||||
Deferred | 9,685 | 87,107 | (90,479) | 43,285 | ||||||||
Total provision for income taxes | 191,446 | 385,407 | 224,075 | 513,084 | ||||||||
NET INCOME (LOSS) | 88,481 | 1,170,530 | (214,894) | 1,700,723 | ||||||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
Foreign currency translation adjustment | 4,897 | (69,416) | 24,996 | (126,596) | ||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 93,378 | $ | 1,101,114 | $ | (189,898) | $ | 1,574,127 | ||||
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES | ||||||||||||
Basic | 9,500,000 | 9,168,508 | 9,500,000 | 9,168,508 | ||||||||
Diluted | 9,692,500 | 11,662,293 | 9,500,000 | 11,662,293 | ||||||||
EARNINGS PER SHARE | ||||||||||||
Basic | $ | 0.01 | $ | 0.13 | $ | (0.02) | $ | 0.19 | ||||
Diluted | $ | 0.01 | $ | 0.10 | $ | (0.02) | $ | 0.15 |
FGI INDUSTRIES LTD. | ||||||
For the Six Months Ended June 30, | ||||||
2023 | 2022 | |||||
USD | USD | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net (loss) income | $ | (214,894) | $ | 1,700,723 | ||
Adjustments to reconcile net (loss) income to net cash used in operating activities | ||||||
Depreciation and amortization | 78,759 | 138,213 | ||||
Share-based compensation | 272,556 | 144,733 | ||||
Provision for credit losses | 19,789 | 75,940 | ||||
Reversal of defective return | (316,132) | (637,879) | ||||
Foreign exchange transaction gain | 23,214 | 2,850 | ||||
Adjustment for Right of use assets | (89,093) | — | ||||
Deferred income (benefits) taxes | (90,261) | 54,397 | ||||
Changes in operating assets and liabilities | ||||||
Accounts receivable | 285,890 | 1,843,947 | ||||
Inventories | 3,458,238 | 2,582,193 | ||||
Prepayments and other current assets | (1,581,168) | (1,470,609) | ||||
Prepayments and other receivables – related parties | (2,998,615) | (5,348,158) | ||||
Other noncurrent assets | 262,563 | (113,223) | ||||
Income taxes | 109,111 | (345,143) | ||||
Right-of-use assets | 855,950 | 632,963 | ||||
Accounts payable | (1,912,180) | (10,805,982) | ||||
Accounts payable-related parties | 1,218,657 | — | ||||
Operating lease liabilities | (627,689) | (634,224) | ||||
Accrued expenses and other current liabilities | 237,849 | (811,077) | ||||
Net cash used in operating activities | (1,007,456) | (12,990,336) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Purchase of property and equipment | (235,941) | (42,752) | ||||
Net cash used in investing activities | (235,941) | (42,752) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Net (repayments of) proceeds from revolving credit facility | (1,931,372) | 32,768 | ||||
Net proceeds from issuance of ordinary shares in IPO | — | 12,370,800 | ||||
Net cash (used in) provided by financing activities | (1,931,372) | 12,403,568 | ||||
EFFECT OF EXCHANGE RATE FLUCTUATION ON CASH | 2,103 | (128,071) | ||||
NET CHANGES IN CASH | (3,172,666) | (757,591) | ||||
CASH, BEGINNING OF YEAR | 10,067,428 | 3,883,896 | ||||
CASH, END OF YEAR | $ | 6,894,762 | $ | 3,126,305 | ||
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||
Cash paid during the period for interest | $ | (544,026) | $ | (240,183) | ||
Cash paid during the period for income taxes | $ | (205,075) | $ | (808,048) | ||
NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||
Net changes in parent company investment | $ | — | $ | 12,370,800 | ||
New addition on Right-of-use assets | $ | (7,616,898) | $ | — |
Non-GAAP Measures
The following table reconciles Income from Operations to Adjusted Operating Income and Adjusted Operating Margins, as well as Net income to Adjusted Net Income for the periods presented.
For the Three Months Ended | For the Six Months Ended | |||||||||||||
June 30, | June 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||
Income from operations | $ | 580,275 | $ | 1,729,349 | $ | 577,348 | $ | 2,420,095 | ||||||
Adjustments: | ||||||||||||||
Non-recurring IPO-related compensation | — | 23,559 | — | 255,871 | ||||||||||
IPO legal fee | — | — | 50,000 | — | ||||||||||
Business expansion expense | 61,770 | — | 123,542 | — | ||||||||||
Adjusted income from operations | 642,045 | 1,752,908 | 750,890 | 2,675,966 | ||||||||||
Revenue | $ | 29,189,913 | $ | 47,809,014 | $ | 56,352,179 | $ | 91,384,254 | ||||||
Adjusted operating margins | 2.2 | % | 3.7 | % | 1.3 | % | 2.9 | % |
For the Three Months Ended | For the Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
Net (Loss) Income | $ | 88,481 | $ | 1,170,530 | $ | (214,894) | $ | 1,700,723 | ||||
Adjustments: | ||||||||||||
Non-recurring IPO-related compensation | — | 23,559 | — | 255,871 | ||||||||
IPO legal fee | — | — | 50,000 | — | ||||||||
Business expansion expense | 61,770 | — | 123,542 | — | ||||||||
Total | 150,251 | 1,194,089 | (41,352) | 1,956,594 | ||||||||
Tax impact of adjustment at | (11,675) | (4,241) | (32,799) | (46,057) | ||||||||
Adjusted net (loss) income | $ | 138,576 | $ | 1,189,848 | $ | (74,151) | $ | 1,910,537 |
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SOURCE FGI Industries Ltd.