管理層發言
Good day and welcome to the FGI Industries Third Quarter 2024 Results Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Jae Chung, Vice President of FGI Industries. Please go ahead.
Thank you. Welcome to FGI Industries 2024 third quarter results conference call. Leading the call today are President and CEO, David Bruce; and Chief Financial Officer, Perry Lin. We issued a press release after the market closed yesterday detailing our recent operational and financial results. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest filings with the SEC. 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. Today's call will begin with a performance review and strategic update from Dave Bruce, followed by a financial review from Perry Lin. 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 you, Jae. Good morning, everyone and thank you for joining our call today. I am pleased to share our third quarter results reflect the strategic investments we've made in our organic growth initiatives across our brands, products and channels or BPC strategy. FGI reported total revenue of $36.1 million in the quarter, representing a year-over-year increase of 20.6%. Gross profit was a record $9.3 million, growing 18.9% compared to the prior year. Gross margin was 25.8% compared to 26.2%, a decline of 40 basis points compared to the third quarter of 2023, due in part to a higher mix of Sanitaryware and Bath Furniture and higher freight costs in the Bath Furniture and Covered Bridge segments. The industry outlook remains relatively flat overall with our customers forecasting minimal growth in 2024 but our investments have driven revenue growth well above the market. FGI's third quarter revenue increased significantly compared to the third quarter of 2023 due to growth across all our businesses and geographies. Revenue grew 21%, 9% and 39% in the quarter for the U.S., Canada and Europe markets, respectively. Sanitaryware revenue increased 3% year-over-year in the third quarter, reversing the decline in the prior quarter compared to the prior year period. Our Bath Furniture revenue increased 64% year-over-year as our shift towards lower-priced offerings and new programs that are more aligned with the market pricing and design trends gain traction. The Shower Systems business reported an increase in revenue of 45% as demand trends remain positive, driven by new customer programs. In custom kitchen cabinetry, Covered Bridge revenue increased 93% in the quarter, driven by continued strong dealer and customer expansion across the U.S. Isla Porter, our digital custom kitchen joint venture, is off to a strong start, establishing relationships with the premium design community with on-trend products via an AI-backed digital sales platform. Our geographic expansion plans in Europe and India hold significant promise for driving growth in the coming quarters. Our strategic growth initiatives are progressing well and are expected to fuel above-market organic future growth. I commend our FGI team for their dedication to our long-term objectives, positioning the company for success for the remainder of 2024 and beyond. With that, I'll hand it over to Perry for a more detailed financial review.
Thank you, Dave and good morning, everyone. I will begin by providing additional details on the quarter, followed by an update on our current liquidity and balance sheet. Finally, I will conclude with our guidance for the full year 2024. As Dave mentioned, for the third quarter 2024, revenue totaled $36.1 million, an increase of 20.6% compared to the third quarter of 2023. Gross profit was a record $9.3 million in the quarter, an increase of 18.9% year-over-year. Our gross margin declined to 25.8% in the quarter compared to 26.2% in the prior year. Our operating expense increased 27.6% to $9.4 million from $7.3 million in the prior year due to ongoing investment in our growth initiative in the kitchen cabinet business which includes Covered Bridge and Isla Porter and investing in distribution for our Canada business. GAAP operating income was negative $0.1 million in the quarter, down from a positive $0.5 million in the prior year. Lower gross margin and higher operating expense due to investing in our growth initiative accounted for the loss. Moving to our balance sheet. At the end of the third quarter, FGI had $16.3 million in total liquidity which we believe is more than sufficient to fund our growth initiative. We are updating our 2024 guidance as follows: our revised revenue guidance is $127 million to $131 million compared to the previous range of $115 million to $128 million; the new adjusted operating income guidance is negative $1 million to breakeven from the previous range of $2.8 million to $3.8 million; the new adjusted net income guidance is negative $1 million to breakeven from the previous guidance of $1.2 million to $2 million. Please note that the guidance for adjusted operating income excludes certain nonrecurring items. Adjusted net income excludes certain nonrecurring items and includes an adjustment for minority interest. That concludes our prepared remarks. Operator, we are now ready for the question-and-answer portion of our call.
分析師問答
And the first question comes from Reuben Garner with The Benchmark Company.
Wondering if you could help us with the components of the growth year-over-year in the quarter? How much of the outperformance? I mean, I certainly think it was still a down market and you grew 20%. How much of that was that new product offering within the Bath Furniture? Was that a one-time kind of stocking benefit that goes away? Or is that an ongoing item? And I've got a couple of follow-ups.
Yes, sure. No problem. Good question. So no, it's not a one-time event. We had a nice revenue bounce based on what we've been talking about the last couple of quarters which is really reengineering that assortment to meet more of the pricing trends in the market which we've talked about, higher ticket, higher retail furniture has suffered more recently in the last year or so. And we've been working diligently to change that assortment and we're starting to see the results. We're getting new placements. We're taking some share. We've had a couple of large customers also do the same by adding new products into the mix. And we would fully expect to see that type of growth continue as we start to compare with this new business.
Can you discuss the effect on gross profit margins? This quarter it was around 25.9% or 25.6%. Is this the new benchmark considering the updated portfolio mix, or was there something specific this quarter that brought it down?
Yes. We do not expect the margins from the quarter you observed to continue. We fully anticipate returning to previous levels. The primary factors that affected the margin change in Q3 were a spike in ocean freight rates, which have been increasing this year and were higher in Q3, and a rise in cabinet shipments from our kitchen business, as reflected in the results, which impacted gross margin. Additionally, there was growth in bathroom furniture and other products, which also affected freight costs. Simultaneously, there were some promotional expenses related to the launch of new bathroom furniture that impacted the margin. However, we are very confident that as we move into Q4, we will return to a gross margin in the 27-plus range.
So does that mean that the primary difference in your profitability guidance is due to the change in the freight component and the promotional expenses? Was the promotional aspect not anticipated previously, or were there new wins after the last quarter that influenced this?
Yes. I believe there are two perspectives to consider. From a gross margin standpoint, looking at the 25.6% figure, which was around 25.8%, I am confident that we will return to a 27% plus margin based on our product mix. As freight costs stabilize, we do not expect freight rates to remain as elevated as they were in the third quarter. However, we must also address operating expenses that have affected our bottom line. We anticipate being able to leverage our operating costs effectively. We fully expect to reduce our operating expense ratio in the short to midterm, which is essential as we leverage our investments, particularly in new businesses like Isla Porter and kitchen growth that have required significant investment and have temporarily impacted our bottom line negatively. However, these investments are beginning to yield positive results in terms of revenue, which will ultimately enhance our gross margin and gross profit dollars. Therefore, the quarter reflects ongoing investments in key growth areas, balanced by the minor setbacks related to promotional costs and freight affecting gross margin.
I'm going to ask one more broad question. What are your customers expressing at this point, even though it's still early for thoughts about next year? There seemed to be a lot of hope recently that lower rates would significantly influence the market, but it appears that rates have actually moved in the opposite direction in the short term. Is it still accurate to have a cautious outlook for 2025 in the industry, or do you feel there is growing positivity among your customers?
I would say there's cautious optimism. I think muted is an appropriate term. For some of our industry comparables and customers, the growth potential for next year is looking at 0 to low single-digit rates. However, we are beginning to gain market share in key categories where we operate. Therefore, our progress is not solely dependent on the market trends, as we are generating additional sales. To address the question, I believe the industry is cautiously optimistic about potential improvements. If interest rates improve as expected, that should encourage some market activity beyond the incremental growth we anticipate.
Congrats on the progress.
With no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to David Bruce for any closing remarks.
Thank you for your time and interest today. We appreciate your continued support of FGI. Stay well. And if we don't connect during the quarter, we look forward to speaking with you on our next quarterly call.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.