FGI Industries Ltd.

Good morning and welcome to FGI Industries third quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Paul Bartolia. Please go ahead.

Thank you. Welcome to FGI Industries third quarter 2022 results conference call. Leading the call today are President and CEO David Bruce and Chief Financial Officer Perry Lind. 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 factor 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. 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.

Thanks, Paul, and good morning to everyone. Our team continued to execute well during the third quarter despite the uneven market conditions as we made significant progress on our margin recovery initiatives and made solid advancements on our organic growth programs. As we forecasted entering the year, we have seen some moderation in the broader R&R market demand trends owing to the headwinds facing the housing market, and these pressures were exacerbated by significant inventory destocking during the last two quarters. We were able to overcome these issues in the second quarter and still generate year-over-year revenue growth. However, the level of channel inventory reduction at some of our key customers was too significant to overcome in the third quarter, causing our revenues to decline versus the prior year period and come in below our expectations. While it is difficult to predict how long the channel inventory destocking will continue, we believe, based on current discussions with our customers, that we should return to more normalized levels of inventory purchases in 2023. We remain focused on factors we can control, including our organic growth programs and our margin recovery initiatives, both of which we made excellent progress on in the third quarter. We remain encouraged by our key organic growth programs, as evidenced by the continued strong growth in our other product categories during the quarter, which includes our JetCoat shower systems and Covered Bridge custom kitchen cabinetry business. Our growth initiatives remain on track despite the near-term market headwinds, and we expect our order pattern momentum to return once channel inventory levels normalize. In addition to the progress on our organic growth programs, we made significant strides in our margin recovery initiatives as well. with gross profit margin expanding by 325 basis points on a sequential basis despite the decline in revenues, strong growth in our newer higher margin product lines, continued pricing momentum, and a reduction in freight costs combined to drive the strong margin performance, with gross margins quickly returning to levels witnessed prior to the supply chain disruptions just over a year ago. We are confident in our ability to at least maintain these levels of gross margins and expect operating margins to move higher over time owing to growth in our higher margin product categories, a rebound in bath furniture, and operating leverage. End market demand trends held up relatively well across our key product categories during the third quarter, but the inventory destocking weighed on our revenue trends, with total revenue decreasing by 24% on a year-over-year basis. Our sanitary ware business declined by 18% in the third quarter, driven primarily by declines in our Canadian sanitary ware business, and our bath furniture business saw revenues fall 63% as this business is being more severely impacted by the inventory corrections and is also seeing some software end demand. Despite the market headwinds, our other product category, which is primarily our shower systems and custom kitchen cabinetry business, grew 61% in the quarter. Overall, we still expect our business to hold up well during the current period of market uncertainty. Roughly 80% of our revenue is tied to the repair and remodel market, which tends to be more stable and predictable than the new construction market, and our focus on the more resilient kitchen and bath market should drive more stable trends over time. Our company-wide focus is on driving above-market growth and creating value regardless of the market environment and its uncertainties. Consistent with our long-term strategic plan, we intend to compound growth at above industry averages while driving value creation through a balanced focus on organic growth using our BPC strategy, operational improvements, and efficient capital deployment. Some of our key accomplishments against these key initiatives during the third quarter are as follows. The key to our organic growth strategy is our BPC initiative, which stands for Brands, Products, and Channels. We have made nice progress through our BPC program during the quarter, and I wanted to highlight a few of these items. First, we have discussed the opportunities around our custom kitchen cabinetry business under the Covered Bridge brand on recent calls, and we continued to make great progress on this program during the third quarter. We continue to generate strong growth in the dealer network, which increased to 126 at September 30, 2022, up from 71 at the start of the year, with significant growth in the dealer channel expected to continue into 2023. We have also reached preliminary agreements with certain large national customers to act as their key custom kitchen suppliers, which should generate incremental growth in 2023 and beyond as well. As we stated last quarter, we have invested in new manufacturing capacity to support the anticipated business development opportunities, so we are well positioned for incremental growth in this business. Second, We have also continued to see growing momentum in our shower systems business. Beginning in the fourth quarter of 2022, the company's JetCoat shower wall program at Lowe's will be co-branded with their private label brand and will be called Allen & Roth Shower Wall System by JetCoat. The new in-store point-of-purchase marketing material will make the purchase of JetCoat walls together with FGI shower bases a much easier process, while the strength of the JetCoat brand in the market is expected to drive incremental sales into 2023. Additionally, we are excited to announce that our JetCo shower bowl line will officially launch in the Canadian wholesale market in November. Third, FGI will be launching several new product lines and brand initiatives in the fourth quarter of 2022 and first quarter of 2023 across the company's entire geographic footprint, and I would like to highlight a few of our more notable programs. FGI's flagship Kraft and Main brand will be kicking off an exciting assortment of new products including new electronic bidet toilets, which will give the company a more complete program of bidet toilets at various price points and features. In Canada, in addition to the launch of our jet coat shower ball line, we are excited to announce the launch of our contract-branded two-piece toilet, along with our new Avenue-branded one-piece Len Karen design. With a focus on water saving, ease of cleaning, and end-user comfort, we expect these branded product introductions to drive incremental sales within both the wholesale and showroom channels in Canada. In Germany, FGI has announced a major sanitary wear product launch that should help drive a new cycle of innovation and product development. The company is confident that the coordinated launch of these new products will further our efforts to capitalize on our BPC strategy as FGI continues to upgrade product offerings with features, benefits, and styles that should drive incremental sales and profit growth. I'd also like to highlight that FGI will be displaying many of its new products at the 2023 National Kitchen and Bath Show in Las Vegas, Nevada, in January 2023. FGI will have over 2,000 square feet of exhibit space, the largest exhibit in company history, and the exhibit will include all the company brands, including Covered Bridge Kitchens, Contract, Crafton Main Bathroom Products, and the Jet Coat Shower Wall Systems. we would welcome any investors or analysts attending the show to stop by to see some of our exciting new products. The final item I would like to highlight under our VPC strategy is the expansion of our geographic footprint into the United Kingdom and Australia. This is an important step in further growing our international presence, which we started several years ago first in Canada and followed by Germany. We see tremendous opportunities to leverage our existing product and operational base and to successfully grow into these new geographic regions. We are already seeing early success in these markets as evidenced by a recent award of a new sanitary wear program for 2023 by Bunnings, the largest home improvement retailer in the Australian market. We are actively building our local talent base in both these countries and look forward to meaningful long-term growth opportunities in the years ahead. We are extremely excited by our continued execution against our organic growth programs under our BPC strategy, and we remain confident that these initiatives will help us drive above-market organic growth as market conditions normalize. The second focus of our value creation strategy is on operating efficiency and driving margin expansion. As I mentioned previously, we made significant progress on our margin recovery initiatives during the quarter, with gross margin improving by 325 basis points on a sequential basis, and 490 basis points year over year. I am very pleased that we have been able to drive gross margins back to levels witnessed prior to the supply chain disruptions just over a year ago. Finally is our dedication to efficient capital deployment. We have several organic growth initiatives in various stages of development that we are very excited about and should be meaningful contributors to growth in the coming quarters and years. and these programs will continue to be the primary use of capital in the near term. That said, we continue to evaluate both on opportunities and discuss opportunities with potential partners. While we are disappointed by our top-line results during the quarter, we remain excited by the progress on our strategic priorities, and we look forward to continuing to update the investment community on our progress against these important goals. With that, I will turn it over to Perry for a more detailed review of our financials.