Good morning, welcome to the FGI Industries Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode, and should you need any 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, and to withdraw a question, please press star, then two. Please also note that this event is being recorded today. I would now like to turn the conference over to Paul Bartolai, Managing Director, Vallum Advisors. Please go ahead, sir. Thank you. Welcome to FGI Industries Second Quarter 2023 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. 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. Today's call will begin with a performance review and strategic update from David Bruce, followed by a financial review from Perry Lin. At the conclusion of these prepared remarks, we will open the line for your questions. With that, I'll turn the call over to Dave. Thanks, Paul. Good morning to everyone, and thanks for joining our call today. During the second quarter, we maintained focus on our long-term strategy and continued to make important progress on our growth and margin initiatives, despite the sluggish demand trends and inventory headwinds, which once again pressured results. We continued to execute on our BPC growth initiatives and added several new awards and partnerships during the second quarter, including a new licensing agreement that should drive incremental growth in our sanitaryware business, as well as new sales partnerships that will allow us to expand our geographic footprint into India and Eastern Europe in the coming years, all of which should put FGI in a strong position to return to organic growth as industry conditions normalize. As we have discussed on prior calls, a key focus of our BPC strategy is to increase the contribution from branded products and prioritize higher-margin markets and categories. Our success under these initiatives has been a key factor in the meaningful gross margin improvement in recent quarters. This continued into the second quarter, with record second quarter gross margin of 27.4%, up nearly 1,000 basis points from last year. As a result, our second quarter gross profit declined by less than 5%, despite a nearly 40% drop in revenue. While a volume rebound in the pro channel and bath furniture could impact the gross margin trajectory in the near term, we expect the continued benefit from our strategic focus on higher-margin categories, such as shower systems and kitchen cabinetry, as well as improved operating leverage to further benefit margins over time. The industry-wide inventory correction that has been a headwind to our revenue growth has lingered into 2023, with uneven demand in the R&R channel and macro uncertainty adding another layer of pressure. This has caused many of our large customers to take a very cautious stance on inventory levels, with many industry participants attempting to reduce inventories to levels below historical averages. This has prolonged the destocking headwinds, particularly in the pro channel, where the inventory correction is extending into the second half of the year. In addition, our European business, centered in Germany, has faced pressure due to a combination of destocking headwinds, along with significant recessionary pressures in that country. These factors are proving to be a more significant headwind than we anticipated at the start of the year, and as a result, we are adjusting our full-year guidance. We now expect full-year 2023 revenues of $120 million-$130 million, adjusted operating income of $3.5 million-$5 million, and adjusted net income of $2 million-$3 million. While we are disappointed to lower our full-year outlook, we still see plenty of reasons for optimism, both in the broader market and in particular with our company-specific initiatives. Looking at the broader R&R market, demand has been uneven. The overall market is holding up as well as we would expect. The R&R market tends to be more stable than the broader building products category. That is what we are seeing. The bath furniture business continues to see the biggest impact from a demand perspective. We are taking numerous actions to drive further volume growth, including anticipated new product line rollouts and select pricing adjustments. Importantly, we are not seeing signs of broader discounting or promotional activity in the market. Looking forward, we have been encouraged by a stabilization of inventory trends as we look into the back half of 2023 and into 2024. We have also been encouraged by the recent housing data, which is showing signs of stabilization and improvement as buyers get accustomed to the new level of mortgage rates. Commentary from the public builders continues to be more constructive, with most players noting improved order trends and increasing buyer confidence. Overall, the trends in our end markets are largely consistent with our expectations coming into the year, and we continue to expect our end markets to decline in the mid-to-high single digits during 2023. While the trends in 2023 have been more challenging than originally expected, our longer-term optimism for the kitchen and bath repair and remodel market and FGI's position in the industry remain unchanged. As a result, we continue to invest through this cycle and remain focused on our strategic plan, which ultimately is to drive long-term growth above the market and create value regardless of the market environment. As a reminder, our long-term strategic plan is focused on three key initiatives, which include driving organic growth using our BPC strategy, operational improvements, and efficient capital deployment. I am very excited by the progress we made against these strategic initiatives during the second quarter. I would like to walk through some of our key accomplishments. As it relates to our BPC program and our organic growth initiatives, we were awarded several important new programs and entered into a couple exciting partnerships during the quarter. First, we entered into a five-year licensing agreement that will provide FGI access to an industry-leading overflow toilet technology, which should provide a key differentiator in the market. We expect to launch new sanitaryware products utilizing this technology at the 2024 Kitchen and Bath Show. Second, we entered into two exciting new partnerships that will enable us to expand our geographic footprint into the high-growth Indian and Eastern European markets. We engaged Mera India, a sales organization based in Mumbai, India, to serve as a catalyst for our geographic expansion and heightened market presence in India. Mera India will focus exclusively on marketing and selling FGI's sanitaryware line of products to both wholesale and hospitality trade channels across the country. In addition, we also recently formed a strategic partnership with MIA Partner to extend our presence into Eastern Europe. Leveraging their expert resources located in the target customer countries, MIA Partner, working with our 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 the Eastern Europe region to further support our BPC strategy. Third, we continue to execute on recently announced awards, including our online shower door program for an existing large Canadian retail partner, which commenced in June 2023, and the rollout 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. Our custom cabinetry business continues to grow rapidly, with significantly higher incremental gross margins than the company average. Our premium Covered Bridge brand added 57 new dealers this far in 2023, bringing the total dealer count to 180 at the end of the second quarter. As we mentioned last quarter, we continue to develop a new business venture that we feel has tremendous potential in the online custom kitchen cabinetry space. We look forward to updating the market on our progress in the coming quarters. We are very excited by our progress on our strategic initiatives, and we remain confident that this 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. We once again made excellent progress on our margin improvement initiatives, as we reported another quarter of strong year-over-year gross margin improvement. While lower freight costs and pricing have been a contributor to the improved margin performance, we think it is important to understand that our strategic decision to focus on higher-margin categories has been the main driver of the improved performance, and we view this as a structural shift that will continue to benefit margins over the long term. Finally, is our focus on efficient capital deployment. Following the challenges caused by the supply chain disruptions and inflationary pressures, we made meaningful progress in reducing our working capital usage in recent quarters, which has resulted in improved free cash flow conversion. This further bolstered our solid liquidity position and financial flexibility. As a result, we have ample capacity to invest in our organic growth initiatives. At the same time, we continue to actively pursue bolt-on opportunities, although, as we have stressed on previous calls, we remain disciplined and rigorous in our approach and our acquisition strategy. Overall, while market conditions have been a challenge, and we are disappointed to fall short of our original financial targets, I am very proud of our execution. We continue to generate strong margin improvements. We were awarded several new business programs, including important partnerships, to further expand our geographic footprint into new, high-growth markets, and we made important progress on our strategic goals. We think this all serves to position the company very well for the future. With that, I will turn it over to Perry for a more detailed review of our financials. Thank you, Dave. Good morning, everyone. I will provide some additional details on the quarter, given an update on our liquidity and balance sheet, and wrap it up with our full year 2023 guidance. Revenue totaled $29.2 million during the second quarter of 2023, a decrease of 39% compared to the prior year due to continued inventory destocking, as well as some modest softening in our customer demand. Currency was high wind during the quarter and negatively impacted revenue by 1.2%. Looking at our business line, sanitaryware revenue was $18.8 million during the second quarter, down from $32.3 million during the prior year period, due to continued inventory having, particularly in the pro channel. We continue to see large customer take cautious stance regarding inventory levels, given sluggish demand trends, which is prone in the inventory correction. However, our sanitaryware revenue did increase 23% sequentially from the 1st quarter of 2023. As we are seeing some customers beginning to return to more normal order patterns, and we are hopeful for continued rebound in order trend to in the back half of the year, as inventory levels normalize and demand rebounds, driven by recent improvement in the housing industry fundamentals. bath furniture revenue was $4.8 million during the 2nd quarter, a decline from revenue $7.7 million in the prior year period. The broader bath furniture market, in particular, bath cabinetry, has continued to experience sluggish demand trend, causing inventory levels to remain elevated. In response to the ongoing demand headwinds, as Dave mentioned, we have made some modest pricing adjustment on certain bath furniture products, which is expected to drive improved demand. Shower system revenue was $4.3 million during the second quarter, down from $6.5 million last year, due to some modest inventory destocking and order timing. While revenue declined from last year, the overall momentum in the business remains strong, with the recently awarded new program expected to drive improved trend in second half of 2023. Other revenue, which consists primarily of the custom kitchen cabinetry business, was $1.3 million during the second quarter, essentially flat from the prior year. While there was a modest lull in orders following the strong path of the new business coming out of Kitchen & Bath Show at the start of the year, trend in the business remains strong, and we expect strong momentum in the back half of the year. Gross profit was $8 million during the second quarter, a decrease of only 4.9% compared to last year. As the recent revenue headwind continued to be offset by improved margin performance. Gross profit margin improved to 27.4% during the second quarter of 2023, up 980 basis points from last year. While mainly driven by more favorable product mix, gross margin also benefit from lower freight costs and the full benefit of the price increase implemented during 2022. Our operating expense increased to $7.4 million during the second quarter, up from $6.7 million last year. As we continue to invest our growth initiative, the higher operating expenses reflect marketing spending for new product initiative, cost to support our geographic expansion program, and the expenses tied to our new kitchen business opportunity. GAAP operating income was $580,000 during the second quarter of 2023, down from income $1.7 million in the prior year period. Excluding one-time expenses, adjusted operating income was $642,000 during the second quarter. The decline in operating income was a result of the revenue decline and the continued investment in operating expense tied to the growth initiative, partially offset by improved gross margin. As a result, operating margin was 2.2% during the second quarter, down from 3.6% in the same period last year, but an improvement from the break-even profitability during the first quarter of 2023. GAAP net income was $0.1 million, or $0.01 per diluted share, during the second quarter of 2023, versus net income $1.2 million, or $0.10 per diluted share in the same period last year. Excluding one-time item, adjusted net income for the second quarter of 2023 was $0.2 million, or $0.02 per diluted share. Now, turning into balance sheet and our liquidity. As of June 30, 2023, the company has $6.9 million of cash and cash equivalent and total debt of $7.9 million. At the end of the quarter, we had $15.7 million of availability under our credit facility, net of letter of credit. Combined with cash, total liquidity was $22.6 million at quarter end. We believe we are in a solid liquidity position that is more than sufficient to fund our growth initiative. Finally, turning into guidance, as Dave discussed, inventory destocking has proven to be a bigger headwind than expected. As a result, we are lowering our full year 2023 guidance. Please note that guidance Dave outlined for net income and operating income is being provided on an adjusted basis and excluded non-recurring items. In addition, our guidance include. ... approximately $500,000 in expenses for our new kitchen cabinetry initiative. That completes our prepared remarks. Operator, we are now ready for question and answer portion of our call. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star, then two. At this time, we will take our first question, which will come from Reuben Garner with Benchmark. Please go ahead. Thank you. Good morning, everybody. Good morning, Reuben. Good morning, Reuben. Just trying to clarify the comments on the destocking, because you mentioned some customers were showing signs of returning to normal order patterns sequentially. Is all the destocking that you're seeing at this point at the pro level? Can you remind us how much of your business goes through that channel? Then I guess maybe just for clarification purposes, what you're seeing specifically at retail. Yeah, thanks for the question. Yeah, we're, we're seeing it at, in both the pro and retail side. It is moderating. That is why we mentioned that they continue to come down, but there's more of a lag. As you know, we have a relatively high concentration of some larger customers in both the pro and the retail side. As their inventory has been, you know, funneling down and moving out through the channel, their baseline inventory levels are also being adjusted to be a bit lower than they were prior to, you know, all of these inventory issues. At the same time, in both the pro channel and the retail channel, we're seeing a softening. We've, we've said that the RMR market is gonna be, you know, is, is projected to be down, you know, in the high single digits this year. When you combine the softening on the demand side with the extended lower inventory levels, this is sort of dragging out a little bit more of what we expected on the destocking side. Again, because of the, the larger customer size that, you know, that impacted us and extended a bit, it's very hard for us to recover that as quickly as we would have wanted to. You know, we didn't completely anticipate... We were, we were cautious to think that may extend further into the year, and I think we had mentioned that, but, by doing so, it obviously is, was more of a challenge to overcome as quickly. We have limited financial history with you guys. Is there normally a, like a stocking quarter for your industry? If so, is that something that is just being pushed out? Like we're seeing in other categories where the, where the retailers or the, the dealers channels just saying, "Hey, look, we normally stock up in the fourth quarter. We're gonna, we're gonna push pause and wait. Just given all the uncertainty, we're gonna wait until early part of next year to make sure the consumer is okay and housing's okay before we go ahead and, and kind of return to normal buying." Is there something like that, a dynamic like that in your space, essentially? For the most part, no. We're relatively, there's not much seasonality to our business. You know, when I say that, there's a bit of seasonality on the retail side, tied a little bit to the spring season, because obviously everybody gets out and about, and as they promote the spring businesses, we see a little bit of a bump there. The only seasonality I would say that, we did miss last year was, going into the end of the season because of our manufacturing being in Asia, for the most part. People get ahead of, the holiday season, Chinese New Year, for example, and usually, give us a little bit of, an order bump towards the end of the year, in advance of those holidays. Last year, because that was really in the, in the thick of, the inventory, destocking, we, we didn't see that, right? At this year, we would anticipate that we would see that again, because that's been sort of a normal trend for us over the course of our, business through, through all the cycles. So that is something that we're, we're hoping to see again, as we get into the second half. Okay, great. Last one for me. your, your margin performance, has been encouraging the last couple of quarters. It looks like you're creeping back into that kinda mid-single-digit operating margin range that you were a few years ago, but you're getting there a very different way. How do we think about that that kind of makeup between gross margin and, and what your operating expense line looks like longer term? Is, is something in the mid to upper 20s from a gross margin standpoint sustainable? Will you have to continue to spend on the OpEx line to get there, or is there leverage to come when, when volume rebounds? Yeah, that's a great question. I'm glad you brought that up. We, we do think there's absolutely leverage. You know, I've used the phrase before on one or two of the calls. We're, we're not a startup company, but we're acting like a startup in a sense that we're, you know, despite some down cycles with business, we continue to reinvest to grow this business. Part of what I mentioned earlier, you know, with, with our concentration risk being in some larger customers and limited, you know, more limited channels without... You know, we've talked about the evergreen space we have, not only in North America and the channels, but that's why we're investing in the digital kitchen venture. That's why we're investing to move into the Indian market... That's why we've invested to try to break into the U.K. market and now, of course, Eastern Europe. All of that is part of continuing to level the playing field for us as far as the channel, you know, our BPC strategy, which again, you're, you're familiar with. What, what essentially those, those investments are gonna do for us is I, I call it, like, sort of leveling the waves in the ocean, right? Right now, because we are subscale and a lot of the larger customers could impact our results, you know, in both ways, right? They, they could be impacted negatively or positively. We, we really wanna grow out and scale, you know, bring more scalability to the business overall, expand the markets geographically, expand the channels, and of course, expand the product. The new product mixtures that we're working on, to all of our customers. To answer the bottom line, yes, you're going to see, you know, there's a little over $1 million in OpEx spending this year that really isn't gonna bring any revenue until next year, right? Had we, had we wanted to, we could have taken that and said, "You know, we're not gonna invest at all," we probably would have been a lot closer to our adjusted operating income or adjusted net income numbers from our guidance, really, that, that doesn't really do us any good in the long term, right? The long-term outlook is what we're focused on, and we're obviously being very diligent about what we spend. The investments are there, and, and they're, they're gonna be quite lucrative, we think, as we move along. Great. I'm gonna sneak one more follow-up in. Perry mentioned- Sure. I think it was bath furniture, adjusting some prices to try to drive demand. Just kind of tying into that sustainability question on the gross margin side is, you know, the last few couple quarters, is that kind of indicative of where we can stay going into next year, or you're gonna have to give some back with inflation kind of coming in? Yeah, I think we're, we're doing a couple of things. You know, yeah, we made some pricing adjustments, and more importantly, we're making mix changes within the not only the cabinet assortment, all of our assortments, obviously. We're making some mix changes in cabinetry as the majority of our, our portfolio at Bath Furniture was focused on the high end, right? Obviously, as the market changed, you know, there was a little bit more movement, not initially, but there's been more movement now towards what I would call the middle range. We've already been working on adjusting the assortments to meet the newer customer demand, and that's already in place for going into the back half of the year, and obviously, will be debuted in a major way when we exhibit at our major trade show in the spring, but by then it will already be in place. That's, that's really what we meant there. We, we did adjust some pricing, and I think we had mentioned even, you know, several quarters ago, as, as freight costs continued to come down, we still adjusted pricing. With that and adjusting our mixes and our product mixes and upgrading our product mixes, that's why we're still very confident that we're gonna continue to grow our margins sequentially as we move forward. Great. Thanks. Good luck going through the rest of the year, guys. No problem. Thank you. Our next question will come from Greg Gibbs with Northland Securities. Please go ahead. Great. Good morning, Dave and Perry. Thanks for taking the question. Hey, Greg. How are you? Good morning. Great. Thanks. You know, I guess if you were to break out the, the drivers of the delta in guidance, you know, I, I imagine the vast majority is just the destocking trends continuing. How much is destocking related versus perhaps other shifting dynamics that you're seeing? Yeah, it's a good question. I, I think they're, they're really, they're, they're hand in hand, you know, because destocking by itself, you know, let, let's go back historically. You know, b- pre-- just up until, you know, 2022, the industry experienced the longest period of active stocking in the last 20 years. It was, 26 weeks, I believe, or, several months, 26 weeks in a row of active stocking. Then, as we hit the destocking wall, so to speak, last year, that was prior to really having any anticipation of the R&R demand dropping as well. What's happened is you've had destocking extend a bit, you've had the end user market demand drop, and then, as I've mentioned, you've also had customers rethink, what their baseline invent-inventory levels will be, so they've lowered those as well. Really, they've, they've worked hand in hand to, to sort of soften, the demand side. I will say, though, based on, you know, conversations with customers, based on the industry research that we've seen, based on the mood, speaking to the, you know, in the market, those inventory levels are moderating, but of course, there's a lag, right? There's a lag by the time they because they want to flush out inventory that they already have for sales that, you know, are, are still softening from a demand perspective. Those, those, once those levels get down, they turn around and the order cadence comes back. We have seen, and I, and I think, Reuben sort of mentioned it, we have seen some of the, the orders come back to some degree, for example, on bath cabinetry, but it hasn't been consistent. That's what we're trying to... You know, we're, we're still not back to what, like, what we would call a regular order cadence, and that's what's been extended. We thought we would be back to an order cadence earlier, and we're not. That was a large part of them and the major part of us looking at how we had to adjust the guidance because we just-- You know, like I said, you know, the major customers that we have, both on the pro and the retail side, you know, had that major impact, and this is very difficult to overcome at this point. Great. That's very helpful, Dave, and I think it, it makes sense regarding what you're seeing. I, I guess, you know, the follow-up there is, is the order cadence improving, or is it kind of just leveled out at where, where we saw it in Q2? Just wondering, you know, maybe the dynamics you're seeing in Q3, like, are, are they improving, or is it kind of consistent? You know, along with that question, you know, maybe what is the cadence that's implied within your guidance for, you know, Q3 versus Q4 for the remainder of the year? Yeah. In, in, in a sense, what we're if you look at our overall guide, you know, while, while the second half guide is, is a bit lower, it's more close to our original guidance than the first half, right? The first half is really we're gonna take most of our hits from a revenue perspective, and we would expect that those last two quarters, we would get back to that normal pace. And we are. We already are seeing, you know, here in August, for example, we're starting to see a pickup, right? We're starting to see a little bit more regularity to some things. It's, it's also difficult to say regularity when it's only been a month and a half, but, you know, we are starting to feel the mood's a little better. There's a lot of activity. Like I said, you know, all the, all the programs that we talked about last quarter are all on schedule to roll out, so we're gonna have a lot of incremental gain from some of the new programs as well. At this point, you know, we took that into account, to, you know, try to forecast out that cadence and assume, based on what we're seeing and hearing, that that will become more regular and would, you know, help us achieve those numbers that we, that we laid out there. Great. Appreciate the color there. 'cause, yeah, I mean, I know it's still early in the quarter, relatively, but it's kind of good to hear that, you know, it's not trending worse in a way. That's helpful. Yeah. you know, I, I, I think you already touched on this, and sorry, I got on the call a little bit later, but could you just break out, you know, what channels maybe saw the worst of the destocking trends and which held up, relatively better? I, I would say for us, you know, and, and we look at a lot of market data, and this was sort of supportive with the data, but really on the pro side, on our sanitaryware, because the sanitaryware, as you know, is the largest product category for the company globally, and in all, all the divisions, obviously. That's where we, where we experienced the most hit as far as destocking was on the pro sanitaryware side, and secondly, would have been on our bath furniture on the retail side. Those are the two major impacts that, you know, were tough to recover from, from this first half. Great. Appreciate it. Thanks. Okay. This concludes our question and answer session. I'd like to turn the conference back over to David Bruce for any closing remarks. Thank you for your time and interest today. We really appreciate your continued support of FGI. Also, please note that we will be attending the Northland Capital Markets conference on September 19th. Stay well, and if we don't connect during the quarter, we look forward to speaking with you on our next quarterly call. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.