FGI FGI Industries Ltd

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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Date of report (Date of earliest event reported): November 8, 2023

FGI Industries Ltd.

(Exact name of registrant as specified in its charter)

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906 Murray Road

East Hanover, NJ 07869

(Address of principal executive offices) (Zip Code)

(973) 428-0400

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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Item 2.02.    Results of Operations and Financial Condition.

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On November 8, 2023, FGI Industries Ltd. (the “Company”) issued a press release reporting financial results for the third quarter ended September 30, 2023. A copy of the press release is furnished herewith under the Securities Exchange Act of 1934, as amended, as Exhibit 99.1 to this Form 8-K and is incorporated by reference into this Item 2.02 as if fully set forth herein.

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Item 9.01.    Financial Statements and Exhibits.

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(d) Exhibits.

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SIGNATURES

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

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Exhibit 99.1

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FGI INDUSTRIES ANNOUNCES THIRD QUARTER 2023 RESULTS

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EAST HANOVER, N.J., November 8, 2023 – FGI Industries Ltd. (Nasdaq: FGI) (“FGI” or the “Company”), a leading global supplier of kitchen and bath products, today announced results for the third quarter 2023.

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THIRD QUARTER 2023 HIGHLIGHTS

(As compared to the third quarter of 2022)

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* Adjusted net income and Adjusted operating income constitute non-GAAP financial measures. Please see the attached appendix for details.

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MANAGEMENT COMMENTARY

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“We are beginning to see some signs of normalization in inventory levels and order patterns in certain categories; however, inventory de-stocking continues to impact our results, with the recent macro headwinds impacting overall demand across our categories,” stated David Bruce, President and Chief Executive Officer of FGI.    “While our top-line results are facing challenges, we continue to see the benefits of our margin improvement initiatives, with gross margin improving 530 basis points from last year.  As a result, our gross profit declined only 3% during the third quarter despite the 22% drop in revenues.  We could see some short-term variability in our gross margins as we invest in our growth initiatives and see a rebound in our pro channel and bath furniture business, but we believe that our improved gross margin profile should be sustainable longer-term owing to our strategic focus on higher-margin categories and improved operating scale.”  

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“While we are disappointed by our recent revenue results, we are encouraged by our Brands, Products, and Channel (BPC) growth initiatives, which will enable us to drive above-market growth in the coming years,” noted Bruce.  “We remain steadfast in our efforts to continue our strategic investments in this promising direction.  Despite the recent market dislocation, we once again made important progress on our strategic targets during the third quarter.  Last quarter we announced an important licensing agreement that gives us access to a new overflow toilet technology, which we think will be an important differentiator in the market, and we are excited to announce that we have expanded this agreement to include our Canadian market.  We look forward to launching this platform as well as many other new offerings at the Kitchen & Bath show in early 2024.  During the quarter, we also made a strategic investment with a major retail customer to lay the groundwork for future growth. We also continue to make key progress on our new digital custom kitchen cabinetry venture, which we have discussed in recent quarters and expect to be an important driver for our kitchen business.”  

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“We maintained our strict financial discipline during the quarter, resulting in a cash balance of nearly $5.4 million at the end of the third quarter, which combined with our borrowing capacity, resulted in total liquidity of $20.9 million,” stated Perry Lin, Chief Financial Officer of FGI. “Given the successful implementation of our BPC strategy, we continue to believe the highest and best use of our capital is for internal investment and this will remain our priority in the near-term; however, we will also continue to evaluate opportunities for strategic M&A.”

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“We continue to make progress on our strategic growth initiatives, and we have several exciting programs that should contribute to improved growth opportunities in the coming quarters,” continued Bruce.  “The demand environment remains uneven, which is prolonging the de-stocking headwinds that have impacted results over the last year, with several industry forecasters predicting mid-to-high single-digit declines in home improvement industry spending in 2024.  While this will impact our business, we believe our execution of the BPC strategy, coupled with our strategic investments, will allow us to outpace the negative market predictions and should enable FGI to drive organic growth in the coming year.  As we have previously mentioned, we continue to invest in our business for the long-term, regardless of the near-term market and business environment.”

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“Softening consumer demand coupled with continued de-stocking and investments for future growth, including the previously mentioned investment with a major retail customer, have caused us to revise our full-year outlook.  As a result, we now expect full year 2023 revenues of $115 million to $120 million, adjusted operating income of $2.0 million to $2.8 million and adjusted net income of $1.0 million to $1.5 million,” concluded Bruce.

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STRATEGIC UPDATE

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FGI intends to drive long-term shareholder value through the execution of its Brands, Products and Channel (BPC) strategy to drive organic growth, enhanced financial performance, and efficient capital deployment.  Some of the key accomplishments during the third quarter of 2023 were as follows:

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THIRD QUARTER 2023 RESULTS

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Revenue totaled $29.9 million during the third quarter of 2023, a decrease of 22.3% compared to the prior-year period, driven by continued inventory de-stocking, as well as end market demand weakness in the broader home improvement market.    

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Gross profit was $7.8 million during the third quarter of 2023, a decrease of only 2.6% compared to last year, while gross margins improved to 26.2%, up 530 basis points from the prior-year period.  Gross margins continue to benefit from a shift in revenue mix towards higher-margin products, lower logistics costs, and the full benefit of pricing actions taken during 2022.  

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Operating income was $0.5 million during the third quarter of 2023, down from income of $1.7 million in the prior-year period.  Operating income during the third quarter of 2023 included non-recurring expenses of $0.1 million for IPO legal fees, business expansion expense, and IPO-related stock-based compensation.  Excluding these non-recurring expenses, adjusted operating income was $0.6 million during the third quarter.  The decline in operating income was a result of the revenue headwinds and continued investments in growth initiatives, partially offset by the improved gross margin realization.  The Company continues to invest in its BPC growth strategy despite the short-term revenue pressures.  The increase in operating expenses during the third quarter included marketing spend for the recently launched overflow toilet product line and expenses tied to new custom kitchen cabinetry business development opportunities.  As a result, operating margin was 1.6% during the third quarter, down from 4.3% in the same period last year.

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The Company reported a GAAP net income of $0.3 million, or $0.04 per diluted share during the third quarter of 2023, versus net income of $1.3 million, or $0.13 per diluted share, in the same period last year.  Net income for the third quarter of 2023 included after-tax expenses of $0.1 million related to IPO legal fees, business expansion expense, and IPO-related stock-based compensation.  Excluding these items, adjusted net income for the third quarter of 2023 was $0.4 million, or $0.05 per diluted share.  

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FINANCIAL RESOURCES AND LIQUIDITY

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As of September 30, 2023, the Company had $5.4 million of cash and cash equivalents, total debt of $8.0 million and $15.6 million of availability under its credit facilities net of letters of credit. Combined with cash and cash equivalents, total liquidity was $20.9 million at September 30, 2023.

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FINANCIAL GUIDANCE

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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. While the Company has made excellent progress on its margin improvement initiatives, this has been offset by near-term inventory de-stocking pressure from key customers, uneven demand trends across our sales geographies coupled with continued strategic investments throughout the organization for future growth. As a result of these factors, the Company has revised its fiscal 2023 guidance as follows:

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The Company’s 2023 guidance includes roughly $0.8 million in costs related to investments with a major retail customer in addition to a previously announced new custom kitchen cabinetry business venture. Guidance for adjusted operating income and adjusted net income is presented on an adjusted basis and excludes non-recurring items. All guidance is current as of the time provided and is subject to change.

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THIRD QUARTER CONFERENCE CALL

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FGI will conduct a conference call on Thursday, November 9 at 9:00 am Eastern Time to discuss the quarterly results.

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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.

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To participate in the live teleconference:

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To listen to a replay of the teleconference, which will be available through November 23, 2023:

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ABOUT FGI INDUSTRIES

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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.

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Non-GAAP Measures

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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 the United States (“GAAP”). They are supplemental financial measures of our performance only, and should not be considered substitutes for net income, income from operations or any other measure derived in accordance with GAAP and may not be comparable to similarly titled measures reported by other entities. We define Adjusted Operating Income as GAAP income from operations excluding the impact of certain non-recurring expenses, including expenses related to COVID-19 protocols, non-recurring compensation expenses related to our IPO, and one-time anti-dumping penalty expenses. We define Adjusted Net Income as GAAP net income excluding the tax-effected impact of certain non-recurring expenses and income such as expenses related to COVID-19 protocols, unusual litigation fees and non-recurring compensation expenses related to our IPO. We define Adjusted Operating Margins as adjusted income from operations divided by revenue.

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We use these non-GAAP measures, along with U.S. GAAP measures, to evaluate our business, measure our financial performance and profitability and our ability to manage expenses, after adjusting for certain non-recurring expenses, identify trends affecting our business and assist us in making strategic decisions. We believe these non-GAAP measures, when reviewed in conjunction with U.S. GAAP financial measures, and not in isolation or as substitutes for analysis of our results of operations under U.S. GAAP, are useful to investors as they are widely used measures of performance and the adjustments we make to these non-GAAP measures provide investors further insight into our profitability and additional perspectives in comparing our performance over time on a consistent basis. With respect to the Company’s expectations of its future performance, the Company’s reconciliations of full year 2023 Adjusted Operating Income and 2023 Adjusted Net Income are not available, as the Company is unable to quantify certain amounts to the degree of precision that would be required in the relevant GAAP measures without unreasonable effort.

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FORWARD-LOOKING STATEMENTS

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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.

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INVESTOR CONTACT

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Paul Bartolai, CFA

773-489-5692

FGI@val-adv.com

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FGI INDUSTRIES LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

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FGI INDUSTRIES LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

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FGI INDUSTRIES LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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Non-GAAP Measures

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