FGI Industries Ltd. (NASDAQ:FGI) Q3 2023 Earnings Conference Call November 9, 2023 9:00 AM ET

Company Participants

Paul Bartolai - Managing Director, Vallum Capital Advisors

David Bruce - President and Chief Executive Officer

Perry Lin - Chief Financial Officer

Conference Call Participants

Reuben Garner - The Benchmark Company

Gregory Gibas - Northland Capital Markets

Operator

Good morning, and welcome to the FGI Industries, Inc. Third Quarter 2023 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Paul Bartolai, Managing Director, Vallum Advisors. Please go ahead.

Paul Bartolai

Thank you. Welcome to FGI Industries Third 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. 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.

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.

David Bruce

Thanks, Paul. Good morning to everyone, and thanks for joining our call today. We are beginning to see some signs of normalization in inventory levels and order patterns in certain categories. However, inventory destocking continues to impact our results. With the recent macro headwinds prolonging the expected inventory recovery as well as impacting overall demand across our categories. While our top line results are facing challenges, we continue to see the benefits of our margin improvement initiatives during the third quarter with gross margin improving 530 basis points from last year. As a result, our gross profit declined only 3% during the 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 our improved gross margin profile should be sustainable longer term, owing to our strategic focus on higher-margin categories and improved operating scale.