FGI Industries Ltd. SEC 10-Q Report

FGI Industries Ltd., a leading provider in the kitchen and bath products industry, has released its Form 10-Q report for the quarter ended September 30, 2024. The report highlights the company's financial performance, operational achievements, strategic initiatives, and the challenges it faces in the current market environment.

Financial Highlights

FGI Industries Ltd. reported significant financial metrics for the three and nine months ended September 30, 2024:

• Total Revenue: $36.1 million for Q3 2024, up from $29.9 million in Q3 2023. For the nine months ended September 30, 2024, total revenue was $96.2 million, compared to $86.3 million for the same period in 2023.
• Gross Profit: $9.3 million for Q3 2024, compared to $7.8 million in Q3 2023. For the nine months ended September 30, 2024, gross profit was $26.7 million, up from $23.0 million in 2023.
• (Loss) Income from Operations: $(65,826) for Q3 2024, compared to $481,690 in Q3 2023. For the nine months ended September 30, 2024, (loss) income from operations was $(837,122), down from $1.1 million in 2023.
• Net (Loss) Income: $(698,248) for Q3 2024, compared to $343,492 in Q3 2023. For the nine months ended September 30, 2024, net (loss) income was $(1.3) million, compared to $128,598 in 2023.
• Net (Loss) Income Attributable to FGI Industries Ltd. Shareholders: $(550,137) for Q3 2024, compared to $409,535 in Q3 2023. For the nine months ended September 30, 2024, net (loss) income attributable to shareholders was $(798,761), compared to $194,641 in 2023.
• (Loss) Earnings Per Share - Basic: $(0.06) for Q3 2024, compared to $0.04 in Q3 2023. For the nine months ended September 30, 2024, (loss) earnings per share - basic was $(0.08), compared to $0.02 in 2023.
• (Loss) Earnings Per Share - Diluted: $(0.06) for Q3 2024, compared to $0.04 in Q3 2023. For the nine months ended September 30, 2024, (loss) earnings per share - diluted was $(0.08), compared to $0.02 in 2023.

Business Highlights

FGI Industries Ltd. demonstrated robust business performance across various segments and geographical locations:

• Revenue Segments: The company's revenue is divided into four main product lines:
  • Sanitaryware: $21.45 million for Q3 2024 and $59.30 million for the nine months ended September 30, 2024.
  • Bath Furniture: $4.16 million for Q3 2024 and $11.28 million for the nine months ended September 30, 2024.
  • Shower Systems: $7.14 million for Q3 2024 and $18.79 million for the nine months ended September 30, 2024.
  • Others: $3.34 million for Q3 2024 and $6.84 million for the nine months ended September 30, 2024.
• Geographical Performance: The United States remains the largest market, generating $22.20 million for Q3 2024 and $59.83 million for the nine months ended September 30, 2024. Canada follows with $9.92 million and $26.39 million for the same periods. Europe generated $3.42 million and $9.27 million, while the Rest of the World contributed $0.57 million and $0.72 million.
• Sales Units: Inventory levels increased significantly, with finished products valued at $14.51 million as of September 30, 2024, compared to $10.57 million as of December 31, 2023.
• New Production Launches: The company has expanded its production capabilities with the incorporation of Covered Bridge Cabinetry Manufacturing Co., Ltd in Cambodia, established on April 21, 2022.
• Future Outlook: Management believes the company has sufficient funds to meet its working capital requirements and debt obligations over the next twelve months. The company plans to continue leveraging its existing product lines and geographical markets to drive growth.
• Operational Efficiency: Significant investments in property and equipment, valued at $2.96 million as of September 30, 2024, up from $1.91 million as of December 31, 2023, indicate ongoing efforts to enhance operational efficiency.
• Shared Services: The company benefits from shared services agreements with Foremost Home Inc. and Foremost Worldwide Co., Ltd., which provide general and administrative services, IT systems, and human resources services.
• Customer Concentration: Two customers accounted for 19.5% and 15.1% of the company’s total revenue for Q3 2024, respectively.

Strategic Initiatives

FGI Industries Ltd. has undertaken several strategic initiatives to enhance its operational and financial standing:

• Global Expansion: The company has incorporated new subsidiaries, such as FGI Industries India Private Limited and FGI Australasia Pty Ltd, to tap into emerging markets.
• Shared Services Agreements: Agreements with Foremost Home Inc. and Foremost Worldwide Co., Ltd. help streamline operations and reduce costs.
• Reorganization: Completed on January 27, 2022, the reorganization has allowed FGI to consolidate its kitchen and bath business operations globally, enhancing its market presence and operational efficiency.
• Capital Management: The company maintains a line of credit agreement with East West Bank, with a maximum borrowing limit of $18 million, and has utilized $9.16 million as of September 30, 2024. Additionally, FGI Canada Ltd. has a line of credit with HSBC Canada, with borrowings amounting to $1.03 million. FGI International has also secured a $2.3 million credit line with CTBC Bank Co., Ltd.
• Future Outlook: FGI plans to continue its strategic expansion into new markets, leveraging its newly incorporated subsidiaries in India and Australasia. The company aims to enhance its product offerings and distribution capabilities through these new entities. FGI also intends to maintain its focus on cost management and operational efficiency through its shared services agreements.

Challenges and Risks

FGI Industries Ltd. faces several challenges and risks that could impact its future performance:

• Nasdaq Listing Requirements: The company risks delisting from Nasdaq if it fails to meet the minimum closing bid price of $1.00 per share. The stock price has fluctuated significantly and has been below $1.00 per share, which could lead to a deficiency notice from Nasdaq. The company has 180 calendar days to regain compliance if it receives a deficiency notice.
• Revenue and Market Performance: The company has experienced fluctuations in revenue across different product categories and geographic locations. The U.S. market accounted for 61.5% and 62.2% of total revenue for the three and nine months ended September 30, 2024, respectively. Any adverse changes in this market could significantly impact the company’s financial performance.
• Operating Expenses: There has been a notable increase in selling and distribution expenses, largely due to inflation and initiatives to drive sales growth. General and administrative expenses have also increased due to inflation and expenses related to newly formed subsidiaries.
• Liquidity and Capital Resources: The company’s principal sources of liquidity are cash generated from operating activities and credit facilities. As of September 30, 2024, the company had cash and working capital of $3.0 million and $12.7 million, respectively. However, the company may need additional cash resources in the future due to changes in business conditions, rising interest rates, inflation, and increased costs.
• Credit Facility Compliance: FGI Canada Ltd. was not in compliance with certain financial covenants related to its debt to tangible net worth ratio as of September 30, 2024. The company has requested a waiver from the lender, but the outcome is pending. Non-compliance could lead to the requirement to repay the loans immediately, impacting liquidity.
• Future Outlook and Management Strategies: The company intends to drive value creation through product innovation, organic growth, and efficient capital deployment. Key strategic priorities include commitment to product innovation, the “BPC” strategy to drive above-market organic growth, enhanced margin performance, and efficient capital deployment.

SEC Filing: FGI Industries Ltd. [ FGI ] - 10-Q - Nov. 13, 2024