Good morning and welcome to FGI Industries’ Third Quarter 2022 Earnings Conference Call. I would now like to turn the conference over to Mr. Paul Bartolai. 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 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 the 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 will 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 the 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 and 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 sanitaryware business declined by 18% in the third quarter driven in part primarily by declines in our Canadian sanitaryware 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 softer 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 was 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 above the industry averages while driving value creation through a balanced focus on organic growth using our VPC 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 VPC initiative, which stands for brands, products and channels. We have made nice progress through our VPC 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 our 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 would 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 Jetcoat shower wall 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 Craft & 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 Jetcoat shower wall line, we are excited to announce the launch of our contract branded two-piece toilet along with our new avenue branded one-piece toilet 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 sanitaryware 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 VPC 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, Contrac, Craft & Main bathroom products and the Jetcoat 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 our recent award of a new sanitaryware 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 VPC 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 bolt-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.

Thank you, Dave and good morning everyone. I will provide some additional details on the quarter given the update on our liquidity and balance sheet and wrap it up with our updated full year 2022 guidance. Revenue totaled $38.5 million during the third quarter 2022, a decrease of 24% compared to the prior year due to volume freight costs primarily by inventory destocking as well as weakness in the bath furniture market. These factors were partially offset by continued strong growth in our other segment driven primarily by our shower system and kitchen cabinetry business. Looking at our business lines, sanitaryware revenue was $26 million during the third quarter 2022, a decrease of 18% compared to the prior period. The revenue decline was largely due to a channel inventory reduction by key partners primarily in the pro channel. End customer demand has remained relatively stable. So we expect the volume to rebound as inventory levels are adjusted. Bath Furniture revenue was $5.6 million during the third quarter, a decrease of 63% compared to the prior period. The Bath Furniture business has begun to see some pressure from destocking in recent quarters. So we were expecting to see trends begin to normalize in the back half of the year. However, we continue to see customers reduce inventory levels, which further pressured revenue in this third quarter, while we have received some modest pressure on demand chain in the broader Bath Furniture market. We remain optimistic that this segment will rebound quickly as inventory normalizes. Other revenue was $7.4 million during the third quarter 2022, an increase of 61% compared to the prior period driven by strong volume growth in our custom kitchen cabinetry business and for our Jetcoat shower wall system. Gross profit was $8 million during the third quarter 2022, a decrease of 1% compared to the prior year period as the revenue decline was largely offset by significantly improved gross margins, which improved to 20.9% during the quarter, up 490 basis points from 16% in the prior year period. The improvement in our gross margin percentage is primarily attributable to solid growth in higher margin products such as the shower system and kitchen cabinetry, continued pricing gains and a reduction in freight costs versus the elevated levels experienced last year. We expect the positive factors that drove the strong margin performance in the third quarter to remain in place, which combined with the expected rebound in the Bath Furniture segment should enable the company to drive additional gross margin gains over time. GAAP operating income was $1.7 million during the third quarter 2022, down from $1.8 million in the prior year period. The decrease in operating income was driven by the decline in revenue, partially offset by the significant improvement in gross margin. Other retail operating margin was 4.3% during this quarter, up from 3.6% in the same period last year. GAAP net income was $1.3 million or $0.11 per diluted share during the third quarter 2022, down from $1.4 million or $0.20 in the same period last year. The reduction reflects the decline in operating income as well as an increase in our diluted share count. Now turning to the balance sheet and our liquidity. As of September 30, 2022, the company has $6 million of cash and cash equivalents and total debt of $13 million. At the end of the quarter, the company had $5 million of availability under our credit facility net of letters of credit, combined with cash, total liquidity was $11 million as of September 30. We were pleased to see an improvement in our working capital level during the quarter, which has been elevated in recent quarters, owing to the supply chain challenges. The reduction in working capital drove the strong free cash flow conversion in the quarter. We expect our capital spending need to remain around 1% of revenue. We believe we are in a solid liquidity position that is more than sufficient to fund our growth initiatives. We were extremely pleased with the quick rebound in our margin performance during the third quarter and we remain encouraged by the progress on our organic growth initiative. However, this was not enough to offset the significant inventory destocking we saw in the back half of the year. As a result, we are adjusting our 2022 financial guidance and now expect revenue in the range of $164 million to $168 million, operating income to be in the range of $6 to $6.5 million, and net income to be in the range of $4.5 million to $5 million. While we are disappointed that we are lowering our guidance, we are pleased that we are lowering the net income range by less than $1 million at midpoint of the range, despite a roughly $20 million reduction in our revenue guidance due to the strong progress we have made in our margin improvement initiatives. This completes our prepared remarks. Operator, we are now ready for the question-and-answer portion of our call.

Thank you very much. The first question is from Reuben Gardner from Benchmark. Please go ahead.

Thank you. Good morning, everybody.

Good morning, Reuben.

Good morning.

So maybe just start with the inventory destocking. Is there any way to gauge where inventory stands from a volume standpoint today versus maybe 3, 4 or 5 years ago for you guys? I mean, it sounds like after things normalize, you’re expecting maybe volume growth or volume more in line with the market dynamics or any – seen line with – excuse me, with the sell-through to return – but can you help us just understand where inventory in the channel stands today versus what is 'normal'?

Sure. Yes. I mean, destocking has, you’ve probably seen with other companies, been building on over a year throughout the industry and we didn’t have too many of our customers facing the issue with us. It sort of crept up on us in the middle of Q3. And that process takes a while to flush out obviously. In many cases, it will take many months, because the one part of the supply chain process that has not greatly improved is lead times. Right. So, there is almost an active what I would call, a passive restocking going on, meaning there is still inventory coming in for customers that they technically don’t need, right. I mean, they are not placing orders for some new inventory and they are still getting some tail end with the effect of older orders that are coming in delayed. But because that started to happen in Q3, our anticipation is that a lot of that from our perspective, at least in our situations will flush out as we go into the beginning of the year. We’re starting to see some change already as we enter Q4 to some degree with some of the business that have particularly in our Bath Furniture segment, which had probably was most affected by the destocking. We are starting to see a very slow improvement there heading into Q4. So again, it’s just a flush out period that we are waiting for. It is happening and most likely as we enter Q1 of 2023, we are going to see that level off.

And is there any – I mean, what gives you confidence that there isn’t another step lower in inventory as the channel? Is it just conversations with customers? Is it where it stands relative to history? I mean anything that’s helpful there. The reason I ask is I know you had some level of destocking, the furniture piece earlier in the year. I mean, it sounds like they took it another step lower. I am just curious like how much further is there a point where they can’t do that anymore?

Yes, there is. As a matter of fact, the good news is during this destocking phase, the end market demand is only moderately lower. We are not seeing a severe dip in end-market and end-user demand at this point. And the majority of the main driver behind the revenue miss is because of the destocking. So, to answer your question, why we feel pretty confident that we are not going to see dramatic increases in destocking there, mainly because of the moderation in the end-user demand. And for us, the other positive is that we are still driving new incremental sales growth and taking share within our newer product categories; our covered bridge kitchens are some of the things you have heard in my opening comments about our new toilet technology or shower system. So, even if there was a larger decrease in demand, or incremental sales growth alone would in our mind more than offset any additional softness in the end-user demand.

Okay. And then the margin recovery, obviously, pretty impressive in the face of the inventory destock. Can you talk about, as we move into next year, how much more room there is for improvement there, what are the puts and takes other than the top line? Do you still have costs coming in and price, previous price increases flowing through that are going to help continue to drive that higher, even if volume is softer, or I guess just update us on kind of the margin progression as we move into ‘23?

Yes. Sure. So, it’s a great point. We absolutely understand that for specifically for our merchandise that primarily comes from China or Southeast Asia, your freight rates, let’s talk about the freight rates and logistics that have obviously been improving. But those freight rates are based on the day that the products are shipped. So, obviously, in the marketplace, product being received today might be cost-affected negatively with higher freight rates from three months ago, for example, right. So, we are going to see flow-through with our inventory carrying costs continue to reduce as we go into Q1 and Q2 next year. At the same time, as we have been mentioning, and you just touched upon, we have taken pricing access with customers throughout the year. Some of those were fairly recent. So, again, won’t have full impact until really, sort of the middle of Q4 going into Q1 and Q2. So, we are pretty confident that our margin, we can at least maintain our margins, if not, we expect them to grow, because on top of that, although back to our VPC strategy, which I mentioned, we are focused on new incremental sales growth and particularly in our higher margin categories, right, the shower. And the kitchens, for example, we expect tremendous growth there. So, you will roll all those things up together, our margin picture, we are pretty confident going into next year.

Okay, great. And then last one for me. The last couple of quarters, we have talked about potential for new products, new business wins. Just curious, there were a couple of announcements in the press release, are these related to those? Are those separated, is the thing that the opportunities that we have talked about in the past? Is that still on the come?

Yes. Absolutely. We have multiple opportunities. Now, of course, we added and we heard today, we are expanding markets as well. So, those are more, I would say global opportunities in the UK and Australia. But getting back to our current footprint, yes, there are multiple new opportunities within multiple channels and also in all of our product categories right now. Timing is of the essence, of course, to announce those in detail. And many of those would come to fruition, most likely, probably Q4, but most likely getting pushed out into the beginning of 2023. And they cover the vast majority of our product lines and multiple channels that we are dealing with.

Okay, great. Thanks guys. I will leave it there. Good luck going forward.

Thank you.

Thank you, Reuben.

Thank you. The next question is from the line of Greg Gibas from Northland Securities. Please go ahead.

Hey. Good morning, David and Perry. Thanks for taking the question.

Good morning. Thank you.

Yes. If I could follow-up on Reuben’s first line of questioning, what kind of gives you confidence that inventory maybe correct? I guess – I think you have mentioned Q4 kind of seeing a little bit of improvement. But when we think about it, would it be more of a prolonged kind of correction in 2023, or would you expect it to snap back relatively quickly? Just trying to think of the time?

Yes. I mean, I think our anticipation now as we look at it here, in the month of November is, in Q1, and it also varies, I will say this, it varies a little bit by geographic region and also varies a little bit by product category. So, for example, I see Canada for sure, possibly early Q1, but Q1 leveling off and having de-stocking, sort of I will call it back, get back to the normal. Here, we might have a little bit longer only because the cabinets are more of a challenge only because our cabinet program is so broad here. And it’s a much larger, much more diversified product category. But the same thing, I anticipate that with our shower business, our sanitaryware business, and even the cabinets, I believe by the end of Q1 into Q2 is where we would see things normalize. And I could see that being even earlier, when it comes to our sanitaryware, and the shower systems business. So, if anything is going to take a little bit longer, I would say the cabinetry, but Q2 would be the latest, the longest I would see it going.

Got it. Very helpful. And I guess I also kind of wanted to ask, if we are seeing end market demand staying relatively strong, does it almost surprise you to see the level of de-stocking that you did see from your customers? And probably if I missed this in your prepared remarks, but maybe why do you think that’s happening, is it really just them being cautious?

I have seen this before, not to this degree in the years past. And what happens is when you have a tremendous logistics snag in delivery, so to speak, right. There was a lot of unknown about container availability. There was a lot of unknown about delivery times. And I don’t want to use the word panic, but there are guests, customers and ourselves, you get to a point to look, you have got to be prepared to stay in stock. And we did a very good job of that to make sure we were in stock for our customers, so they could get product. But we also deliver products to our customers directly from our age on ocean containers. And it’s hard to predict, right. So, what happens is when the situation was really bad, and the anticipation of delivery was unknown, excess orders are placed in some degree, and they are spread out. And then all of a sudden, as things start to pick up, a lot of those spread out orders start to get delivered all at one time, right. So, they start to get products in, and at the same time, sometimes what happens is you start to get the wrong product and you get product you didn’t need as quickly than the product that you needed just coming later, right. So, you are always chasing products, you are always chasing trucks, you are always chasing those in containers. And I call it the bullwhip effect. By the time you see what’s happened, you start to realize what’s coming and you are like, oh, wow, now we have got to take a look at where our demand is going, right. And like I have said, the demand only moderated slightly. It wasn’t a disaster from demand. But when you have all that inventory come in all at one time, it creates the backlog, right. So, I think that’s the situation that you have seen the market in. Some people have experienced it earlier in the year. We experienced that a bit later. I don’t think ours is to the severity that some of the other industries may have faced. But for sure, I think it’s more manageable; this isn’t a disaster situation, that’s not manageable. And I believe, like I mentioned, we are already starting to see some easing of it now. But realistically, it’s Q1, Q2 relief at this point.

Got it. Makes sense. And nice growth out of the other products category, just wanted to follow-up there on in terms of what product lines you are seeing more of the success in that segment, and then kind of driving that growth?

Yes. So, both our shower systems and our kitchens, I will give a little more color. So, our special with our custom kitchen business has just been very, very well received in the market, and I think we expanded our dealer base, more than doubled our dealer base, almost doubled it. Already this year through September, you are going to see again, we can’t announce any details, but we are in talks with a large national customer that will take on this program, which will be a game changer for us. And we have great anticipation for this program going into 2023. On the shower systems side, we are seeing – we are launching new items on our shower doors or shower bases, some exciting new shower walls. You will see a lot of this product, if you make it out to the KBIS show. We have already got placement for some of this; people are pre-ordering products. So, there is a lot of excitement there. So, and again, we have always harped on our VPC strategy. And that’s part of it, right. Those new brands not only higher volume in our brands, but better quality, higher ticket, and of course, what’s maybe the most important is higher margin product for us, right. So, these are all incremental opportunities that we see going into 2023.

Okay, great. I guess last, just wanted to follow-up on your entrance into the UK and Australian markets. If you – do you expect to maybe expand that business? I guess maybe what’s the strategy to expanding that business in those new markets going forward?

Yes. Well, what I would say is, as a general statement, I would use our example in Germany. I think we talked about our German model when we were doing our road shows and through some of our investor conferences. We have a very capital-light model in Germany. We installed a couple of people, Sales Manager, Vice President and a small team, very little overhead. And the reason that was able to work is because they were able to leverage a global product and a logistics platform that we already have in place, right. So, we have all of our manufacturing partners that we have had for a very long time. We have our product teams, our merchandising teams over in Asia. And of course, we have global teams within each of our geographic markets that work together to develop product. And one of the things that’s unique about our company is that we don’t dictate product development and marketing for each region from a central location; everything is decentralized. So, we allow the markets to create what they need. So, you can take if you look at that German model, which went from zero to $16 million, where the business in about 8 years or 10 years, that sort of model is what we are trying to replicate in the UK and also in the Australian market. And we think we could do that. I don’t want to say easily; nothing is easy, but we have experience at replicating and leveraging our operating experience and our merchandising and our product experience and our quality into those markets, allowing those sales managers and those very small teams to develop what they need for their customers. So, we are extremely excited about it, because we have experience with it from our German market. And we are just going to take what we have learned and bring it into these new markets now.

Yes. I would like to piggyback a bit on it. Besides the successful model we have in Germany, we also have a very successful model in Canada. So, for the UK and Australia, whatever the business opportunity over there, we have a good existing model that we can replicate and the gold ticket.

Okay. Good to hear. Thanks guys.

Thank you.

Thank you. Ladies and gentlemen, as there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back to Mr. David Bruce for any closing remarks.

Thank you for the time and interest today. We appreciate your continued support of FGI. Stay well and we look forward to connecting with you on our next quarterly call. Thank you.

Thank you.

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.