Good day, and welcome to the FGI Industries, Inc. First Quarter 2024 Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Jae Chung, Vice President of FGI Industries. Please go ahead.

Thank you. Welcome to FGI Industries 2024 First Quarter 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, which is available on the company's website. 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'll turn the call over to Dave.

Thank you, Jae. Good morning, everyone, and thank you for joining our call today. I'm delighted to share our positive first-quarter results, reflecting the strategic investments we've made in our organic growth initiatives across our brands, products and channels or BPC strategy. While the industry outlook anticipates modest declines in the R&R segment, we remain confident in our ability to outpace market trends through innovative products and programs. During the first quarter, we witnessed growth across most of our businesses, primarily fueled by volume and sustained demand from end markets alongside gradual normalization of inventory levels. Notably, our Sanitaryware and shower businesses demonstrated year-over-year growth. While our Bath Furniture segment faced subdued demand due to a shift towards lower-priced offerings, we are excited about our upcoming Bath Furniture assortment that is more aligned to new market pricing and design trends. Additionally, our Shower Systems business benefited from new customer program introductions while the pro Sanitaryware business rebounded as inventory levels stabilized and order flow improved. We are particularly pleased with our operational performance, reporting a total revenue of $31 million for the quarter, marking a robust 13.2% increase year-over-year. Our gross margin also improved to 27.4%, reflecting our sustained focus on higher-margin products. As we continue to invest in our growth initiatives, we are encouraged by the positive momentum witnessed in the first quarter. Furthermore, our geographic expansion plans in India and the United Kingdom hold significant promise for driving growth. In India, we are optimistic about leveraging new distribution partners to establish our presence in the burgeoning bath market. We are also excited about the imminent launch of Isla Porter, our high-end custom kitchen cabinetry business based on an innovative digital platform. With its emphasis on premium trend-setting products and cutting-edge AI software, Isla Porter is poised to redefine cabinetry personalization, convenience and design. Our strategic growth initiatives are progressing well and are expected to fuel above-market organic growth in the future. I commend our FGI team for their dedication to our long-term objectives, positioning the company for success in 2024 and beyond. With that, I'll hand it over to Perry for a more detailed financial review.

Thank you, Dave, and good morning, everyone. I will begin by providing additional details on the quarter. Next, I will update you on our current liquidity and balance sheet. Finally, I will conclude with our guidance for the full year 2024. For the first quarter of 2024, revenue totaled $31 million, an increase of 13.2% compared to the first quarter of 2023, driven by continued momentum in our Shower Systems business and a rebound in our pro sanitary business. Our Bath Furniture business continued to be weak but is showing signs of an improvement. As Dave mentioned, the Bath Furniture market continues to be impacted by weaker demand and a trade down to lower-priced offerings. In response, we are launching mid-tier products to better address the current demand environment. Demand trends in the shower category remain steady. We continue to expect our new program and product to continue driving growth in 2024. Gross profit was $8.4 million in the quarter, an increase of 16.8% year-over-year, driven by growth in our higher-margin products. Gross margin improved to 27.4% in the quarter compared to 26.5% in the prior year. Our operating expenses increased to $8.7 million from $7.2 million in the prior year due to inflation and ongoing investment in our growth initiatives, including marketing spend for Flush Guard, Isla Porter and kitchen cabinetry. GAAP operating income was negative $0.3 million in the quarter, down from breakeven year-over-year. Higher operating expenses due to investing in our growth initiatives accounted for the loss as overall revenue and gross margin were higher in the quarter. Moving to our balance sheet. At the end of the first quarter, FGI had $17.8 million of total liquidity, which we believe is more than sufficient to fund our growth initiatives. The decline in total liquidity from year-end 2023 was largely driven by an increase in working capital requirements, which is seasonally highest in the first quarter of the year. We are leaving 2024 guidance unchanged, with revenue in the range of $115 million to $128 million, adjusted operating income in the range of $2.8 million to $3.8 million and adjusted net income in the range of $1.2 million to $2 million. Please note that the guidance for adjusted operating income and adjusted net income excludes certain nonrecurring items. That completes our prepared remarks. Operator, we are now ready for the question-and-answer question of our call.

Our first question comes from Greg Gibas with Northland Securities.

Dave and Perry, congrats on the results. I guess, if you could touch a little bit more on kind of your outlook remaining unchanged. Curious if any changing expectations kind of implicit in that maintained range, kind of drivers of where there was some upside in Q1? And maybe if anything's changed on a quarterly cadence basis relative to your expectations?

Sure, that's a good question. Q1 went as expected. As we entered the year, we anticipated some organic recovery and aimed to move past the concept of destocking. We observed a solid rebound in our pro Sanitaryware business and have seen positive results from the rollout of our new shower program that we mentioned in previous calls. The momentum heading into Q2 aligns with the guidance we've established, which is why we haven't made any adjustments. We're also looking forward to additional program rollouts that we expect to implement primarily in the second half of the year. Currently, the order cadence and pipeline are positive, and we're optimistic about continuing this trend into Q2.

Okay. Got it. And you alluded to it a little bit in your pro channel, but wondering if you could just kind of discuss high-level trends that you're seeing in your key channels, whether anything is kind of standing out or changing favorably or unfavorably?

Yes, we're observing some positive changes. Specifically, we're seeing a moderation in inventory levels, which is a good sign. Last year, we talked a lot about the significant inventory challenges our customers faced, but most of that has improved now. As I mentioned in our previous call, there are still some specific areas and customers that will continue to face inventory issues, but overall, this won't significantly impact our business. We're also noticing a more organic rebound in the professional sector, which brings some optimism. Builders, particularly for the second half of the year and into Q4, are expressing confidence in a recovery. We're sensing that momentum in our professional business. Furthermore, on the Sanitaryware side, we anticipate a rebound due to reduced destocking, which aligns with our expectations as we move into Q1 and Q2.

Perfect. And as it relates to maybe your gross margin expectations or how those you expect to trend relative to Q1, should we think about kind of continued expansion just due to that product line shifts trend?

Yes, we believe we can maintain our gross margins, and we are confident about the new business opportunities ahead of us that will help us sustain those margins. As we scale our higher-margin businesses, such as showers and especially kitchens, we expect to accelerate our gross margin dollars. This includes both our Covered Bridge kitchens and our new digital initiative with Isla Porter. As these areas grow, we anticipate continued growth in margin dollars. Additionally, as our pro business recovers and we expand our Sanitaryware segment, we expect to enhance our EBITDA and EBIT percentages over time. Although the Sanitaryware business has lower gross profit percentages, combining these dollars with the higher profit margins from our kitchens leads us to expect healthy growth in the short to midterm.

This concludes our question-and-answer session. I would like to turn the conference back over to David Bruce for any closing remarks.

Thank you for the time and interest today. We appreciate your continued support of FGI. Stay well, and if we don't connect during the quarter, we look forward to speaking with you on our next quarterly call.

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