Global Industrial Company (NYSE:GIC) Q3 2023 Earnings Call Transcript

Global Industrial Company (NYSE:GIC) Q3 2023 Earnings Call Transcript October 31, 2023

Operator: Good afternoon, ladies and gentlemen, and welcome to Global Industrial's Third Quarter 2023 Earnings Call. At this time, I would like to turn the call over to Mike Smargiassi of The Plunkett Group. Please go ahead.

Mike Smargiassi: Thank you, and welcome to the Global Industrial third quarter 2023 earnings call. Leading today's call will be Barry Litwin, Chief Executive Officer; and Tex Clark, Senior Vice President and Chief Financial Officer. The formal remarks will be followed by a question-and-answer session. During the call, we will reference both GAAP and organic metrics. Organic reflects the performance of the Global Industrial business exclusive of the May 2023 Indoff acquisition. In addition, the third quarter of 2023 had one less selling day in Canada versus the year ago period. Today's discussion may include certain forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward-looking statements caption and under Risk Factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q.

The press release is available on the company's website and has been filed with the SEC on a Form 8-K. This call is the property of Global Industrial Company. I will now turn the call over to Barry Litwin.

Barry Litwin: Thanks, Mike. Good afternoon, everyone, and thank you for joining us. Third quarter total revenue was approximately $355 million, an increase of 18.8%, which included the addition of Indoff for the full period. On an organic basis, we returned to growth as revenue improved 3.2%. This represented a nice rebound from the second quarter as we benefited from volume improvement, which more than offset continued price headwinds. Gross margin was 32.8% and was primarily impacted by the inclusion of Indoff's lower margin profile. During the quarter, we further normalized our inventory position, generated strong cash flow from operations and fully paid off the outstanding balance on our credit facility. Top line performance was once again led by our eCommerce channel as recent investments and proactive actions to drive digital transformation and enhance the online shopping experience are delivering returns.

We continue to leverage digital marketing to deliver healthy customer acquisition and retention rates. Our web and marketing teams have been doing an outstanding job executing on our strategy, and we've been very pleased with the recent eCommerce performance. Our direct one-to-one sales channel remains a key focus to deepen customer relationships, build larger accounts and expand into new end markets. While we did see some nice gains in select national and public sector accounts, and overall order volume improved, we continue to see muted large order volume. This reflects the cautious customer behavior we've observed throughout the year. The customer remains at the center of everything we do. We are committed to making further investments in areas such as sales, marketing, price analytics and intelligence and private brand that will continue to differentiate us in the market and drive our long-term performance.

These efforts are designed to strengthen our competitive position and help us focus on the customer experience and the solutions they need to succeed. Q3 marked our first full quarter with Indoff, and we believe it has been a strong addition to Global Industrial. The business is performing in line with our expectations, and we've been pleased with initial efforts to capitalize on cross selling and private brand opportunities. We remain excited by the new customers and markets it brings as well as capabilities in project management and engineering solutions that broaden our offering and strengthen our value proposition. Finally, in October, we hosted two events that really highlight our core values and who we are as a company. The first was our Annual National Trade Show on October 19 in Memphis, Tennessee, which was a tremendous success.

We had exceptional customer turnout and supplier support. The show provided an invaluable opportunity for the team and me to meet with our customers and vendor partners in person. These discussions allowed us to strengthen relationships, gather critical feedback and kick off 2024 planning. It reaffirmed how our ACE strategy is resonating throughout the business and the positive impact it's having. The second event was the Corporate Day of Service we held last week in partnership with Helen Keller National Center, which is located near our corporate headquarters in Port Washington, New York. We work side by side with the staff and residents at Helen Keller, assembling and installing an assortment of our outdoor furniture and products to enhance their campus as well as introducing our first Braille water bottle filling station.

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This was a rewarding experience and exceptional opportunity to give back to the local community and build a lasting relationship with a world-class organization. Planning and executing these events took a tremendous amount of work and effort, and I'm really proud of the team and our partners who supported us. In closing, we believe we have the right strategy in place to drive long-term performance and value for our stakeholders. We are executing against the core pillars of our ACE strategy, committed to delivering an exceptional experience to customers and focused on operational excellence in every part of our business. The investments we are making in growth and productivity initiatives are designed to strengthen our competitive position. And while the environment remains one of caution, our proactive management approach and ability to adjust to market conditions places us in a position to continue to win in the market.

In addition, with our strong balance sheet, we have the resources to execute on our organic and strategic growth opportunities. I will now turn the call over to Tex.

Tex Clark: Thank you, Barry. Third quarter revenue was $354.6 million, up 18.8% over Q3 of last year. Organic revenue was $308.2 million, up 3.2%. Absolute volume was up throughout the quarter and price headwinds moderated to low single digits. Organic U.S. revenue was up 3.1% and organic revenue in Canada was up 8.2% in local currency. While the demand environment remains tentative and customers guarded in their buying decisions, positive Q3 trends continued into the beginning of the fourth quarter, and we expect price pressure to moderate further throughout the period. Gross profit for the quarter was $116.3 million, up 9.1% from last year. Gross margin was 32.8%, down 290 basis points from the year ago period and includes a 170 basis point impact from the contribution mix of Indoff.

Indoff's gross margin was 21.6% and in line with their historical performance. Organic gross margin rate was 34.5%, a 120 basis point decline from the year ago period. Organic performance reflects the impact of proactive promotion and freight actions as part of our competitive pricing initiatives as well as the sell-through of certain pockets of high-cost inventory, specifically within our cooling category. Management of our margin profile remains a key area of focus. While the pricing environment remains competitive, we expect modest sequential organic margin improvement in the fourth quarter as we benefit from more normalized inventory costs. Given Indoff's impact to our composite margin profile, we expect the consolidated gross margin decline in the fourth quarter as compared to last year.

Selling, distribution and administrative spending for the quarter was $88.1 million or 24.8% of net sales and an improvement of approximately 170 basis points from last year and approximately 90 basis points on a sequential quarter basis. SG&A primarily reflects an increase in planned sales and marketing investment, which is more than offset by other key cost control measures as well as a reduction in variable compensation. Operating income from continuing operations was $28.2 million in the third quarter and operating margin was 8%. Organic operating margin was 8.3%. With the addition of Indoff and its comparatively lower operating margin rate, our composite operating margin may remain lower than historical periods. During the quarter, we generated strong operating cash flow from continuing operations of $38.3 million, which benefited from a further reduction in inventory and strong working capital management.

We believe inventories likely reached a more stable position with normalized seasonal variation. Total depreciation and amortization expense in the quarter was $1.9 million, while capital expenditures were also $1.9 million. As a result of the Indoff acquisition, the company incurred approximately $0.7 million in amortization expense in the quarter. We expect 2023 capital expenditures in the range of $5 million to $6 million, which includes maintenance related investments in equipment as well as facility upgrades within our distribution network. Let me now turn to our balance sheet. We have a strong and liquid balance sheet with a current ratio of 1.7 to 1. As of September 30, we had $34.3 million in cash and no debt. We have now fully paid down the $40.3 million balance on our $125 million credit facility, which was utilized to fund a portion of the Indoff purchase price.

We maintain significant flexibility to fully execute on our strategic plan and to continue to fund our quarterly dividend. As a result, our Board of Directors declared a quarterly dividend of $0.20 per share of common stock. This concludes our prepared remarks today. Operator, please open the call for questions.

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