Good afternoon, ladies and gentlemen, and welcome to Global Industrial's Second Quarter 2025 Earnings Call. At this time, I would like to turn the call over to Mike Smargiassi of the Plunkett Group. Please go ahead. Mike Sma

Thank you, and welcome to the Global Industrial Second Quarter 2025 Earnings Call. Today's call will include formal remarks from Anesa Chaibi, Chief Executive Officer; and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question-and-answer session. 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 Anesa.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us. We delivered an excellent second quarter performance with record profitability. I'm pleased with the execution of the entire organization, specifically considering the market disruption and uncertainty from the current tariff environment. The team has done a great job mitigating the risk, enabling us to continue to serve our customers. In the quarter, revenue increased 3.2% to $358.9 million. We grew the top line each month during the period and have seen growth continue into July. Performance was driven by our largest strategic accounts, partially offset by a reduction in our smallest and more transactional customers. Gross margin was a record 37.1% for the second quarter, an increase of 190 basis points over the second quarter of 2024, and and 220 basis points over the first quarter of 2025. Operating income improved over 26% to $33.5 million, which represents a quarterly record for the company. Operating margin was 9.3%, and we also had strong cash flow generation in the quarter. Overall, our results reflect the benefits of modest price capture and the timing of FIFO inventory. While some of this margin expansion may be temporary, we believe it highlights our ability to proactively manage the business and focus on what we can control. This includes ensuring product availability and providing the products our customers rely on us to deliver. As I noted on the last call, Global Industrial has an outstanding foundation for growth. with an exceptional platform and the ability to scale the business organically. We have an opportunity to broaden who we serve, expand existing account relationships and accelerate our growth initiatives. During the past several months, we have gained alignment throughout the organization on how we can better position Global Industrial to grow and to pursue new opportunities. We will drive simplification in how we operate and create a sense of urgency within the organization to better serve the customer. We are empowering our teams to make real-time decisions and continually challenging the way we work to find creative solutions to address customers' needs. Core to our efforts will be the continued transformation of the business model to place the customer at the center of everything we do. Not just thinking about the customer and our actions but realigning and building the organization and the solutions we provide around our customers. We need to make it easier for our customers to engage and do business with us, allowing us to deliver greater value to them and become an extension of their teams. Moving forward, our growth strategy will be anchored in specialization and expansion. On specialization, we will become more focused in the identification and targeting of key customers and align sales on the broader organization to serve the specific needs of each type of customer. We will reframe our go-to-market strategy to become much more intentional in how we approach and attract new customers. We see significant opportunity to deepen existing relationships, gain greater share of wallet and acquire new customers. On expansion, we will broaden the product categories we offer and enhance our overall offerings to ultimately improve our customer stickiness. We will do this focused on driving profitable growth. In summary, we were very pleased with our second quarter performance. We have more work to do as we look to accelerate our success and mitigate the impacts of tariffs on our business and for our customers. As we become more intentional in how we go to market and operate the business, we believe we have the opportunity to open the aperture of the total addressable market that we pursue. There's a lot of positive activity across the company, and I'm excited by what the future holds. We remain well positioned to continue to invest in our growth initiatives and to evaluate strategic M&A. Finally, in September, we will host our ninth Annual National Trade Show in Orlando, Florida. This event allows us to showcase our extensive product offering of national and proprietary brands as well as the knowledge and solutions we bring to market. We look forward to connecting with our customers and vendor partners at the show. Now I will turn the call over to Tex.

Thank you, Anesa. Second quarter revenue was $358.9 million, up 3.2% over Q2 of last year. U.S. revenue was up 3% and Canada revenue improved 7.4% in local currency. Sales grew each month during the quarter, and we have seen growth accelerate to mid- single digits through the first 4 weeks of July. Results were strongest amongst our largest strategic accounts, which continue to see good momentum and sales progress as they grew on both total dollar and order volume basis. Price was positive in the quarter and includes some initial pricing actions implemented in April. This was partially offset by a decline in total volume which reflects an intentional effort to limit certain promotional activities that previously targeted customer segments with historically lower retention rates and ultimately, a lower lifetime value. The tariff environment remains highly fluid, and the cumulative impact of incremental tariffs remain significant. We continue to actively monitor the situation and are focused on supplier diversification, price management and strategic cost negotiations. We concluded the second quarter with a healthy inventory position and continue to prioritize availability for our customers. We anticipate implanting additional pricing actions as inventory affected by tariffs moves through our cost of sales. Gross profit for the quarter was $133 million. Gross margin was 37.1%, up 190 basis points from the year ago period and 220 basis points sequentially. Gross profit improvement reflects both price capture and temporary favorability of inventory valuation, which flows through the cost of sales on a FIFO basis. In addition, our gross margin rate benefited from transportation and freight cost improvements in both our small parcel and LTL environments as well as quality initiatives that reduce freight claims and customer returns. Management of our margin profile remains a key area of focus. As we move through the current cycle, we have started to see the timing benefit of pre-tariff inventory decline. Our -- while our goal is to manage price cost neutral, we are seeing sequential headwinds in our margin rates given the timing dynamics of on-hand inventory, market inflation associated with the tariff-related cost increases and efforts to continue to diversify our supply chain. Selling, distribution and administrative setting for the quarter was $99.5 million, an increase of 3.5% from last year. However, as a percentage of net sales, SG&A was 27.7%, nearly flat with last year. SG&A reflected strong general and discretionary cost control and modestly lower marketing expenses. These savings were partially offset by year-over-year increase in variable compensation expenses with both selling commissions and our bonus pool accrual increasing compared to last year. While marketing CPC inflation remains, we continue to drive efficiencies in our investment and have seen some nice productivity and efficiency gains within our sales teams as we continue the implementation of our new CRM. Operating income from continuing operations was a record $33.5 million, an increase of 26.9% in the second quarter, and operating margin was 9.3%. The Operating cash flow from continuing operations was $31.8 million. In the quarter, we closed on the purchase of a small services company that provides a value additive service wrapper extension to one of our product lines. This company represents less than 1% of total revenue. Total depreciation and amortization expense in the quarter was $1.9 million, including approximately $0.8 million associated with the amortization of intangible assets, while capital expenditures were $1.4 million. Cash flow from investing activities includes the $4.3 million purchase price of the previously mentioned service business. We continue to expect 2025 capital expenditures in the range of $2 million to $3 million, which primarily reflects maintenance-related investments in equipment 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 2.1:1. As of June 30, we had $55.1 million in cash, no debt and approximately $120 million of excess availability under the credit facility. We maintain significant flexibility to fully execute on our strategic plan and continue to fund our quarterly dividend. As a result, our Board of Directors declared a quarterly dividend of $0.26 per share of common stock. This concludes our prepared remarks today. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Ryan Merkel with William Blair.

I wanted to start with a big surprise, which was gross margin. And can you help us with the bridge, the 200 basis points increase year- over-year. How much of that was FIFO, and then how much of it was freight and the other things that you talked about?

I'll go ahead and jump in there. So when we think about that expansion, a lot of times, I'd like to look back at what we saw in the back half of '21 and leading into '22 when we were going through a similar inflationary environment with the cost of ocean freight going up and we saw a similar ramp up. So when you think about that 200 basis points of expansion, it's -- about half of that is going to be that price timing that we looked at with pricing, with our COGS working through. And the other half of that is going to be things like we mentioned, where we were seeing favorable cost in transportation and some other areas that drove benefit into our gross profit rate. So again, we have started to see that benefit that we recorded in the second quarter already start to wane in the third quarter. So we would expect some sequential, some sequential headwinds into the third quarter. But again, we still think we'll be able to manage our gross margin favorability on a year-over-year basis.

And on that last point, Tex, about 100 basis points, do you think comes off as we think about the second half?

Yes. I mean I think that's a fair way to look at it. Obviously, there's still some unknowns out there as tariff rates are continuing to change and mix could change. We will be continue to look at market-based pricing. But yes, I think that's a fair, fair assessment to where we stand today.

Ryan, this is Anesa. Just to chime in real quick. I would just say we have numerous initiatives that are in flight, and we're watching it very closely. So we'll do -- we'll read and react as we go through, but I would say that Tex is spot on with what we anticipate at this juncture.

Okay. So in my own words, 37& is a little punchy. You don't expect to continue that, but you do expect year-over-year expansion to continue.

Yes, absolutely. That's fair.

Yes.

Okay. My next question was just on the July commentary, up mid-single digits. I mean it's a bit of acceleration. This might be hard to answer, but is that market driven? Is that price? Is that company-specific share gains?

Yes. Anesa, do you want me to [ chip in ] there. Go ahead.

Go ahead, Tex. That's fine.

I'm sorry. Yes. I mean when we look at it, Ryan, we're seeing a fairly broad-based. So we're seeing good growth across different customer segments, both our managed customers, our strategic customers, but the biggest growth those strategic accounts that we've been putting the most effort to really target those customers and be very intentional with how we're servicing those customers. So it's been fairly strong growth. We saw growth each month in the quarter during the second quarter and that has accelerated into the early part of the third quarter to 4 weeks in at this point.

So it's on all fronts, Ryan. And we've got some things that we're piloting right now strategically on go-to-market that are premature at this point but we're starting to see some incremental positive momentum, but we'll be in a better position to speak to it when the next time we have our subsequent third quarter call.

Okay. Maybe 1 more for Anesa. It's a 2-parter 2. You mentioned being more intentional about attracting new customers. Could you be a little bit more specific what do you mean by intentional? And then am I reading this right? Or is it the new customers that you want? Are you going to be shifting more to the strategic accounts or are you equally trying to get small and medium businesses as well?

Yes. No, thank you for the question. The intentionality is just really aligning ourselves and putting the customer at the center of what we do, and that is a pivot and a shift for us. but really trying to understand what the customer needs are across various industry segments and sectors. So we're getting very smart on understanding the behavior of our customers along those lines. And then the second part of your question is I would say that Global Industrial in the past targeted customers that were more price sensitive or really looking for applying coupons and discounting and what have you. And it's just being very intentional on who we're targeting, where we're going to look for growth opportunities and then -- and kind of doubling down and investing in those arenas.

Our next question comes from Anthony Lebiedzinski with Sidoti & Company.

Certainly nice to see the strong profitability in the quarter. So first, I just wanted to go back to your comments about the fact that you saw your smallest account, smallest accounts or SMB clients kind of being soft in the quarter. Just wondering if that changed in July as you've seen an acceleration in your sales trends?

Yes, Anthony, this is Tex. I'll take that one. I can thanks for joining us today. So I think that's 1 area that, again, as we've gone into July, we've seen, again, fairly broad-based growth, but again, it's still concentrated in those largest customers that we tend to serve. When we think about some of that intentionality and some of that targeted marketing is obviously, we pulled back promotional activities in the second quarter, which, again, in the past were a little bit higher proportion of our mix -- our customer mix. And while that did impact some volume metrics that we looked at in the period. Overall, we think we drove more profitable growth and a healthier customer mix for ourselves.

Got you. Okay. Yes. And then Anesa, you spoke about having more of a sense of urgency in terms of just driving the business forward, where would you say are the greatest kind of near-term opportunities and where would you say it's something that will take longer to achieve in terms of -- I just wanted to go back to that comment where you talked about having that greater sense of urgency.

Yes. No, that's a great question, Anthony. Thank you for it. What I mean by that is, I would say there are some operational elements that will enable us to be more nimble, more flexible and responsive to our customers. I would say, on the customer experience side being empowered more so to be able to make real-time decisions. If a customer calls in and need some assistance and so forth. So that's what I was referring to and implying.

Got it. Okay. And then as you look to grow the business, can you also speak to the addressable market opportunity that you referenced in the press release?

Yes. I guess I don't have a specific number in mind if that's what you're asking relative to the TAM. But I believe that there is just a tremendous opportunity. And I think during one of our last meetings, we had discussed that briefly but I would say we have been doing intentionally throughout the quarter as well as expanding our assortment and the products and the SKUs that we're taking to market, and that's also enabled us and enhanced our growth and some of the momentum we're seeing as well. So it's really honing in on that. Again, back to the specialization comment, it's understanding the customer at a more intimate level to then align the organization to be able to serve it and to be able to fulfill what they're expecting from our capabilities. So that's really what we're trying to align to do. And I'm convinced that, that total addressable market is where we're currently anchored on infrastructure, with operational type of industrial equipment will broaden to industrial equipment and supplies, MRO in a broader sense and so forth. But we're in the nascent stage of that as we're looking to further expand the assortment, the progression and everything that we take to market.

So as you look to execute this strategy to be more intentional and more specialized, do you think you have a -- do you think you'll need to grow your sales team or other parts of the business in terms of people? Or do you think, yes, you're in the right -- you have the right group of people to execute this strategy?

Yes, I believe we will need to make some investments. And yes, we will need to look at how we go to market on the sales side. So there will be investments in the sales organization. And that's really what we're doing right now currently to do some piloting, some testing, and we'll be launching some things incrementally in various markets, so that we can quickly learn and then determine just what we'll do differently going into 2026.

Got you. Okay. All right. And then you made a small acquisition that you talked about. What is your appetite for additional acquisitions going forward?

Yes. Yes. No, great question. As Tex highlighted, we have 0 debt or minimal debt, if at all. And so the opportunity for strategic M&A is absolutely available to us. We're going to be very mindful and prudent. And as we go through some of the piloting and testing that we're doing now real time in the back half of this year, I think that will help provide clarity on the strategic direction that we want to take. I already have some perspective at this point, but I want to validate a few things before really aggressively going after it. But that opportunity is there for us to scale and grow, especially along the lines of some of the broad -- being able to go after some broader MRO capabilities and to live up to the fulfillment expectations of customer base, depending on the segment or the industry or the vertical.

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.