Q3 2023 Global Industrial Co Earnings Call

Good afternoon, ladies and gentlemen.

From two global Industrials third quarter 2023 earnings call.

At this time I would like to turn the call over to nice majority of the Plunkett Group. Please go ahead. Thank you and welcome to the global Industrial third quarter 2023 earnings call, leaving.

Leading today's call will be Barry Litwin, Chief Executive Officer, and Tex Clark.

Your Vice President and Chief Financial Officer.

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 our global industrial business.

As of the May 2023, and off 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.

<unk> 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 caused the property of Copel Industrial company I will now turn the call over to Barry but one.

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 and offer the full period.

On an organic basis, we returned to growth as revenue improved three 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 <unk> lower margin profile.

During the quarter, we further normalize 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 E Commerce channel as recent investments and proactive action 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 are web and marketing teams have been doing it now.

Standing job executing on our strategy and we've been very pleased with the recent E Commerce 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.

We did see some nice gains and select national and public sector accounts and overall order volume improved we continue to see muted large border volume. This reflects the cautious customer behavior, we have 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 <unk>.

Solutions they need to succeed.

Q3 marked our first full quarter with endorse and we believe that it's 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 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 19th 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 2020 for planning it reaffirmed how our <unk> strategy is resonating dropped the business and the positive impact of attack.

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 worked 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 break water bottle filling station.

This was a rewarding experience an exceptional opportunity to give back to the local community and build a lasting relationship with a world class organization planning.

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 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 a 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.

I will now turn the call over to tax.

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 three 1% and organic revenue in Canada was up eight 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 nine 1% from last year.

Gross margin was 32, 8% down 290 basis points from the year ago period and include the 170 basis point impact from the contribution mix of enough.

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 benefited from more normalized inventory costs.

Given the <unk> impact to our composite margin profile, we expect the consolidated gross margin decline in the fourth quarter as compared to last year.

Operator: Good afternoon, ladies and gentlemen, and welcome to Global Industrialist's third quarter of 2023 earnings call. At this time, I would like to turn the call over to Mike Smargiassi of the Planket Group. Please go ahead.

Selling distribution and administrative spending for the quarter was $88 1 million or 24, 8% of net sales an improvement of approximately 170 basis points from last year, and approximately 90 basis points on a sequential quarter basis.

Mike Smargiassi: Thank you. And welcome to the Global Industrial's third quarter of 2023 earnings call.

S. DNA, primarily reflects an increase in planned sales and marketing investment, which was more than offset by other key cost control measures as well as a reduction in variable compensation.

Mike Smargiassi: Leading today's call will be Barry Litwin, Chief Executive Officer and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question and answer session. During the call, we will reference both GAP and organic metrics. Organic reflects the performance of the Global Industrial Business, who's of the May 2023 endothed 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.

Operating income from continuing operations was $28 2 million in the third quarter and operating margin was 8%.

Organic operating margin was eight 3%.

With the addition of <unk> 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.

Mike Smargiassi: 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 10K and quarter of reports on Form 10Q. The press release is available on the company's website and has been filed by the SEC on the Form 8K.

We believe inventory is 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 <unk> acquisition, the company incurred approximately zero point $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.

Barry Litwin: This calls the property of Global Industrial Company, I will now turn the call over to 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 endoth 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.

Let me now turn to our balance sheet, we have a strong and liquid balance sheet with the current ratio of one seven to one.

As of September 30th we had $34 $3 million in cash and no debt. We have now fully paid down to $43 million balance on our $125 million credit facility, which was utilized to fund a portion of the <unk> 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 <unk> 20 per share of common stock.

Barry Litwin: Gross margin was 32.8%, and was primarily impacted by the inclusion of endoth's lower margin profile. During the quarter, we further normalize 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 e-commerce 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.

This concludes our prepared remarks today operator, please open the call for questions.

Thank you if you'd like to ask a question. Please press star one on your telephone keypad.

Using a speakerphone please pick up your handset before pressing the keys.

Majority a question. Please press Star then two.

Once again, ladies and gentlemen that Star then one of you I have a question.

Today's first question comes from Anthony <unk> with Sidoti <unk> Company. Please go ahead.

Barry Litwin: Our Web and Marketing teams have been doing an outstanding job executing on our strategy and we've been very pleased with the recent e-commerce 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 have observed throughout the year.

Good afternoon, and thank you for taking the questions. So firstly on nice to see organic sales turning positive in the quarter here you talked about some price headwinds however.

Just wondering.

Was this.

Most of your categories or across the board and.

I know, Texas, you mentioned that this seems like the price pressures have eased up so that's good to hear but just wanted to get a little bit more color on it as far as the pricing environment.

You saw that progressed throughout the quarter.

Barry Litwin: 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 that it's been a strong addition to global industrial.

Were there any categories that you could single out.

Yeah, Yeah, I mean, I would tell you Anthony.

Thanks for asking the question pricing, we think is still going to remain competitive.

Given the cautious customer environment.

So and we've been you know in a sense and a negative price position for several quarters here. So I think we are kind of well prepared and understand kind of the pricing environment.

Barry Litwin: 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 were made excited by the new customers and markets it brings as well as capabilities and project management and engineering solutions that brought our offering and strengthen our value proposition.

Going forward the <unk>.

<unk> mix was a fairly broad you know relative to.

Your question around what what categories, where we're.

<unk>, we're seeing kind of.

I would say pressure across the board on most core commodities as well as consumables.

Barry Litwin: Finally in October we hosted two events that really highly highlight our core values and who we are as a company. The first was our annual National Trade Show on October 19th 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 A strategy is resonating throughout the business and the positive impact it's having.

So hopefully that gives you some color.

Got it and I think Barry you also mentioned in your in your prepared remarks that and your one to one sales channel you saw some customers being cautious with some of their orders and is that something you expect to continue here in the short term or do you think we're kind of past the worst.

Of that.

I think we were really pleased with the volume performance relative to the business on the order side, we saw order contribution coming from both large and SMB customers. However, the impact was probably more in terms of the.

Barry Litwin: The second event was the corporate day of service we held last week in partnership with Helen Keller National Center, which is located near a corporate headquarters in Port Washington, New York. We work side by side with the staff and residents of 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. This was a rewarding experience and exceptional opportunity to give back to the local community and build a lasting movement. We had a great 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.

Larger orders, so I think the cautious customer environment still remains on.

Large orders, where you may see extended lead times and much more direct.

Pricing competition at that level, but we were really pleased with our overall order volume performance for us and I think a lot of the work we did around our pricing throughout the year, a good price discipline and understanding where we needed to be in the market is certainly contributing to that to that order growth.

Barry Litwin: In closing, we believe we have the right strategy in place to drive long-term performance and value for our stakeholders. We're executing against the core pillars of our A 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.

Anthony the only thing I would add to that if.

If I could just to me if I could just supplement that a little bit when we think about the pricing pressure a lot of it has to do with where our prices were last year not as many not as many of our price changes. This year. So as we had some higher prices than the prior year comp periods, primarily related to that following that that increase in cost associated with inbound ocean freight that we've talked about in the past as thats been stabilized for quite some time we've been.

Able to normalize and when we think about that normalizing and stabilizing over the near term that's really looking at how our prices fell in the fourth quarter and beginning part of this year. So we think that comp will be a little bit easier in terms of the price performance. So that's why we think there'll be it'll moderate a bit as we get into the fourth quarter.

Tex Clark: I will now turn the call over to Tex. 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 had once 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 repetitive 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.

Got it okay. Thanks for that additional color our techs. So just in terms of the end of the revenue contribution it was a bit less than what we had modeled.

And looking at.

Third quarter versus the second quarter, where you were you only had heart.

The quarter actually that have the <unk> contribution I'm just wondering if there was anything unusual there I know, it's a largely <unk>.

Nick pace based business, but just wondering if there was anything for endorsement in the third quarter that may have affected our results.

I would tell you that and you know we've talked about in the office is kind of a unique model in that it's a project based business with more engineering support around it.

Tex Clark: Growth profit for the quarter was $116.3 million, up 9.1% from last year. Growth margin was $32.8%, down 290 points from the year ago period, and include the 170 basis point impact from the contribution mix of Indof. Indof Growth margin was 21.6%, and in line with their historical performance. Organic Gross Margin Rate with 34.5% and 120 basis point declines from the year-go period. Organic performance reflects the impact of proactive promotion and freight actions as part of our competitive pricing initiatives as well as the self-through of certain pockets of high-cost inventory, specifically within our cooling category.

So the business for them.

I'd tell you from a.

Demand perspective, they feel very positive you know in terms of where they are with the business at this point.

We're certainly pleased with the performance of the business, we'd certainly been instance, since may since we consummated the transaction and are certainly learning and growing with the business. So I I.

I think that.

Now the demand market for them.

They see pockets of strength.

And I don't see necessarily a significant change in the demand profile for them going forward.

Tex Clark: Management of our margin profile remains a key area 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 end-offs impact for our composite margin profile, we expect a 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 that sales and improvement of approximately 170 basis points from last year and approximately 90 basis points on a sequential quarter basis.

Gotcha, Okay. That's good to hear and then last question here for me. So you know.

Certainly nice job on your balance sheet with your inventory debt reduction. So do you think there is.

More room to go as far as the inventory decreases by the end of the year or you think you're kind of tapped out with that.

I'll take that one Barry so Anthony I think on the inventory as you saw in my prepared remarks said that we think that we're back to more of a normalized level of inventory, there's always going to be as we to every every category of inventory turns a little bit differently. So there may be some some some price inflation is still and in some of our inventory, but but generally we think we're at a point, where it's much more stable and it's an overall inventory change.

Tex Clark: S-DNA primarily reflects an increase in plant 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 existing operations was $28.2 million in the third quarter and operating margin was 8%. Organic operating margin was 8.3%. With the addition of end-off 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 loan from continuing operations of $38.3 million which benefit from a further reduction in inventory and strong working capital management.

Will be less of an impact to the cash flow generation of the business. It really be more seasonal variations with inventory as we're making individual stocking strategies I think that the general inflation that was built into our inventory we've been able to work through the majority of that and we're at a more normalized level.

Okay sounds good well, thank you very much and best of luck.

Thanks, Anthony Thank you.

And gentlemen, there are no further questions at this time. So this concludes the question and answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Tex Clark: 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 end-off acquisition, the company incurred approximately $0.7 million in amortization expense in the quarter. We expect 2023 capital expenditures in the range of $5-6 million which includes maintenance-related investments in equipment as well as facility upgrades within our distribution network.

Yeah.

Tex Clark: Let me now turn to our balance sheet. We have a strong and liquid balance sheet with current ratio of 1.7 to 1. As of September 30th, 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 end-off 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 20 cents per share of common stock.

Operator: This concludes our prepared remarks today. Operator, please open the call for questions. Thank you. If you would like to ask a question, please press start on the one on your telephone keypad. If you're using the speaker phone, we ask you please pick up your hands up before pressing the keys. To withdraw your question, please press start them too. Once again, ladies and gentlemen, that's start them. One of you have a question.

Anthony Lebiedzinski: Today's first question comes from Anthony LeBezinski with Sedanian Company. Please go ahead. Good afternoon and thank you for taking the questions. First, the electricity, organic sales, turning positive in the quarter here. You talked about some price headwinds or just wondering, was this most of your categories or across the board? I know Tex, you mentioned that this seems like the price pressures have eased up so that that's good to hear, but just wanted to get a little bit more color as far as the pricing environment, how you saw that progress throughout the quarter, and whether any categories that you could single out.

Anthony Lebiedzinski: Yeah, I mean, I would tell you Anthony and thanks for asking the question, pricing we think is still going to remain competitive, you know, just given the cautious customer environment. So when we've been, you know, in a sense in a negative price position for, you know, several quarters here. So I think we are kind of well prepared and understand kind of the pricing environment going forward. The category mix was fairly broad, you know, relative to, you know, your question around what categories were impacted, we're seeing kind of, I would say, pressure across the board on most core commodities as well as consumables, so that it gives you some color.

Barry Litwin: Got it. And I think Barry, you also mentioned in your prepared remarks that in your one-to-one sales channel, you saw some customers being cautious with some of their orders. Is that something you expect to continue here in the short term or you think we're kind of the past, the worth of that? I think we were really pleased with the volume performance relative to the business on the order side and we saw order contribution, you know, coming from both large and SMB customers.

Barry Litwin: However, the impact was probably more in terms of the larger orders. So I think the cautious customer environment still remains on larger orders where you may see extended lead times and much more direct pricing competition at that level. But we were really pleased with overall order volume performance for us. And I think a lot of the work we did around our pricing throughout the year, good price discipline and understanding where we needed to be in the market is certainly contributing to that order.

Barry Litwin: If I get supplemented a little bit, when we think about the pricing pressure, a lot of it has to do with where our prices were last year, not as many of our price changes this year. So as we had some higher prices in the prior year comp periods, primarily related to that following that increasing cost associated with inbound ocean freight that we've talked about in the past, is that's been stabilized for quite some time.

Barry Litwin: We've been able to normalize. And when we think about that normalizing and stabilizing over the near term, that's really looking at how our prices fell on the fourth quarter and beginning part of this year. So we think that comp will be a little bit easier in terms of the price performance. So as far we think they'll be, it will moderate a bit as we get into the fourth quarter.

Tex Clark: Got it. Okay. If that thanks for the additional color text. So just in terms of the end off revenue contribution, it was a bit less than what we had modeled and looking at the third quarter versus the second quarter where you only had part of the quarter, actually, that had the end off contribution. Just wondering if there was anything unusual there. I know it's a largely project based business, but just wondering if there was anything for end off in the third quarter that may have affected their results.

Tex Clark: I would tell you that we've talked about end off as kind of a unique model in that it's a project based business with more engineering support around it. So the business for them, I would tell you from a demand perspective, they feel very positive in terms of where they are with the business at this point. We're certainly pleased with the performance of the business. We've certainly been in since May, since we've concentrated the transaction and certainly learning and growing with the business. So I think that right now the demand market for them, they see pockets and strength. And I don't see necessarily a significant change in the demand profile for them going forward.

Speaker: [inaudible]