Q3 2024 Global Industrial Co Earnings Call
The End
Speaker Change: Good afternoon ladies and gentlemen and welcome to Global Investors in Dustryals 3rd Quarter 2024 earnings call.
Speaker Change: At this time, I would like to turn the floor over to Mark Smargiassi of the punk speaker. Sir, please go ahead.
Mark Smargiassi: Thank you and welcome to the Global Industrial Third Quarter 2024 earnings call.
Speaker Change: The Inc today's call will be Richard Leeds Executive Chairman and interns CEO and Tex Clark Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question and answer session.
Speaker Change: Today's discussion may include certain forward-looking statements.
Speaker Change: 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 that are risk factors in the company's any report on Form 10K and Coralary Reports on Form 10K.
Speaker Change: The press release is available on the company's website and has been filed with the SEC on a form AK. This calls the property of global industrial company. I will now turn the call over to Richard.
Richard Leeds: Thanks Mike, good afternoon everyone and thank you for joining us. Our third quarter performance reflects the week-to-man environment and continued softness in our core SMB customer base. We saw a cautious customer purchasing behavior throughout the quarter.
Richard Leeds: Revenue is now in each month of the period and up 3.4% for the quarter as compared to the year go period.
Richard Leeds: Alright, strategic account business continues to form well, clearing solid growth. In addition, retention rates and customer satisfaction, of course our customer base remains healthy.
Richard Leeds: Gross Martin was 34% in the quarter and improvement on a year-old year basis with the client sequentially as a continued phase increase cost of sales by Marley from Ocean Freight Headwinds.
Richard Leeds: Bottom line performance reflects further investments in key growth initiatives, specifically across customer experience, web, and a new CRM platform to help drive engagement and strengthen our competitive position.
Speaker Change: And reflecting on my observations since I returned to the CEO role, it's clear we have a talented team and a terrific business that has a strong foundation to drive long-term growth.
Speaker Change: However, we are at this point with recent results and have identified key areas for improvement.
Speaker Change: At times we're truncated to every customer segment rather than doubling down on what we excel at and where we deliver exceptional value to the market.
Speaker Change: In addition, certain decisions have resulted in us over-indexing on new customer acquisition segments that are more transactional and not aligned with the long-term B2B relationships we seek to build.
Speaker Change: We know what we need to do. We're addressing this with a renewed and sharper focus on serving the needs of our core customers and implementing a more unifying collaboration, specifically between sales and marketing.
Speaker Change: Further, we're adjusting our process to identify, target, and nurture accounts with the highest lifetime value potential.
Speaker Change: We believe this refined focus will allow us to better communicate our value proposition to the market, play to our established strengths, and engage core customer segments.
Speaker Change: We will also continue to enhance the customer experience by improving web shopping and highlighting our product knowledge, exclusive brands offering, and end-to-end solution capabilities.
Speaker Change: These are attributes that align with our more technically oriented customers and which we believe are key differentiators in our offering.
Speaker Change: During the past several quarters, we have been building a new CRM environment. In the third quarter, we started the phased rollout of Salesforce and expect to go live in the near term.
Speaker Change: We believe this new CRM will strengthen the livery of our seamless customer experience, drive operational efficiencies, and provide a more unified picture of our customers' operations.
Speaker Change: We continue to enjoy strong customer satisfaction scores, and Salesforce is a market-leading tool to ensure we continue to deliver an exceptional experience to our customers.
Speaker Change: In August, we held our annual Global Industrial National Trade Show in Las Vegas.
Speaker Change: This is a terrific event that brings together our customers and vendor partners.
Speaker Change: that showcase the broad product offering and solutions we bring to market.
Speaker Change: and provides an excellent opportunity to gain direct insights from our customers.
Speaker Change: It takes an incredible amount of work to produce a successful show like this. I'd like to thank all of our associates for their efforts.
Speaker Change: Finally, I would like to welcome Lisa Armstrong to the senior management team. Lisa joined us as our CMO in August and brings exceptional expertise in B2B marketing.
Speaker Change: She is a proven executive, and I'm excited to support her efforts to enhance our go-to market strategy, drive brand awareness, and strengthen connections with our customers.
Speaker Change: In conclusion, while the macro environment remains challenged.
Speaker Change: We continue to focus on the factors in our controls.
Speaker Change: including driving operational excellence and enhancing the customer experience.
Speaker Change: I believe our efforts to focus on our core product offerings and our target customers will take a few quarters to gain traction. And as they do and the market environment improves, we'll be in a strong position to drive financial performance.
Speaker Change: maintain an exceptional balance sheet. We'll continue to invest in our growth drivers and evaluate strategic opportunities.
Speaker Change: I will now turn the call over to Tex.
Tex Clark: Thank you, Richard.
Tex Clark: Third quarter revenue is $342.4 million, down 3.4% over Q3 of last year.
Tex Clark: U.S. revenue was down 3.4% and Canada revenue was down 2.9% in local currency. Our revenue softness was broad-based across customer and markets. We continued to see strong growth in our enterprise business as it capitalizes on both new account generation and existing account penetration.
Tex Clark: Price was generally neutral in the third quarter, an improvement from the pricing headwinds we saw in the first half of the year. We currently expect continued price neutrality for the remainder of the year. We have seen the soft demand environment continue into the fourth quarter, and revenue is currently pacing down mid-single digits.
Tex Clark: Gross profit for the quarter was $116.3 million, flat from last year. Gross margin was 34%, up 120 basis points from the year-ago period, as we benefited from proactive price management.
Tex Clark: On a sequential quarter basis, this benefit was muted as gross margin was down 120 basis points, primarily as a result of elevated ocean freight costs. Management of our margin profile remains a key area of focus. Performance will continue to reflect the impact of strategic promotion and freight actions as part of our competitive pricing initiatives.
Tex Clark: Selling distribution and administrator spending for the quarter was $94.1 million, or 27.5% of net sales, an increase of 270 basis points from last year. SD&A primarily reflected planned investment in key sales and marketing growth initiatives, as well as significant CPC inflation. This generated negative leverage due to the soft top-line results.
Tex Clark: In addition, we had a significant increase in healthcare costs, which exceeded $1 million in the quarter. We expect ST&A levels to remain elevated in 4Q, which will result in negative leverage due to current revenue trends. We remain disciplined in the control of our general and discretionary cost management.
Tex Clark: Operating income from continuing operations was $22.2 million in the third quarter, and operating margin was 6.5%.
Tex Clark: operating cash flow from continuing operations with $9.4 million in the quarter.
Tex Clark: Total depreciation and amortization expense in the quarter was $2 million, including approximately $0.8 million associated with the amortization of intangible assets related to the INDOF acquisition, while capital expenditures were $0.9 million.
Tex Clark: We expect 2024 capital expenditures in the range of $3 to $5 million, which primarily includes maintenance-related investments in equipment within our distribution network.
Tex Clark: Let me now turn to our balance sheet.
Tex Clark: We have strong and liquid balance sheet with a current ratio of 2 to 1.
Tex Clark: As of September 30th, we had $38.9 million in cash, no debt, and approximately $121 million of excess availability under our credit facility.
Tex Clark: 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 $0.25 per share of common stock. This concludes our prepared remarks today. Operator, please open the call for questions.
Speaker Change: Ladies and gentlemen, at this time we will begin the question and answer session. To ask a question, you may press star and then 1 to join the question queue.
Speaker Change: If you decide to withdraw your questions, you may press star and two.
Speaker Change: If you are using a speakerphone, please pick up the handset prior to pressing the keys to ensure the best sound quality.
Speaker Change: Once again, that is star and then one to join the question queue.
Speaker Change: Our first question today comes from Anthony Lebedzinski from Sidonian Company. Please go ahead with your question.
Anthony Lebedzinski: Thank you and good afternoon and thanks for taking the questions.
Anthony Lebedzinski: I guess in terms of the weakness in your core customer segment, which is the SMB, just what are you generally seeing in terms of average order value and average order frequency? Are you seeing a decline in both or is one outweighing the other? I just wanted to get a little bit more color as to what's behind the weakness.
Speaker Change: Sure, Anthony. So as we highlighted that, we are still seeing very good customer satisfaction scores, and our customer retention rates, especially within our managed sales channels, is still very strong, still very healthy, where we expect it to be. But again, that order frequency as well as that AOV is down slightly. We're seeing some less large projects coming through as our customers seem to be holding back a bit on some of those larger opportunities as they're seeing forward. In terms of some of that softness, we are definitely seeing that, and maybe on the smaller end of the customer set. And we talked a little bit about those transactional type customers that may be coming for one-time buying activities. And that manifests itself both on some of our web sales and some of that unassigned account business that we have within the portfolio that we've seen a little bit of greater softness in. And that did continue throughout.
Speaker Change: throughout Q3 and has continued into the beginning of Q4.
Anthony Lebedzinski: Thanks, Tex. And then, you know, in terms of the comment about the better communicating your value proposition, are you looking to do more advertising? And if so, I mean, how should we think about the financial impact of that?
Anthony Lebedzinski: This is Richard. So one of the things that we've done is we've improved our website so that we're able to highlight the benefits of our products for this competition. A lot of our private label products are superior to
Anthony Lebedzinski: to competitors, so we were deficit on the website of Highline and we fixed that.
Anthony Lebedzinski: And we're making sure that our pricing is spot on where it should be for all of our products, not just for the private label products. As for the advertising, we've done some reallocating to the marketing where we're
Anthony Lebedzinski: looking to drive higher returns and have stickier customer relationships.
Anthony Lebedzinski: from targeting the ads to those customers that we think are going to deliver that.
Anthony Lebedzinski: Thank you.
Anthony Lebedzinski: The CPCs have gone up, and as we navigate through that choppy waters of higher CPCs, we're just reallocating and following the data to what's going to drive higher customer retention and higher long-term customers.
Speaker Change: All right. Thanks, Richard. And then, you know, as far as, you know, the growth initiatives that you referenced in the press release as well as in your prepared remarks, I guess which ones do you think will be the most impactful near term and which of the initiatives will take longer term to play out?
Speaker Change: Thanks for watching. Bye. Bye.
Speaker Change: Sure, so as we discussed, we're implementing Salesforce and Salesforce marketing.
Speaker Change: So that initiative is probably going to take us through the middle of next year.
Speaker Change: to get Salesforce marketing up and running. That initiative I think is going to drive, you know, a lot of benefit for our sales reps where, you know, right now they're dealing on a relationship selling with
Speaker Change: not the best tools that are out there. Once we get Salesforce and Salesforce marketing up, they're gonna have state-of-the-art tools. And I think that's really gonna drive that.
Speaker Change: Okay, well thank you very much and best of luck.
Speaker Change: Thank you. Thank you.
Speaker Change: And our next question comes from Michael Francis from William Blair. Please go ahead with your question.
Michael Francis: Hi guys, thanks for taking my questions. I'm on for Ryan today. First one to piggyback off that question on the growth initiatives Is that something that that you've?
Speaker Change: decided to do a little more with the market being soft, or is this something that you've been doing for a while and you just wanted to highlight more on this call?
Speaker Change: Yeah, I think it's a reflection. We've been going down the path of arming our sales force with those right tools. For the better part, we began the implementation and discovery of that process throughout the course of this year. It wasn't a direct reflection of the results that we've seen in recent periods, but I think it...
Speaker Change: Trends well with kind of the way we see the market right now and making sure where we're best situated for those managed customers We have seen some of the mid-sized and larger customers be more resilient during this time and giving our sales sales team and our managed sales account managers the best tools available to be able to Target those customers to be be there where they want and have that full 360 degree view of that customer experience Will allow them to really drive drive better results. So it's something that is the timeline has been Merging with kind of the current results But we've been we've been working on phased rollouts and we'll be going live with some of those Modules very quickly and as Richard said as we get into the early and mid part of next year We should be fully implemented with with both our sales and our marketing technology enhancements
Speaker Change: Okay, and then on the SG&A number, obviously appreciate the color there on the ramp since last year. Is there anything you can do to sort of throttle that back should conditions stay soft? I know you've got a lot of the initiatives you're talking about. Is there any sort of cost that might roll off there at some point?
Speaker Change: Sure. I mean, if we think about a couple of the areas when we talk about costs, one, that CPC inflation is one that, as Richard highlighted in his remarks, that we've seen some higher costs in acquiring new customers. And that really, again, shows up through our web channels. That's an area that, as we reallocate some of those resources, we believe that we can get a better return on those dollars. And that's really, again, as Richard mentioned, on product prioritization and customer targeting through the –
Speaker Change: digital marketing, different efforts that we have. So we anticipate that can improve, but it's a test and learn approach. I mean, we're following the data and seeing where that moves. Otherwise, obviously, we are focused on cost controls and all discretionary spending and some of that on an ordinary basis, and obviously, especially in these downtimes, that we are managing down. But overall, again, there is a fixed cost nature to our business between baseline salaries as well as occupancy costs and other key fixed costs that are just naturally going to trend as they do, and that will, at times, lead to negative leverage when the top line is soft. So again, we are throttling back to spending where we can in the short term, but knowing that, obviously, we need to get that revenue line turned.
Speaker Change: in the right direction, which we are taking some key actions to turn around.
Speaker Change: Alright, that's all I had, appreciate it.
Speaker Change: Thank you.
Speaker Change: And ladies and gentlemen at this time we'll conclude today's question and answer session as well as today's conference call. We do thank you for joining the presentation. You may now disconnect your lines.
Speaker Change: Thank you.
Speaker Change: Thank you. Thank you. Thank you.