Title

Presentation

Global Industrial Company misses on earnings expectations. Reported EPS is $0.48 EPS, expectations were $0.58.

Operator: Good afternoon, ladies and gentlemen, and welcome to Global Industrial’s Third Quarter 2025 Earnings Call. Please note, this event is being recorded. 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 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. I would like to remind everyone that in Q4 this year, our quarter will close on Saturday, January 3, 2026, representing 1 additional week in our quarter compared to the prior year.

While we are adding 4 working days to our quarter, this is the period between the Christmas and New Year’s holiday, which historically represents the lowest sales week of any given year. 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.

Anesa Chaibi: Thank you, Mike. Good afternoon, everyone, and thank you for joining us. Overall, we were pleased with our performance in the period as we delivered our second consecutive quarter of revenue growth, along with strong year-over-year profitability. We continue to manage the business proactively and have executed well. In the quarter, revenue increased 3.3% to $353.6 million. We grew the top line each month during the period and growth has continued into the early parts of the fourth quarter. Performance was once again driven by our largest strategic accounts, where good momentum and sales progress continues. This was partially offset by a reduction in our smallest and more transactional customers, which is in line with efforts to be more intentional and focused in how we go to market.

In addition, I’d like to highlight the results of our Canadian operations. Canada generated a second consecutive quarter of strong top line expansion, which resulted in substantial operating leverage improvements in the local market. Investments made in recent years are delivering upon our expectations. We expanded our distribution capacity, improved supply chain and procurement processes and invested in our people and culture, all strategic steps that bring us closer to our customers and enable us to deliver the enhanced value they’ve been looking for. Gross margin was 35.6% for the third quarter, an increase of 160 basis points over the third quarter of 2024. Operating income improved over 18% to $26.3 million, and we had strong cash flow generation in the quarter.

We continue to advance the transformation of our business model and the placement of the customer at the center of everything that we do. We are reframing our go-to-market strategy to take a more intentional approach to attracting customers, renewing our focus on identifying and targeting key accounts while aligning the organization to better meet and serve our customers’ needs. We are working to expand the solutions and products we offer so that we are better positioned to deepen existing relationships and gain greater share of wallet over time. We are also enhancing our ability to serve customers more effectively and with increased efficiency through implementation of our new CRM and reworking our processes, procedures and technology to better serve our customers.

We are leaning into these efforts and making steady progress against our strategy. My interactions with national vendor partners and customers at the Global Industrial Trade Show in September reinforced my belief that we are on the right track. The show provided me with the opportunity to meet with a broad cross-section of partners representing national brands as well as specialty products. I also met with customers in both structured meetings and breakouts and more importantly, through spontaneous discussions on the show floor. These interactions highlighted a clear opportunity to become a more meaningful channel partner for our vendors and to broaden the relationships and the support we provide customers. By better showcasing our capabilities and telling our story with greater clarity, we will be well positioned for even greater success with a tremendous runway ahead of us and a unique platform to scale organically.

Now I will turn the call over to Tex.

Thomas Clark: Thank you, Anesa. Third quarter revenue was $353.6 million, up 3.3% over Q3 of last year. U.S. revenue was up 2.9% and Canada revenue improved 12.3% in local currency. Price was positive mid-single digits in the quarter. This was partially offset by a slight decline in total volume, which was a result of some intentional actions. While we saw order count growth in our largest and most strategic customers, we continue to see volume declines primarily in onetime lower order value transactions. We believe the volume decline headwinds in this transactional segment will begin to wane in the fourth quarter as we start to anniversary prior actions taken near the end of 2024. These new actions include efforts to be more focused in how we go to market and emphasize our highest value potential customers.

The quarter also saw some decline in federal government spending due to the timing of awards and budget uncertainty. As of today, we have seen growth continue into October. Gross profit for the quarter was $126 million. Gross margin was 35.6%, up 160 basis points from the third quarter last year. We were very pleased with this margin performance, which reflects price capture and diminishing favorability of pre-tariff inventory that flows through the cost of sales on a FIFO basis. On a sequential basis, as expected, gross margin pulled back from the record level generated in the second quarter of this year. The tariff environment remains highly fluid and the cumulative impact of incremental tariffs remains potentially significant. Since our second quarter earnings report, additional tariffs were both announced and went into effect in early August including reciprocal tariffs and a doubling of duties on steel and aluminum.

As a result, we took an additional pricing action in late August, which supported margins to the end of the quarter. We continue to actively monitor the situation and are focused on supplier diversification, price management and strategic cost negotiations. We maintain a healthy inventory position and continue to prioritize availability for our customers. Management of our margin profile remains a key area of focus. As we move through the current cycle, our goal is to manage to price/cost neutral. In addition to tariff uncertainty, I would note that historically, Q4 generates softer margins in part due to product mix and peak season freight surcharges. In the fourth quarter, we expect to see continued year-over-year margin expansion. On a sequential quarter basis, there may be some margin pullback in line with historical performance.

Selling, general and administrative spending for the quarter was $99.7 million, an increase of 6% from last year and essentially flat on a sequential quarter basis. As a percentage of net sales, SG&A was 28.2%, up 70 basis points from last year. SG&A reflects strong general and discretionary cost control. This was offset by a year-over-year increase in variable compensation expenses related to performance within both selling commissions and our bonus pool accrual increasing compared to last year. Operating income from continuing operations was $26.3 million, an increase of 18.5% in the third quarter, and operating margin was 7.4%. Operating cash flow from continuing operations was $22.6 million. Total depreciation and amortization expense in the quarter was $2 million, including $0.8 million associated with the amortization of intangible assets, while capital expenditures were $0.7 million.

We continue to expect 2025 capital expenditures of approximately $3 million, which primarily reflects maintenance-related investments and equipment within our distribution network. The company’s tax rate in 2025 is 26.4% versus 23.7% in 2024. The increased rate in 2025 results from an increase in nondeductible executive compensation. Let me now turn to our balance sheet. We have a strong and liquid balance sheet with a current ratio of 2.2:1. As of September 30, we had $67.2 million in cash, no debt and over $120 million of excess availability under the credit facility. We continue to fund our quarterly dividend, and our Board of Directors declared a quarterly dividend of $0.26 per share of common stock. I will now turn it back to Anesa for some closing remarks.

Anesa Chaibi: Thank you, Tex. The team has done a great job executing our strategy throughout the company. We are effectively navigating the market disruption and uncertainty from the current tariff environment through a focus on what we can control. We are taking actions to better position Global Industrial to grow and believe we can open the aperture of the total addressable market that we pursue. We remain well positioned to continue investing in our growth initiatives and to also evaluate strategic M&A. I’m encouraged by the progress we’re making throughout the company and look forward to finishing 2025 in a strong position that will set us up for a successful start to 2026. Thank you for your interest in Global Industrial. Operator, please open the call for questions.

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

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Ryan Merkel: I wanted to start off on price. Could you give us a sense for how much price impacted the quarter? And then I think you mentioned an August price increase. Can you give us a sense of what you think price will be in 4Q?

Thomas Clark: Ryan, yes, I’ll go ahead and take that one. So pricing, as you know, costing environment is fluid. And while we are working to diversify our supply chain and making sure our first goal is inventory availability for our supply chain partners and our customers. Obviously, the cost increases due to the tariffs primarily is a real cost that we’re incurring right now. So as you mentioned, in August, we did take some additional pricing actions as we saw that inventory mix change as our cost of goods was mixing into more tariff inventory. As we looked at that cost of goods flow, we saw more of that move in. So again, it was in that mid-single digits range, just over 5% of price in the period that we saw. That would include obviously anything that we took in that mid-August price increase.

We would expect that to be pretty consistent or slightly higher in the fourth quarter, just given that timing of that second move. Now we know things are fluid. There are obviously threats in the marketplace of some additional tariffs, but there’s also some potential green shoots or bright spots where maybe there’s going to be some relaxing of tariffs, and we’ve seen some of that out there. So we’re going to continue to monitor that, and we’ll be ready for those actions, and that’s what the team is focused upon.

Ryan Merkel: Okay. Got it. And then you mentioned the large strategic accounts, there was growth and I guess, the smaller customers with a little bit of a decline. What — how much did the large strategic customers grow? And do you expect to continue to accelerate that part of the business as we think about the next couple of quarters, just given the initiatives and the focus there?

Anesa Chaibi: Yes. I guess — thanks, Ryan, for the question. Our strategic accounts had continued momentum. We’re leaning into those, gaining greater share of wallet and doing more to figure out what their needs are and adding assortment, SKUs, things along those lines so that we can serve that need. As we look at — we shared that we intentionally pulled back in certain areas, and it was for kind of the long tail, more transactional customers. And I think we’re now eclipsing that. But we’re also focused on as we look to reposition ourselves and go to market in 2026 and beyond is realigning the org to then serve customers along specific industries and sectors. And we’re piloting that right now, but it’s just in the very early innings so that we’re positioning ourselves for ’26 in a positive way. So we’ve still got some more work to do, but we are seeing some progress there on all fronts.

Ryan Merkel: Okay. Perfect. And then just to clean up, you mentioned October, there’s continued growth. Should I take that to mean it’s at that 3% level? Or you mentioned the government is a little weaker as perhaps the government slowed down the business a little bit in October?

Anesa Chaibi: We’ve seen state and local actually be positive. We’ve also seen some bounce back recovery on the federal side just based on timing of when some things flow through and actually were booked and billed, if you will. So we’re seeing some good momentum, and we’re in the process of close to closing the books for the month of October, but we’ve seen higher growth rates than what we’re reporting today. I don’t know, Tex, if you’d like to add anything or not.

Ryan Merkel: No, I think you covered it perfectly.

Operator: And the next question comes from Anthony Lebiedzinski with Sidoti & Company.

Anthony Lebiedzinski: So certainly realize that you are being more intentional with your go-to-market strategy and seeing less of the transactional customer. But just wondering if we were to adjust for those transactional customers, what are you seeing from your — from the rest of your core SMB customers? Just wondering if you could speak to the health of that customer group, what you’re seeing there?

Anesa Chaibi: Yes, do you want to jump in? Go ahead and take the lead. Go ahead.

Thomas Clark: Yes. Thanks, Anesa. So yes, as we talk about — if you think about some of the — go back a year ago and when we had a CEO transition, some of the first things that Richard Leeds highlighted in his first public remarks were that we had gotten into some of the activities that may have been a little bit more on the promotional end that they were driving value. They were driving orders, they were driving revenue. But when we look at the lifetime value of those customers, it wasn’t the type of customer that fit right for what we were trying to accomplish and who we could best serve in the long run. So those are some of those key changes that we’ve made. When we look at our broader portfolio of customers and that recurring revenue, the retention within our core business, not only small, medium business, but the public sector and the larger enterprise customers, we believe it’s very healthy.

We still see good retention rates in that area. And it’s an area that — that’s the area that we’re continuing to focus on the intentionality on how we service those businesses. So I think we’re fairly bullish on the health of that core customer, and it’s really been that more transactional customer that we’ve seen some slowdown. And like we said, we think some of that — some of those changes we made were about a year ago. They were in the early parts of Q4. So you’ll have less headwinds from a year-over-year perspective than we’ve had so far this year. So that should be a benefit into the fourth quarter.

Anthony Lebiedzinski: Got you. Okay. That definitely helps. And then just in terms of your comments about expanding solutions and products, how do we think about your TAM opportunity? I don’t know if there’s a specific number. I don’t know if you’re ready to share that. But as we think about next year and beyond that, I mean, how do we think about just the opportunity for Global Industrial to participate from a higher product offering that you guys are planning to have?

Anesa Chaibi: Yes, Anthony, that’s a great question. I don’t have a specific number right off to share with you or communicate today. We — I have requested that the team look at kind of — as we look at the go-to-market and the industries that we’re going to serve, I think that will help frame up for us, respectively, across each one of those verticals, if you will. And then what we’ll do is we’ll share what we think that full opportunity is. But as you’re well aware, in the industrial space, especially in distribution, industrial distribution, it’s double-digit TAMs across different dimensions. And it’s — we’re going to be very intentional, and we’re going to make some investments across certain industries and lean into others. So I don’t have a number today, but my hope is that I’ll be in a better position to share with you once we wrap up the full year and what we’re positioning and looking to move forward in ’26 with.

Anthony Lebiedzinski: Understood. Okay. And then my last question, just thinking about your SG&A expenses, is the growth mostly incentive comp accrual. And so as I look at the first quarter, you guys were essentially flat in terms of your expense growth from the prior year. Second quarter, you were up 3.5% and then up 6% in the third quarter. So maybe just help us better understand your expense growth and how do we think about that going forward?

Thomas Clark: Yes, Anthony, I’ll jump in on that one. So if you think about it, last year, when we reported our third quarter, we were in a position where we’re seeing revenue decline and some softness on the bottom line. As you can imagine, that directly correlates to kind of how variable comp is earned both at the selling level of the individual contributor, but also to management and executives kind of how we earn variable compensation and non-equity incentive compensation. So last year, we were in a period where that was actually coming down or being reversed in the third quarter. This year, we’re really booking to our plan and thinking about how that’s being accomplished. So there is a big year-over-year differential just simply because we’re in a point where we’re growing our profit this year.

Last year, we were seeing some pullback. So just — it’s really the timing of that impact. That is really the almost exclusive driver of the year-over-year change in our SG&A portfolio.

Operator: This concludes our question-and-answer session and also concludes our call today. Thank you for joining, and have a nice evening. You may now disconnect.

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