Good day, and welcome to the Global Industrial Company Q2 2023 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star then two. I'd now like to turn the conference over to Mike Smargiassi, Investor Relations. Please go ahead. Thank you, and welcome to the Global Industrial Q2 2023 earnings call. 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. 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 it's 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. Thanks, Mike. Good afternoon, everyone, and thank you for joining us. Overall, we had a very productive Q2 as we continued to execute on our strategy and made further investments in growth initiatives. The big news in the Q2 was the addition of Indoff to the Global Industrial family in late May. Indoff is an exceptional strategic and cultural fit with our business. It diversifies our operations, broadens our reach to new customers and markets, strengthens our one-to-one selling approach, and provides core product alignment, specifically within material handling, indoor and outdoor furniture, and storage and shelving. In addition, it delivers new capabilities in project management and engineering that strengthen our value proposition. I've been very impressed with the Indoff team. The level of expertise they bring to the table really expands our skill set, and the depth and tenure of their customer relationships is impressive. We have made good progress on operational enhancements in sales, customer service, and logistics, as well as general coordination and support between the two businesses. We are excited by the addition of Indoff and are on track to drive our combined success. Turning to our financial performance, total revenue improved 2.3% in the quarter, which includes approximately 6 weeks of Indoff results. Organic Global Industrial revenue was off 5.2%, reflecting price deflation and a continuation of the cautious purchasing behavior within our SMB customer base's manufacturing sector. Given improvements in our online shopping experience, web growth expanded throughout the quarter. Customer acquisition and retention are healthy, and we ended the quarter with modest volume trend improvement. We continue to be very pleased with our margin performance. Gross margin remains solid at 34.7% as we delivered modest improvement organically, offset by Indoff's lower margin profile. In the quarter, we've made further progress against our key pillars of our ACE strategy. We remain committed to making investments that strengthen our competitive position and enhance the value we bring to customers, which we believe will drive long-term growth. Within our e-commerce channel, digital transformation continues as we enhance the product shopping experience and optimized our digital marketing. This resulted in improved web sales performance as the quarter progressed, with e-commerce growing to more than 60% of total sales transactions. Our direct sales channel remains soft year-over-year, primarily on cautious purchase behavior within certain segments of our customer base and lower average order value. As we look to further accelerate customer acquisition and growth, we expect increased sales and marketing investment in the second half of the year as we implement targeted campaigns and engagement efforts. We also continue to optimize our value proposition, taking a strategic approach to pricing. Our goal is to ensure competitiveness in the market and pass along savings to customers where we can. We are making investments in pricing initiatives with a focus on maximizing total value, including freight and price product components. While we are investing in our growth, we are also proactively managing our cost structure and driving efficiencies across our operations. For example, within our distribution network, we have seen productivity improvements resulting in lower total cost per order and increased product delivery speeds to the customer. These successes are great wins for both customers and Global Industrial. As you can see, our efforts center around the customer. One way we measure the impact of these initiatives is through our Voice of Customer surveys. They reflect the customer's experience and, in turn, the health of our business and progress against our ACE strategy. I'm pleased to report that recent surveys highlight improvements in customer satisfaction, which is a direct reflection of the efforts of our associates and the value we provide to customers. Finally, in October, we will be hosting our annual trade show in Memphis, Tennessee. This is always a terrific event that showcases our broad product assortment, strengthens our national vendor relationships, and is a great time to connect and listen to our customers. In closing, we remain focused on strengthening our business, driving operational excellence, and delivering an exceptional experience and value to our customers. We are making investments across our web and direct sales channels to enhance our competitive position and long-term growth profile. While the macro market environment remains uncertain, we believe we are well positioned to drive our performance as customer sentiment improves. With strong cash flows and a strong balance sheet, we are confident in the resources we have to navigate current market conditions and execute on our organic and strategic growth opportunities. I will now turn the call over to Tex. Thank you, Barry. I will reference both GAAP and organic metrics in my remarks. Organic reflects the performance of our Global Industrial business and is exclusive of the May 2023 Indoff acquisition. In addition, since the Q2 included 64 selling days in both 2023 and 2022, average daily sales will align with reported sales results. Q2 revenue was $325.8 million, up 2.3% over Q2 of last year. Organic revenue was $301.9 million, down 5.2%. However, absolute volume improved throughout the quarter, and year-over-year declines narrowed as we exited the Q2. Organic US revenue was down 5.2%, while organic revenue in Canada was approximately flat in local currency, a significant improvement from Q1 of this year. Price was negative in the quarter in a range of low to mid single digits, in contrast to neutral pricing in one Q and a benefit in the year ago period. While uncertainty remains in the demand environment, volume trends have improved in the early parts of the Q3. Overall, we believe customers remain guarded in their buying decisions and the pricing environment remains competitive. With regards to Indoff, given their large project-based business, there's often variability in their quarterly revenue performance as a result of when projects are completed. Gross profit for the quarter was $112.9 million, flat from last year. Gross margin was solid at 34.7%, down 80 basis points from the year ago period. The period benefited from an organic gross margin rate of 35.7%, a 20 basis point year-over-year improvement, while Indoff gross margins were 21.7% and in line with their historical performance. Management of our margin profile remains a key area of focus. However, we expect continued variability throughout 2023 as we navigate seasonality, work through select categories of inventory that maintain a higher cost profile, and look to continue to drive value for our customers through competitive price initiatives. On a historic pro forma basis, the addition of Indoff would have resulted in approximately 200 basis points of lower gross margin rates due to the margin profile of their business. Given this impact to our composite margin profile and the other factors I noted, we expect a consolidated gross margin decline in the Q3. Selling, distribution, and administrative spending for the quarter was $83.8 million, or 25.7% of net sales, an improvement of 20 basis points from last year. SD&A primarily reflects the fixed cost nature of the business, along with the inclusion of approximately $0.7 million in transaction-related expenses in the quarter. Offsetting these non-recurring charges was a reduction of approximately $2.2 million in variable compensation related to performance against internal plans. We continue to maintain strong cost controls and evaluate additional opportunities to optimize our structure. Operating income from continuing operations was $29.1 million in the Q2, and operating margin was 8.9%. Organic operating margin was 9.3%. With a strong commitment to invest in our long-term growth initiatives, as well as the addition of Indoff, our composite operating margin is likely to be lower than historical periods. The company is actively working to introduce cross-selling and private brand opportunities for Indoff sales partners to enhance the margin profile of the Indoff business. During the quarter, we generated strong cash flow from continuing operations of $37 million. Total depreciation and amortization expense in the quarter was $1.5 million, while capital expenditures were $0.7 million. As a result of the Indoff acquisition, the company incurred approximately $0.4 million in amortization expense and expects amortization after this year will be $3 million annually. We expect 2023 capital expenditures in the range of $6 million-$8 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 1.6 to 1. As of June 30th, we had $44.9 million in cash and $40.3 million of debt. We utilized our $125 million credit facility to fund $50 million of the Indoff purchase price, $10 million of which was paid down in the quarter and ended the quarter with over $79 million of availability under the facility. We anticipate continuing to pay down the loan balance using free cash flow generated from the consolidated businesses. 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 the prepared remarks today. Operator, please open the call for questions. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ryan Merkel with William Blair. Please go ahead. Hey, Barry. Hey, Tex. Good afternoon. Hey, Ryan. Good afternoon, Ryan. My first question is on the price deflation comment that you made. Can you just quantify for us how much was price deflation in the quarter of the 5% organic sales decline? What's the source of the deflation? Is it competitive price pressure, or is it just container costs coming down and you're, you're passing on lower costs to customers? Yeah, I would say from a standpoint of the, the rationale around it, I think there's two elements, Ryan. I think one, certainly, customers are looking for value, right? We're looking at competitive price positions each day and moderating selling prices in that manner. I think that's a state of where we see the customer base right now. Really, price is a big deal. I think right now, we've been, we've been adjusting, but at this point, I think much of our pricing to the market is fairly, fairly stabilized. Certainly we've benefited from lower cost containers, you know, that's helping the business. Certainly we're continuing to try to drive out higher cost inventory and attaching to lower cost inventory rates as we drive more turns and revise, which is certainly gonna help us throughout the balance of the year and certainly the beginning. That's the, that's the primary driver of what we're seeing right now from a market perspective. Ryan, I'll expand on that just, just a, a bit as well. As you noticed, our, our organic gross margin was 35.7%, as we highlighted, so we did see some improvement in that. A lot of that was that, that pricing was passing through those lower costs, as Barry mentioned. As we're, we're taking advantage of that, it's mixing into our FIFO layers, and we're able to, to push that through. Obviously, we're, we're obviously constantly monitoring what the pricing is in the market of, of many of our, of our product lines. Again, low single digits was the, the impact of, of the pricing, kinda the price pullback in the period, and we expect that to be stable going forward. Okay, that's helpful. Then I understand the small and medium customer is a bit cautious here. I'm hearing that from others. What about the enterprise customer? Are you still seeing growth there? Yeah, I, I think, you know, when you look at the end use markets, Ryan, I would I would say that we're probably seeing the manufacturing segment challenged a little bit more than some of the other segments we're participating in. I would say that's primarily coming off our managed sales organization, which deals with the larger customer segments. You know, we've seen even the ISM index, as produced, I think, for July, came out today as well, fairly flat to slight contraction as well. I think it's a good signal in terms of where we've seen manufacturing, and that's where we've kinda seen most of the softness. You know, I think, from an organizational perspective, you know, we're continuing to invest in sales marketing to help drive penetration into those key customers, look for new opportunities, and continue to fight against some of the downward pressure there. Okay. Then last one, and I'll pass it on. You mentioned, trends improved through the quarter and at the end of the quarter. Anything to call out there that you've heard from customers, or is it company specific, some of the things that you've been working on that you think are showing up and helping sales? Yeah, it's a good question. I think certainly we've seen nice improvements on the e-commerce side of the business, certainly as we've made significant enhancements into the website, and we continue to do that. We've seen some nice nice growth there as well, which we highlighted in the call. I think from a customer perspective, I think in, you know, when you think back to Q1, kind of early Q2, there was certainly, customers have been a little bit more cautious. We've seen some volume that has started to materialize that may have been negotiated and quoted early, very early in the period, even dating back to the early part of Q2 and Q... yeah, end of Q1. I think we're, we're seeing possibly some of those customers starting to, starting to come to the table and, and, and look to transact. Got it. I'll pass it on. Thanks so much. Sure. The next question comes from Anthony Lebiedzinski with Sidoti & Company. Please go ahead. Hi, good afternoon, and thank you for taking the questions. First, just a follow-up about the price deflation. Is that kind of across the board in terms of the merchandise categories, or is that kind of concentrated into, into some certain parts of your business? Yeah, I, I think when we, when we tend to look at pricing, and we talk quite a bit about pricing intelligence, we use a lot of tools to help us understand where the market is. Anthony, I would tell you that I, I would say that you would, you would see it really across the board, across much of our core products as well. As we leverage kinda some of the cost benefit, we're starting to see come down in the market relating to the ocean freight container costs, and as we negotiate, negotiate out COGS in the business. Our goal has always been to kind of pass on that value to customers and keeping ourselves close to the competitive nature of our business on pricing. We've seen, you know, most of our major category segments, we've gotten a little bit sharper there. Understood. Okay, and then, switching gears to the Indoff acquisition, can you talk about the synergy opportunities that you may have there? I know you mentioned private label expanding your own products to Indoff, so maybe you can maybe talk about, as far as timing, when should we expect that to happen? ... Yeah, it's a, it's a great question. Look, we've been, we've been really happy with the process so far. You know, we made the acquisition in May. We think it's going very well, primarily because we believe it's a really strong strategic and cultural fit with the broader Global Industrial. You know, it helps diversify our operations. It, it does give us new reach into new customers and markets, and I think strengthens the direct sales approach and provides a lot of core product alignment for us. You know, when we went into it, you know, certainly their margin profile is, is a little bit lower, given the nature of what they sell, and our private brand assortment, creates a good opportunity for them to sell a higher value product into the market and do so at a little bit higher margin rate. It's been progressing really well. You know, I, I think Tex mentioned in his comments, we have put a focus around educating that organization on our private brand assortment. It's been, it's come across very, very well. We've incorporated a, a ton of training up until this point with their sales force. It's hard to train everybody very quickly. It's a, it's an ongoing process, but the, the sentiment of their organization to participate, with our team and working together as a collective group to try to, drive our volume is, has been very, very, well received. We've been, we've been really happy with this, with this, acquisition at this point. That, that's great to hear. So that Indoff is primarily a project-based business, so, you know, how much visibility do you guys have into that business? Are those projects, more or less kind of whatever or, or whatever's happening, are those kind of set in stone, or are those cancelable? I know you mentioned, that there could be variability quarter to quarter because of this, so just wanted to get a better handle on, on how to think about that. Well, I think the, I think the project-based business, you know, by its, by its nature, it, it becomes a little bit more lumpy throughout the year, where the Global Industrial business is a little bit more on a kind of an everyday business. We've been transitioning more to that. We do have, their, their organization is, and, and leadership there on the sales side has been together for a very long time. They have a good perspective of, deals that they have in the pipeline, and we share that information and discuss it. As we start to connect, some of the, data between the two business, particularly as it relates to sales and, product performance, we're getting very good visibility. I think utilizing some of our tools here at Global Industrial, I think the Indoff team has been enjoying some of the capabilities that we have, that it's making visibility to their business even better. Like I said, it's very early days, Anthony. you know, being we, we just consummated the deal in May. I think we'll get a lot better visibility with the business as we, as we go along. All right, well, thank you and, best of luck. Thank you. Thank you. This concludes our question and answer session. The conference has also now concluded. Thank you for attending today's presentation.