Industrial Company first quarter 2025 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists 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 touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Mike Smargiassi with investor relations. Please go ahead, sir. Thank you, and welcome to the Global Industrial First 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. In the first quarter, we generated revenue of $321 million, a decline of less than 1%. This performance was significant given the soft start in January, which was impacted by the midweek timing of the New Year's holiday. Excluding the holiday impact, revenue would have been up low single digits in the quarter. Strength by Endries and our largest strategic accounts enhanced our results. Performance improved as we moved through the period, and we ended the quarter with growth in March. Gross margin increased 60 basis points over the first quarter of 2024, and with strong cost controls, operating income improved 4.6%. These results reflect good execution across the business, and I'm very proud of the team. Since joining Global Industrial in mid-February, I've spent a significant amount of time visiting our locations in the United States and Canada, meeting with the teams and gaining a greater understanding of the business. I've been impressed with the culture and the level of engagement of our management team and our dedicated associates. It is clear we bring significant value to the market through a broad offering of high-quality exclusive brands and vendor partner products, and our extensive product knowledge helps customers solve their problems to better operate their businesses. Our customer-centric focus is enabling our ability to deliver a frictionless end-to-end experience, and we continue to enjoy high customer satisfaction scores. These core attributes provide an outstanding foundation for growth and are a point of differentiation in the market. Global Industrial has an exceptional platform and the ability to scale the business organically. We can and intend to broaden whom we serve by expanding existing account relationships and accelerating our growth initiatives. This will open the aperture of the total addressable market that we pursue. We have seen good momentum and sales progression in our largest strategic accounts and GPO base. I believe we can accelerate this success going forward by being very targeted, focused, and intentional in how we go to market, along with further refining our value proposition and our sales approach. In this regard, we are taking steps to enhance our performance by developing an account-based marketing program and improving the alignment of marketing and sales to capture and nurture the customer relationships that we anticipate will drive growth. In addition, the implementation of our new CRM will enhance the visibility into our customers across all functions and remains on track for completion this summer. We've been pleased with the progress of these initiatives to date, and I look forward to sharing additional details on our efforts as the year progresses. Turning now to the tariffs that were enacted in April, they have created a disruption not only in our business but to the entire supply chain and our customers, impacting price and demand dynamics. Our teams remain in all-hands status, making sure we proactively manage through the current environment. Our focus is on what we can control, working closely with manufacturers and vendor partners, ensuring product availability, and providing customers with as much visibility as we can in a very fluid environment. Our core attributes, which I noted earlier, specifically our customer-centric culture, along with our strong balance sheet, will serve us well as we look to mitigate the impact of tariffs on our business and for our customers. Further, I believe we are well positioned to support and strengthen customer relationships during this period of disruption. In closing, we delivered a solid first quarter. Global Industrial has a unique go-to-market platform, strong customer relationships, and an exceptional team. I'm excited about the potential of the business and taking it to the next level. We remain well positioned to continue to invest in our growth initiatives and to evaluate strategic opportunities. I will now turn the call over to Tex. Thank you, Anesa. First quarter revenue was $321 million, down 0.7% over Q1 of last year. US revenue was off 0.3%, and Canada revenue was down 2.5% in local currency but off approximately 9% in US dollars given negative headwinds in the exchange rate. Revenue performance on a sequential quarterly basis improved from both the third and fourth quarters. Top-line results reflect a very soft start in January, which was impacted by the timing of the New Year's holiday and, to a lesser extent, a benefit from the Easter holiday moving into the second quarter of 2025. Results did improve as we moved throughout the period. Price was slightly positive in the quarter, reflecting modest pricing actions taken in the second half of 2024 in reaction to increased ocean transit costs. We did not take any tariff-specific pricing actions in the first quarter and believe pull-forward demand was immaterial as average order value was in line with historical norms and volume was off modestly in the quarter. Regarding tariffs, as Anesa mentioned, we have been actively monitoring the situation, which remains fluid, and are focused on the management of our supplier relationships and logistics operations. We concluded the first quarter with a strong inventory position and brought in summer seasonal products earlier in the year. This provides some flexibility in price-cost management in the immediate term. Over the past five years, we have diversified the supply chain for our exclusive brand products. However, direct imports from manufacturers located in China remain amongst our largest sourcing channels. The multiple additional tariffs being applied to goods sourced from China are significant, and we are continuing initiatives to shift the sourcing of select product lines to less impacted countries. These efforts will take time given our commitment to high-quality products, which is imperative for our exclusive brands and our customers, and are always the top consideration when evaluating manufacturing relationships. We anticipate these actions will mitigate some of the market risks but in no way eliminate our exposure to the Chinese market, given we have well-established manufacturing relationships. We have taken some initial pricing actions in April and expect additional adjustments as the impact of tariffs flow through the business. While customers remain cautious in their purchasing decisions, we have seen modest top-line growth in the first several weeks of the second quarter, a continuation of results seen in March. Gross profit for the quarter was $112.1 million. Gross margin was 34.9%, up 60 basis points from the year-ago period and up 110 basis points sequentially. Gross profit benefited from price capture and overall freight management, including both outbound and inbound logistics. 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, tariff-related actions, and ocean freight costs. We anticipate that there may be increased volatility in our margin rates going forward, given the timing dynamics of on-hand inventory, market inflation associated with tariff-related cost increases, and our efforts to continue to diversify our supply chain. Selling, distribution, and administrative spending for the quarter was $93.9 million, an increase of only 0.4% from the year-ago period. As a percentage of net sales, SD&A was 29.3%, an increase of 40 basis points from last year. SD&A reflected strong general and discretionary cost control and modestly lower marketing and selling expenses. Operating income from continuing operations was $18.2 million in the first quarter, and operating margin was 5.7%. Operating cash flow from continuing operations was $3.3 million. Total depreciation and amortization expense in the quarter was $1.9 million, including approximately $0.8 million associated with the amortization of intangible assets related to the Endries acquisition, while capital expenditures were $0.2 million. We continue to expect 2025 capital expenditures in the range of $2 million-$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 to 1. As of March 31, we had $39 million in cash, no debt, and approximately $120.5 million of excess availability under our 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. Yes, sir. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you're 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'll pause momentarily to assemble our roster. The first question will come from Anthony Lebiedzinski with Sidoti. Please go ahead. Good afternoon, everyone, and thank you for taking the questions. Welcome aboard, Anesa. Nice to get your perspective on the business since you joined the company a couple of months ago. First, I guess as far as the quarter itself, can you just provide more color as far as the impact of Indoff? I know that's largely a project-based business, so just wanted to get a better sense of whether there was something highly unusual there, maybe some pre-tariff projects, and also maybe talk about how your core S&B clients did in the quarter as well. Yeah, Anthony, I'll go ahead and take that. Yeah, thank you, Anesa. Yeah. I mean, when we think about our Endries business, we really saw broader growth across our larger, continuously good growth across our large customer segments. When we think about you asked about pull-forward, we really didn't see pull-forward demand based on different metrics that we look at within our business. We think we've just continued to see we did see some strength as we moved throughout the third quarter. I'm sorry, the first quarter. Endries actually was growing very nicely in the second half of last year on new order generation, and they continued that trend into the first quarter this year. That's an area that they've just continued to execute on really core, very pretty standard-sized projects and just getting back to what they really do well. They did have a soft prior year, but that came through. In terms of our S&B customers, we did see, again, that was a group that also accelerated and improved as we moved from the beginning of the quarter towards March and into April. That is an area that even really all of our customer segments did grow as we got into the March period. Overall, we saw some good strength, and again, nothing that is overly indicative that it was pull-forward demand. Clearly, the future is a little bit opaque in terms of what the demand environment may look like given some of the macroeconomy or macro tariff issues. Again, ultimately, we are here to continue to execute as well as we can and serve our customers. Gotcha. Yeah, thank you. In terms of the SD&A expenses, those were actually barely up from last year. Was there anything unusual? I think you spoke about lower marketing costs, but just how do we think about SD&A costs from here? Can you kind of sustain this type of growth on a year-over-year basis, or will it be more lumpy? How do we think about that? Yeah, Anthony, as we had talked about on our last earnings call, we had announced that we did take some discretionary actions in terms of headcount and other cost containment measures and really focused on cost control across the business. Marketing spend and overall selling expenses are an area that we have to look at and make sure that we're continuing to invest into the right areas that will deliver the right return. Our goal is to continue to really try to manage that SD&A level. Also, as you think about our revenue continued to improve from where it was in the fourth quarter and the third quarter last year. That really will help us as we got close to break-even on revenue, our year-over-year flat on revenue. We started getting a little bit better leverage on that. That's an area if we can get that growth rate to sustain, we will continue to see leverage across our fixed cost structure. Gotcha. Okay. Switching gears to the tariffs. Obviously, as you point out, that certainly has been disruptful since early April. Can you just comment as far as how do we think about here going forward as far as pricing and gross margins? I know it is still a fluid situation, but if you could just kind of maybe help us out as we look to refine our financial models now, any sort of advice or input would be certainly appreciated. Yeah, I guess I'll jump in, Anthony. Thanks for the question. Look, it's still moving around on us a bit, right? We are tracking it. We've got a daily stand-up call with everyone that's involved in kind of being part of the decision-making within the business. What I will tell you is we've taken the appropriate actions to mitigate the risk as best we can. We have raised some prices, but we're being very prudent and very mindful to make sure that we're in line with what's happening dynamically in real time. We're making sure that we have the inventory and stock to be able to service our customers and to help them run their business and their operations. At this point, I don't know that I can give you any guidance in particular other than we are managing it daily. What we're anticipating or watching very closely is the fact that there have been some specific headlines recently that indicate that there might be a change in the overall stance of our government or our current administration. Tex, I don't know if you'd like to add anything to that. The only thing I'd add, Anesa, is that, again, we are in a very good inventory position. In the short term, Anthony, we're confident in our margins. We had much of our spring and seasonal assortment already in stock. You can see that in our balance sheet with our inventory values a little bit up from the fourth quarter level. That's somewhat normal seasonal planning, but that gives us more runway to be able to really understand what the market's doing. Again, clearly, once the fluid or the changing tariffs come into really full understanding of where they'll ultimately settle out at, that's when we'll have the best idea of exactly which levers we need to pull, which sourcing partners we need to work with, and how we need to overall manage our assortment. In the short term, inventory is in a good position, but we'll continue to monitor the overall situation. Gotcha. Okay. Just a quick follow-up. As you've raised prices in April, what's been the impact on unit volume demand? Have you seen much of a difference in terms of your customer behavior as you've raised prices? I'll jump in, Anesa, on that one. Yeah, go ahead. Sorry, go. Yeah, Anthony, it's been very early. And again, as Anesa had mentioned in prior remarks, there were very small changes that we've taken so far. We're always, when we move the price on any product, we look at what the competition is doing, what the market will absorb. We've not seen a change in trend from what we accomplished in March to what we're seeing in April so far. Yeah. Back to your original question, Anthony, on pullback, we haven't seen pullback in the context of what we're observing with our sales despite taking some small incremental price. Very surgically, very targeted, very intentional. Very good. All right. Thank you very much and best of luck. Thank you. The next question will come from Michael Francis with William Blair. Please go ahead. Hi, guys. Hi, Anesa. Nice to meet you, and thanks for taking the questions. First thing for me, you talked about shifting some sourcing out of China, and I believe you said in the past it's about 35% of your COGS. Can you put a finer point on maybe a goal or where you're trying to get that and give an idea of where some of that shifting is going to? Yeah, Michael, how are you doing? That number that you're referencing is probably a little bit of an older number. While we haven't disclosed our specific mix recently, it's quite a bit lower than that. Obviously, as you know, a couple of years ago, we did acquire the Endries business. That business obviously didn't have the same exclusive brand sourcing or direct import profile that Global Industrial had. Again, that lowered that overall mix as part of our total COGS. With that said, it is still a major source of record. Again, under that 35%. That's an area that really, starting back in 2019, we really started taking strategic actions to start diversifying away from some of that enterprise risk of having that country of origin being as centralized in China. We have changed into other markets. This is an area that, again, we have broad sourcing teams across the globe and really sourcing, really looking at what different opportunities we have. It is an area that, while we have not published a goal, we do believe that we can continue to take down. Again, like we said in the remarks a few moments ago, that does not happen overnight, given that we really focus on finding the right partners that can develop quality products, deliver on time, and have the right products in our assortment. We will make those changes, but again, that is a little bit of a longer-term or mid-term to longer-term strategy versus something that can happen in one month or one quarter. Gotcha. I noticed in your prepared remarks, you teased expanding the TAM and talked a bit about some markets you could potentially address. Is there any sort of color you could give to that comment, maybe some low-hanging fruit that you see out there that could be a good place for you to expand into? Yeah. Good to meet you, Michael. Yeah, I'm the one that made the comment. I think there's definite potential to kind of open and broaden who we target. I believe the business over the last, what, maybe four to five years has shifted focus and prioritized small, medium. I think there's just tremendous opportunity to broaden who we're pursuing: enterprise customers, the GPOs, and the strategic accounts that we already have. I think there's opportunity to gain greater share of wallet by further penetrating that, also looking at assortment expansion, and then pursuing just broader opportunities across different sectors. It's still early days. I'm just a couple of months in, and I am formulating all of that strategically so that I can share it with the organization and the team shortly, but I'm still formulating all that at this point. Okay. Last one for me. You talked about nice growth in strategic accounts, and you just touched on wanting to grow that part of the business. Was the growth in this quarter in that business, was it more of bringing on more accounts? Was it just strong growth from those accounts you have there? Was it a mixture? Yeah. It was from a lot of those accounts specifically. I would say it's a mix across just the diverse business that we have. Okay. That's all I had. Thank you so much. Okay. Thank you. The next question will come from Matt Kaelberer with Grandeur Peak Advisors. Please go ahead. Hey, Anesa. Great to meet you, and Tex, great to hear from you. Just a couple of ones from me. Thank you. You guys talked about gross margin, and obviously, I get the pretty low visibility in terms of going forward. How much should I read into, though, just bucking the trend of sort of down gross margins and this turning around here for a couple more quarters? I mean, taking out the tariff impact, is there still room for that to go? Yeah. I'll jump in, Anesa, on that one. I think, yeah, if you eliminated tariffs on that, I mean, I was going to say tariffs, obviously, you can't eliminate it, but if you take that out of the picture, again, we do absolutely think there's an opportunity to continue to improve our gross margin rate. That's going to be through a combination, again. We always have talked about sourcing channels being one of those vehicles, but efficiencies in our freight proposition, continued strategic pricing actions, understanding where you can take intellectual pricing, and really continuing that investment in both our CRM to know our customers better can also help us really pinpoint that right pricing for the right customers. Again, we do believe that there's opportunity, but in the short term, we know that there's a lot of outside factors that we'll have to be dealing with as we, again, in the past, we always said we want to have a price-cost-neutral approach to tariffs. Obviously, with some of the levels of tariff that's being talked about, that may not be possible and may require some shifting given some of the pretty extreme numbers that have been talked about out there. Yeah. Being a fresh set of eyes on the business, I think there is definite opportunity. The wild card in this is the position of tariffs and what is firmly entrenched going forward and/or if any of that gets walked back. Yeah. That was sort of my next question. I mean, these numbers are big. I am just curious, 150% tariff coming out of China, what is the math on that for you? Does that mean you need a 30%? If they were to stay the same today, would you need a 30% price increase to make any money on products you are bringing in from China? I know the X factory price is very different than the retail price, but just curious the price increase is needed if tariffs were to stay the same from China. Yeah. I mean, you can do the math. If it's 150% of the underlying cost of goods and really probably 170-180% if you really think about the tariffs that were already in place from 2019, again, that wouldn't be incremental price taking. Again, they'd be big numbers. Now, do you take the price on every individual item, or do you look at it across the portfolio? Again, there's always different mix of components and our products that we need to look at it as a broader portfolio versus each individual item. There will be some margin erosion on individual items, but we just have to continue to say, do we still source that item out of our current factory? Do we offer a domestic alternative? Do we offer a—can we find a factory in, again, a lower impacted market? Again, this is one that, because of the real-time nature of this and maybe some of the uncertainty of where it ultimately lands, we are all hands on deck working through that and trying to manage it the best we can. Again, the pricing actions, the math is it would be a significant increase on any individual SKU, but again, how does it blend across the portfolio is what we're really focused on as well. Are customers, these initial conversations you've had with customers, pretty productive and receptive, even maybe in the face of a weakening macro, or is it different than it was with the inflation of 2021 or even the trade war in 2018? Yeah. I'll take that one as well. I think when we look at so far, I mean, our customers, as we've talked about in the past, we're a web pricing model to start and then a list-off discount for our most strategic customers, the ones that we're really managed with our account reps and really focused upon. We've gotten at times proactive outreach from our customers saying, "What is—we just want to know what it's going to be, and we understand it. We understand that if we need the good, that there's going to be a cost increase." They have been receptive to that, but they want some clarity. I think that's the answer is. Sometimes I want to tell them, "We want clarity as well." Generally, it sounds like they are receptive and understand that we are all part of a global supply chain and there will be disruption. Our goal is to make sure we do have the right product at the right time. Trying to make sure we're in stock and have the product for their customers. Again, we go back to 2021 and obviously the significant inflation of ocean freight costs, we were able to generally pass that through, maintain margin through that time period. The same thing going back to 2019 in that first round of tariff imposition. We saw some improvement. Actually, we were able to take price on the way up on that area and maintain our margin throughout that cycle. We have had success in the past in some of these environments. With these numbers currently being discussed, those are different magnitudes. It is going to take a different set of playbooks and really, again, as Anesa had mentioned, all hands on deck looking at everything from supply chain sourcing partners to pricing. It has to start with negotiating with suppliers, but also understanding what does ultimately get passed through to the customer. A moving target, but we are working through it. Yeah. Matt, the only thing I would add is as part of me learning the business and coming up to speed, I could not speak to the historical part of your question, but I have met with some of our specific strategic accounts. What I have observed is their business as usual for now, recognizing that they anticipate some cost or some of their prices to go up, but we have not seen them pull back. We have not seen them pull forward. Right now, we are just continuing to support and enable them to run their businesses. In many cases, a lot of these strategic accounts are still growing accounts for us. There is lots of room for getting greater share of wallet and penetrating those accounts. That's great. Then just my last question would—I know we talk about this a lot and you can't ever give us much, but I don't know, with your balance sheet where it is, has that become a really interesting time for a deal for an acquisition right now, or is it sort of all hands on deck figuring out the supply chain first before that would happen? Yeah. I would say that M&A is definitely part of one of our levers for growth as well. We are looking at things actively. I think if it's the right opportunity and it strategically fits where we're heading, I think it's all potentially in play. We are in a very incredible balance sheet position. That optionality exists for us. Thank you. I appreciate it. Again, it's great to meet you, Anesa. We're excited to get to know you. Likewise. Thanks, Matt. Appreciate the questions. This concludes our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.