Global Industrial Company Price & Performance (GIC)

I would like to start today's call by welcoming Anissa Chaibe, has recently joined Global Industrial as our new CEO. Anise is a proven executive with extensive experience in B2B and industrial distribution businesses. She brings a growth driven mindset and a strong background in marketing and e commerce. Anissa is an ideal fit with Global Industrials Global spirit and can do culture. As I stepped back into the CEO role in the past several months, it provided me with the opportunity to gain a deeper understanding of where company fits in today's competitive landscape. Recent time as CEO has only strengthened my belief in our long term outlook and more importantly my confidence in the management team and associates at Global Industrial Global make it all happen. These insights helped shape our CEO search and I'm confident that Anissa is the right person to improve our performance and drive our future [indiscernible] [indiscernible] Thank you, Richard. I'm excited to join the global industrial family. Of knowledge and generous support, we are set for a smooth transition. I believe Global Industrial has a unique go to market platform strong customer relationships and an exceptional team.

These attributes provide an outstanding foundation to further enhance our operating performance and drive long term growth. To capitalize on its opportunities, Global Industrial must further optimize its customer acquisition and sales approach, and capture share in the fragmented industrial distribution market. I look forward to updating investors on our progress and meeting many of you in the coming months. I'll now turn the call back to Richard. Thank you, Anissa. Turning to our performance. In 2024, we generated revenue of $1,300,000,000 improvement of 3.3% driven by the addition of Endoff in May 2023. We delivered top line growth of first half of twenty twenty four, for results softened as we move throughout the year. Fourth quarter was our weakest period in 2024. Revenue declined 5.6% with continued underperformance in our core SMB customer base. As we enter 2025, we've seen some encouraging signs of demand trends although performance has been inconsistent. The January was negatively impacted by the mid week timing of the New Year's holiday and we've seen a soft start to 2025. Gross margin was 33.8% in the fourth quarter in line on a year over year basis but declined sequentially as we continue to face increased transportation costs both on inbound ocean transportation as well as higher parcel fulfillment which is typical in the fourth quarter.

Bottom line performance reflects the lack of operating leverage given the tough market environment and continued investments in key growth initiatives. To help drive engagement and strengthen our long term competitive position. [indiscernible] We had good cash flow generation during the year and ended 2020 In 2024, we continue to execute on our customer centric strategy and made measurable progress elevating the customer experience across the business. This is highlighted in the strong retention rates and customer satisfaction scores we obtained throughout [indiscernible] One area noted by our customers has been improvement quality of our fulfillment process. Which was driven by a 20% reduction in damage claims in 2024. As we have noted in the past, shipping damage is the number one source of customers dissatisfaction and has been a key quality initiative. The improvement is a significant achievement and a true team effort that involved our distribution center associates, LTL carriers and dropship partners. Recent efforts to better align our marketing and sales teams to capture and build the long term B2B relationships that drive the high lifetime value are making good progress. We recently went live with Salesforce for our U. S. Sales team and marketing customer service modules set to go live later this summer.

When fully implemented, our new CRM will help drive operational efficiencies and provide a more unified perspective our customer across business functions. Enabling us to better serve customer needs. As many of you know, our managed account relationships are a large component of our business and a key driver of our performance. Better support these customers, we've launched a targeted and to deepen these relationships and drive growth. This initiative will allow us to better support our sales team by elevating our value proposition and enhanced engagement across our top managed accounts. Additional initiatives for the year ahead include one, a continued focus on pricing analytics and intelligence to optimize price capture ensure that we continue to deliver our exceptional value to our customers. Two, driving e procurement and growth in e enabled sales platforms including API and Punch Out. This will help us meet the expectation of today's digital B2B buyers and build deeper connections with our customers. Three, enhancements to customer experience, quality and freight. To elevate the delivery of a frictionless customer experience and ensure maintain high customer satisfaction scores. And finally, alignment across the organization to drive top line performance and optimize sales opportunities. This is a broad effort that includes continued enhancements to improve web performance and digital marketing optimization to expand conversion rates and drive more efficient marketing investment And while remains a very inflationary CPC environment.

This also involves the allocation of additional sales resources to support the further development and penetration of our largest accounts.

We are also implementing new growth focused incentive programs for our sales team and external marketing partners.

In closing, we are not satisfied with our performance, but I believe we have the right strategy in place as we continue to sharpen our execution on serving the needs of our core customers and highlight the value we bring to market through our core product offerings. Exclusive brands and extensive product knowledge. As we drive operational excellence and enhance the customer experience, we will further strengthen connections with our customers and unlock additional revenue opportunities. We have an exceptional balance sheet. We remain well positioned to continue to invest in our growth initiatives evaluate strategic opportunities and drive our long term performance. I will now turn the call over to Tex.

Thank you, Richard. Fourth quarter revenue was $32,300,000.0 down 5.6% over Q4 of last year.

U. S. Revenue was down 5.9% and Canada revenue was up 4.1% in local currency. Revenue softness was most prominent in our unmanaged small customer accounts, which were impacted by lower web traffic due to significant CPC inflation, within our paid search advertising programs. Price was slightly positive in the quarter, reflecting modest pricing actions taken throughout the year in reaction to the increased ocean transit costs. Our largest managed accounts performed well in the quarter, a trend that has continued in the first two months of twenty twenty five. Commerce and broader digital sales were once again our leading channel and ended the year representing more 60% of total annual order volume in our core global industrial business.

Private brand demand remains robust and showed modest growth in absolute dollars as well as a percentage of total sales in 2024. Fully incorporating the Endoff acquisition, 2024 private brand was in the low 40% range as a percentage of total sales providing further opportunity to expand this product set across our business. The start of 2025 has shown top line volatility largely attributable to the shifted New Year's holiday to a Wednesday versus a Sunday a year ago. And weather related shutdowns due to the Arctic cold weather in January. Our largest accounts continue to perform well with increasing softness as we move down our customer [indiscernible] First quarter revenue is currently pacing in line with the fourth quarter results We are making progress against our strategic initiatives and believe customer sentiment continues to improve. Gross profit for the quarter was $102,300,000 Gross margin was 33.8% in line with the year ago period. I would note gross margin in the fourth quarter of twenty twenty three benefited from a one time settlement with a former LTL freight carrier. Excluding this prior year benefit, gross margin would have expanded nearly 40 basis points year over year. We are very pleased with our gross margin performance adjusting for this benefit.

Management of our margin profile remains a key area of focus, Performance will continue to reflect the impact of strategic promotion and for and ocean freight costs, which remain volatile and elevated. We are closely monitoring trade policy and we are well prepared to take action as needed. We effectively managed through the tariffs of 2019 and extreme ocean inflation during the pandemic with volatility remaining to this day. We believe we are better positioned today given that experience and have a significantly more diversified supply chain when it comes to country of origin sourcing.

The current cycle will provide unique challenges given that sourcing relationships with Canada and Mexico, which have been subject to free trade agreements for decades, may shift rapidly. We have been very proactive in our planning and believe we have the operational flexibility to manage through this cycle.

We currently anticipate being able to negotiate cost savings with sourcing partners and pass through pricing to mitigate this impact of new tariffs. Selling, distribution and administrative spending in the quarter was $87,800,000 an increase of 1.2% from the year ago period. A percentage of net sales, SG and A was 29% an increase of 190 basis points from last year. With negative leverage driven by the soft top line performance. SG and A reflected planned investment in key sales and marketing growth initiatives, as well as significant CPC inflation. This was partially offset by a planned moderation in digital ongoing discipline and the control of general and discretionary costs, and a reduction in variable compensation expense in the period. We expect SG and A levels to remain elevated in the first quarter primarily as a result of CPC inflation. We continue to proactively manage our costs and currently expect to incur approximately $1,000,000 in severance in the first quarter related to cost reduction efforts. Operating income from continuing operations was $14,500,000 in the fourth quarter and operating margin was 4.8%. Operating cash flow from continuing operations was $15,800,000 in the quarter. Total depreciation and amortization expense in the quarter was $1,800,000 including approximately $700,000 associated with the amortization of intangible assets related to the Endoff acquisition, while cash 2024 Global capital expenditures were $3,800,000 We expect 2025 capital expenditures in the range of $2,000,000 to $3,000,000 which primarily reflects maintenance related investments and 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 one, As of December 30, we had $44,600,000 in cash, no debt and approximately $120,500,000 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 marks the tenth consecutive year that we have increased our dividend. One half KB item in regards to twenty twenty five selling days I would note that twenty twenty five has four extra selling days in December in both The U. S. And Canada when compared to 2024. Expect a very modest sales impact from these additional days given the timing of the twenty twenty six New Year's holiday. Historically, sales performance for similar weeks coming at 50% of the weekly run rate. This concludes our prepared remarks today. Operator, please open the call for questions.

Our first Good afternoon, everyone, and thanks for So I guess first as far as the fourth quarter, just curious whether you guys saw any meaningful changes in the business after the election or was it more or less kind of consistent throughout the quarter Yes, then I'll jump right in there. So during the quarter, we definitely saw revenue results move up and down. They were and that's continued a little bit in. So, really in the more recent periods, as you know, we're halfway through the first quarter. We're seeing some positive customer sentiment, but overall, we are Trey trending still in line with where we reported our fourth quarter results.

Got you. Yes, thanks, Pex.

And then so in terms of the Positive consumer customer sentiment. Is that mostly still on the kind of larger accounts that you're seeing that? Or are you seeing some from your core SMB clients Yes. Again, I think that's also a little bit of a mix there. But again, our biggest customers, we are seeing some of those larger orders, some of those capital budget seem to be opening up a little bit, which gives us confidence. Again, looking at some of those industry metrics such as PMI and others, we've seen some some positive trends in that really into January 2025. That that's begun to tick up after being stagnant for some time. Again, I think we see that manifest itself in some of the customer behaviors. On the smaller customer segment, again, we're seeing good retention, again, good customer satisfaction, but that's an area that's a little bit sticky and that's an area that we're continuing focusing strategic efforts to continue to reignite that revenue channel Got you.

Okay. And you talked about the recent rollout of sales force. Just overall, when do you think that will be fully implemented? And when you can start see some tangible results from that initiative?

Yes. So it's a major CRM rollout for our organization. We ultimately were able to roll that out to our entire sales team. The sales personnel by the end of twenty twenty four. And really as we move into the summer of twenty twenty five, when we're really going to be able to bring our marketing and our customer service and really the broader customer facing side of our team onto that one unified platform. So again, it's an area that believe that will be close to kind of that full rollout over summer and should start seeing that the positive benefit of the integration and collaboration that that brings to the table as we move throughout the course of the year?

Got you. Okay. And then it looks your inventory was up slightly from 3Q Did you guys bring in any inventory ahead of tariffs or just and while on the subject of tariffs, I know, Tex, you spoke about that a little bit, but overall, it sounds like you are better prepared versus 2018. But if you could just talk about the inventory, the health of the inventory, quality of that, how you feel about that?

Sure. I mean, the inventory as we kind of brought those into in Q4, I'd say at that point, there had been no specific designations of what tariffs may or may not happen in 2025. But overall, it was really managing inventory ahead of the Lunar New Year and making sure we had all the product in, the seasonal product in advance. Another piece, as you've heard us talk throughout the course of the year, ocean transit costs are have been up throughout 2024. That cost of the inbound transportation to get product into into The U. S. Distribution centers that ultimately gets capitalized into the cost of the inventory. So that's really been one of the drivers of some of that increase inventory valuation would come from the higher transit cost into that portfolio. As you mentioned, from a tariff perspective, obviously, it's something that 2019 really brought a lot of kind of opened our eyes as a company to really invest in both pricing and technology to really make sure that we really understand the different external inputs into the cost structure. Clearly, we dealt with a lot of tariffs throughout 2018 and 2019. Then again leading into 2020, 2021, 2022, we saw the significant inflation in ocean freight costs, which, really impact that same product set in a very similar way.

Actually, it was actually a little bit more impactful than first round of tariffs. So again, while it's something that it's a third party impact, a lot where many of our competitors and the broader industry are all facing the same challenge, It's an area that again, I think we have the right people, the right technology, and the right cadence of reviewing what we're doing, how we're managing our costs, how we're working with our suppliers And then ultimately, if necessary, passing that price through if it makes sense, depending on the individual products and what competitive set is doing. So again, I do think we're well prepared Clearly, there's a lot of information coming at us. But again, we're not in a we're not unique to this situation and we're not the only people there. So we're really focused on managing what we can and being ready when those cost changes do come through.

Got you. Okay. And then lastly, I guess, so far as the gross margins, I know there were some factors affecting the performance. But overall, it was up 10 basis points for the year. In 2024, just how should we think directionally about gross margin? I know there's a lot of moving pieces, but just overall, what is the expectation for gross margins going forward Yes, again, I'll continue to take that one. So again, it's an area that we spend a lot of time focusing on really managing both the again, you have two sides of the gross margin equation, price and cost. So again, both sides of the house are our sales team, our pricing team and then ultimately our supplier relationship team is really focused on managing our cost down and our price up. We know that transportation is a large component of our cost of sales. Both the inbound transportation costs as well as delivering goods. As you know, we talked about our big and bulky product set. So there's a heavy mix of LTL and other costly transportation in there. So it's managing that profile. Again, we're generally confident in our ability to manage that margin.

Clearly, as you know, we have our private brand and our exclusive brand products, which bring a higher margin profile to our composite mix. So we're continuing to focus on mixing into those products where it makes sense, while again not making sure we're lifting all boats and focusing on our national suppliers as well. But private brand does give us a different gross margin profile that helps us mitigate some of the pricing pressure in the market. So it's an area that again, it's been fairly steady. But we're confident in being able to continue to manage that And again, our focus is whenever possible is how do we capture a little bit more gross margin is always a focus of the company.

Sounds good. Well, thank you very much and best of luck. Thank you.

Thank you.

Thank you. This concludes our question and answer session.

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