GLOBAL INDUSTRIAL Co

Previous wording

Global Industrial Company, through its subsidiaries, is a value-added distributor of more than hundreds of thousands of industrial and MRO products in North America going to market through a system of branded e-commerce websites and relationship marketers.

Current wording

Global Industrial Company, through its subsidiaries, is a value-added distributor of hundreds of thousands of industrial and MRO products in North America going to market through a system of branded e-commerce websites and relationship marketers.

Previous wording

On May 19, 2023 the Company acquired 100% of the outstanding equity interests of Indoff LLC ("Indoff"), a business-to-business direct marketer of material handling products, commercial interiors and business products with operations in North America, for approximately $72.6 million in cash, $5.2 million of which was placed into an escrow account for two years to secure the sellers’ indemnification obligations under the purchase agreement. Under the terms of the escrow agreement the escrow amount will be reduced to $2.5 million on the one year anniversary of the closing date. The Indoff accounts are included in the accompanying condensed consolidated financial statements from the date of acquisition. See Note 2, Acquisition, of Notes to the Condensed Consolidated Financial Statements regarding the acquisition.

Current wording

On May 19, 2023 the Company acquired 100% of the outstanding equity interests of Indoff LLC ("Indoff"), a business-to-business direct marketer of material handling products, commercial interiors and business products with operations in North America, for approximately $72.6 million in cash, $5.2 million of which was placed into an escrow account for two years to secure the sellers’ indemnification obligations under the purchase agreement. In accordance with the terms of the escrow agreement the escrow amount was reduced to $2.5 million on the one year anniversary of the closing date. The Indoff accounts are included in the accompanying condensed consolidated financial statements from the date of acquisition. See Note 2, Acquisition, of Notes to the Condensed Consolidated Financial Statements regarding the acquisition.

Previous wording

The Company's net sales increased in the first quarter by 18.1% to $323.4 million, due to the acquisition of Indoff in May 2023 and organic revenue growth of 4.2%. Performance reflects a competitive pricing environment and a continuation of the recent trend of a cautious demand environment within our core small and medium business customer base. E-commerce was our leading channel and we are seeing strong growth in our enterprise business as it benefits from new account generation and healthy retention rates. Order and volume trends were solid and partially offset by continued price headwinds. Gross margin in the first quarter of 2024 was 34.3%, a 160 basis point decline from the prior year quarter results, primarily due to the contribution mix of Indoff and its relatively lower gross margin profile. Indoff sales historically carry gross margins in the low 20% range. Excluding Indoff sales, first quarter gross margin was 35.8%, a 10 basis point decline over the prior year quarter. Management of our margin profile remains a key area of focus. Performance will continue to reflect the impact of proactive promotion and freight actions as part of our competitive pricing initiatives. The Company may also experience margin variability in future periods due to the current economic environment, inflationary pressures and historical seasonality. Selling, distribution and administrative expenses ("SD&A") primarily reflects the fixed cost nature of the business, including variable compensation expense, and planned marketing investment. We currently expect SD&A expenses to be elevated in 2024 when compared to prior year due to planned investment in key sales and marketing growth initiatives as well as integrating Indoff's operations into our overall internal controls over financial reporting and ongoing information technology ("IT") control remediation. We continue to maintain strong cost controls, and will continue to evaluate additional steps to optimize our structure.

Current wording

The Company's net sales increased in the second quarter by 6.8% to $347.8 million, including organic revenue growth of 1.8%, as well as due to the impact of the Indoff acquisition in May 2023. Performance reflects a competitive pricing environment and a continuation of the recent trend of a cautious demand environment within our core small and medium business customer base. Our managed sales organization was our leading channel and we are seeing strong growth in our enterprise business as it benefits from new account generation and healthy retention rates. Order and volume trends were solid and partially offset by continued price headwinds. Gross margin in the second quarter of 2024 was 35.2%, a 50 basis point improvement from the prior year quarter results, primarily due to proactive price management and the contribution mix of private label products. Management of our margin profile remains a key area of focus. Performance will continue to reflect the impact of proactive promotion and freight actions as part of our competitive pricing initiatives. The Company may also experience margin variability in future periods due to the current economic environment, inflationary pressures primarily related to the increasing cost of ocean freight, and historical seasonality. Selling, distribution and administrative expenses ("SD&A") primarily reflects the fixed cost nature of the business, including variable compensation expense, and planned marketing investment. We currently expect SD&A expenses to be elevated in 2024 when compared to prior year due to planned investment in key sales and marketing growth initiatives as well as integrating Indoff's operations into our overall internal controls over financial reporting and ongoing information technology ("IT") control remediation. We continue to maintain strong cost controls within discretionary spending, and will continue to evaluate additional steps to optimize our cost structure.

Previous wording

There were no material changes in the Company’s significant accounting policies during the first quarter ended March 31, 2024.

Current wording

There were no material changes in the Company’s significant accounting policies during the second quarter ended June 30, 2024.

Previous wording

•Consolidated sales increased 18.1% to $323.4 million compared to $273.8 million last year. Excluding Indoff, acquired on May 19, 2023, sales increased 4.2% and 4.3% on an average daily sales basis.

Current wording

•Consolidated sales increased 6.8% to $347.8 million compared to $325.8 million last year. Excluding Indoff, acquired on May 19, 2023, sales increased 1.8% in the quarter and 1.7% on an average daily sales basis*.

Previous wording

•Consolidated operating income from continuing operations decreased 2.2% to $17.4 million compared to $17.8 million last year. Excluding Indoff, operating income was $16.1 million, a decrease of 9.6%.

Current wording

•Consolidated operating income from continuing operations decreased 9.3% to $26.4 million compared to $29.1 million last year. Excluding Indoff, operating income was $24.9 million, a decrease of 11.1%.

Previous wording

•Net income per diluted share from continuing operations decreased 2.9% to $0.34 compared to $0.35 last year.

Current wording

•Net income per diluted share from continuing operations decreased 7.1% to $0.52 compared to $0.56 last year.

Previous wording

•Consolidated gross margin declined to 34.3% compared to 35.9% last year. Excluding Indoff, gross margin was 35.8%, a 10 basis point reduction to prior year.

Current wording

•Consolidated gross margin declined to 34.8% compared to 35.2% last year. Excluding Indoff, gross margin was 36.3%, a 50 basis point improvement over prior year.

Previous wording

*Average daily sales is calculated based upon the number of selling days in each period, with Canadian sales converted to US dollars using the current year's average exchange rate. There were 64 selling days in the U.S. in each of the first quarters of 2024 and 2023, respectively, and in Canada, there were 62 selling days in the first quarter of 2024 and 63 selling days in the first quarter of 2023.

Current wording

*Average daily sales is calculated based upon the number of selling days in each period, with Canadian sales converted to US dollars using the current year's average exchange rate. There were 64 selling days in the U.S. in the second quarters of 2024 and 2023, respectively, and there were 128 selling days in the U.S. for the six months ended 2024 and 2023, respectively. There were 64 selling days in Canada in the second quarter of 2024 and 63 selling days in the second quarter of 2023. There were 126 selling days in Canada for the six months ended 2024 and 2023, respectively.

Previous wording

The Company's net sales increased 18.1% during the quarter ended March 31, 2024 as compared to the same period in 2023, primarily due to the inclusion of Indoff sales. U.S. sales increased 19.1% for the quarter compared to the same period in 2023 and Canada sales, in local currency, increased 1.8% compared to the same period in 2023. Excluding sales contributed by Indoff, total sales increased in the quarter by 4.2% and U.S. sales increased 4.3%, compared to prior year, benefiting from volume improvement. Performance reflects a continuation of the cautious customer purchasing behavior we have been experiencing for the past several quarters. E-commerce was our leading sales channel and strong growth in our enterprise business benefited from new account generation and retention rates. Order and volume trends in the quarter were solid and partially offset by continued price headwinds.

Current wording

The Company's net sales increased 6.8% during the quarter ended June 30, 2024 as compared to the same period in 2023, primarily due to the inclusion of Indoff sales. Organic U.S. sales increased 2.1% for the quarter compared to the same period in 2023 and Canada sales, in local currency, decreased 1.1% compared to the same period in 2023. Revenue benefited from volume improvement, while overall growth rates were impacted by modest pricing headwinds. Our managed sales channels led our performance and we continued to see strong growth in our enterprise business as it capitalizes on new account generation and retention rates. The Company's net sales increased 11.9% for the six months ended June 30, 2024 as compared to the same period in 2023, primarily due to the inclusion of Indoff sales. Organic U.S. sales increased 3.2% for the six months ended June 30, 2024 compared to the same period in 2023 and Canada sales, in local currency, increased 0.3% compared to the same period in 2023. Performance for the quarter, as well as, the first six months of June 30, 2024, reflect a continuation of the cautious customer purchasing behavior we have been experiencing for the past several quarters.

Previous wording

There were 64 selling days in the U.S. and 62 selling days in Canada in the first quarter of 2024 compared to 64 selling days in the U.S. and 63 selling days in Canada in the first quarter of 2023.

Current wording

There were 64 selling days in the U.S. in the second quarters of 2024 and 2023, respectively, and there were 128 selling days in the U.S. for the six months ended 2024 and 2023, respectively. There were 64 selling days in Canada in the second quarter of 2024 compared to 63 selling days in the second quarter of 2023. There were 126 selling days in Canada for the six months ended 2024 and 2023, respectively.

Previous wording

For the three month period ended March 31, 2024, SD&A costs as a percentage of sales improved approximately 50 basis points compared to prior year. SD&A primarily reflects the benefits of Indoff's lower cost structure partially offset by planned net marketing spend increases of approximately $2.8 million and increased audit and remediation costs related to certain IT general controls of approximately $0.9 million. Additional cost increases include total compensation and related costs of approximately $0.5 million. of which approximately $1.4 million related to increased variable compensation expense related to performance offset by approximately $0.9 million of cost savings from the impact of the prior year reduction in force. Indoff's total SD&A expenses for the quarter were approximately $7.5 million, inclusive of $0.7 million of intangible asset amortization.

Current wording

For the six month period ended June 30, 2024, SD&A costs as a percentage of sales increased approximately 80 basis points compared to prior year. This increase reflects the impact of the planned investment in key sales and marketing growth initiatives, increased audit and remediation costs related to certain IT general controls of approximately $0.9 million, Indoff's total SD&A increased expenses of approximately $11.5 million including approximately $1.5 million of intangible asset amortization, planned net marketing spend of approximately $7.5 million and total compensation and related costs of approximately $3.1 million. Within the $3.1 million of increased compensation and related costs was approximately $2.4 million of variable compensation related to performance, increased salary expenses of approximately $1.5 million offset by cost savings from the impact of the prior year reduction in force and the benefit associated with accounting for executive transitions.

Previous wording

Operating margin for the three month period ended March 31, 2024 declined 110 basis points compared to the same period in 2023 impacted by the reduced gross margin and SD&A items noted above. Excluding Indoff, operating margin declined 90 basis points compared to the same period in 2023.

Current wording

Operating margin for the three and six month periods ended June 30, 2024 declined 130 basis points compared to the same period in 2023 impacted by the gross margin and SD&A items noted above. Excluding Indoff, operating margin declined 120 basis points in the second quarter of 2024 and 110 basis points in the six months ended June 30, 2024 compared to the same period in 2023.

Previous wording

Interest and other expense, net from continuing operations was $0.2 million in the three month periods ended March 31, 2024 and 2023.

Current wording

Interest and other expense, net from continuing operations was $0.1 million and $0.3 million for the three month periods ended June 30, 2024 and 2023, respectively, and for the six months ended June 30, 2024 and 2023, interest and other expense, net from continuing operations was $0.3 million and $0.5 million, respectively. The higher costs in the prior year reflect the outstanding loan balance utilized to partially fund the Indoff acquisition in May 2023.

Previous wording

For the three month period ended March 31, 2024 the Company reported income taxes in continuing operations of approximately $4.1 million related to its U.S., Canada and India operations including tax expense for certain U.S. states. Tax expense in the first quarter reflects a benefit of approximately $0.2 million related to stock option and award activity.

Current wording

For the three month period ended June 30, 2024 and 2023, the Company reported income taxes in continuing operations of approximately $6.1 million and $7.3 million, respectively, related to its U.S., Canada and India operations including tax expense for certain U.S. states. For the six month period ended June 30, 2024 and 2023, the Company reported income taxes in continuing operation of $10.2 million and $11.6 million, respectively, related to its U.S., Canada and India operations including tax expense for certain U.S. states. The decrease in the Company's effective tax rate for 2024 was due to a higher tax benefit of approximately $0.5 million related to stock-based compensation.

Previous wording

Our working capital increased $5.2 million primarily related to increased inventory balances in anticipation of our historically largest sales period for our private brand products, increased accounts receivable balances offset by reduced cash and cash equivalents, prepaid expenses and other current assets balances. Accounts receivable days outstanding were 37.4 in 2024 compared to 38.3 in 2023, inventory turns were 5.5 in 2024 compared to 4.0 in 2023 and accounts payable days outstanding were 48.8 in 2024 compared to 54.6 in 2023. We expect that future accounts receivable, inventory and accounts payable balances will fluctuate with net sales and the product mix of our net sales.

Current wording

Our working capital increased $15.5 million primarily related to increased inventory balances in anticipation of our historically largest sales period for our private brand products, increased accounts receivable and cash and cash equivalent balances offset by increased accounts payable, accrued expenses and other current liabilities and reduced prepaid expenses and other current assets balances. Accounts receivable days outstanding were 36.9 in 2024 compared to 38.5 in 2023, inventory turns were 5.5 in 2024 compared to 4.3 in 2023 and accounts payable days outstanding were 48.8 in 2024 compared to 52.8 in 2023. We expect that future accounts receivable, inventory and accounts payable balances will fluctuate with net sales and the product mix of our net sales.

Previous wording

Net cash provided by operating activities from continuing operations was $6.3 million compared to $28.5 million provided in 2023, attributable to changes in our working capital accounts which used $10.7 million in cash compared to $12.9 million provided in 2023, primarily the result of the changes in inventory, accounts payable, accrued expenses, other current liabilities and other liabilities balances. Cash generated from net income adjusted by other non-cash items, provided $17.0 million in 2024 compared to $15.6 million provided by these items in 2023 primarily due to increased amortization of intangible assets and stock-based compensation expense generated in the three months ended March 31, 2024 compared to 2023. Net cash provided by operating activities from discontinued operations was $0.1 million for the three months ended March 31, 2024 and $0.2 million was used in the three months ended March 31, 2023.

Current wording

Net cash provided by operating activities from continuing operations was $25.0 million compared to $65.5 million provided in 2023, attributable to changes in our working capital accounts which used $14.5 million in cash in 2024 compared to $25.4 million provided in 2023, primarily the result of the changes in inventory, accounts receivable, accounts payable, accrued expenses, other current liabilities and other liabilities balances. Cash generated from net income adjusted by other non-cash items, provided $39.5 million in 2024 compared to $40.1 million provided by these items in 2023 primarily due to increased amortization of intangible assets offset by the current quarter's stock-based compensation expense adjustment related to executive transition generated in the six months ended June 30, 2024 compared to 2023. Net cash provided by operating activities from discontinued operations was $0.2 million for the six months ended June 30, 2024 and $0.2 million was used in the six months ended June 30, 2023.

Previous wording

Net cash used in investing activities totaled $1.3 million for warehouse machinery and equipment for distribution facilities, leasehold improvements, and computer equipment upgrades. Net cash used in investing activities in 2023 totaled $0.7 million and was used for warehouse machinery and equipment, primarily related to our new Canadian distribution center, leasehold improvements, computer equipment and molds.

Current wording

Net cash used in investing activities totaled $2.2 million for warehouse machinery and equipment for distribution facilities, leasehold improvements, and computer equipment upgrades. Net cash used in investing activities in 2023 totaled $73.7 million, $72.6 million was used for the purchase of Indoff, offset by $0.3 million of cash acquired, with the balance of $1.4 million used for warehouse machinery and equipment for our U.S warehouses and new Canadian distribution center, and leasehold improvements, computer equipment upgrades and molds.

Previous wording

Net cash used in financing activities totaled $9.6 million in 2024 primarily related to the regular quarterly dividends of $0.25 per common share which totaled approximately $9.6 million. Proceeds from the issuance of common stock from the employee stock purchase plan totaled $0.8 million and proceeds from stock option exercises totaled $0.7 million, offset by payments for payroll taxes through shares withheld, which totaled $1.5 million. Net cash used in financing activities in 2023 totaled $7.9 million primarily related to the regular quarterly dividends of $0.20 per common share which totaled approximately $7.7 million. and repayments of short-term debt of approximately $0.6 million. Proceeds from the issuance of common stock from our employee stock purchase plan totaled $0.7 million and proceeds from the issuance of common stock from stock option exercises totaled $0.1 million, offset by payments for payroll taxes through shares withheld which totaled $0.4 million.

Current wording

Net cash used in financing activities totaled $18.5 million in 2024 primarily related to the regular quarterly dividends of $0.25 per common share which totaled approximately $19.2 million. Proceeds from stock option exercises totaled $1.4 million, offset by payments for payroll taxes through shares withheld, which totaled $1.5 million and proceeds from the issuance of common stock from the employee stock purchase plan totaled $0.8 million. Net cash used in financing activities in 2023 totaled $24.9 million primarily related to proceeds from short-term borrowings of approximately $50.6 million, the majority of which was utilized to fund the Indoff acquisition, offset by the regular quarterly dividends of $0.20 per common share which totaled approximately $15.3 million. and repayments of short-term debt of approximately $10.9 million. Proceeds from the issuance of common stock from our employee stock purchase plan totaled $0.7 million and proceeds from the issuance of common stock from stock option exercises totaled $0.3 million, offset by payments for payroll taxes through shares withheld which totaled $0.5 million.

Previous wording

The Company maintains a $125.0 million secured revolving credit facility with one financial institution, which has a five year term, maturing on October 19, 2026 and provides for borrowings in the United States. The credit agreement contains certain operating, financial and other covenants, including limits on annual levels of capital expenditures, availability tests related to payments of dividends and stock repurchases and fixed charge coverage tests related to acquisitions. The revolving credit agreement requires that a minimum level of availability be maintained. If such availability is not maintained, the Company will be required to maintain a fixed charge coverage ratio (as defined). The borrowings under the agreement are subject to borrowing base limitations of up to 85% of eligible accounts receivable and the inventory advance rate computed as the lesser of 65% or 85% of the net orderly liquidation value (“NOLV”). Borrowings are secured by substantially all of the Borrower’s assets, as defined, including all accounts, accounts receivable, inventory and certain other assets, subject to limited exceptions, including the exclusion of certain foreign assets from the collateral. The interest rate under the amended and restated facility is computed at applicable market rates based on the Secured Overnight Financing Rate (“SOFR”), the Federal Reserve Bank of New York (“NYFRB”) or the Prime Rate, plus an applicable margin. The applicable margin varies based on borrowing base availability. As of March 31, 2024, eligible collateral under the credit agreement was $125.0 million, total availability was $122.3 million, total outstanding letters of credit was $1.6 million, and total excess availability was $120.7 million. The Company was in compliance with all of the covenants of the credit agreement as of March 31, 2024.

Current wording

The Company maintains a $125.0 million secured revolving credit facility with one financial institution, which has a five year term, maturing on October 19, 2026 and provides for borrowings in the United States. The credit agreement contains certain operating, financial and other covenants, including limits on annual levels of capital expenditures, availability tests related to payments of dividends and stock repurchases and fixed charge coverage tests related to acquisitions. The revolving credit agreement requires that a minimum level of availability be maintained. If such availability is not maintained, the Company will be required to maintain a fixed charge coverage ratio (as defined). The borrowings under the agreement are subject to borrowing base limitations of up to 85% of eligible accounts receivable and the inventory advance rate computed as the lesser of 65% or 85% of the net orderly liquidation value (“NOLV”). Borrowings are secured by substantially all of the Borrower’s assets, as defined, including all accounts, accounts receivable, inventory and certain other assets, subject to limited exceptions, including the exclusion of certain foreign assets from the collateral. The interest rate under the amended and restated facility is computed at applicable market rates based on the Secured Overnight Financing Rate (“SOFR”), the Federal Reserve Bank of New York (“NYFRB”) or the Prime Rate, plus an applicable margin. The applicable margin varies based on borrowing base availability. As of June 30, 2024, eligible collateral under the credit agreement was $125.0 million, total availability was $122.2 million, total outstanding letters of credit was $1.6 million, and total excess availability was $120.6 million. The Company was in compliance with all of the covenants of the credit agreement as of June 30, 2024.

Previous wording

We maintain our cash and cash equivalents in money market funds or their equivalents that have maturities of less than three months and in non-interest bearing accounts that partially offset banking fees. As of March 31, 2024, we had no investments with maturities of greater than three months. Accordingly, we do not believe that our cash balances have significant exposure to interest rate risk. At March 31, 2024 cash balances held in foreign subsidiaries totaled approximately $3.9 million. These balances are held in local country banks and are held primarily to support local working capital needs. The Company had over $146 million of liquidity (cash and undrawn line of credit) in the U.S. as of March 31, 2024.

Current wording

We maintain our cash and cash equivalents in money market funds or their equivalents that have maturities of less than three months and in non-interest bearing accounts that partially offset banking fees. As of June 30, 2024, we had no investments with maturities of greater than three months. Accordingly, we do not believe that our cash balances have significant exposure to interest rate risk. At June 30, 2024 cash balances held in foreign subsidiaries totaled approximately $4.4 million. These balances are held in local country banks and are held primarily to support local working capital needs. The Company had over $155 million of liquidity (cash and undrawn line of credit) in the U.S. as of June 30, 2024.

Previous wording

We are obligated under non-cancelable operating and finance leases for the rental of our facilities and certain of our equipment which expires at various dates through 2032. As of March 31, 2024 we were obligated for approximately $91.9 million under these non-cancelable leases. In 2024 we anticipate remaining cash expenditures of approximately $14.2 million for these operating leases. We have sublease agreements for unused space, as well as excess space in facilities we are currently occupying in the United States and Canada. In the event the sub lessee is unable to fulfill its obligations, we would be responsible for remaining rents due under the leases.

Current wording

We are obligated under non-cancelable operating and finance leases for the rental of our facilities and certain of our equipment which expires at various dates through 2032. As of June 30, 2024 we were obligated for approximately $107.6 million under these non-cancelable leases. In 2024 we anticipate remaining cash expenditures of approximately $9.4 million for these operating leases. We have sublease agreements for unused space, as well as excess space in facilities we are currently occupying in the United States and Canada. In the event the sub lessee is unable to fulfill its obligations, we would be responsible for remaining rents due under the leases.