GLOBAL INDUSTRIAL Co

Previous 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.

Current wording

The Company's net sales in the third quarter of 2024 was down 3.4% as compared to the year ago period reflecting a continuation of the recent trend of a cautious demand environment within our core small and medium business customer base. Our strategic account business continues to perform well, delivering solid growth. In addition, retention rates and customer satisfaction, across our customer base, remained healthy. Gross margin in the third quarter of 2024 was 34.0%, a 120 basis point improvement from the prior year quarter results as we benefited from proactive price management. On a sequential quarter basis, this benefit was muted as gross margin was down 120 basis points, primarily as a result of elevated ocean freight costs. Management of our margin profile continues to remain 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, increased healthcare costs 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, increased healthcare costs, 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 second quarter ended June 30, 2024.

Current wording

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

Previous wording

•Consolidated operating income from continuing operations decreased 6.6% to $43.8 million compared to $46.9 million last year. Excluding Indoff, operating income was $41.0 million, a decrease of 10.5%.

Current wording

•Consolidated operating income from continuing operations decreased 21.3% to $22.2 million compared to $28.2 million last year.

Previous wording

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

Current wording

•Net income per diluted share from continuing operations decreased 18.5% to $0.44 compared to $0.54 last year.

Previous wording

•Consolidated sales increased 11.9% to $671.2 million compared to $599.6 million last year. Excluding Indoff, acquired on May 19, 2023, sales increased 3.0%.

Current wording

•Consolidated sales increased 6.2% to $1.0 billion compared to $954.2 million last year. Excluding Indoff, acquired on May 19, 2023, sales increased 0.7%.

Previous wording

•Consolidated gross margin increased to 35.2% compared to 34.7% last year. Excluding Indoff, gross margin was 36.8%, a 110 basis point improvement over prior year.

Current wording

•Consolidated gross margin increased to 34.5% compared to 34.3% last year. Excluding Indoff, gross margin was 36.1%, an 80 basis point improvement over prior year.

Previous 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%.

Current wording

•Consolidated operating income from continuing operations decreased 12.1% to $66.0 million compared to $75.1 million last year. Excluding Indoff, operating income was $61.0 million, a decrease of 14.7%.

Previous wording

•Net income per diluted share from continuing operations decreased 5.5% to $0.86 compared to $0.91 last year.

Current wording

•Net income per diluted share from continuing operations decreased 9.7% to $1.30 compared to $1.44 last 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 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.

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 63 selling days in the U.S. in the third quarters of 2024 and 2023, respectively, and there were 191 selling days in the U.S. for the nine months ended 2024 and 2023, respectively. There were 62 selling days in Canada in the third quarters of 2024 and 2023, respectively, and there were 188 selling days in Canada for the nine months ended 2024 and 2023, respectively.

Previous wording

Three and Six Months Ended June 30, 2024 compared to the Three and Six Months Ended June 30, 2023

Current wording

Three and Nine Months Ended September 30, 2024 compared to the Three and Nine Months Ended September 30, 2023

Previous 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.

Current wording

The Company's net sales decreased 3.4% during the quarter ended September 30, 2024 as compared to the same period in 2023, reflecting continued softness across various customer end markets. U.S. revenue was down 3.4% in the third quarter compared to the same period in 2023 and Canada sales, in local currency, decreased 2.9% compared to the same period in 2023. U.S. sales increased 6.7% for the nine months ended September 30, 2024 compared to the same period in 2023 and Canada sales, in local currency, decreased 0.8% compared to the same period in 2023. Performance for the quarter, as well as, the first nine months of September 30, 2024, reflect a continuation of the cautious customer purchasing behavior we have been experiencing for the past several quarters. Strong growth was realized in our enterprise business managed sales channels as it capitalized on both new account generation and retention rates.

Previous 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.

Current wording

There were 63 selling days in the U.S. in the third quarters of 2024 and 2023, respectively, and there were 191 selling days in the U.S. for the nine months ended 2024 and 2023, respectively. There were 62 selling days in Canada in the third quarters of 2024 and 2023, respectively, and there were 188 selling days in Canada for the nine months ended 2024 and 2023, respectively.

Previous wording

Gross margin increased by 50 basis points to 35.2% in the second quarter of 2024 as compared to the same period in 2023. The year over year improvement was primarily the result of proactive price management and a higher mix of private label sales in the quarter. For the six months ended June 30, 2024, gross margin of 34.8% declined 40 basis points as compared to the same period in 2023. Organic gross margin increased 110 basis points and 50 basis points in the second quarter and six months ended June 2024, respectively, as compared to the same period in 2023.

Current wording

Gross margin increased by 120 basis points to 34.0% in the third quarter of 2024 as compared to the same period in 2023. The year over year improvement was primarily the result of proactive price management. For the nine months ended September 30, 2024, gross margin of 34.5% improved 20 basis points as compared to the same period in 2023.

Previous wording

For the three month period ended June 30, 2024, SD&A costs as a percentage of sales increased approximately 190 basis points compared to prior year. SD&A primarily reflects planned investment in key sales and marketing growth initiatives, which generated negative leverage due to the soft customer demand environment, increased audit and remediation costs related to certain IT general controls, partially offset by a benefit of approximately $1.0 million associated with accounting for executive transitions. We expect SD&A levels to moderate from second quarter levels in the second half of the year, but remain elevated when compared to the year ago quarterly periods, as we continue to support our growth strategy. We remain diligent in the control of our general and discretionary cost management. Cost increases include planned net marketing spend of approximately $4.6 million, total compensation and related costs of approximately $2.6 million, of which approximately $1.0 million related to increased variable compensation expense related to performance, increased salary and severance costs of approximately $1.4 million offset by approximately $1.0 million of cost savings from executive transitions. Indoff's total SD&A increased expenses for the quarter were approximately $3.9 million, inclusive of $0.8 million of intangible asset amortization.

Current wording

For the three month period ended September 30, 2024, SD&A costs as a percentage of sales increased approximately 270 basis points compared to prior year. SD&A primarily reflects planned investment in key sales and marketing growth initiatives, which generated negative leverage due to the soft customer demand environment, increased audit and remediation costs related to certain IT general controls, and increased healthcare costs in the quarter. We expect SD&A levels to remain elevated when compared to the year ago quarterly periods as we continue to support our growth strategy. We remain diligent in the control of our general and discretionary cost management. Significant cost increases include approximately $2.1 million of planned investments in net marketing spend as well as significant cost per click ("CPC") inflation, total compensation and related costs of approximately $2.4 million, of which approximately $1.0 million related to increased healthcare costs and approximately $0.8 million related to recruitment costs associated with our ongoing CEO search.

Previous 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.

Current wording

For the nine month period ended September 30, 2024, SD&A costs as a percentage of sales increased approximately 150 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 $0.5 million, planned net marketing spend of approximately $9.9 million, total compensation and related costs of approximately $13.8 million and $1.1 million of intangible asset amortization. Within the $13.8 million of increased compensation and related costs was approximately $7.5 million of variable compensation related to performance, increased salary expenses of approximately $3.9 million, approximately $1.2 million of increased healthcare costs and approximately $0.8 million related to recruitment costs associated with our ongoing CEO search offset by cost savings from the impact of the prior year reduction in force and the benefit associated with accounting for executive transitions. Included in the previously mentioned totals were Indoff's total SD&A increased expenses of approximately $11.7 million including approximately $1.1 million of intangible asset amortization.

Previous 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.

Current wording

Operating margin for the three and nine month periods ended September 30, 2024 declined 150 basis and 140 basis points, respectively, compared to the same periods in 2023. These declines resulted from the impacts of the gross margin and SD&A items noted above. Excluding Indoff, operating margin declined 120 basis points in the nine months ended September 30, 2024 compared to the same period in 2023.

Previous 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.

Current wording

Interest and other expense, net from continuing operations for the three month periods ended September 30, 2024 and 2023, was $0.0 million and $0.7 million respectively, and for the nine months ended September 30, 2024 and 2023, interest and other expense, net from continuing operations was $0.3 million and $1.2 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 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.

Current wording

For the three month period ended September 30, 2024 and 2023, the Company reported income taxes in continuing operations of approximately $5.4 million and $6.8 million, respectively, and for the nine month period ended September 30, 2024 and 2023, the Company reported income taxes in continuing operation of $15.6 million and $18.4 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 $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.

Current wording

Our working capital increased $25.3 million primarily related to increased inventory balances, increased accounts receivable and cash and cash equivalent balances offset by increased accounts payable, accrued expenses and other current liabilities. Accounts receivable days outstanding were 37.5 in 2024 compared to 37.4 in 2023, inventory turns were 5.4 in 2024 compared to 4.8 in 2023 and accounts payable days outstanding were 48.2 in 2024 compared to 51.2 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 $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.

Current wording

Net cash provided by operating activities from continuing operations was $34.6 million compared to $103.8 million provided in 2023, attributable to changes in our working capital accounts which used $24.2 million in cash in 2024 compared to $39.3 million provided in 2023, primarily the result of the changes in inventory, accounts payable and accounts receivable balances. Cash generated from net income adjusted by other non-cash items, provided $58.8 million in 2024 compared to $64.5 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 nine months ended September 30, 2024 compared to 2023. Net cash provided by operating activities from discontinued operations was $0.2 million for the nine months ended September 30, 2024 and $0.1 million was used in the nine months ended September 30, 2023.

Previous 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.

Current wording

Net cash used in investing activities totaled $3.1 million for warehouse machinery and equipment for distribution facilities, leasehold improvements, and computer equipment upgrades. Net cash used in investing activities in 2023 totaled $75.6 million, $72.6 million of which was used for the purchase of Indoff, offset by $0.3 million of cash acquired, with the balance of $3.3 million used for warehouse machinery and equipment for our U.S warehouses and new Canadian distribution center, leasehold improvements, computer equipment upgrades and molds.

Previous 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.

Current wording

Net cash used in financing activities totaled $27.1 million in 2024 primarily related to the regular quarterly dividends of $0.25 per common share which totaled approximately $28.8 million. Proceeds from stock option exercises totaled $1.8 million, offset by payments for payroll taxes through shares withheld, which totaled $1.6 million and proceeds from the issuance of common stock from the employee stock purchase plan totaled $1.5 million. Net cash used in financing activities in 2023 totaled $22.3 million primarily related to the quarterly dividends of $.20 per share which totaled approximately $23.0 million combined with repayments of short-term borrowings of approximately $51.2 million, majority of which was utilized to fund the Indoff acquisition, offset by the proceeds of short-term borrowings of approximately $50.6 million. Proceeds from the issuance of common stock from our employee stock purchase plan totaled $1.4 million and proceeds from the issuance of common stock from stock option exercises totaled $0.4 million, offset by payments for payroll taxes through shares withheld which totaled $0.5 million.

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 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.

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 September 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 September 30, 2024 cash balances held in foreign subsidiaries totaled approximately $4.0 million. These balances are held in local country banks and are held primarily to support local working capital needs. The Company had over $156 million of liquidity (cash and undrawn line of credit) in the U.S. as of September 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 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.

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 September 30, 2024 we were obligated for approximately $104.9 million under these non-cancelable leases. In 2024 we anticipate remaining cash expenditures of approximately $4.8 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.