Good afternoon, ladies and gentlemen, and welcome to Global Industrial First Quarter 2024 Earnings Call. At this time, I would like to turn the call over to Mike Smargiassi of Plunkett Group. Please go ahead.

Thank you, and welcome to the Global Industrial First Quarter 2024 Earnings Call. Leading today's call will be Barry Litwin, Chief Executive Officer; and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question-and-answer session. During the call, we will reference both GAAP and organic metrics. Organic reflects the performance of the Global Industrial business, exclusive of the May 2023 Indo acquisition. 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 Barry.

Thanks, Mike. Good afternoon, everyone, and thank you for joining us. First quarter revenue improved to more than $323 million. And on an organic basis, we posted our third consecutive quarter of growth with revenue up 4.2%. These results reflect the continuation of the cautious customer purchasing behavior we have seen for the past several quarters. Overall, our performance was consistent through the period. E-commerce was once again 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. We remain pleased with gross margin performance, which was 34.3% in the quarter. On an organic basis, gross margin of 35.8% was essentially flat on both the prior year and sequential quarter basis. As I outlined on our last conference call, in 2024, we are focused on championing the customer experience across every facet of the business. This includes enhancing the quality and value we provide to elevate our position as a solutions provider and problem solver for our customer. Across the organization, we are executing against multiple initiatives to help us continuously improve and deliver an exceptional end-to-end shopping experience. One of the key performance indicators we utilize to measure the impact of these efforts is our customer satisfaction scores. Our Voice of the Customer process evaluates everything from product fulfillment and quality to overall experience. Satisfaction scores run greater than 90% each week, and this tells us that the customer service, same-day shipping percentage, order fill rates, and post-sale support are working well, as evidenced by our high customer retention rates. Customer retention drives the total lifetime value of our customers and ultimately enables us to capture market share. The gains we are seeing are a direct reflection of the efforts of our associates and recognition across the company that everything we do impacts the customer. Overall, we have been pleased with our execution against the key pillars of our customer-centric strategy. We continue to differentiate our position in the market through an exceptional experience, a leading assortment of national brands, exclusive branded products, and a one-to-one managed sales approach that delivers significant value to customers. We are making continued investments in sales, marketing, merchandising, and customer service that will help us drive operating efficiencies, accelerate customer engagement, and strengthen our competitive position to capture market share. While the current demand environment is not as robust as we would like, we believe Global Industrial is improving its position as an indispensable business partner and, in turn, strengthening its ability to drive its long-term performance. The industrial distribution market remains highly fragmented, and we have numerous opportunities for growth as we drive sales enablement across our channels, expand current relationships, and acquire new customers. With an exceptional balance sheet and strong cash flow from operations, we are well positioned to execute on our strategy, invest in our growth drivers, and evaluate strategic opportunities while we build long-term value for our stakeholders. I will now turn the call over to Tex.

Thank you, Barry. First quarter revenue was $323.4 million, up 18.1% over Q1 of last year. Organic revenue was $285.3 million, up 4.2% year-over-year. Organic U.S. revenue was up 4.3% and Canada revenue was up 1.8% in local currency. Revenue benefited from volume improvement, while order growth rates were impacted by continued pricing headwinds. The pricing environment remains competitive. However, we are optimistic that the negative impact to pricing trends will improve in the near term. We have seen the first quarter's modest organic revenue growth continue into April. Gross profit for the quarter was $110.9 million, up 12.7% from last year. Gross margin was 34.3%, down 160 basis points from the year-ago period due to the contribution mix of Indoff and its relatively lower gross margin profile. Indoff's gross margin was 23%, which represents an improvement over their historical performance. Organic gross margin rate was 35.8%, off 10 basis points from both the year-ago and sequential periods. 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 initiative. As a reminder, we are nearing the first anniversary of our Indoff acquisition in May of this year. Composite margin impacts related to the business combination will be more muted in the second quarter compared to last year, given this timing. In addition, while ocean freight costs remain elevated, higher cost inventory is starting to flow into our cost of sales, and this is something we are proactively managing. Selling, distribution, and administrative spending for the quarter was $93.5 million or 28.9% of net sales, an improvement of 50 basis points from last year. SG&A mainly reflects the benefit of Indoff's lower cost structure. This was partially offset by approximately $0.9 million of audit and remediation costs related to certain IT general controls incurred in the period. Given planned investments in key sales and marketing growth initiatives as well as SOX implementation costs associated with the Indoff acquisition and ongoing IT control remediation, we currently expect SG&A to be elevated in 2024 compared to the year-ago period. Operating income from continuing operations was $17.4 million in the first quarter, and operating margin was 5.4%. Organic operating margin was 5.6%. Operating cash flow from continuing operations was $6.3 million in the quarter as we built inventory in advance of the spring and summer seasons. The second and third quarters are historically the largest sales periods for our private brand products. Total depreciation and amortization expense in the quarter was $1.9 million, including approximately $0.7 million associated with the amortization of intangible assets from the Indoff acquisition, while capital expenditures were $1.3 million. We expect 2024 capital expenditures in the range of $3 million to $5 million, which primarily includes 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 1.9:1. As of March 31, we had $29.9 million in cash, no debt, and approximately $120.7 million of excess availability under the credit facility. We maintain significant flexibility to fully execute on our strategic plan and to continue to fund our quarterly dividend. As a result, our Board of Directors declared a quarterly dividend of $0.25 per share of common stock. This concludes our prepared remarks today. Operator, please open the call for questions.

The first question comes from Lauren Ravalli with William Blair.

Lauren Ravalli from William Blair for Ryan Merkel. I just wanted to ask about the cadence of sales in the first quarter, specifically how each month performed and how results may differ from expectations. I know your peers talked about how March is impacted by the timing of Good Friday. Any color is really helpful.

Yes. From a timing perspective, we experienced a good level of consistency throughout the period. As we moved out of Q1 and into the early part of the year, we continued to see modest organic revenue growth. I don't believe that the weather challenges mentioned during the holiday season had a significant impact on us compared to others.

Yes, Lauren, just to add to that. I mean, as Barry said, very consistent growth throughout the quarter, January, February, and March. And while the Good Friday holiday did fall in the end of Q1 rather than the beginning of Q2 this year, we didn't seem to see a material impact from that holiday shift.

Your next question comes from Anthony Lebiedzinski with Sidoti & Company.

You mentioned cautious customer behavior, but your organic sales growth of 4.2% exceeded our expectations. Can you provide more details on which vertical markets or customer groups you are observing more significant weaknesses? I would like to get more insight on that, if possible.

Yes, that's a good question. We definitely observe cautious behavior among customers, particularly in the small to mid-sized business market. Recent economic figures suggest that this trend may continue for a while. Our primary markets, including manufacturing, retail, and transportation warehousing, have shown consistent performance across these segments. We will see how things evolve as we progress into Q2. However, industries affected by fixed asset purchases and capital expenditures are likely to experience the earliest impacts on us. Throughout Q1, the situation remained steady, though smaller customers appeared to face more challenges, whereas larger enterprise customers managed to navigate the period much better.

That's helpful color. And have those trends continued so far into the second quarter?

Yes, I think the shape of it is similar.

Yes, Anthony, similar results as we go in, we're about four weeks into the second quarter. And as we highlighted, similar consistent results into this period so far.

Got you. And then in terms of your e-commerce sales channel, roughly what percent of your transactions is out? Is that actually total? And then can you give maybe more color on the new account generation that you highlighted in your press release?

Yes, when considering the overall picture, more than 60% of our transactions come from e-channels, which include e-commerce, EDI, and procurement, reflecting how many of our B2B customers purchase from us. While we don't typically highlight the e-commerce channel on its own, it has been a strong contributor for us. Recent improvements in navigation have positively impacted conversion rates and enhanced the overall customer experience on our site, which is certainly beneficial as we move forward. We also noted opportunities within larger enterprise accounts, which have been a relatively new focus for us in recent years and are increasingly significant for Global Industrial. Although we don't report these figures separately, we are pleased with the performance in this channel, and we believe it will become very important in the coming years. We're quite satisfied with the developments in this market and the efforts being made by our strategic account managers.

Got you. And a couple of other questions, if I could. So I think Tex you mentioned that Indoff's gross margin was better than historical. What drove that? And do you see any other opportunities to further improve Indoff's margins?

Yes, absolutely, Anthony. Those margins came in at about 23% in the quarter, which was again, a little bit higher than the mid-21s they had previously reported. Historically, both after our ownership and really pre-acquisition. I mean, the quarter, they had closed a couple of large deals that happened to be very favorable margins. We're continuing to push efforts and initiatives to drive a higher balance of private brand sales and introduce e-commerce capabilities to their business, which should continue to help that margin over time. And while this first quarter was benefited by a single large order that drove that margin rate up, we are seeing continued positive action of those initiatives to improve margin in the long run.

Got it. Okay. And then in terms of SG&A expense growth, I mean it was up 16% versus last year and up 8% sequentially from the fourth quarter. I know you're doing some investments in different initiatives. So as far as going forward here, how should we expect as far as the run rate before expenses from here?

Sure. Let me provide some context on that, Anthony. When we analyze the year-over-year increase of 16%, it's important to recognize that we acquired a business that accounted for over 10% of our revenue. This acquisition alone was responsible for approximately half of the growth rate in SG&A, simply by adding an additional business to our portfolio in the first quarter of this year compared to last year. Regarding sequential changes, we previously mentioned that we would be investing in sales and marketing initiatives, which we believe is necessary in a somewhat challenging market to gain market share. We are committed to investing in these key growth areas, even if it impacts our bottom line, to drive revenue growth at this time. Additionally, we mentioned today that we had about $900,000 in a quasi one-time related charge during this period, which has also contributed to some of the year-over-year growth.

Got you. Okay. That's very helpful. Okay. And then last question for me. So now that you're almost one year after the Indoff deal, are you looking for any other additional acquisitions?

Yes, good question. So we've been pretty consistent in that. I mean, I think as much as we focus on our organic strategy, we absolutely consider acquisition as a component of our business going forward. So we definitely are looking at new types of opportunities that can bring us into new categories that can add to our business model, add customers, and new channels to sell our private brand. Those are all really important to us. And when we come across those deals, we would take advantage of that. We've been pleased so far with what's happened with Indoff up until this point, and we think there's a lot more value to go there. But certainly, we're constantly keeping our eyes out for opportunities on the acquisition front.

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

Our question-and-answer session and the conference for today. Thank you for attending today's presentation. You may now disconnect.