Good afternoon, ladies and gentlemen, and welcome to Global Industrial's Third Quarter 2025 Earnings Call. Please note, this event is being recorded. At this time, I would like to turn the call over to Mike Smargiassi of The Plunkett Group. Please go ahead.

Thank you, and welcome to the Global Industrial Third Quarter 2025 Earnings Call. Today's call will include formal remarks from Anesa Chaibi, Chief Executive Officer; and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question-and-answer session. Today's discussion may include certain forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward-looking statements caption and under Risk Factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. I would like to remind everyone that in Q4 this year, our quarter will close on Saturday, January 3, 2026, representing one additional week in our quarter compared to the prior year. While we are adding four working days to our quarter, this is the period between the Christmas and New Year's holiday, which historically represents the lowest sales week of any given year. The press release is available on the company's website and has been filed with the SEC on a Form 8-K. This call is the property of Global Industrial Company. I will now turn the call over to Anesa.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us. Overall, we were pleased with our performance in the period as we delivered our second consecutive quarter of revenue growth, along with strong year-over-year profitability. We continue to manage the business proactively and have executed well. In the quarter, revenue increased 3.3% to $353.6 million. We grew the top line each month during the period and growth has continued into the early parts of the fourth quarter. Performance was once again driven by our largest strategic accounts, where good momentum and sales progress continues. This was partially offset by a reduction in our smallest and more transactional customers, which is in line with efforts to be more intentional and focused in how we go to market. In addition, I'd like to highlight the results of our Canadian operations. Canada generated a second consecutive quarter of strong top line expansion, which resulted in substantial operating leverage improvements in the local market. Investments made in recent years are delivering upon our expectations. We expanded our distribution capacity, improved supply chain and procurement processes and invested in our people and culture, all strategic steps that bring us closer to our customers and enable us to deliver the enhanced value they've been looking for. Gross margin was 35.6% for the third quarter, an increase of 160 basis points over the third quarter of 2024. Operating income improved over 18% to $26.3 million, and we had strong cash flow generation in the quarter. We continue to advance the transformation of our business model and the placement of the customer at the center of everything that we do. We are reframing our go-to-market strategy to take a more intentional approach to attracting customers, renewing our focus on identifying and targeting key accounts while aligning the organization to better meet and serve our customers' needs. We are working to expand the solutions and products we offer so that we are better positioned to deepen existing relationships and gain greater share of wallet over time. We are also enhancing our ability to serve customers more effectively and with increased efficiency through implementation of our new CRM and reworking our processes, procedures and technology to better serve our customers. We are leaning into these efforts and making steady progress against our strategy. My interactions with national vendor partners and customers at the Global Industrial Trade Show in September reinforced my belief that we are on the right track. The show provided me with the opportunity to meet with a broad cross-section of partners representing national brands as well as specialty products. I also met with customers in both structured meetings and breakouts and more importantly, through spontaneous discussions on the show floor. These interactions highlighted a clear opportunity to become a more meaningful channel partner for our vendors and to broaden the relationships and the support we provide customers. By better showcasing our capabilities and telling our story with greater clarity, we will be well positioned for even greater success with a tremendous runway ahead of us and a unique platform to scale organically. Now I will turn the call over to Tex.

Thank you, Anesa. Third quarter revenue was $353.6 million, up 3.3% over Q3 of last year. U.S. revenue was up 2.9% and Canada revenue improved 12.3% in local currency. Price was positive mid-single digits in the quarter. This was partially offset by a slight decline in total volume, which was a result of some intentional actions. While we saw order count growth in our largest and most strategic customers, we continue to see volume declines primarily in one-time lower order value transactions. We believe the volume decline headwinds in this transactional segment will begin to wane in the fourth quarter as we start to anniversary prior actions taken near the end of 2024. These new actions include efforts to be more focused in how we go to market and emphasize our highest value potential customers. The quarter also saw some decline in federal government spending due to the timing of awards and budget uncertainty. As of today, we have seen growth continue into October. Gross profit for the quarter was $126 million. Gross margin was 35.6%, up 160 basis points from the third quarter last year. We were very pleased with this margin performance, which reflects price capture and diminishing favorability of pre-tariff inventory that flows through the cost of sales on a FIFO basis. On a sequential basis, as expected, gross margin pulled back from the record level generated in the second quarter of this year. The tariff environment remains highly fluid and the cumulative impact of incremental tariffs remains potentially significant. Since our second quarter earnings report, additional tariffs were both announced and went into effect in early August including reciprocal tariffs and a doubling of duties on steel and aluminum. As a result, we took an additional pricing action in late August, which supported margins to the end of the quarter. We continue to actively monitor the situation and are focused on supplier diversification, price management and strategic cost negotiations. We maintain a healthy inventory position and continue to prioritize availability for our customers. Management of our margin profile remains a key area of focus. As we move through the current cycle, our goal is to manage to price/cost neutral. In addition to tariff uncertainty, I would note that historically, Q4 generates softer margins in part due to product mix and peak season freight surcharges. In the fourth quarter, we expect to see continued year-over-year margin expansion. On a sequential quarter basis, there may be some margin pullback in line with historical performance. Selling, general and administrative spending for the quarter was $99.7 million, an increase of 6% from last year and essentially flat on a sequential quarter basis. As a percentage of net sales, SG&A was 28.2%, up 70 basis points from last year. SG&A reflects strong general and discretionary cost control. This was offset by a year-over-year increase in variable compensation expenses related to performance within both selling commissions and our bonus pool accrual increasing compared to last year. Operating income from continuing operations was $26.3 million, an increase of 18.5% in the third quarter, and operating margin was 7.4%. Operating cash flow from continuing operations was $22.6 million. Total depreciation and amortization expense in the quarter was $2 million, including $0.8 million associated with the amortization of intangible assets, while capital expenditures were $0.7 million. We continue to expect 2025 capital expenditures of approximately $3 million, which primarily reflects maintenance-related investments and equipment within our distribution network. The company's tax rate in 2025 is 26.4% versus 23.7% in 2024. The increased rate in 2025 results from an increase in non-deductible executive compensation. Let me now turn to our balance sheet. We have a strong and liquid balance sheet with a current ratio of 2.2:1. As of September 30, we had $67.2 million in cash, no debt and over $120 million of excess availability under the credit facility. We continue to fund our quarterly dividend, and our Board of Directors declared a quarterly dividend of $0.26 per share of common stock. I will now turn it back to Anesa for some closing remarks.

Thank you, Tex. The team has done a great job executing our strategy throughout the company. We are effectively navigating the market disruption and uncertainty from the current tariff environment through a focus on what we can control. We are taking actions to better position Global Industrial to grow and believe we can open the aperture of the total addressable market that we pursue. We remain well positioned to continue investing in our growth initiatives and to also evaluate strategic M&A. I'm encouraged by the progress we're making throughout the company and look forward to finishing 2025 in a strong position that will set us up for a successful start to 2026. Thank you for your interest in Global Industrial. Operator, please open the call for questions.

Our first question comes from Ryan Merkel with William Blair.

I wanted to start off on price. Could you give us a sense for how much price impacted the quarter? And then I think you mentioned an August price increase. Can you give us a sense of what you think price will be in 4Q?

Ryan, yes, I'll go ahead and take that one. So pricing, as you know, costing environment is fluid. And while we are working to diversify our supply chain and making sure our first goal is inventory availability for our supply chain partners and our customers. Obviously, the cost increases due to the tariffs primarily is a real cost that we're incurring right now. So as you mentioned, in August, we did take some additional pricing actions as we saw that inventory mix change as our cost of goods was mixing into more tariff inventory. As we looked at that cost of goods flow, we saw more of that move in. So again, it was in that mid-single digits range, just over 5% of price in the period that we saw. That would include obviously anything that we took in that mid-August price increase. We would expect that to be pretty consistent or slightly higher in the fourth quarter, just given that timing of that second move. Now we know things are fluid. There are obviously threats in the marketplace of some additional tariffs, but there's also some potential green shoots or bright spots where maybe there's going to be some relaxing of tariffs, and we've seen some of that out there. So we're going to continue to monitor that, and we'll be ready for those actions, and that's what the team is focused upon.

Got it. You mentioned growth in large strategic accounts, while there was a slight decline among smaller customers. How much did large strategic customers grow? Do you anticipate continuing to accelerate that segment of the business in the upcoming quarters, considering the ongoing initiatives and focus?

Thank you for the question, Ryan. Our strategic accounts are experiencing continued momentum. We are actively engaging with them, increasing our share of wallet, and identifying their needs by adding more products and SKUs to better serve those needs. As we mentioned, we intentionally scaled back in certain areas, particularly with our more transactional customers, but we are now moving past that. As we look to reposition ourselves for 2026 and beyond, we are realigning our organization to better serve customers in specific industries and sectors. We are currently piloting this initiative, though it's still in the early stages, to ensure we are well-positioned for 2026. While we have work ahead of us, we are observing positive progress on all fronts.

Okay. Perfect. And then just to clean up, you mentioned October, there's continued growth. Should I take that to mean it's at that 3% level? Or you mentioned the government is a little weaker as perhaps the government slowed down the business a little bit in October?

We've seen state and local actually be positive. We've also seen some bounce back recovery on the federal side just based on timing of when some things flow through and actually were booked and billed, if you will. So we're seeing some good momentum, and we're in the process of close to closing the books for the month of October, but we've seen higher growth rates than what we're reporting today. I don't know, Tex, if you'd like to add anything or not.

No, I think you covered it perfectly.

And the next question comes from Anthony Lebiedzinski with Sidoti & Company.

So we understand that you are being more intentional with your go-to-market strategy and are encountering fewer transactional customers. However, I would like to know if we were to exclude those transactional customers, what insights you have regarding the health of your core SMB customers. Could you provide some information on that customer group's performance?

Yes, do you want to jump in? Go ahead and take the lead. Go ahead.

Thank you, Anesa. Reflecting on our situation a year ago during the CEO transition, Richard Leeds emphasized that we had engaged in some promotional activities that did generate value, orders, and revenue. However, when we assessed the lifetime value of those customers, they did not align with our long-term goals and the customers we aim to serve best. This insight led to significant changes. Currently, when we evaluate our broader customer portfolio and recurring revenue, particularly within our core business segments—small and medium enterprises, the public sector, and larger enterprises—we find that the retention rates are robust. We remain optimistic about the health of our core customer base, although we have noticed a slowdown among more transactional customers. The adjustments we implemented, especially in the early part of the fourth quarter last year, should alleviate some of the challenges we faced on a year-over-year basis, which is expected to positively impact our performance in the fourth quarter.

Got you. Okay. That definitely helps. And then just in terms of your comments about expanding solutions and products, how do we think about your TAM opportunity? I don't know if there's a specific number. I don't know if you're ready to share that. But as we think about next year and beyond that, I mean, how do we think about just the opportunity for Global Industrial to participate from a higher product offering that you guys are planning to have?

Yes, Anthony, that's a great question. I don't have a specific number to share with you today. I've asked the team to evaluate our go-to-market strategy and the industries we intend to serve, which will help us understand the potential in each of those verticals. We will then communicate our assessment of the overall opportunity. As you know, in the industrial sector, particularly in industrial distribution, there are double-digit total addressable markets across various dimensions. We will be very strategic and will invest in certain industries while focusing on others. While I don't have a figure right now, I hope to have more information to share once we conclude the full year and prepare for what lies ahead in 2026.

Understood. Okay. And then my last question, just thinking about your SG&A expenses, is the growth mostly incentive comp accrual. And so as I look at the first quarter, you guys were essentially flat in terms of your expense growth from the prior year. Second quarter, you were up 3.5% and then up 6% in the third quarter. So maybe just help us better understand your expense growth and how do we think about that going forward?

Yes, Anthony, I'll address that. Last year, during our third quarter report, we experienced a revenue decline and some weakness in our bottom line. This situation had a direct impact on how variable compensation was earned, both for individual contributors in sales and for management and executives in terms of variable and non-equity incentive compensation. Last year, we were in a phase where that compensation was decreasing or reversing in the third quarter. This year, however, we are on track with our plan and focusing on how we are achieving that. There is a significant year-over-year difference because we are growing our profit this year, whereas last year we faced setbacks. The timing of that impact is the primary reason for the year-over-year change in our SG&A expenses.

This concludes our question-and-answer session and also concludes our call today. Thank you for joining, and have a nice evening. You may now disconnect.