Financial Performance - Total revenue for Q2 2023 was $325.8 million, an increase of 2.3% year-over-year, while organic revenue was $301.9 million, down 5.2% [18][8] - Gross profit for the quarter was $112.9 million, flat compared to last year, with a gross margin of 34.7%, down 80 basis points year-over-year [19][20] - Operating income from continuing operations was $29.1 million, with an operating margin of 8.9% [23] Business Line Performance - Organic U.S. revenue declined by 5.2%, while organic revenue in Canada was approximately flat in local currency, showing significant improvement from Q1 [18] - E-commerce sales grew to over 60% of total sales transactions, driven by enhancements in the online shopping experience [10][8] - Direct sales channel remained soft year-over-year due to cautious purchasing behavior and lower average order value [11] Market Performance - Price deflation was noted in the range of low to mid-single digits, contrasting with neutral pricing in Q1 and a benefit in the previous year [18] - The manufacturing segment faced challenges, with cautious behavior observed among small and medium-sized businesses [35] Company Strategy and Industry Competition - The acquisition of Indoff in late May 2023 is expected to diversify operations and broaden customer reach, enhancing the company's value proposition [6][7] - The company is focused on strengthening its competitive position through investments in sales and marketing, particularly targeting customer acquisition [11][15] - Management is actively working on cross-selling and private brand opportunities to enhance the margin profile of the Indoff business [23][42] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in navigating current market conditions, citing strong cash flows and a solid balance sheet [15][25] - There is an expectation of continued variability in gross margins throughout 2023 due to seasonality and inventory management [21] - Customer sentiment is anticipated to improve, which may positively impact performance in the latter half of the year [15] Other Important Information - The company declared a quarterly dividend of $0.20 per share of common stock [26] - Strong cash flow from continuing operations was reported at $37 million for the quarter [24] Q&A Session Summary Question: Can you quantify the price deflation impact on the organic sales decline? - Management indicated that low single digits contributed to the organic sales decline, with competitive pricing and lower container costs being significant factors [33][34] Question: How is the enterprise customer segment performing? - Management noted that while the manufacturing segment is challenged, they are continuing to invest in sales and marketing to drive growth in larger customer segments [35] Question: What improvements have been seen in customer trends? - Management highlighted improvements in e-commerce performance and noted that some customers are beginning to transact after cautious behavior earlier in the year [36] Question: Is price deflation across all merchandise categories? - Management confirmed that price deflation is observed across many core product categories, driven by competitive pricing and cost reductions [39][41] Question: What synergy opportunities exist with the Indoff acquisition? - Management expressed satisfaction with the integration process and highlighted opportunities for private label expansion and cross-selling to enhance margins [42] Question: How much visibility is there into Indoff's project-based business? - Management acknowledged that the project-based nature of Indoff's business can lead to variability, but they are gaining better visibility as integration progresses [44][45]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Global Industrial Company (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Delaware 11-3262067 (I.R.S. Employer Identification No.) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ...

Global Industrial Company (NYSE:GIC) Q1 2023 Earnings Conference Call May 2, 2023 5:00 PM ET Company Participants Barry Litwin - Chief Executive Officer Tex Clark - Senior Vice President, Chief Financial Officer Mike Smargiassi - Investor Relations Conference Call Participants Anthony Lebiedzinski - Sidoti Operator Good day! And welcome to Global Industrial Company First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note, this event is ...

Financial Performance - Consolidated net sales decreased by 5.1% to $273.8 million compared to $288.6 million in the previous year[58] - Consolidated gross margin declined to 35.9% for Q1 2023, down from 37.4% in Q1 2022[58] - Consolidated operating income from continuing operations decreased by 39.7% to $17.8 million compared to $29.5 million last year[58] - Net income per diluted share from continuing operations decreased by 38.6% to $0.35 compared to $0.57 last year[58] - Average daily sales declined by 3.7% in the first quarter, reflecting a soft demand environment[51] - Sales in the United States were down 3.7%, while sales in Canada decreased by 17.3% in local currency[51] - Net sales decreased by 5.1% in Q1 2023 compared to Q1 2022, with U.S. sales down 3.7% and Canada sales down 17.3% in local currency[62] - Gross margin declined by 150 basis points in Q1 2023 compared to Q1 2022, influenced by lower price realization and inventory costs[65] - Operating margin declined by 370 basis points in Q1 2023 compared to Q1 2022, driven by decreased sales and lower gross margin[67] Expenses and Costs - Consolidated selling, distribution, and administrative costs increased by 2.9% to $80.6 million[59] - Selling, distribution, and administrative expenses (SD&A) as a percentage of sales increased by 230 basis points in Q1 2023 compared to Q1 2022, reflecting increased marketing efforts and salary costs[66] Cash Flow and Liquidity - Net cash provided by operating activities from continuing operations was $28.5 million in Q1 2023, a significant increase from a cash outflow of $14.0 million in Q1 2022[71] - Cash and cash equivalents increased to $48.2 million as of March 31, 2023, up from $28.5 million at the end of 2022[70] - The company had over $160 million of liquidity (cash and undrawn line of credit) in the U.S. as of March 31, 2023[82] - The company maintains a $125.0 million secured revolving credit facility, with total availability of $118.0 million as of March 31, 2023[76] - Accounts receivable days outstanding were 38.3 in 2023 compared to 37.8 in 2022, indicating a slight increase in collection time[72] Management and Internal Controls - The Company's management, including the CEO and CFO, concluded that the disclosure controls and procedures are effective as of March 31, 2023[88] - The internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting in accordance with generally accepted accounting principles[89] - There have been no changes in the Company's internal controls over financial reporting during the quarterly period ended March 31, 2023, that materially affected the internal control[91] Future Outlook - The company expects continued margin variability due to the current economic environment and inflationary pressures[51] - The company anticipates capital expenditures in the range of $6.0 to $8.0 million for 2023, focusing on technological upgrades and distribution facilities[80] Customer Metrics - Customer retention remained healthy, reflecting the value of the company's managed sales organization[51]

Part I [Business](index=7&type=section&id=Item%201.%20Business) Global Industrial is a North American value-added distributor of over one million MRO products, leveraging e-commerce and relationship marketing - The company is a value-added industrial distributor of over a million industrial and MRO products in North America, marketing through e-commerce and relationship marketers[18](index=18&type=chunk) - The company's core strategy is "Accelerating our Customers Experience" (ACE), which aims to build customer loyalty through personalized sales, product, and service experiences[20](index=20&type=chunk) [Products](index=7&type=section&id=Item%201.%20Business%20-%20Products) The company offers over one million industrial and MRO products, including leading brand names and its strategic, higher-margin private brand line - Offers over **one million brand name and private brand products**, with access to over **1.7 million products** in its database[21](index=21&type=chunk) - Markets its own private brand products under trademarks including Global™, GlobalIndustrial.com™, Nexel™, Paramount™, and Interion™[19](index=19&type=chunk) [Sales and Marketing](index=8&type=section&id=Item%201.%20Business%20-%20Sales%20and%20Marketing) The company employs a multi-faceted direct marketing system, including e-commerce and a relationship marketing sales force, targeting diverse customer segments - Operates multiple e-commerce sites, including www.globalindustrial.com and www.globalindustrial.ca, launching a new site in 2022 to enhance personalization[24](index=24&type=chunk) - In 2022, the company initiated its "We Can Supply That®" branding campaign and repositioned its private brand as "Global Industrial Exclusive Brands™"[28](index=28&type=chunk) - The relationship marketing sales force includes specialized account managers for public sector, commercial, and strategic enterprise accounts, supported by various sales experts[23](index=23&type=chunk) [Customer Service, Order Fulfillment and Support](index=9&type=section&id=Item%201.%20Business%20-%20Customer%20Service%2C%20Order%20Fulfillment%20and%20Support) Order fulfillment combines distribution centers and drop-shipping, with over 57% of 2022 transactions electronic, supported by enhanced customer service - Electronic orders (internet, EDI, etc.) represented over **57% of the transaction count** for the year ended December 31, 2022, up from 56% in 2021[31](index=31&type=chunk) - The company utilizes a network of **five large distribution centers in the U.S. and two distribution facilities in Canada** for in-stock items[32](index=32&type=chunk) [Competition and Other Market Factors](index=9&type=section&id=Item%201.%20Business%20-%20Competition%20and%20Other%20Market%20Factors) The highly fragmented North American industrial products market presents intense competition from large MRO distributors, retailers, and direct manufacturers - The company faces competition from large diversified MRO distributors such as Uline Inc, Grainger Inc., MSC Industrial Direct Inc., Fastenal Inc., and other large retailers, including Amazon[35](index=35&type=chunk)[36](index=36&type=chunk) [Human Capital Resources](index=11&type=section&id=Item%201.%20Business%20-%20Human%20Capital%20Resources) As of December 2022, Global Industrial employed approximately 1,650 associates, primarily in North America, with a diverse workforce across key functions Employee Distribution by Function (as of Dec 31, 2022) | Function | Percentage of Associates | | :--- | :--- | | Customer Facing (Sales, Service, etc.) | ~39% | | Distribution, Logistics, Fulfillment | ~37% | | Administrative (IT, HR, Finance, etc.) | ~24% | - As of December 31, 2022, the company employed approximately **1,650 associates**, with **1,420 in North America** and 230 in Asia[37](index=37&type=chunk) - In the U.S., the workforce is **44% female and 56% male**, with minorities making up **55% of the workforce**[38](index=38&type=chunk) [Seasonality](index=11&type=section&id=Item%201.%20Business%20-%20Seasonality) Sales exhibit seasonality, with higher results in Q2 and Q3 driven by seasonal product lines and education/government customer buying cycles - Sales and operating margin tend to be moderately higher in the second and third quarters compared to the first and fourth quarters due to seasonal product lines (e.g., HVAC, snow removal) and customer buying cycles (e.g., education, government)[41](index=41&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including economic downturns, supply chain disruptions, tariffs, IT failures, and concentrated voting power impacting financial performance - Economic conditions, pandemics (like COVID-19), and geopolitical instability (like the Russia-Ukraine conflict) can disrupt global supply chains, particularly for products sourced from China, potentially leading to delayed or lost sales[46](index=46&type=chunk)[47](index=47&type=chunk)[52](index=52&type=chunk) - The imposition of tariffs on goods from China has increased procurement costs, which the company has sought to mitigate by raising prices and finding alternative suppliers, actions that carry their own risks[51](index=51&type=chunk)[55](index=55&type=chunk)[57](index=57&type=chunk) - The business is heavily reliant on its information systems, where a data security breach, system failure, or disruption could compromise sensitive information, disrupt operations, and lead to liability and reputational damage[72](index=72&type=chunk)[73](index=73&type=chunk)[78](index=78&type=chunk) - The Leeds family controls approximately **66.4% of the voting power**, allowing them to determine the outcome of most stockholder matters and classifying the company as a "controlled company" under NYSE rules[82](index=82&type=chunk) [Unresolved Staff Comments](index=21&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - None[89](index=89&type=chunk) [Properties](index=21&type=section&id=Item%202.%20Properties) Global Industrial operates numerous leased facilities, including seven North American distribution centers totaling 2.7 million square feet, for its operations - All of the company's facilities, including headquarters, administrative offices, call centers, and distribution centers, are leased[90](index=90&type=chunk) - As of December 31, 2022, the company operates **seven distribution centers in North America**, aggregating approximately **2.7 million square feet**[91](index=91&type=chunk) [Legal Proceedings](index=21&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceedings information is detailed in Note 15, "Commitments, Contingencies and Other Matters," within the Consolidated Financial Statements - A description of the Company's legal proceedings is available in Note 15 of the Notes to Consolidated Financial Statements[95](index=95&type=chunk) [Mine Safety Disclosures](index=21&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[96](index=96&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Global Industrial's common stock trades on NYSE under "GIC"; the company increased its quarterly dividend to $0.20 in 2023 and has 1.375 million shares available for repurchase 2022 Quarterly Stock Price and Dividends | Quarter | High Price | Low Price | Dividends per Share | | :--- | :--- | :--- | :--- | | First | $40.56 | $29.25 | $0.18 | | Second | $36.28 | $30.46 | $0.18 | | Third | $36.29 | $26.38 | $0.18 | | Fourth | $31.74 | $22.54 | $0.18 | - In February 2023, the Board of Directors declared a quarterly cash dividend of **$0.20 per share**, an increase from the $0.18 paid in 2022[100](index=100&type=chunk) - No shares were repurchased during 2022 and 2021, leaving approximately **1,375,000 shares** available under the existing share repurchase program[104](index=104&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal 2022, Global Industrial achieved 9.7% sales growth to $1.17 billion and 19.5% operating income growth to $105.2 million, with gross margin improving to 36.1% Financial Highlights 2022 vs. 2021 (in millions) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Consolidated Net Sales | $1,166.1 M | $1,063.1 M | 9.7% | | Consolidated Gross Profit | $421.2 M | $374.3 M | 12.5% | | Gross Margin | 36.1% | 35.2% | +0.9 ppt | | Consolidated Operating Income | $105.2 M | $88.0 M | 19.5% | | Operating Margin | 9.0% | 8.3% | +0.7 ppt | | Net Income from Continuing Ops | $78.1 M | $70.1 M | 11.4% | - The company's private brand offering represented approximately **50% of total sales** in 2022[122](index=122&type=chunk) - While sales grew by double digits in the first half of 2022, growth moderated in the second half due to a softened demand environment, a trend that continued into early 2023[123](index=123&type=chunk) [Results of Operations](index=25&type=section&id=Item%207.%20MD%26A%20-%20Results%20of%20Operations) Fiscal 2022 net sales rose 9.7% to $1.17 billion, driven by managed sales and private brands, resulting in a 90 basis point gross margin expansion - Net sales increased **9.7% to $1.17 billion** in 2022, with U.S. sales growing **10.1%** and Canada sales increasing **7.7% in local currency**[122](index=122&type=chunk) - Gross margin improved to **36.1% from 35.2%** in 2021, mainly due to the normalization of freight costs and a higher mix of private brand sales[125](index=125&type=chunk) - SD&A expenses rose to **$316.0 million**, a **10.4% increase**, driven by higher salary and compensation costs (**$13.6 million**), increased marketing investment (**$7.2 million**), and costs for the new Canadian distribution center (**$2.2 million**)[127](index=127&type=chunk)[128](index=128&type=chunk) - Net income from discontinued operations was **$0.7 million** in 2022, a significant decrease from **$33.2 million** in 2021, which included large one-time benefits from the resolution of certain liabilities[129](index=129&type=chunk)[130](index=130&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=27&type=section&id=Item%207.%20MD%26A%20-%20Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company's financial condition remains solid, with working capital increasing to $172.6 million and liquidity enhanced by a $125 million credit facility Cash Flow Summary (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $50.2 | $49.8 | | Net cash used in investing activities | $(7.1) | $(3.4) | | Net cash used in financing activities | $(29.7) | $(55.0) | - In November 2022, the company amended its credit agreement, increasing its secured revolving credit facility to **$125.0 million from $75.0 million**[143](index=143&type=chunk)[275](index=275&type=chunk) - As of December 31, 2022, the company had total excess availability of **$111.7 million** under its credit facility[143](index=143&type=chunk)[275](index=275&type=chunk) - Anticipated capital expenditures for 2023 are projected to be between **$6.0 million and $8.0 million**[146](index=146&type=chunk) [Critical Accounting Policies and Estimates](index=30&type=section&id=Item%207.%20MD%26A%20-%20Critical%20Accounting%20Policies%20and%20Estimates) Management identifies Revenue Recognition and Inventory Valuation as critical accounting policies due to significant judgments and estimates involved - Revenue is recognized when performance obligations are satisfied, generally upon shipment of goods, and is presented net of estimated sales returns and allowances[155](index=155&type=chunk)[156](index=156&type=chunk) - Inventories are valued at the lower of cost (determined by FIFO method) or net realizable value, with write-downs for excess and obsolete merchandise based on historical experience and assumptions about future demand[160](index=160&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks include foreign currency exchange rate fluctuations, mainly from Canadian operations, and interest rate changes on variable-rate debt - The company is exposed to currency exchange rate risk, principally with the Canadian Dollar, where a **10% change in foreign exchange rates in 2022** would have fluctuated sales by approximately **$7.2 million**[164](index=164&type=chunk) - Interest rate risk is primarily related to variable-rate debt, but with only **$0.6 million outstanding** as of December 31, 2022, a hypothetical **1% change in interest rates** is not expected to have a material effect[165](index=165&type=chunk) [Financial Statements and Supplementary Data](index=31&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates the company's audited consolidated financial statements for fiscal year 2022 and the independent auditor's report - The information required by this item is incorporated by reference to the Consolidated Financial Statements filed with the report, as detailed in Item 15[167](index=167&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with an unqualified auditor opinion - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2022[169](index=169&type=chunk) - Management concluded that the Company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[172](index=172&type=chunk) - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2022[173](index=173&type=chunk)[176](index=176&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters](index=34&type=section&id=Items%2010-14) Information for Items 10 through 14, covering governance, compensation, security ownership, and related party transactions, is incorporated by reference from the 2023 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Company's Proxy Statement for the 2023 Annual Meeting of Stockholders[184](index=184&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=34&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section presents the company's consolidated financial statements, the independent auditor's report, and a comprehensive list of all exhibits filed with the Form 10-K [Consolidated Financial Statements](index=39&type=section&id=Consolidated%20Financial%20Statements) The audited financial statements present the company's financial position, results of operations, and cash flows for the fiscal years ended December 31, 2022 and 2021 Consolidated Balance Sheet Data (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Total Current Assets | $325.7 | $301.4 | | Total Assets | $455.2 | $405.0 | | **Liabilities & Equity** | | | | Total Current Liabilities | $153.1 | $179.9 | | Total Liabilities | $244.8 | $251.4 | | Total Shareholders' Equity | $210.4 | $153.6 | Consolidated Statement of Operations Data (in millions) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net Sales | $1,166.1 | $1,063.1 | | Gross Profit | $421.2 | $374.3 | | Operating Income from Continuing Ops | $105.2 | $88.0 | | Net Income from Continuing Ops | $78.1 | $70.1 | | Net Income | $78.8 | $103.3 | Consolidated Cash Flow Data (in millions) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $50.2 | $49.8 | | Net cash used in investing activities | $(7.1) | $(3.4) | | Net cash used in financing activities | $(29.7) | $(55.0) | | Net increase (decrease) in cash | $13.1 | $(8.6) |

Financial Data and Key Metrics Changes - In 2022, the company achieved total revenue of $1.17 billion, reflecting a 9.7% growth driven by organic growth contributing over $100 million [23][35] - Gross margin improved by 90 basis points to 36.1% for the full year, although Q4 gross margin was 36%, down 100 basis points year-over-year [23][58] - Operating income increased by 19.5% to over $105 million, with an operating margin of 9%, a 70 basis point improvement from 2021 [35] Business Line Data and Key Metrics Changes - The private brand offering represented approximately 50% of total sales for the year, indicating a focus on exclusive brands [41] - The heating and winter seasonal category was soft due to a mild winter, impacting demand [30][63] - Average daily sales in Q4 were down 2.2%, with revenue in Canada improving approximately 2.5% in local currency [29][57] Market Data and Key Metrics Changes - U.S. revenue decreased by 0.2% in Q4, while Canadian revenue showed a slight improvement [57] - Demand trends have been muted across categories and sales channels, continuing into 2023 [24][19] - The company noted that customers are being more guarded in their buying decisions due to a competitive pricing environment [58][19] Company Strategy and Development Direction - The company is focused on capturing market share through customer acquisition, retention, and expanding exclusive branded items [25] - A new marketing campaign aimed at operational efficiency has been launched, aligning with customer needs [37] - The company plans to invest in strategic areas such as pricing intelligence, productivity, and margin optimization [55] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the MRO market for 2023, anticipating better performance in the latter half of the year [12][13] - The company is confident in its ability to manage through current challenges and maintain its margin profile [42] - There is an expectation of variability in margins throughout the year as the company works through inventory with higher landed costs [42] Other Important Information - The company announced a quarterly dividend increase of 11.1% to $0.20 per share, marking the seventh consecutive year of dividend increases [44] - A reduction in force was implemented to right-size the cost structure, expected to reduce annualized costs by approximately $6 million [31] Q&A Session Summary Question: Can you provide details on Q4 sales by products or end market? - Management noted that price benefits waned in Q4, with small and medium-sized businesses appearing more cautious compared to large national accounts [50] Question: What is the outlook for the MRO market in 2023? - Management indicated a cautious tone but remains hopeful for better performance in the second half of the year, driven by sales initiatives and investments [12][13] Question: How should we think about inventory management? - The company does not have specific inventory targets but aims to normalize inventory levels as supply chain costs decrease [7]

Financial Data and Key Metrics Changes - Third quarter revenue reached nearly $300 million, growing 7.6% over the same quarter last year [6][17] - Gross margin increased modestly on a sequential basis to 35.7%, but was down from a record performance last year [6][18] - Gross profit for the quarter was $106.6 million, up 4.5% from last year [18] - Selling, distribution, and administrative spending was $79.1 million, or 26.5% of net sales, an increase of 80 basis points from last year [22] - Operating income from continuing operations was $27.5 million, with an operating margin of 9.2% [23] - The company maintained a strong balance sheet with a current ratio of 1.9:1, $20 million in cash, and $10 million of debt [25] Business Line Data and Key Metrics Changes - U.S. revenue increased over 8%, while revenue in Canada improved approximately 4% in local currency [17] - The private brand offering increased as a percentage of total sales, contributing to margin maintenance despite price pressures [17][45] Market Data and Key Metrics Changes - The demand environment softened as customers adopted a more guarded approach to buying decisions [18][42] - The company noted that while ocean freight costs have moderated, they remain elevated compared to historical levels [20] Company Strategy and Development Direction - The company is investing in growth and productivity initiatives, including sales, marketing, digital transformation, and pricing analytics [8][14] - Expansion of customer relationships in hospitality and healthcare markets is a key growth initiative [9] - The launch of a new digital e-commerce site aims to enhance customer experience and drive sales [13][46] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the current outlook but emphasized ongoing investments to adapt to changing market conditions [8][14] - There is a focus on operational excellence and maintaining a customer-centric approach [15] - Management believes that long-term margin gains are achievable through a higher balance of private brand sales and optimized operations [21] Other Important Information - The company declared a quarterly dividend of $0.18 per share and anticipates continuing regular dividends in the future [26] - Capital expenditures for 2022 are expected to be in the range of $6 million to $7 million, including the new Canada distribution center [24] Q&A Session Summary Question: Can you provide additional color on the monthly cadence and product category performance? - Management noted a softening demand environment through Q3, with strong growth in core lines and private brand assortment [30][31] Question: What drove the year-over-year gross margin decline? - The decline was attributed to differential FIFO inventory levels last year and the impact of promotional pricing on excess stock [32][34] Question: Which initiatives will be most impactful in adapting to the current market? - Key initiatives include pricing analytics and maintaining close customer relationships through the sales team [35][36] Question: What are the findings from customer survey data? - There is a global caution around market conditions, but improvements in supply chain satisfaction have been noted [39] Question: Was there a significant drop in demand in August and September? - Management confirmed a guarded approach from customers, with a focus on spending through the year [42] Question: Can you quantify the growth rates between private label sales and other products? - Private brand sales are the fastest-growing segment, contributing significantly to margin maintenance [44][45] Question: What are the expectations for the new e-commerce site? - The site has received positive feedback, and enhancements are ongoing to improve user experience [46][47] Question: Have discussions with potential acquisition targets intensified? - Management continues to scan the market for acquisition opportunities but did not comment on specific valuations [49]

Financial Performance - Consolidated sales increased 7.6% to $298.5 million for Q3 2022 compared to $277.4 million last year[59] - Consolidated gross margin declined to 35.7% for Q3 2022 compared to 36.8% last year[68] - Consolidated operating income from continuing operations decreased 10.1% to $27.5 million for Q3 2022 compared to $30.6 million last year[68] - Net income per diluted share from continuing operations decreased 13.1% to $0.53 for Q3 2022 compared to $0.61 last year[68] - Consolidated sales increased 13.0% to $905.6 million for the nine months ended September 30, 2022 compared to $801.1 million last year[68] - Consolidated gross margin increased to 36.2% for the nine months ended September 30, 2022 compared to 34.6% last year[68] - Consolidated operating income from continuing operations increased 41.4% to $87.5 million for the nine months ended September 30, 2022 compared to $61.9 million last year[68] - Net income per diluted share from continuing operations increased 29.0% to $1.69 for the nine months ended September 30, 2022 compared to $1.31 last year[68] Market Conditions - The demand environment softened as customers adopted a more guarded approach to buying decisions due to broader market uncertainty[59] Investments and Costs - Investments in the expansion of the Canada distribution network included approximately $0.8 million in ramp-up costs incurred in Q3 2022[59] - Selling, distribution, and administrative (SD&A) costs increased by 10.8% to $79.1 million for the third quarter, reflecting investments in the Canadian distribution network and e-commerce enhancements[78] Cash Flow and Liquidity - Cash and cash equivalents increased by $4.6 million to $20.0 million as of September 30, 2022, compared to $15.4 million at the end of 2021[86] - Working capital increased by $44.7 million to $166.2 million, primarily due to increased inventory and accounts receivable[88] - Net cash provided by operating activities from continuing operations was $23.5 million in 2022, down from $39.3 million in 2021, primarily due to a $48.6 million cash usage in working capital accounts compared to $14.7 million in 2021[90] - Cash generated from net income adjusted by other non-cash items was $72.1 million in 2022, an increase from $54.0 million in 2021, attributed to higher net income for the nine months ended September 30, 2022[90] - Net cash used in investing activities totaled $4.9 million in 2022, up from $3.4 million in 2021, mainly for warehouse machinery and equipment related to the new Canadian distribution center[91] - Net cash used in financing activities was $13.6 million in 2022, primarily due to a quarterly dividend of $0.18 per share totaling approximately $20.8 million, partially offset by $5.5 million from short-term borrowings[92] - The company maintains a $75.0 million secured revolving credit facility, with total outstanding borrowings of $10.0 million and total excess availability of $60.8 million as of September 30, 2022[93] - The company had approximately $76 million of liquidity (cash and undrawn line of credit) in the U.S. as of September 30, 2022[98] Obligations and Expenditures - Obligations under non-cancelable operating leases totaled approximately $101.5 million as of September 30, 2022, with remaining cash expenditures anticipated at $4.1 million for 2022[99] - The company had $1.5 million of standby letters of credit outstanding as of September 30, 2022[100] - Anticipated capital expenditures for 2022 are in the range of $6.0 to $7.0 million, with no contractual commitments at this time[96] Interest and Tax - Interest and other expense, net from continuing operations rose to $0.6 million for the third quarter of 2022, compared to $0.2 million in the same period of 2021[82] - The effective income tax rate increased to 24.5% for the third quarter of 2022, compared to 23.7% in the same period of 2021[74] - The company does not expect a material effect on financial position from a hypothetical one percentage point change in average interest rates, given $10.0 million outstanding under variable rate credit facilities[103]

2Q 2022 GLORAL 2000 | 2200 NAMERICA 0 0 TM SLC t FRIA 1 Cautionary Statement Regarding Forward-Looking Statements | This presentation contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission ...

Financial Data and Key Metrics Changes - Revenue reached a quarterly record of over $318 million, growing nearly 17% year-over-year [7][18] - Operating income increased by 23% to over $30 million, with an operating margin improvement of 50 basis points to 9.6% [8][23] - Gross profit was $113 million, up 15.3% from the previous year, with a gross margin of 35.5%, down 50 basis points from the prior year [19] Business Line Data and Key Metrics Changes - U.S. revenue increased by 18.2%, while Canadian revenue improved by 2.4% in local currency [18] - The company is expanding into larger government and private sector accounts, as well as the healthcare vertical, which launched in May [10][31] Market Data and Key Metrics Changes - Open orders reduced moderately and remained flat from the beginning of the year, with expectations to fill back orders in the second half of the year [18] - The company continues to see strong demand across various end markets, with no significant slowdowns reported [34][35] Company Strategy and Development Direction - The company is focused on driving operational excellence, digital transformation, and investments in private brand and logistics [14] - The ACE strategy is central to the company's growth, helping to drive above-market growth and improve customer relationships [9][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledges uncertainty in the economy but remains optimistic about growth opportunities and the company's ability to adapt [15][34] - The company is actively monitoring customer sentiment and is prepared to react to any signs of economic slowdown [36] Other Important Information - The company maintains a strong balance sheet with a current ratio of 1.7:1, over $23 million in cash, and $30 million in debt [24] - A quarterly dividend of $0.18 per share was declared, with expectations to continue regular dividends in the future [25] Q&A Session Summary Question: Pricing versus volume performance in the quarter - Management noted that both pricing and volume moved positively during the period, with improved item availability expected to continue driving volume growth [28][29] Question: Sustainability of growth in the MRO market - Management attributed growth to strong customer demand, particularly from small and midsized customers, larger enterprise accounts, and the new healthcare channel [30][31] Question: Observations on potential slowdowns in end markets - Management reported no significant slowdowns in any particular end market and remains optimistic about the outlook for the next couple of quarters [34][35] Question: Inflation and supplier price increases - Management indicated that while raw material prices are still increasing, there are signs of moderation in freight costs, which may provide pricing flexibility in the future [38][39] Question: Impact of container rates on pricing - Management confirmed that as container rates decrease, there is potential for more flexible pricing strategies, with a focus on competitive pricing [40][41] Question: Gross margin outlook for the second half - Management expressed confidence in achieving strong margin results for the year, driven by improved inventory management and a shift towards private brand products [43][48]