Global Industrial Company (NYSE:GIC) Q4 2023 Earnings Call Transcript
Global Industrial Company (NYSE:GIC) Q4 2023 Earnings Call Transcript February 29, 2024
Global Industrial Company reports earnings inline with expectations. Reported EPS is $0.4 EPS, expectations were $0.4. GIC isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen, and welcome to the Global Industrial's Fourth Quarter 2023 Earnings Call. At this time, I would like to turn the call over to Mike Smargiassi of The Plunkett Group. Please go ahead.
Mike Smargiassi: Thank you, and welcome to the Global Industrial fourth quarter 2023 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 Indoff 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 in the 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 Litwin.
Barry Litwin: Thanks, Mike. Good afternoon, everyone, and thank you for joining us. In 2023, we continue to execute against our ACE strategy. Revenue reached a record $1.27 billion as we benefited from the acquisition of Indoff, while organic revenue performance reflects the soft start to the year. We entered 2023 with an uncertain economic outlook, cautious customer purchasing behavior and deflationary pricing. As we move through the year, the demand environment improved. Pricing pressures eased and we delivered solid second half results, growing organic revenue 4%. In fact, Q4 produced our best topline growth of the year. Total revenue was $320 million, an increase of 22.9% year-over-year. On an organic basis, we posted our second consecutive quarter of growth as revenue improved 5.1%.
These gains reflect continued volume improvement and strength in our e-commerce channel. Gross margin was 33.8%, a 100 basis point uptick on a sequential quarter basis. We ended the year with a modest increase in our cash position, even after fully funding the $72 million Indoff acquisition. Given the strong cash flow generation of the business, today, we announced a 25% increase in the quarterly recurring dividend to $0.25 a share, the eighth consecutive annual increase. Looking back at 2023, I'm really proud of how our entire team executed against the key pillars of our customer-centric strategy from distribution, web, marketing and sales to merchandising and customer service. Across the company, we advanced operational excellence and strengthened our long-term competitive position.
We expanded our go-to-market channels with the addition of Indoff, made enhancements to the user experience and our e-commerce platform which helped drive web performance and grew the enterprise offering while making investments in sales resources to support both new and existing customers. We remain committed to making the investments that will drive our future performance. As we look to build upon the progress of last year, we have a number of customer-focused initiatives to ensure we further enhance the buying experience and take care of our customers at every part of their journey. First, we'll continue to elevate Global Industrial's ability to solve problems for customers and bring a more comprehensive solutions-based approach to our offering.
Internally, we look to be solutioneers for our customers, delivering product content, support and knowledge to help them make informed decisions and succeed. We are enhancing product training for our subject matter experts and leveraging Indoff's project management and installation capabilities to expand the service offering. And to our voice and customer feedback process, we will drive alignment of these efforts with the needs and solutions customers are looking for. Second, we'll prioritize a renewed focus on the quality and value we provide from the extra chip in the cookie we deliver through Global Industrial's exclusive brands to a new quality team to evaluate, improve and monitor our processes. We will emphasize quality of the buying experience every step of the way from product sourcing to delivery to the customer.
We will also fine-tune our product assortment to ensure we have the right selection of core products and complementary consumables for our customers. With these initiatives, we are improving the quality of our offering and highlighting the value we bring to market. Third, it is our aim to make it even easier to do business with Global Industrial. You have heard us talk about providing an exceptional end-to-end shopping experience that delivers a frictionless transaction. We have several ongoing efforts to improve category merchandising and drive shopability and a new customer service agent training program, all designed to deliver a 5-star experience. Finally, we are making further investments in sales, marketing and profit performance areas to improve the tools and the team we have to grow, retain and deepen customer relationships.
This includes technology investment to drive efficiencies in sales, optimize digital marketing and enhanced pricing intelligence and analytics. As we enter 2024, I believe we have the right plan in place to build upon the progress of last year. Initiatives across the business are designed to elevate and highlight Global Industrial's position as an indispensable business partner and the value we bring every day to our customers. Investment in key performance areas are designed to strengthen our competitive position, drive operational efficiencies and help us capture share. The market environment remains one of caution and we have seen modest organic growth to start the year. With strong cash flow from operations and an exceptional balance sheet, we remain well positioned to execute on our strategy, invest in our growth drivers, evaluate strategic opportunities and build long-term value for our stakeholders.
I'll now turn the call over to Tex.
Tex Clark: Thank you, Barry. Fourth quarter revenue was $320.1 million, up 22.9% over Q4 of last year. Organic revenue was $273.9 million, up 5.1% year-over-year, our largest growth rate of the year. Growth was consistent throughout the quarter with volume up and price headwinds in the low single digits. Organic U.S. revenue was up 5% and organic revenue in Canada was up 7% in local currency. E-commerce and broader digital sales were once again our leading channel and ended the year representing more than 60% of total annual order volume. Private brand demand remains robust and represented approximately 50% of total sales in 2023. Gross profit for the quarter was $108.2 million, up 15.4% from last year. Gross margin was 33.8%, down 220 basis points from the year ago period, primarily due to the contribution mix of Indoff and its relatively lower gross margin profile.
Indoff gross margin was 21.5% and in line with their historical performance. Organic gross margin rate was 35.9% in line with the year-ago period and up 140 basis points sequentially. Organic margin performance benefited nearly 40 basis points from a onetime settlement with a former LTL freight carrier in the quarter. Management of our margin profile remains a key area of focus. Performance will continue to reflect the impact of proactive promotion and freight actions as part of our competitive pricing initiatives. As a reminder, given Indoff's impact to our composite margin profile, we expect a consolidated gross margin decline in the first quarter as compared to last year. In addition, as a result of shipping disruptions in the Red Sea, we have seen double-digit increases in ocean freight costs in the first quarter.
This is something we are closely monitoring and may be a gross margin headwind in future quarters depending upon the duration of the disruption. Selling, distribution and administrative spending for the quarter was $86.8 million or 27.1% of net sales an improvement approximately 210 basis points from last year. SG&A primarily reflects the benefit of Indoff's lower cost structure as well as general cost controls within the organic business. Operating income from continuing operations was $21.4 million in the fourth quarter and operating margin was 6.7%. Organic operating margin was 7%. With the addition of Indoff and its comparatively lower operating margin rate, our composite operating margin may remain lower than historical periods. During the quarter, we generated operating cash flow from continuing operations of $8.2 million.
Total depreciation and amortization expense in the quarter was $1.9 million, including approximately $0.8 million associated with the amortization of intangible assets associated with the Indoff acquisition, while capital expenditures were $0.7 million. 2023 capital expenditures were $3.9 million, and we expect 2024 capital expenditures in the range of $6 million to $8 million, which primarily includes maintenance-related investments to equipment within our 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 December 31, we had $34.4 million in cash, no debt and $101.2 million of availability under our 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 that reflects an increase of 25% from the previously declared quarterly dividend. This concludes our prepared remarks today. Operator, please open the call for questions.
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