Global Industrial Co Stock

Good afternoon, ladies and gentlemen, and welcome to Global Industrial's Second Quarter 2026 Earnings Call. 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 Second Quarter 2026 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 report on Form 10-Q.

In addition, on today's call, management will discuss non-GAAP financial measures. Definitions of these non-GAAP measures, together with reconciliations to the most directly comparable GAAP measures are included in today's earnings release. These non-GAAP measures should be considered in addition to and not as a substitute for results prepared in accordance with GAAP. The earnings 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.

Thanks, Mike. Good afternoon, everyone, and thank you for joining us. I would like to start by thanking the entire Global Industrial team for all of their hard work and dedication. Due to their efforts, we delivered another quarter of strong broad-based growth with second quarter revenue increasing 7.7% or 9.3% on an average daily basis. This marks our third consecutive quarter of high single-digit average daily sales growth. As of today, this revenue momentum has continued at a similar growth rate into the third quarter. Over the past year, we have been repositioning Global Industrial toward a deeper relationship-led B2B model. Our objective is to strengthen our value proposition and become a preferred supplier to our customers by becoming an extension of their team and making it easier for them to transact with us through the channels and systems they use every day.

As we expand our e-procurement capabilities and GPO relationships, we are integrating into our customers' purchasing processes, leading to improved retention, increased share of wallet and stronger financial performance. Our GPO business has now reached meaningful scale with annualized sales on pace to hit $100 million this year, an important milestone for an organic initiative that began just a few years ago. GPO relationships provide us access to new customers through established contractual arrangements and allow us to engage with a more sophisticated procurement level buyer. Their industry specialization for public sector, health care, hospitality and private sector manufacturing provides strong alignment with our customer vertical approach. They also create a natural pathway into customers' e-procurement systems where purchasing activity can become more recurring and integrated.

As a key 2026 priority, e-procurement is another area we are seeing significant momentum. By integrating our offering directly into customers' procurement platforms, we are moving closer to where purchasing decisions are made. Our punch-out integrations are designed to include more customer-centric experiences, allowing buying experiences to be customized to align with what our customers are searching for. This improves ease of use, strengthens customer retention and provides opportunities to broaden the range of products and solutions customers purchase from us. In the first half of this year, we expanded our eprocurement customer base and have implemented more than 50 purchasing connections, bringing our total digital connections to greater than 1,300 customers, and it's still growing. At the same time, our overall digital business represents more than 60% of our transaction volume. We continue to enhance our digital experience and the integrated e-procurement capabilities that embed us in customer purchasing workflows, while at the same time, facilitating their experience to make them more productive. These capabilities are increasingly important because many B2B customers have a multichannel purchase approach. They may interact with a sales representative, engage a product specialist and ultimately place an order through an integrated digital platform.

We have been building upon our capabilities to support that full customer experience. Our sales organization now consists of inside and field-based resources with national account support, vertical expertise and digital capabilities. This allows us to deploy the right resources for the right opportunities to provide the most comprehensive support for our largest and highest potential customers. We are also becoming more specialized in how we approach the market. Our sales, marketing and merchandising teams are increasingly aligned around customer verticals. This is more than an organizational realignment. It is a shift towards a 360-degree understanding of our customers' operating environment and helping them solve a broader set of problems. By developing greater vertical expertise, our teams can have more relevant conversations, identify additional applications for our products, and we can deliver more complete solutions. We are seeing that approach translate into larger orders, stronger performance from our most strategic customers and purchases across multiple core product categories.

We are also advancing the use of data, automation and artificial intelligence across the organization. Our initial focus has been on practical applications that enhance sales productivity, customer engagement, marketing insights and the speed and quality of decision-making. We remain disciplined in how we deploy these technologies, prioritizing solutions that improve the customer experience while empowering our associates to leverage these technologies to be more effective and deliver measurable returns.

We have been pleased with our progress, but we are still early in the evolution of our go-to-market model, and there is considerable runway and work ahead of us in 2026 and beyond. We intend to continue scaling our sales capabilities, expanding our relationships with customers, increasing e-procurement adoption, strengthening our vertical expertise and improving the coordination of our sales, marketing, merchandising and digital teams. We believe these initiatives can support sustainable organic growth and continued market share gains over time.

Finally, I would like to recognize one specific team within Global Industrial. Our Canadian team delivered another exceptional quarter. Revenue increased more than 30% in local currency, marking the fourth consecutive quarter of double-digit growth. After surpassing $100 million in annual revenue in local currency last year, our Canadian business continues to demonstrate its expanding scale and its significant long-term potential, and we are just getting started.

I will now turn the call over to Tex to cover our financials in more detail.

Thank you, Anesa. Second quarter revenue was $386.6 million with average daily sales growing 9.3%. For the first half of 2026, our average daily sales improved 8.4%. In the quarter, U.S. revenue was up 6.3% and Canada revenue improved 33.7% in local currency. We generated broad-based growth in our sales channels and customer verticals. Accounts managed by sales representatives increased in the low double digits, led by our largest strategic accounts. Growth was led by our retail wholesale vertical, while our core industrial customers approached double-digit gains. Results benefited from both volume and price. Pricing contributed approximately 4 points of growth with the balance due to volume and mix. This was the third consecutive quarter of volume improvement. Average order value increased approximately 10%, driven primarily by a greater mix of larger orders rather than price. This is an important point as it highlights the strategic customer relationships we are building and our increasing participation in projects and GPOs.

On the tariff front, during the quarter, we recorded approximately $26 million associated with refunds of IEEPA tariffs. We recognized the benefit of approximately $21 million in cost of sales, a reduction of $4 million in inventory related to tariffs paid on items not yet sold and $1 million of interest income. At present, we believe any future refunds associated with IEEPA refunds will be immaterial. This benefit is reflected in our GAAP results. Because it is not representative of the company's underlying operating performance, we have excluded this onetime benefit from non-GAAP adjusted gross profit, adjusted operating income and adjusted earnings per share in our non-GAAP presentation. Non-GAAP gross profit for the quarter was $134.3 million, non-GAAP gross margin was 34.7%, more in line with historical performance.

As a reminder, gross margin during the second quarter of 2025 was a record 37.1%, which included approximately 150 basis points of FIFO-related timing benefits associated with price increases taken upon the imposition of increased tariffs in April 2025. Margin performance in the quarter reflected inflation within our transportation network associated with increasing fuel surcharges as well as product and channel mix, which included a lower contribution from our seasonal cooling category compared with the prior year.

Fuel costs remain volatile and transportation expense continues to be elevated. We remain focused on the management of our margin profile, recognizing that mix and fluctuations in transportation costs and other inflationary pressures can create variability from quarter-to-quarter. Our pricing, sales and merchandising team members remain focused on mitigating the effects of these macroeconomic impacts on our customers. Selling, general and administrative spending for the quarter was $106.1 million, an improvement of 30 basis points as a percentage of sales as compared to the second quarter last year. Variable compensation, specifically sales commissions were up and reflect a strong sales performance in the quarter. Excluding variable performance-based compensation, SG&A generated approximately 70 basis points of leverage. Non-GAAP operating income from continuing operations was $28.2 million, and non-GAAP operating margin was 7.3%.

Operating cash flow from continuing operations was $41.3 million in the quarter. Total depreciation and amortization expense in the quarter was $2 million, while CapEx was $0.9 million. We continue to expect 2026 capital expenditures in the range of $3 million to $4 million, which primarily reflect maintenance-related investments and equipment within our distribution network. We currently expect a tax rate between 26% and 26.5% for the remainder of 2026.

I will now turn to our balance sheet. We continue to have a strong and liquid balance sheet. As of June 30, we had $86.7 million in cash, no debt and over $119 million of excess availability under our credit facility. The quarter end cash balance reflects approximately $15.3 million of tariff refunds received in the fiscal second quarter, while $10.9 million was received in early July and was recorded as a receivable at quarter end. In the second quarter, we repurchased approximately 160,000 shares of stock for a total price of $4.7 million. As for our dividend, our Board of Directors declared a quarterly dividend of $0.28 per share of common stock.

I will now turn it back over to Anesa for closing remarks.

Thanks, Tex. Overall, we are pleased with the first half of the year. We have been able to sustain our sales momentum and deliver profitable growth. Our strategic initiatives that we implemented are beginning to deliver volume growth and notable results. We remain focused on the external macroeconomic environment, including geopolitical conditions, transportation costs and other sources of volatility. We will continue to proactively manage those factors while remaining focused on the areas within our control.

Our priorities are clear. We are deepening customer relationships, capturing greater share of wallet, strengthening our vertical expertise and deploying our resources against the opportunities with the greatest long-term potential.

Now that we are in the third quarter, we also look forward to our upcoming National Trade Show in Dallas, Texas at the end of September. The event will bring together many of our largest customers and more than 175 supplier partners, creating a valuable forum to showcase our broad product offering, strengthen key relationships and generate new sales opportunities across the business.

At this point, I would like to thank all of our associates again for their hard work, adaptability and commitment to serving our customers. I also would like to thank our customers, suppliers and shareholders for their continued support. We look forward to building on our progress through the balance of 2026.

And now I'll ask the operator to open the call up for questions.

[Operator Instructions] The first question today comes from Michael Francis with William Blair.

Great quarter. I wanted to start off on gross margin. The margins ex tariff increases were a miss. We had been down a little bit quarter-over-quarter. I know you talked about the higher transport costs, but would love to know sort of what the puts and takes are within that sort of bucket.

Michael, I'll take that. I'll start with that one. So when we think about that, one of the things we saw, again, like you're right, we'll exclude the tariff refund portion and get back to that non-GAAP 34.7%, again, down from that previous high. I think what we're seeing is the number one impact in the period was that continued inflation within our transportation network, both LTL and UPS or parcel-related charges saw those increased fuel surcharges that we had. And while some of that was passed through to customers, other portions of that was absorbed by the company, which impacted that gross margin.

I think one other thing that we saw in the period was really our mix of orders. So when we look at the different gross margin rates in different bands and the sourcing channels, the sales channels, we actually saw a fair amount of consistency. But when we looked at the total mix, we saw some increased -- decreased gross margin rate. One area specifically was larger orders where we took on more large orders. I mean, while that was provided a little bit of headwind on the gross margin line, we look at each one of those and they're profitable orders, profitable projects that are accretive to the overall business. But again, it did impact that gross margin line a bit in the quarter. So those are areas that we do expect will be continuing into the Q3 period. But again, we'll continue to mitigate that for our customers wherever we can.

Okay. And then broadly, Anesa, you touched on a bunch of different initiatives to start. So between all of those, I'd love to know what the most important initiatives are sort of driving results today and then what the most important you think will be going forward?

Yes. No, thank you for the question. And Yes. I mean I touched upon a variety of things, but our specialization expansion and services strategy is working. Most important, I think it's a combo of all of the things that I mentioned, but in particular, we changed the go-to-market strategy and the approach in the way that we go to market along with building out an outside sales team and just having more interaction and getting more entrenched with our customers, Michael. So I think all of those are starting to convert. In addition, we've also looked at product assortment that I've mentioned on some prior calls, right? And in that case, not only are we focused on our brands, but also expanding and the national brands that we're providing into the marketplace. And then Tex highlighted some of the mix shift. So we're kind of settling into a little bit of a different profile as we move forward. And I think all of that is converting quite nicely for us, and we're seeing the growth and it's sustaining.

So that gives us confidence to think about where we reinvest into the business to continue to scale and grow. And we're just watching everything very closely. So I think for us, it would just be prudent to make sure we've got our eye on everything that is happening around us, but just continuing to stay the course on the strategy and that execution and getting the organization aligned and prepared to just move faster and start to move into the marketplace in that manner. So that's the goal at this point. And so far, so good. But I'm pleased with the progress, but we still have -- it's early innings, and I think we still have more to do.

Okay. And then last one for me. You've got more cash now than you've ever had. So I'd love to know what's driving that beyond just the tariff refund. And also if there's any sort of plans we should think about behind this, whether that be M&A, buybacks or some sort of special dividend?

Yes, I'll jump in there. Yes, you're right. I mean, so when we look at that quarter end cash balance at about $86 million. And again, as we clarified that actually, there was $10 million of that tariff refund, which hit in Q3, so that was on the balance sheet as a receivable. So very good cash position. I think when we look at our overall profile, we've been, again, good conversion of cash, and that's just a reflection of the overall sales channel that we're seeing good sales, that's translating into good collections of our customers' receivables in that profile. Otherwise, I think we're continuing to focus on our capital allocation strategy, which includes investing in our business where appropriate. And then again, you saw that we did continue to buy back some shares in the period of approximately 160,000 shares in the earlier part of the third quarter at an average price just under $30. And again, continuing -- our dividend will be a continued use of our expected cash flow. But you're right, we are -- we do have a healthy balance sheet at this point.

Yes. The only thing I'll add is that I'm also looking at M&A opportunities, and that's something that we're building out a pipeline and leaning into more so to help us execute and expand and speed up our go-to-market, if you will, Michael.

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

Certainly nice to see the solid second quarter results. Just wondering, as you progress through the quarter, did you see much variability from April through June in terms of your average daily sales? Or was it more or less kind of consistent throughout the quarter?

Yes. Anthony, I'll jump in right there. So I think you hit the nail on the head with referencing average daily sales. We've had to actually have a shift in the calendar with July 4 falling into our second quarter this year versus third quarter. But when you look at an average daily sales basis, our growth rate was pretty consistent throughout April, May and June, which gives us something that we saw pretty consistent through the first part of the year as well. So very stable, good growth profile consistently to get us to where we are. I think as Anesa highlighted on our call just a few moments ago that, that growth rate has continued into the third quarter.

That's great to hear. And then as we think about the -- your, I guess, core SMB customers, just wondering -- I know you talked about some of the strategic accounts, and it was good to hear some data points on the GPO customers. But I guess if you could just comment on what you saw from your traditional kind of SMB customers, whether we've seen similar performance as recent quarters or not? How do we think about that?

Yes, I can jump in as well, Anthony, on that. I think one area when we looked at when we talk about broad-based growth, we actually saw good growth again in our various customer verticals. And we did see especially solid growth in those largest customers. But one thing that we saw good e-sales across the business, e-commerce was up. Our new account generation was up. So I mean, we did see good solid growth across, but just where we were really leaning in was into some of those larger customers that had the most opportunity and they performed -- we performed well with them. So it truly was broad-based growth across our portfolio of customers this quarter.

Yes. The only thing I would add, Anthony, is that the small and medium businesses are an important target customer for us. So we're very much lining up to ensure that we're supporting them and meeting their needs as well. I just think we're just going through quite a bit of change, if you will, as we go to market and just settling in and better understanding those customers and having that customer centricity to understand how do we best line up to be able to serve their needs and help them solve their day-to-day problems.

Got you. Okay. So one of the things that I know, Anesa, you've been working on is creating more of that customer-centric culture. So I guess where are you with this journey now? And how should we think about the impact on the company as you look to further expand on this initiative?

Yes. Yes. Great question, Anthony. Thank you. Look, we're in the early innings of it. I keep saying that, and that it's quite a bit of change that's occurring at the company, and I would say it's positive change. But nevertheless, it is changed. People within the company, and I gave them kudos and thank them for all their hard work and effort. It's because they're going through this and making sure that we better understand our customers better. And by understanding our customers better, it has implications on the way that we need to line ourselves up as a company. And I think we're in the early stages of that. I hope that we could settle into a rhythm and a cadence coming out of '26 going into '27 and then building out and scaling the business to be able to meet the need and to capture more of the market share. So I think, again, we're halfway into this year. We have the benefit of what is within our control, but we're also managing the uncontrollables as best we can, right? So I can't predict those. But right now, the strategy is working. The organization is lining up to do that. The customer centricity is permeating the organization, but it doesn't just happen overnight.

Of course, right. And then lastly for me. So as far as the gross margins, I mean, so obviously, excluding the tariff refunds, it was 34.7%. So I know there's some changes with the seasonality and product mix and customer mix. But I mean, just broadly speaking, I mean, how do we think about the gross margins for the balance of the year?

Yes. I think the scenario that -- yes, I'll jump right in as well. And I think the scenario that -- I mean, we've seen in the last 2 quarters, very consistent gross margins at 34.7% and 34.8% on an adjusted basis. I think as we look at that mix and then the current order mix, customer mix, sales mix right now, I think it's probably something that we can project to be in line with where we're at going forward. Last year, we were getting the benefit in Q2 and Q3 really of those pricing actions before the tariffs fully came into impact. We saw that margin rate decline a little bit into that fourth quarter last year then. So again, right now, we don't expect as many of those pricing actions. But again, it's something that we'll have to continue to monitor and observe what's happening out there with changes to trade policy, with changes to fuel. Those are all things that we're going to have to take into consideration. And then again, sales, marketing, merchandising really working together to make sure they're putting that right pricing value proposition out there for each of our customer sets.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to the Global Industrial's First Quarter 2026 Earnings Call.

At this time, I would like to turn the call over to Mr. Mike Smargiassi of the Plunket Group. Please go ahead, sir.

Thank you, and welcome to the Global Industrial first quarter 2026 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. The earnings 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. I was very pleased with our first quarter performance. We delivered a strong start to 2026 as we benefited from solid execution and continued momentum across the business. First quarter revenue improved 9.2% with an average daily sales growth of 7.6% and operating income improving 13.2%. We generated growth each month during the period and have seen this top line momentum carry into the second quarter.

Our results benefited from price and volume with gains across both assigned accounts and e-commerce channels, while our largest strategic accounts continue to grow at an accelerated pace. Canada once again delivered strong results. Revenue increased 24% in local currency with continued growth across the business. This marks the third consecutive quarter of double-digit top line growth, highlighting the exceptional work of our team in Canada and reinforcing the significant potential we see in that market.

From a strategic standpoint, we are making progress and are encouraged by the actions we have taken to refine our value proposition and reposition the business for growth. This includes aligning the business around the customer to better serve their needs and being more intentional and focused in our go-to-market approach. Our sales realignment into customer verticals is progressing well, allowing us to better meet our customers' needs through deeper specialization and tailored experiences.

As we have previously shared, this will allow us to improve and drive more targeted engagement and broaden customer relationships. We are also pleased with the rollout of our outside sales initiative, where the team is actively developing a pipeline and uncovering new opportunities. While still in the early stages, the initial response from customers has been positive and we're encouraged by the potential opportunities ahead.

We are also continuing to expand our e-procurement and integrated e-commerce capabilities, which are helping us to deepen relationships, improve retention and position us to capture greater share of wallet over time. Our focus on continuously enhancing our digital experience has improved our customer engagement and satisfaction. It has enabled us to highlight our broad solutions offering and has allowed us to build direct sticky relationships with our customers' procurement teams. This is an area where Global Industrial has a strong offering and we have seen significant growth in the number of e-procurement platform customers in the last year.

In merchandising, we are advancing our MRO and consumables expansion as we broaden our assortment to better serve customer needs and support incremental revenue opportunities. We remain focused on providing the right solutions and products that help customers solve their problems and keep their operations running. This remains a meaningful opportunity for us and an important component of our long-term growth strategy.

Finally, in April, I had the opportunity to join our team at the MODEX trade show, one of the largest manufacturing and supply chain events of the year. We had a very successful show. Our booth generated strong traffic and engagement and we saw solid lead generation across our product categories. The event allowed us to showcase our refined value proposition, the strength of our product offering and our new alignment across our sales, marketing and merchandising teams. I also connected with our supplier partners in discussions that reinforce the value we bring to market and the positive change taking place across the company.

Overall, we are encouraged by the progress we are making. The business is performing well. Our strategic initiatives are gaining traction and we are building a solid foundation to drive sustainable profitable growth.

Now I will turn the call over to Tex.

Thank you, Anesa. First quarter revenue was $350.4 million with average daily sales growing 7.6%, in line with our fourth quarter performance. U.S. revenue was up 8.1% and Canada revenue improved 24.4% in local currency. We recorded growth throughout the quarter with gains across all sales channels. Performance benefited from price capture and volume improvement. We have now delivered volume improvement for our second consecutive quarter and continue to see strong results from our largest and most strategic customers.

As of today, we've seen revenue growth in the mid- to high single digits continue into the second quarter. Gross profit for the quarter was $121.9 million. Gross margin was 34.8%, an improvement of 30 basis points from the fourth quarter. Our year-over-year gross margin was slightly down by 10 basis points, reflecting the impact of incremental fuel surcharges within our outbound transportation in the back half of the quarter as well as product mix, which was impacted by an increase in the number of large orders and projects during the quarter.

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. As a reminder, the second quarter of 2025 included a record gross margin performance of 37.1%, with approximately 150 basis points attributable to FIFO-related timing benefits. We would also note that the benefits from price appreciation are expected to begin to moderate as we lap pricing actions taken in the second quarter of 2025.

We continue to closely monitor the macroeconomic and geopolitical environment, including developments in the Middle East and their impact on transportation and manufacturing costs as well as the evolving tariff landscape and potentially new Section 301 tariffs. Our goal is to mitigate these disruptions to our business and to our customers and we believe we are well positioned to do so as we continue to proactively manage price and other factors within our control. However, we anticipate these headwinds will impact margin performance in the spring and summer as steel prices remain elevated.

Selling, general and administrative spending for the quarter was $101.3 million, an improvement of 40 basis points as a percentage of sales as compared to the first quarter last year. The increase in absolute dollars was largely due to planned marketing costs to support sales growth as well as increased compensation and related costs due to strong performance.

Operating income from continuing operations was $20.6 million, an increase of 13.2% to the first quarter and operating margin was 5.9%. Operating cash flow from continuing operations was $4.7 million in the quarter. Total depreciation and amortization expense in the quarter was $1.9 million, while capital expenditures were $0.8 million. We continue to expect 2026 capital expenditures in the range of $3 million to $4 million, which primarily reflects maintenance-related investments and equipment within our distribution network.

I will now turn to our balance sheet. As continues to be the case, we have a strong and liquid balance sheet. As of March 31, we had $61.7 million in cash, no debt and approximately $120 million of excess availability under our credit facility. In the first quarter, we repurchased approximately 22,000 shares of stock for a total price of $0.6 million. As for our dividend, we continue to fund our quarterly dividend and our Board of Directors declared a quarterly dividend of $0.28 per share of common stock.

As a final comment, we will have a shift in our fiscal calendar in the second quarter of this year. The 4th of July holiday will fall in the final week of the second quarter as compared to the first week of the third quarter in 2025. This will generate a modest timing headwind for revenue in June this year.

I will now turn it back over to Anesa for closing remarks.

Thank you, Tex. In conclusion, we are very pleased with our start to the year and are encouraged by the momentum we are seeing across the business. We are focused on execution and building on our targeted and intentional sales, marketing and merchandising approach while continuing to advance the changes that we believe will help us evolve the business and drive long-term profitable growth. At the same time, we remain attentive to the broader macro environment and we'll continue to focus on what we can control and on mitigating the risk of the uncontrollables. We are confident in the direction we are heading and look forward to a successful 2026. I'm proud of how our team is executing during these unprecedented times. I would like to thank all of our associates for their hard work and dedication and all of you for your interest in Global Industrial.

And now I'll ask the operator to open the call up for questions. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Michael Francis with William Blair.

I wanted to start on sales in 2Q. Trends sound good so far, but I know the comps start to get tougher, particularly on price as you lap those increases and you also have the 4th of July timing headwind. So how should we think about all of those moving pieces together?

Michael, I'll jump -- go ahead, Anesa.

Go ahead, Tex. Yes.

Apologies. Mike, so yes, I think about just from a pure numbers perspective, when we think about that timing benefit, obviously, as we highlighted in the last 2 quarters, we actually have seen both price and volume contribute into that growth term and that's one area that we continue to expect to see that, that volume increase as we move into that second quarter. And obviously, we're right now about 4 weeks into the second quarter. And obviously, as we mentioned, growth remains consistent with what we just reported in the first quarter.

That pricing timing is obviously -- is one that obviously doesn't impact us sequentially, but we'll just see some of that year-over-year impact is going to be lessened as we started those price increases last year soon after the tariff announcements in early April. And then finally, just to relate to the July headwind -- or sorry, the June headwind.

If we think about it, we're moving that holiday 1 day up, 1 day of a holiday equals about 1.5% to 2% of the shipping days in a quarterly period. So I think I would just think about that as a ratable shift where we'll see a little bit of headwind in June, and that will be a pickup in July when we -- just based on pure timing of the holiday.

All right. Thanks, Tex. The only thing I would add, Michael, is that what we have inherently in the business now is proactive pricing. We are watching real time and reacting dynamically from a margin perspective to be able to read and react and to take the appropriate actions in the marketplace. So pretty confident in the team and the capabilities to do that. That's been wired in the business now.

Then on gross margin, you called out the 150 bps headwind from the nonrepeat of the price cost and you also talked about a few things, namely fuel. Just help us think about how we should think about gross margins in 2Q as well.

Yes, I'll jump right in on the number side. Yes, perfect. On the number side, so yes, you're right. So as we think about last year, as we've talked about in the past, an initial price increase in a FIFO inventory company, you're going to take that -- you're going to recognize that price capture before the FIFO costs work through. As you can imagine, we're well a year plus into these. The tariff arrangements that we're paying through. So the cost of goods is fully burdened with the tariff profile that we have in there. So that will be an ongoing review of the company. So I think that's one area.

And then we also think about the fuel. The fuel is one area that is growing up. That's an area that if we look at the national diesel averages, really that second and third week of March, we saw those starting to tick up. All of our fuel contracts are based upon standard language and standard multipliers based on the national published average rates. And when those go up, obviously, our main goal is how do we internalize that, how do we manage the cost for our customers. But at the same time, there will be -- we'll pass some of that pricing to our customers as need be as we really monitor that margin profile, but it really just goes into our overall pricing management and pricing strategy, too. But it is going to be -- there are incremental costs that we got to work through and we do expect in the short term, there will be headwinds to the margin rate.

Good quarter.

The next question will come from Anthony Lebiedzinski with Sidoti & Company.

Nice quarter, certainly. So you've talked for a while a bit about seeing better results in your largest and most strategic accounts. So as we think about your core SMB accounts, can you comment what you're seeing from those accounts? And have you seen that performance gap narrow or widen? Or has it been kind of more or less consistent? Just wondering if you could comment on that.

Yes. Thanks, Anthony. Thanks for the question. Yes, the SMB customers, we have, as I stated during our beginning of the call was we've realigned our organization and kind of the way that we face out to the customer and our small and medium customers are very important to us as well. And what we've done is realigned across various verticals so that we can better understand and specialize and tailor that experience. We've seen some decent growth across the board.

The larger accounts, we call out just by the sheer size and scale. But the small accounts, we're starting to build stronger relationships. I alluded to the e-procurement, punch out sites and so forth and we've started to gain some momentum across the board. And the more that we can do to be tethered to those customers, it creates a bit of an annuity stream and we're starting to see some momentum there as well.

Got you. Okay. And then I realize that Canada is far smaller than the core U.S. market, but certainly a very strong performance there. What's driving that? And how sustainable do you think that is?

Yes. Actually, we have a fantastic team. We hired a leader right before I started, and he's done a nice job of realigning their go-to-market. In essence, the way to think about it is Canada is a smaller microcosm of the broader Global Industrial business. And I would say the market dynamics there are strong for us to take share. And what he's been able to do is to -- we've made the right investments, enabled them to be relatively self-sustaining. And as they've done that, they've seen that momentum and growth build and I have a lot of confidence in that team, as you've seen me call them out a few times just in my tenure, which is a little bit over a year and a few months.

Yes. And then so as you look to further reposition the business, are there any notable new products or product categories that you may want to enter into? I know you talked about MRO, but just overall, just maybe help us understand as to like maybe the magnitude of the expanded product selection that we could see at some point, whether it's this year or next year, how do we think about that and kind of the margin profile of some of these newer product categories that you might be looking to get into?

Yes. No, another great question. Thank you, Anthony. It is MRO. It's natural adjacent categories for what we do. We're not going to go too far afield and kind of beyond what our core business is. However, as we've started to mix in those capabilities and taking to market those types of products, we've seen incremental growth in customers where we've been able to drive greater share of wallet and penetration. And what we're starting to see is that we're going out to the customer to explain that now we carry whether it's consumables, whether it's MRO and so forth.

And what we're really looking at holistically from a merchandising perspective is making sure we have the right positioning of the products. So in essence, a good, better, best offering. Some of that will include our proprietary brands. Others will be national brands. Others will be a mix of both as we go to market. So we're in the early phases of that, but that realignment that we did coming out of last year has positioned us well and we're starting to see that gain some traction.

And the items, I had shared, I think, late last year, possibly fourth quarter, we had partnered with some select vendor partners to get into MRO and consumables and what have you and we've been able to sustain that and they're still partnering with us today, providing those products to our customers via drop ship, et cetera. And then we'll be making decisions. Is that something that is sustained in executing in that manner? Is that something that we make investment and bring it into our warehouses, but that's something we're working through right now.

Got you. Okay. And just a quick follow-up. As far as your private label product penetration, where is it right now?

Yes, I'll jump in and take that, Anesa. So Anthony, this is an area that we look at and it's really -- it's fairly stable, but we've actually seen some enhanced growth through our national brands. We talked a little bit about some of the mix of large projects that we saw in the first quarter. And that's been an area of really is some of our largest strategic accounts had spec projects and things on the national brands. So we actually saw a faster growth rate in the first quarter on the national brand side, but this is an area that we're really balancing them because they complement each other very well. So it's going to be a continued push of not just trying to grow one channel or the other or one source and the other.

I think we have the opportunity to make sure that we have the right product mix, but also make sure we partner with our vendor partners out there that will allow us to serve the customers the way they want to be served and to make sure we offer the products that our customers are looking for.

And this will conclude our question-and-answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.

Thank you.

Good afternoon, ladies and gentlemen, and welcome to Global Industrial's Fourth Quarter 2025 Earnings Call. 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 Fourth 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 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 the fourth quarter of 2025 closed on Saturday, January 3, 2026, representing 1 additional week in the quarter compared to the prior year. This added 4 working days to the quarter, which covered the period between the Christmas and New Year's holiday, typically our lowest sales week of any year. In addition, the first quarter of 2026 started on January 4 and will have a favorable comparison from the year ago period, which started on December 29 and included the impact of the New Year's holiday.

The earnings 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. Today, I'm happy to share that 2025 was a year of significant progress for Global Industrial that included quite a bit of change to better position the company for organic growth. I'm very pleased with the way the team stepped up and embraced the changes and executed to deliver on our full year financial results. We ended the year with good momentum across the business as average daily sales grew 7.4% in the fourth quarter, driven by both volume and price improvements.

We delivered strong margin performance, generated healthy cash flows and today announced an increase in the quarterly recurring dividend for the 11th consecutive year. In addition, during the quarter, Global Industrial repurchased approximately 326,000 shares at an aggregate purchase price of $9.3 million. For the full year, we delivered $1.38 billion in revenue, representing growth of 4.8%. Overall, we are very pleased with the results, and Tex will discuss the financial performance in detail.

Most importantly, we made progress on strategic priorities that we believe will allow us to accelerate the pace of change to grow the top line profitably and scale the business in 2026 and beyond. In the past year, we began the transformation of our business model and outlined core objectives: first, to become a more customer-centric company; and second, to refine our go-to-market strategy, particularly in realigning our sales, marketing and merchandising teams to reframe our value proposition by industry vertical.

We piloted a number of changes to refine our approach to better serve the needs of our customers and to deliver profitable growth. So what did we do? I'll start with customer centricity. Throughout 2025, we continue to reframe our approach to put our customers at the center of everything we do. By driving continuous improvement in damage reduction, quality and distribution optimization, we maintained high service levels for our customers.

Retention rates across our managed account base were strong as we again prioritized the customer experience and expanded upon our e-procurement capabilities. We completed the planned rollout of Salesforce for our sales, marketing and customer service teams. Having a single unified view of the customer has enabled data-driven and faster decision-making, helping drive efficiencies and more personalized engagement with our customers. In the year ahead, we will build on these investments to move closer to the customer and further enhance the service we provide.

Next, on how we reframed our go-to-market. As we look to be more intentional and focused in how we go to market, we completed a comprehensive analysis of our position and listened to feedback from customers. We challenged ourselves with tough questions and emerged with actionable next steps. Today, we have a clear understanding of our customers' needs and expectations. By incorporating their feedback, we tested and piloted targeted solutions and are now realigning Global Industrial's product assortment, strategic account focus and sales organization to deliver on our refined value propositions across multiple industry verticals.

On the merchandising front, we are expanding the product assortment to ensure we are providing the right solutions and products that help customers solve their problems. This includes broadening national brand relationships to move into new product sets that we know our customers are looking for and that are complementary to what we offer today. This really is just a natural extension of what we do each and every day.

Specifically, we are expanding our assortment to include maintenance, repair and operations as well as consumable products. These changes create a significant opportunity to grow our share of wallet and capture greater market share. While we are in the early stages of this effort, we have had success with our initial pilot programs and are encouraged and excited by the progress and the long-term potential.

On our strategic account focus, during 2025, we deliberately shifted resources towards strategic enterprise accounts and GPOs. These relationships tend to carry higher average order values, stronger retention and greater lifetime profitability, and we successfully grew these accounts in 2025. As part of this effort, we launched account-based marketing programs targeting these customers. These results have been promising, and we have seen good momentum, sales penetration and growth.

In parallel, we began to move away from nonrecurring, lower profit transactional web business. This has been the right decision as we look to better serve our customers and focus on profitable growth. This brings us to sales realignment. As we align the organization to become more customer-centric in 2025, we have changed our go-to-market approach as we entered 2026. Our inside sales team, which has strong expertise and a tenured employee base have been realigned into customer verticals. This specialization will allow us to serve customers more effectively while gaining a deeper understanding of their unique needs.

These targeted defined verticals that we have prioritized include industrial, commercial, retail, public sector, health care, hospitality and multifamily. During the second half of 2025, we successfully piloted an outside sales approach, and we are now building out a dedicated team. The outside sales reps will be calling on a combination of existing accounts where we have identified significant opportunities to expand the relationship as well as new account acquisition.

To enable and support these changes, we put in place a new, more targeted and intentional sales, marketing and merchandising approach. This should position us well to effectively capture greater share of wallet from existing accounts and identify new customers that we have not historically called upon. We are driving change that will help us grow and evolve the business. The team is embracing these changes. There is a positive energy throughout the company, and we are excited about where we are headed, building off the progress we have made in 2025.

Now I will turn the call over to Tex.

Thank you, Anesa. Fourth quarter revenue was $345.6 million, up 14.3% over Q4 of last year. On an average daily sales basis, sales grew 7.4%, double the rate of growth compared to the third quarter of 2025. U.S. revenue was up 14% and Canada revenue improved 19.7% on a local currency. This was Canada's third consecutive quarter of top line growth. And for the full year, Canada was up 9.2% in local currency.

We recorded consistent growth throughout the quarter with gains across all sales channels. As we have seen for much of the year, performance continued to benefit from price capture, but in the fourth quarter, we also generated volume improvement. Order count growth remained strong among our largest and most strategic customers, while volume gains returned in our web business for the first time in 2025. As of today, we have seen momentum continue with sales currently pacing up through the first half of the quarter. We have a favorable fiscal calendar in the first quarter of 2026, which started on January 4, while the first week of Q1 2025 included the New Year's holiday.

Outside of this timing benefit, we have seen continued revenue growth in the mid- to high single digits. Gross profit for the quarter was $119.1 million. Gross margin was 34.5%, up 70 basis points from the fourth quarter last year. We remain pleased with our margin performance. On a sequential basis, as expected and in line with historical performance, gross margin pulled back from the third quarter of 2025 and primarily reflects product mix and peak season freight surcharges, which we chose to not pass through to 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. We currently expect first quarter margins to show improvement on a sequential basis and be in line with prior year results. As a reminder, additional tariffs went into effect in early August, including the doubling of duties on steel and aluminum. We took a pricing action in early January 2026. Our goal is to mitigate tariff disruptions to our business and for customers, and we believe we are well positioned to do so. Our teams have done an excellent job diversifying country of origin exposure, and we continue to proactively manage price.

Selling, general and administrative spending for the quarter was $99.5 million, an improvement of 20 basis points as a percentage of sales as compared to the fourth quarter last year. The increase in absolute dollars was largely due to the incremental salary and variable expenses due to the additional week in the fourth quarter. In addition, given the improved financial results, we recorded approximately $3 million in incremental expense associated with variable bonus and commission expenses as compared to last year.

SG&A reflected strong general and discretionary cost control, including improved leverage within our marketing expenses.

Operating income from continuing operations was $19.6 million, an increase of 35.2% in the fourth quarter and operating margin was 5.7%. Operating cash flow from continuing operations was $20 million in the quarter and $77.7 million for 2025. Total depreciation and amortization expense in the quarter was $1.9 million, including $0.8 million associated with the amortization of intangible assets. Capital expenditures were $0.8 million in the quarter and full year capital expenditures were $3.1 million. We expect 2026 capital expenditures in the range of $3 million to $4 million, which primarily reflects maintenance-related investments and equipment within our distribution network.

Let me now turn to our balance sheet. As continues to be the case, we have a strong and liquid balance sheet with a current ratio of 2.2:1. As of December 31, we had $67.5 million in cash, no debt and approximately $120 million of excess availability under our credit facility. In the fourth quarter, we repurchased approximately 326,000 shares of stock. And year-to-date, we have repurchased an additional 14,400 shares for a total of $9.8 million. We currently have approximately 1 million shares available under our 2 million share buyback authorization.

The stock repurchase is a disciplined way to return value to shareholders, and it highlights the Board's confidence in the long-term potential of the company as we continue to generate strong cash flows, maintain a healthy balance sheet and execute against our strategic plans. We continue to fund our quarterly dividend, and our Board of Directors declared a quarterly dividend of $0.28 per share of common stock, an increase of $0.02 per share.

I will now turn it back to Anesa for closing remarks.

Thank you, Tex. I'm proud of how the Global Industrial team executed in 2025. It was a year of change, starting with me joining the company and then with the overlay of the challenging tariff landscape. The team focused on what we could control and mitigated the risk of the things that were out of our control, all while adapting to a significant amount of change. We delivered strong performance and initiated a realignment of the organization for the future, one we believe will allow us to scale the business and accelerate our growth.

We are entering 2026 from a position of strength, and we are pleased with our performance and excited about our growth strategy. The team will continue to learn, test and pivot as we look to improve and optimize our performance. I want to thank all of our associates for their hard work and dedication. The progress we made in 2025 is a direct reflection of their commitment to our customer success and to our company. Thank you for your interest in Global Industrial.

Operator, please open the call for questions.

[Operator Instructions] The first question comes from Anthony Lebiedzinski with Sidoti & Company.

Certainly nice to see the better-than-expected results here in the quarter. I know you said that there was both pricing and unit volume increases. Can you provide any additional color on those 2 topics? And wondering if you could also comment on how sales progressed throughout the quarter as we went from October through December?

Yes, Anthony, thank you for the question. I think to answer your last question first, sales were pretty consistent throughout the quarter. We had a solid growth profile in each month in the quarter, and it was fairly consistent without a lot of volatility in the individual periods outside of what we talked about on the intro of this call with December having an additional week of sales.

So that reflected higher absolute growth rates. But on an average daily basis, it was quite consistent within the period. In terms of your first question, pricing was still the majority of the growth rate, and it was up on an ADS basis mid-single digits with volume coming in at low single digits across the business in the quarter.

Got you. And then given the latest tariff announcements that we heard over the last few days, how should we think about the pricing environment and the impact, if any, on gross margins?

Yes. Great question, Anthony. Thank you. It's very early days real time, and it's still moving around, not unlike when we had our first quarter call last year, where we knew that was potentially around the corner, and it actually took effect in April. So I would say the team has become more nimble. We've reframed countries of origin and redistributed where we source our materials, et cetera. So we're prepared for whatever or however this unfolds.

But at this point, we've not changed anything fundamentally, and we will navigate our way through this as it starts to become more and more clear because as you're well aware, if you saw Friday, it was 10%, then there was implications or new headlines of 15%. So we're waiting -- we're watching and waiting and then we'll do not unlike how we executed last year to mitigate the risk as best we can. But at this point, I think we're in this with everyone else that's in the same space of just dealing with how this unfolds. So I think it's just simply a little too early to predict.

Got it. Yes. So then in terms of just your commentary earlier, and this is something that you also talked about on prior calls as well, pivoting away from transactional customers and focusing more on group buying organizations and enterprise customers. Can you share perhaps or give us some color as to how much of these larger customers, how much of these clients represent as a percentage of sales? And what's the typical kind of margin profile as we think about how this may impact your business going forward?

Yes. I think I understand the question. I guess I'll do my best. I guess what I would say to you, the transactional customers were more episodical once and done, what have you, and we had the organization focused quite a bit of energy on that previously. And I would say what we've now done is realigned our sales teams to go and work on the accounts where we already have access to the account. It's the opportunity to gain greater share of wallet, further penetrate those accounts.

The margin profile, I would say, is slightly higher, if not improved versus the area where we want to kind of migrate away from just once and done. I would say we had a lot of promotional activity last year online that what we want to do is balance that out so that it shifts and that we're chasing the right kind of profile of customer. But more importantly, what I would say we are doing now is leaning more into longer, sustainable, repeatable customers. versus more transactional as a whole. So I don't have a specific number, but I'll let -- I'll defer to Tex to chime in as well.

Yes. Anthony, I'll just maybe supplement that just a bit. So I think specifically on the gross margin profile, it is going to be slightly lower, as you would imagine, with some larger customers. But when we look at the overall profitability of the customer, that's where we see it's actually going to be a more profitable overall long-term customer relationship given that you're building that relationship over time versus, again, a transactional once-and-done customer.

Somebody comes once to your website then you're paying to acquire and they're having that one purchase, which all typically would have been in that low average order value range as well. So when we look at total customer contribution and profitability, this mix is going to be a benefit to the overall company margin profile going forward. In terms of ratio as a percent of sales, we haven't disclosed the individual breakouts of these segments. But again, there's going to be -- these GPOs and strategic customers are going to make up north of 20% of our volume today, but we still have a strong kind of mid-market and mid-market to large mix within our sales force as well -- or our customer base as well.

That's very helpful color. And best of luck.

Thanks, Anthony.

Thank you.

The next question comes from Michael Francis with William Blair.

Good quarter. I wanted to start on the ADS. I just love to know how much of the growth was your own actions and share gains versus an improved market backdrop?

Mike, yes, I mean, again, as reported, we're about 14% growth overall, 7.8% average daily sales. So when we think about what's going on in the market, I think the market actually performed a little better than some of us expected. We've seen things even continue to trend positively in the first quarter with things like the PMI expanding to about 50 in January.

So there is market momentum. But I think when we look at our performance and we look at different break down customer penetration and order volume, we believe that we did take share in those areas by our actions. So we don't have a great view of exactly what that market grew in the period. But again, we do believe that we gained share through what our targeted actions were.

Yes. And Michael, what I'll add is we also were very focused on improving our operational and fulfillment execution as well. And so that contributed to progress and having the right product at the right price to be able to capture the share.

That's good to hear. And then within that growth as well, is there any sort of recovery on the SMB side of things? Was the growth more on the enterprise side of things? Or was it kind of broad-based?

Yes. So I think one thing I would add some color to that, Michael, was we did highlight that we saw some improvement in volume in our web business overall. So we actually had good marketing leverage and good web business. And the key was being very targeted in that web experience overall and making sure that our sales, merchandising and marketing teams were fully integrated in their efforts to go after the right customers.

So that did drive some growth, and we had been facing some headwinds in some of that web business earlier in the year that did, I'll call it, fully anniversary by the time we exited Q3. So in Q4, we did return to growth in the web business. But again, we were very happy with the customer mix that we saw in the period.

We also added to the assortment and the products that we took to market. So that also enabled us to pursue new customers or to further, as I said earlier, to Anthony's question, further penetrate and gain greater share of wallet of existing accounts that were already aligned with us.

All right. And then last one for me. I know SG&A was up substantially, and you called out the incremental compensation expense. Is there anything else to call out in there? And then the other half is as we think about 2026, how should we think about SG&A?

Yes, Michael, absolutely. So again, the one key was clearly, as mentioned, we had the additional variable compensation expense in the quarter. And that's a combination of -- if we think about last year, we had a soft quarter in Q4 2024. So we actually were -- had a reduction of some of that variable comp, both on commission and bonuses. This year, you had the increase in costs.

So that relative gap widened just on a relative comparison between Q4 last year. and Q4 this year. And just again, just from a pure absolute number of days period. So we had an extra week of compensation. So we had that extra 14th week in the quarter. So all variable costs and all compensation costs were increased in the fourth quarter simply because of we paid people for the last week of the year.

So that's a kind of normal ordinary course. So we would expect really SG&A management and SG&A leverage continues to be an area of focus. So think about it as a percentage of sales, shooting for kind of neutral to improvements going into 2026.

This concludes our question-and-answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.

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 1 additional week in our quarter compared to the prior year. While we are adding 4 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 onetime 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 nondeductible 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.

[Operator Instructions]

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.

Okay. Got it. And then you mentioned the large strategic accounts, there was growth and I guess, the smaller customers with a little bit of a decline. What -- how much did the large strategic customers grow? And do you expect to continue to accelerate that part of the business as we think about the next couple of quarters, just given the initiatives and the focus there?

Yes. I guess -- thanks, Ryan, for the question. Our strategic accounts had continued momentum. We're leaning into those, gaining greater share of wallet and doing more to figure out what their needs are and adding assortment, SKUs, things along those lines so that we can serve that need. As we look at -- we shared that we intentionally pulled back in certain areas, and it was for kind of the long tail, more transactional customers. And I think we're now eclipsing that.

But we're also focused on as we look to reposition ourselves and go to market in 2026 and beyond is realigning the org to then serve customers along specific industries and sectors. And we're piloting that right now, but it's just in the very early innings so that we're positioning ourselves for '26 in a positive way. So we've still got some more work to do, but we are seeing some progress there 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 certainly realize that you are being more intentional with your go-to-market strategy and seeing less of the transactional customer. But just wondering if we were to adjust for those transactional customers, what are you seeing from your -- from the rest of your core SMB customers? Just wondering if you could speak to the health of that customer group, what you're seeing there?

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

Yes. Thanks, Anesa. So yes, as we talk about -- if you think about some of the -- go back a year ago and when we had a CEO transition, some of the first things that Richard Leeds highlighted in his first public remarks were that we had gotten into some of the activities that may have been a little bit more on the promotional end that they were driving value. They were driving orders, they were driving revenue. But when we look at the lifetime value of those customers, it wasn't the type of customer that fit right for what we were trying to accomplish and who we could best serve in the long run.

So those are some of those key changes that we've made. When we look at our broader portfolio of customers and that recurring revenue, the retention within our core business, not only small, medium business, but the public sector and the larger enterprise customers, we believe it's very healthy. We still see good retention rates in that area. And it's an area that -- that's the area that we're continuing to focus on the intentionality on how we service those businesses. So I think we're fairly bullish on the health of that core customer, and it's really been that more transactional customer that we've seen some slowdown.

And like we said, we think some of that -- some of those changes we made were about a year ago. They were in the early parts of Q4. So you'll have less headwinds from a year-over-year perspective than we've had so far this year. So that should be a benefit into 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 right off to share with you or communicate today. We -- I have requested that the team look at kind of -- as we look at the go-to-market and the industries that we're going to serve, I think that will help frame up for us, respectively, across each one of those verticals, if you will. And then what we'll do is we'll share what we think that full opportunity is. But as you're well aware, in the industrial space, especially in distribution, industrial distribution, it's double-digit TAMs across different dimensions. And it's -- we're going to be very intentional, and we're going to make some investments across certain industries and lean into others.

So I don't have a number today, but my hope is that I'll be in a better position to share with you once we wrap up the full year and what we're positioning and looking to move forward in '26 with.

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 jump in on that one. So if you think about it, last year, when we reported our third quarter, we were in a position where we're seeing revenue decline and some softness on the bottom line. As you can imagine, that directly correlates to kind of how variable comp is earned both at the selling level of the individual contributor, but also to management and executives kind of how we earn variable compensation and non-equity incentive compensation.

So last year, we were in a period where that was actually coming down or being reversed in the third quarter. This year, we're really booking to our plan and thinking about how that's being accomplished. So there is a big year-over-year differential just simply because we're in a point where we're growing our profit this year. Last year, we were seeing some pullback. So just -- it's really the timing of that impact. That is really the almost exclusive driver of the year-over-year change in our SG&A portfolio.

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.