Prepared remarks
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 e-procurement 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 one-time 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.
Questions and answers
The first question today comes from Michael Francis with William Blair. We will 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.
Great quarter. I wanted to start off on gross margin. The margins excluding 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 I would love to know sort of what the puts and takes are within that bucket.
Michael, I'll take that. So when we think about that, one of the things we saw, again, like you're right, if we exclude the tariff refund portion and get back to that non-GAAP 34.7%, down from that previous high, I think what we're seeing is the number one impact in the period was continued inflation within our transportation network. Both LTL and UPS or parcel-related charges saw increased fuel surcharges. While some of that was passed through to customers, other portions were absorbed by the company, which impacted gross margin. One other thing we saw in the period was really our mix of orders. When we look at the different gross margin rates across bands and sourcing channels, the sales channels were fairly consistent. But when we looked at total mix, we saw a decreased gross margin rate. One area specifically was larger orders where we had more large orders. While that provided a bit of headwind on the gross margin line, these are profitable orders and projects that are accretive to the overall business. We do expect these factors to continue into Q3, and we'll continue to mitigate effects for our customers where 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 driving results today and which you think will be most important going forward.
Thank you for the question. I touched upon a variety of things, but our specialization expansion and services strategy is working. Most important is a combination of what I mentioned, but in particular we changed the go-to-market strategy and built out an outside sales team, which provides more interaction and gets us more entrenched with our customers. Those efforts are starting to convert. In addition, we've looked at product assortment and are focused on our brands while also expanding national brands into the marketplace. Tex highlighted some of the mix shift, so we're settling into a different profile as we move forward. All of that is converting well, and we're seeing growth that is sustaining. That gives us confidence to think about where we reinvest to continue to scale and grow. We're watching everything closely and remaining prudent, staying the course on strategy and execution, aligning the organization to move faster into the marketplace. So far, so good, but we're in the early innings and still have more to do.
Okay. And then last one for me. You've got more cash now than you've ever had. I'd love to know what's driving that beyond just the tariff refund. Also, are there any plans we should think about behind this, whether that be M&A, buybacks or some sort of special dividend?
Yes, you're right. When we look at that quarter-end cash balance at about $86 million, there was $10 million of that tariff refund that actually hit in Q3 and was on the balance sheet as a receivable at quarter end. We have a very good cash position. Our cash conversion has been strong, reflecting the overall sales profile translating into good collections of receivables. We're continuing to focus on our capital allocation strategy, which includes investing in the business where appropriate. You saw that we continued to buy back shares in the period, approximately 160,000 shares at an average price just under $30. Our dividend will be a continued use of expected cash flow. We do have a healthy balance sheet at this point.
The only thing I'll add is that I'm also looking at M&A opportunities. That's something we're building out a pipeline for and leaning into more to help us execute, expand and speed up our go-to-market.
The next question comes from Anthony Lebiedzinski with Sidoti & Company.
Certainly nice to see the solid second quarter results. Just wondering, as you progressed 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 consistent throughout the quarter?
Anthony, when you think about average daily sales, we've had a shift in the calendar with July 4 falling into our second quarter this year versus third quarter. But on an average daily sales basis, our growth rate was pretty consistent throughout April, May and June, and that stability is something we saw through the first part of the year as well. It's very stable, with good growth consistently. As Anesa highlighted, that growth rate has continued into the third quarter.
That's great to hear. Then, as we think about your core SMB customers, you talked about some strategic accounts and gave some data points on GPO customers. Could you comment on what you saw from your traditional SMB customers? Have they had similar performance as recent quarters?
We saw broad-based growth across our customer verticals, with especially solid growth among the largest customers. However, we also saw good e-sales across the business; e-commerce was up and new account generation increased. So we saw solid growth across the portfolio, with particular emphasis on larger customers where we saw the most opportunity. But it truly was broad-based growth across our customers this quarter.
The small and medium businesses remain an important target customer for us. We're lining up to support and meet their needs as well. We're undergoing meaningful changes in the way we go to market and are better understanding those customers, bringing customer centricity to how we organize and serve their needs.
One of the things you've been working on is creating more of that customer-centric culture. Where are you in that journey now, and how should we think about the impact on the company as you further expand this initiative?
Great question. We're in the early innings of this journey. It's a significant change at the company, and it's positive change, but it takes time. I gave kudos to our team for their efforts as they adapt to better understand our customers. Understanding customers has implications for how we align across the company. We expect to settle into a rhythm and cadence coming out of 2026 into 2027, and then build and scale the business to meet needs and capture more market share. We're managing both the controllable and the uncontrollable factors as best we can. The strategy is working, the organization is aligning, and customer centricity is permeating the company, but it does not happen overnight.
Lastly for me, regarding gross margins: excluding the tariff refunds, it was 34.7%. With changes in seasonality, product mix and customer mix, how should we think about gross margins for the balance of the year?
In the last two quarters, we've seen very consistent adjusted gross margins at 34.7% and 34.8%. Given current order mix, customer mix and sales mix, that's probably a reasonable baseline to project going forward. Last year we benefited earlier in the year from certain pricing actions ahead of tariffs, which contributed to higher margin rates and then declined into Q4. Right now, we don't expect as many of those pricing actions, but we'll continue to monitor changes in trade policy, fuel costs and other factors. Sales, marketing and merchandising will continue to work together to set the right pricing and value proposition for each customer set.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.