Good afternoon, ladies and gentlemen, and welcome to Global Industrial's Second Quarter 2021 Earnings Call. At this time, I would like to turn the conference over to Mike Smargiassi of the Plunkett Group. Please go ahead.

Thank you, and welcome to the Global Industrial Second Quarter 2021 Earnings Call. Leading today's call will be Barry Litwin, Chief Executive Officer; and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question-and-answer session. 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 other risk factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. This press release is available on the company's website and has been filed with the SEC in a Form 8-K. This call is the property of and is copyrighted by Global Industrial Company. I will now turn the call over to Barry Litwin.

Thanks, Mike. Good afternoon, everyone, and thank you for joining us. Today marks our first call as Global Industrial Company. In January, we launched our new brand identity. And in June, we changed our name and Ticker to reflect our long-term strategic vision, and position as a leading pure-play industrial distributor. The business that is today Global Industrial was founded in 1949 and has always been at the core of who we are as a company. This was an exciting change, and we're now fully aligned with all stakeholders under the Global Industrial brand. Turning to our results. We delivered a strong second quarter performance on both the top and bottom line. Revenue increased double digits for the fourth consecutive quarter, growing over 12% to $272 million. Customer demand was healthy throughout the quarter with solid performance across core categories and within Global Industrial branded products. We were very pleased with profitability as we delivered gross margin gains on both a year-over-year and sequential basis, reflecting continued execution on our ACE strategy and completion of the transition to a new third-party logistics partner. The elevated costs associated with the transition are now fully behind us, ahead of the time line we shared on the first quarter call. Our success continues to be grounded in our ACE strategy and the execution of our playbook across the organization. Our associates have fully embraced our customer-centric mission, and we are accelerating our ability to deliver an exceptional and frictionless customer experience. The reopening of businesses and a growing economy has helped fuel the recovery in core product lines, -- We are seeing strong demand for global industrial branded products in both traditional and new product categories. Private branded products remain our fastest-growing offering which is a direct result of efforts to increase its…

Thank you, Barry. I will now address our performance in more detail. In the second quarter, revenue grew 12.6% over Q2 of last year. Revenue was $272.6 million. U.S. average daily sales growth was 12.3%, while Canada average daily sales growth grew 4.9% in local currency. We saw weekly sales volume grow each month during the quarter compared to last year and exited the quarter with low single-digit growth in June against increasingly strong growth comps last year. I would like to remind everyone that we had a record performance in the third quarter of 2020, with revenue growing 17% and record profitability with PPE incentivizing supplies making up roughly 11% of sales. Customer demand was strong throughout the second quarter and outpaced our invoiced net sales growth. Open orders increased as we move through the period due to supply chain constraints, which delayed our ability to fulfill select drop ship and stocked products. Many of these products are currently in transit, and we expect to maintain a more normalized inventory position moving forward. We recorded growth across all sales channels, led by e-commerce, which accounted for approximately 57% of our transaction count, up 100 basis points from the prior year. Sales benefited from the continued rebound of core product lines and our private label offering once again increased as a percentage of total sales. Consumable products within the pandemic assortment, including PPE and sanitizing supplies, made up approximately 3% of sales in the second quarter, which is in line with prepandemic levels in the low single digits. This compares to approximately 20% of sales in the second quarter of last year, which was our pandemic peak for PPE as a percentage of total customer demand. Gross profit for the quarter was $98 million, an increase of 15.6% from last…

[Operator Instructions] Our first question today comes from Ryan Merkel with William Blair.

So my first question is on gross margin. I guess a 2-part question. First, how are you managing rising freight and product costs? And then secondly, is the gross margin rate that you just put up to 36%, is that sustainable into 3Q, specifically, typically, I think, seasonally, you'd be pretty consistent there? Just wondering if there's any change this year.

Yes. A couple of things, Ryan. It's a great question given the times we're in. We believe we've got good visibility to gross margin moving through the end of the year. I think on a couple of aspects, we work very hard on the freight cost side. So I think we understand kind of the fundamentals around ocean freight and other areas that have a rising increase in costs in the market. So we feel that we've adjusted appropriately. I think given the supply constraints in the market as well, that's had an impact on, obviously, rising prices. Customers are aware of that. They're willing to pay for availability, and that's also helped, and we don't see that necessarily lessening through the end of this year when that happens. So I think given the market dynamics and how we've leveraged a lot of pricing intelligence data in the market, we're not in a position where our pricing is out of line. We kind of know where we need to be in the market, and that is helping us drive some increase. And we're pretty confident in terms of continuing to maintain that through the year.

Okay. That's great to hear. And then my second question is on sales. You obviously have some tough comps coming up in the second half. And just how should we think about the second half? Should we kind of think about it 3Q typically is pretty consistent in dollars for sales versus 2Q and then you have the typical dip in 4Q? Or is there any reason it would be different this year?

We gave a little bit of a flash obviously through June in terms of where we're ahead. And you're right. As Tex has mentioned, we have a really strong comp because we had a terrific Q3 last year. And I'll tell you, we still see really, really strong demand from the customer side and managing that as you -- as we mentioned on the call, we've definitely seen kind of our demand outstrip, some of our net sales delivery, but that's going to smooth out going forward. So it's definitely a tougher comp quarter for us. And like you guys know, we don't really give a ton of guidance relative to sales going forward. But I think we're seeing some of the dynamics in Q2 relative to top line demand and net sales delivery given supply chains -- supply chain constraints continue for most of the year. So hopefully, that answers some of it.

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

So just wondering, as far as we hear more stuff about the Delta variant and so on. And just wondering if you guys have seen any changes in your customer buying patterns here lately because of that.

Yes. I would tell you that I think certainly across the country as you see some of the indoor requirements at the state level, certainly with schools and other areas starting to require some of the mask back, we would expect to see some light elevation in that area. I don't think necessarily near where the country saw last year at this time. But certainly, we've seen a little bit recently, but I don't think -- like I said, not to last year's levels by any means.

Yes. Barry, I'll just supplement that or Anthony. I think one more -- I think one thing to think about, maybe not related to the Delta variant, but things like outdoor furniture in those areas where we do see our clients and our customers looking to continue to build out the outside of their facilities to be able to give their workers and their other associates that ability to have a non-indoor gathering area. So that's continued to be elevated, but that's really been related to an overall shift we've seen in the last year, maybe not related directly to this recent surge that we've seen.

Got it. Okay. And if you do see a further increase in sales for those types of products, do you have adequate inventory you think for -- whether it's masks or other things?

I think we have enough given the -- probably the level of -- the lower level of demand at this point, but we're perfectly positioned to be able to go into the market and procure more if needed. So we track all of our inventory levels based on the run rates of all the different commodities we'd sell. And we're definitely prepared to go in and make buys if we see volume coming up to those levels beyond our safety stocks.

Got it. Okay. And then you mentioned that you increased your private label penetration. Can you give us a sense as to where you were in the second quarter?

Barry, I'll jump -- let me jump in on that one. Yes. So Anthony, we don't -- that's a number that does fluctuate season -- quarter-to-quarter based on seasonality. So we've not disclosed that number on a quarter-by-quarter basis. We exited last year approximately 40%, and we've seen continued sequential increases from that point on, so both in Q1 and then into Q2. And then again, based on our seasonal product mix, we do typically expect that to remain kind of at its peak into kind of that third quarter, again, primarily comprised of HVAC and other outdoor furniture that really help drive that ratio up. But again, we don't give that specific quarter-to-quarter guidance, but it was elevated both sequentially and year-over-year.

Got it. Okay. And then last question for me. So your SD&A expenses did increase at a slightly faster pace than your revenue growth here in the quarter. Just wondering as to how we should think about the modeling expense growth here going forward for the back half of the year?

Yes, I think 2 couple areas. I mean I think when you think about some of the SG&A (sic) [ SD&A ], certainly, the market for our core products is very healthy right now. So we're continuing to lean more into advertising, marketing and sales expense as we go forward. But it's managed against our targets. So I think we saw a little bit of impact there, a little bit of wage creep relative to our DC. So those are all to be expected in today's market, and we continue to keep ourselves with in line within our SG&A budget targets through the end of this year.

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