CLMB earnings call analysis

NASDAQ:CLMB Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Conference Operator | Operator: Stand by, your program is about to begin. Good morning, everyone, and thank you for participating in today's conference call to discuss CLIMB Global Solutions financial results for the fourth quarter and full year ended December 31st, 2025. Joining us today are CLIMB CEO, Mr. Dale Foster, the company's CFO, Mr. Matthew Sullivan, and the company's investor relations advisor, Mr. Sean Manzuri with Elevate IR. By now, everyone should have access to the fourth quarter and full year 2025 earnings press release, which was issued yesterday afternoon at approximately 4.05 p.m. Eastern Time. The release is available in the investor relations section of Climb Global Solutions website at www.climbglobalsolutions.com. This call will also be available for webcast replay on the company's website at following management's prepared remarks will open the call for your questions. I'd now like to turn the call over to Mr. Manzuri for introductory comments. Sean Manzuri | Investor Relations Advisor, Elevate IR: Thank you. Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements which are being made only as of the date of this call. except as required by law. The company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements. Our presentation also includes certain key operational metrics and non-GAAP financial measures, including gross billings, adjusted EBITDA, adjusted net income and EPS, and effective margin as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. I'd now like to turn the call over to CLIME CEO Dale Foster. Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Thank you, Sean, and good morning, everyone. 2025 was another exceptional year for CLIME as we generated record results across all key financial metrics. These achievements reflect the continued execution of our teams, that are driving organic growth by strengthening relationships with existing vendors and customers, collectively adding innovative technologies to our line card and while driving and delivering operational efficiencies throughout our business. In the fourth quarter alone, we evaluated nearly 100 potential vendor relationships and signed agreements to only two of them. Notably, in December, we launched our partnership with Fortinet, a global leader in cybersecurity and secure network solutions serving enterprises. We also serve service providers, government customers worldwide. Fortinet is quickly becoming a primary onboarding focus and we expect to ramp them up quickly and will become a meaningful contributor to both their business and client business. We look forward to building a long-term mutual beneficial relationship with Fortinet and their channel while delivering incremental value to our reseller network. While we focus most of our efforts in Q4 on onboarding Fortinet, there were other positive achievements from the Alliance perspective. The fourth quarter of 2025 was only the second full quarter since we kicked off our relationship with Darktrace. As a reminder, Darktrace is a cybersecurity company that uses self-learning AI to detect, investigate, and respond to cyber threats in real time across the entire organization's digital infrastructure. In Q4, QLIME had 70 partners transact over $13 million in Darktrace product offerings with significantly more quoted pipeline ahead of us. We continue to work closely with the Darktrace team to expand partner enablement and drive broader adoption across our channel, positioning the relationship for sustained long-term growth. In addition to strengthening our vendor portfolio, earlier this week, we announced the acquisition of Interworks.cloud, a Greece-based specialist cloud distributor serving the Southeastern Europe reseller market, including Greece, Malta, Cyprus, and Bulgaria, and more. Interworks brings an established regional platform with over 600 cloud resellers and managed service providers, along with a curated vendor portfolio that includes Acronis, Google Workspace, AnyDesk, Blackwall, and most notably, Microsoft. I've had the pleasure of working alongside the Interworks team for nearly a decade now, and over that time, we've developed a strong alignment in our culture, strategy, and partner focus. They bring an experienced management team, a well-established Microsoft CSP business, and a multi-country footprint and deep expertise in cloud marketplace and MSP-focused distribution. Together, these capabilities enhance our ability to drive cross-sell opportunities, deepen our engagement with our vendors and reseller partners, and further position Climb as a distributor of choice across the Southeastern Europe region. A critical component of this transaction is that we are bringing the full Interworks organization into Climb, and this team will become part of our overall EMEA go-to-market structure. Maintaining the strength of their local leadership and partner relationships was a priority for us, and we believe continuity at the operational level will be essential in sustaining momentum in the region. At the same time, by integrating Interworks into our broader infrastructure, we can provide additional resources, scale, strategic investment to accelerate their growth. We expect the transaction to be immediately accretive to our earnings and adjusted EBITDA and look forward to the unlocking synergies and cross-selling opportunities as we integrate Interworks into our global platform in the coming months. Looking ahead, we remain focused on accelerating organic growth. At the same time, we have our internal development team building generative AI solutions to make our entire team more efficient. We will also continue to pursue accretive M&A opportunities that can strengthen our vendor portfolio and expand our geographic footprint. We believe these initiatives, coupled with our disciplined execution and strong balance sheet, will enable us to deliver on our organic and inorganic growth objectives in 2026. With that, I will turn the call over to our CFO, Matt Sullivan, and he will take you through the financial results. Matt? Matthew Sullivan | Chief Financial Officer, CLIMB Global Solutions: Thank you, Dale, and good morning, everyone. A quick reminder, as we review the financial results for our fourth quarter, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. As reported in our earnings press release, gross billings increased 3% to $625.4 million compared to $605 million in the year-ago quarter. Distribution segment gross billings increased 4% to $602.3 million, and solution segment gross billings remained flat at $23.1 million. Net sales in the fourth quarter of 2025 increased 20% to $193.8 million compared to $161.8 million. which primarily reflects organic growth from new and existing vendors. As we've mentioned in the past, the calculation of net sales is influenced by product mix and the respective adjustment to convert gross billings to net sales for financial reporting purposes under U.S. GAAP. In the fourth quarter, we had an increase in sales of products that were recognized on a gross basis and therefore leads to a smaller adjustment from gross billings to net sales. Gross profit in the fourth quarter was 29.8 million compared to 31.2 million, The decrease was primarily driven by a large vendor transaction in the year-ago period that carried a higher than average margin profile. Selling general and administrative expenses in the fourth quarter of 2025 were $18.2 million compared to $17.1 million in the year-ago period. SG&A as a percentage of gross billings was 2.9% for the fourth quarter of 2025 compared to 2.8% in the year-ago period. Net income in the fourth quarter of 2025 remained flat at $7 million or $1.52 per diluted share compared to the prior year period. Adjusted net income was $7 million or $1.53 per diluted share compared to $10.3 million or $2.26 per diluted share for the year ago period. Adjusted EBITDA in the fourth quarter of 2025 was $13 million compared to $16.1 million for the same period in 2024. The decrease was primarily driven by a large vendor transaction in the year-ago period that carried a higher flow-through to adjusted EBITDA as sales compensation expense related to this transaction was paid through a contingent earn-out. And that was included in the change in fair value of acquisition contingent consideration add-back with an adjusted EBITDA in the year-ago period. Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit, was 43.6 percent compared to 51.5 percent for the same period in 2024. Turning to our balance sheet, cash and cash equivalents were $36.6 million as of December 31st, 2025, compared to $29.8 million on December 31st, 2024, while working capital increased by $27.7 million during this period. The increase was primarily attributed to the timing of receivable collections and payables. As of December 31st, we had $200,000 of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility. Consistent with our capital allocation priorities, the board has determined to suspend our quarterly cash dividend beginning in the first quarter of 2026. This decision allows us to retain additional capital to support organic growth initiatives and strategic acquisitions while further strengthening our financial flexibility. Based on the company's strong return on equity, the company plans to reinvest the capital for higher growth initiatives. Looking ahead, our strong liquidity position provides us with the flexibility to pursue both organic and inorganic growth opportunities while expanding our relationships with vendors and customers worldwide. We will continue to be active on the M&A front as we evaluate accretive targets that can strengthen our vendor profile and expand our geographic footprint. With a disciplined approach to expansion and a continued focus on execution, we believe we are well positioned to deliver another year of growth and enhance profitability in 2026. Dale, back to you. Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Yeah, thanks, Matt. And, you know, before we open this up for questions, I'd like to address a couple points. You know, some of them have just come up over the last couple days when everybody's seen, you know, some of the AI disruption in the market. First, you know, on the dividend, it's a thoughtful decision made by our board and one that I fully support. As we evaluate the opportunities in front of us, we believe the best way to drive long-term federal value at this stage is through discipline, capital allocation, and strategic reinvestments in the businesses. We operate in an ecosystem where many of our customers and vendors are backed by private equity firms, which has provided us kind of a unique perspective on how successful operators deploy capital and accelerate growth and also enhance the returns with their portfolio companies. We intend to take a similar tactic at Climb, and candidly, we've already begun to do so in the way of our now six acquisitions in the last six years with the addition of Interworks.Cloud. With a strong balance sheet and liquidity position, our priority is to allocate capital toward initiatives that improve operational efficiency and strengthen our competitive position. That includes continuing to streamline processes, leveraging AI and automation tools where appropriate, utilizing, you know, prudent leverage when it enhances our returns, and pursuing strategic acquisitions in our ecosystem that align with our go-to-market strategy. And we believe all this will create, you know, long-term shareholder value for our shareholders. The second point, which is, you know, over the last couple days on the AI disruption, you know, these are the disruption of AI engines and large language models, large language models or LLMs that have come into our market. And more specific, you know, they're going to interface with or take out SaaS vendors we currently are carrying or prospecting. So I've been around a long time in this business and remember a similar talk track around the cloud. I had to do a lookup, but AWS announced in 2006 that cloud was open for business. That was 20 years ago. And just 20 years later, and it was just last year, that cloud workloads that were workloads and storage in the cloud just passed the 50% threshold versus on-prem or private clouds or private on-prem environments. So the real-world environment today for cloud is really a hybrid one. Do I believe, or yes, that AI will move much faster than 20 years? Is there an adoption rate? For sure that's going to happen. But we still believe it's going to be more of a hybrid environment, just like cloud is. I think it's 98% hybrid right now. So the AI environment will be a hybrid one. While we are very small and we're a very nimble company in our market, You know, we are still connecting technology builders with users. We can pivot quickly as we have done over these last eight years. As the market moves, we will move and move at that same speed. And whether we have a standalone AI systems, AI agents, hybrid SaaS that's out there or platform of service, you know, we will be selling emerging technology products that solve real world problems. And regardless of the computing environment, we believe we will have a place as that connector of technology. And this concludes our remarks, and we'll take it to the operator for questions. Conference Operator | Operator: Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star and 1 if you would like to ask a question. And we'll take our first question from Keith Hosman with North Coast Research. Please go ahead. Your line is now open. Keith Hosman | Analyst, North Coast Research: Good morning, guys. Appreciate it, and congratulations on the acquisition here. You know, just looking at that large acquisition that happened the prior year, can you guys just give us any scope in terms of how big that was in terms of we want to kind of think about what the year-over-year performance was without that? Any way to kind of scale it out? Matthew Sullivan | Chief Financial Officer, CLIMB Global Solutions: Yeah, so we talked a bit about it last quarter, and thanks, Keith, for joining and calling and dialing in. When you remove that large transaction in Q4 of last year, our recurring and organic growth still was in the high teens for Q4 compared to Q4 of last year. Keith Hosman | Analyst, North Coast Research: Great. And that's both gross buildings as well as EBITDA basis? Correct. Yes. Great. Appreciate that. And then you guys, I think it was early last year, announced the departure of Citrix. And can you talk a little bit about the impact that had on the corridor? Have you guys been able to completely offset that loss with other vendors? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Yeah, I'll say that quickly. So we still had input from Citrix, and we still have it through 2029. It's some residual stuff because of the nature of some of the agreements that go out with our customers. That's a year-over-year recurring. So we had impact, not as... not as impactful in Q1 of 2025, but then the rest of the year we looked at as a $50 to $60 million hole. And if you, you know, I was at our SKO over in the UK, and our team still with that big hole grew at 3%. So they made that entire $60 million up in the last three quarters, which is a testament to number one, picking up new vendors. Uh, they picked up vendors that we have on the U S side. Like I said, and we've continued to say that we were signing global contracts now. So it's the choice of the sales teams in their regions and what they want to sell. And some of them are pushed on them. Other ones are, you know, that they're prospecting on their own. So the team did an incredible job. I mean, we, we kept, and like, I love to say Keith is that, you know, we're salespeople, um, we'll take the next product and take it out to market. And, uh, They filled that pretty quickly and expanded some relationships with vendors that actually compete with Citrix, and we took some of that over back that we lost. Keith Hosman | Analyst, North Coast Research: Great. Impressive. I appreciate that. Turning over to the Interworks acquisition here, the 86% growth in EBITDA year over year, how should we think about going forward, like the go-forward run rate or the starting point? I mean, was there anything unique in that 86% or is that roughly a million dollars in EBITDA a good starting point for those guys? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Yeah, that's a good starting point for them. But there's a couple things that, you know, we didn't get into detail on the call. But so Microsoft came up and said, hey, we're going to consolidate our distribution worldwide. And they set a threshold. So there was a lot of scrambling over the last 14 months that said, if you don't meet this threshold, you'll lose your distribution agreement with Microsoft. And both us and Interworks.Cloud were in that same position on our climb side. And we wanted to keep that relationship because we believe Microsoft is a tier one, but it's also where people want to go. And so there's two reasons. Number one, we were combined as a company. We get to that $30 million threshold with Microsoft. Number two, we are moving into a cloud environment and we've talked about it for a while. And I'm going to have our CPC event with all of our top customers and vendors next week. But, you know, I'm going to have a slide just on our failures. And one of the failures we've had is we haven't been able to get to our 2.0 of expedition of a cloud marketplace or platform. Well, Interworks is already there. They're transacting in a very, you know, eloquent way with their customers, almost like a self-service. And they do a lot with MSPs, hybrid VARs, that we do this as well, but not as quickly as they do. So it's going to be a learning curve in the DNA transfer between the two companies. Their parent company that we acquired them from is called Infotera, which is the platform that we both use. And actually, all of our locations use that platform. So we see more and more of our vendors going on to the platform and marketplace. And the Greek team will help us and educate our teams on the U.S. side and the Europe side. Keith Hosman | Analyst, North Coast Research: Great. I appreciate that. And then a final question for me before I turn it over. The working capital increase and the timing of collections, does that already then work through? Orish, how should we think about that going forward? Matthew Sullivan | Chief Financial Officer, CLIMB Global Solutions: Yeah, so it's a usual timing difference. So, with the large transaction at the end of last year, those receivables and payables have already been collected during 2025, and then it's been worked through here in early 2026. Keith Hosman | Analyst, North Coast Research: Great, thanks. I'll turn it back over. Conference Operator | Operator: Thank you. We'll take our next question from Vincent Cagliuccio. With Barrington Research, please go ahead. Your line is open. Vincent Cagliuccio | Analyst, Barrington Research: Yeah, Dale, congrats on beating the expectations this quarter. Was your growth broad-based across your top 20 on an organic basis, and were there any lumpy deals in the quarter? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Thanks, Vince. Good to talk to you. So no lumpy deals in the quarter like we had before in 2024 and Q4. But it was across our vendors. The ones I talked about, you know, our dark trace continues to rise up. You know, we talked about our top two vendors, Sophos and SolarWinds. SolarWinds, you know, I think we talked about in the last release they acquired by Turn Capital or Turn River. And so there was some disruption as they went through their pricing model changes. But we actually, you know, finished really strong with SolarWinds as they've gotten through some of their pricing structure and their go-to-market. But other than that, it's the top 20 make that biggest impact, and it's been very stable. Vincent Cagliuccio | Analyst, Barrington Research: And has the revenue momentum that you've seen in the quarter carried through in 26? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Well, you know, you're always going to see Q4, and it's always been this way, is always our biggest quarter because people, you know, going back to, you know, we have our reoccurring revenue with our annual subscription. So Q4 has always been large, so it'll continue to be large because that's when the renewals come up. We do the Douglas Stewart acquisition, and you'll see a rebranding kick off next week for all the climb stuff on the sled and education side. But they typically have a down quarter in Q1 that we experienced last year because it's just flat, and then all the buying picks up for that. But other than that, it's pretty cyclical like it has been for the last five, six years. Vincent Cagliuccio | Analyst, Barrington Research: On the AI side, have you identified use cases for internal use? Are you at that stage? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: We have. So Vishal, our new CIO, has been on board now for seven, eight months. He is the most popular person in our company because everybody's looking to him to solve efficiency issues. And we've You know, he is front and center at our sales kickoffs. So we have a tech guy, you know, kicking off and people are asking and it becomes, you know, quite the entertainment having our CIO be the center of attention, which is great because we're just solving so many internal things that we need to work on. You know, we went live with our ERP almost two years ago, and now it's how to make that more efficient. What AI tools? And if you look at Vishal's background, right, so he came from WWT, which is a $30 billion reseller, one of our customers, one we have great relationships with. But he's already gone through a lot of this, you know, because of the, you know, they have the dollars to really spend on this and adopt it early. So he's really running kind of the same plan that he had at WWT. So he sees what needs to be done, and it's how fast we can implement it. So we've done a couple things. We have a bigger implementation and development team inside of Climb. We have outsourced some of the smaller connector products, projects that we have, whether it's EDI or XML or APIs. So everything is moving faster. And he's identified so many different efficiencies because we still, and what I like to say is we're the fastest of the turtles. So if you look at Distribution has been done, what we've been doing for 30 years. All we're doing is moving a license key from a vendor all the way to a user. And our goal is to do that much faster, but we're still doing things that we did 15, 20 years ago. So Vishal's saying, hey, we can do this much quicker and without the expense of the labor that we have right now. Vincent Cagliuccio | Analyst, Barrington Research: What is the timeline for when Interworks can provide cross-selling synergies? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: So our teams, you know, because we have the Microsoft distribution agreement already, and Microsoft is well aware of ahead of time with confidentiality of the agreement, you know, we have it for all the EU countries. So we are going to, you know, if you take a look at it just from just a mental geographic look, you know, here we have, you know, the UK and Ireland that we're very strong in, and now we have Southeastern or Southwestern Europe, Southeastern Europe. And between those two, we have, you know, 20 countries in between there that we're going to attack with that Microsoft agreement and then all of the cottage industry products that go with that. So Interworks, number one, will be onboarding vendors that they see as a great fit that we have because we have a big, robust portfolio of vendors compared to them. And then on their side, they already have in the cloud, on the marketplace, vendors that are transacting that we will take advantage of. So you'll see those integrate very quickly. And the fact that we're already using the same platform, it's really getting those two interconnected so that the teams feel pretty seamless and so do our customers. Vincent Cagliuccio | Analyst, Barrington Research: Last question for me. In your conversations with resellers, what is the pulse on the market in terms of the health of the market versus the prior quarter? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Yeah, I would be better to answer that next week as we have an open session with our resellers. But As far as, you know, and I'll take this from the vendor standpoint first, and that is, Vince, there's so many vendors coming at us, right? We have to say no, we have to say no, because there's that many, and we have to keep moving our threshold up as far as what can we do in the first 18 months? You know, it used to be $2 or $3 million now. Is it $15 million that we can do in the first 18 months before we'll even find them? What is the real go-to-market strategy? Does it fit ours? So we're just asking a lot more questions because we know when Charles, our chief alliance officer, says yes, that's when all the man hours kick in for us. So we want to make sure that we have a good, you know, base to start with before we say yes to that vendor to onboard them. On the reseller side, we haven't seen slowdown. We've seen some consolidation between, you know, companies buying each other up, which is a natural occurrence for us. But for us, we're typically transacting with both parties anyway. So it's just a timing thing. Thanks, Bill. Conference Operator | Operator: Thank you. We'll take our next question from Bill DeZellum with Tyington Capital. Please go ahead. Your line is now open. Bill DeZellum | Analyst, Tyington Capital: Thank you. Would you please walk through the size of the Fortinet relationship and what the potential is for that to move the needle for clients? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Yeah, so Bill, thanks. Take a look at Fortinet. They're on the NASDAQ, right? A great company. The relationship started from the top. It usually starts in the middle and then moves up, but this one started at the top with C-Levels. They have some of the bigger distributors that are out there. They have two of the largest distributors in the world, so why do they need Climb? It's really for what we do for companies that are just getting into the market, and that is to fill in a lot of the gaps and being that high touch distributor that's going into a wider market than just tier one or Fortune 500 companies. So if you look at what their overall sales, and I think they break them down, it's about a $2.5 billion addressable market in the US that they're already selling into. uh you know who are they competing against right if you look up the stack they're competing with palo alto juniper and cisco that's their three big above them they're considered number four and then below them you know we carry some of those lines below them but they said wait a second we have a targeted distributor they have field sellers and i think this this would be the most important uh thing to take away and that is when we're talking to their executives, they said, wait a second, you mean we can fly into a region because we have regional sales people and your sales reps will take us into three new resellers that we've never met before? And I'm like, that's what they do every day with vendors. They don't get that from tier one or the top distributors because they can't take them in there when they're selling Cisco Juniper and Palo Alto and those, those customers, because they're like, Hey, we're displacing one of our other vendors. We don't have that issue at all. We don't have a really cross competing product with a Fortinet. We have a bunch of smaller ones, but nothing that goes as wide as Fortinet goes. And if you look at what they do, I mean, they Fortinet goes all the way from firewall to cameras, right? I mean, they are such engineering type company. So it's a good fit for us. Uh, And, you know, the acceptance, so look at $2.5 billion, you know, 10% of that is something that we're going after in the next 18 months, and we think we can get there. And I think Fortin will be our top three vendor this time next year. Bill DeZellum | Analyst, Tyington Capital: So, Dale, if I do that math, 10% of $2.5 billion, are you saying that you're thinking that this could lead to $250 million of gross billings for you, Dale? And I guess it would be 27 if we look out a year from now. Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Yeah, I think so. I think it's 18 months that we'll get on that run rate for them. It's just a good relationship. You know, the Fortinet teams, the first thing that really happens, and when I say this magic happens, it's when our field sellers get with their field sellers and go into new accounts and give the value pitch. It only takes a couple times to do that, and then our teams take it from there, and they don't have to do a four-legged call. It's them delivering the four-net pitch as they get familiar with it. So we're getting closer and closer to them. They've been just a great partner. They feel like a small company touch to us, which is refreshing. Bill DeZellum | Analyst, Tyington Capital: That's helpful. And congratulations, by the way. That's a great, great win. Let me take that one step further. Do you see other companies that are in a similar situation where all of a sudden someone in their C-suite is saying the same thing that you heard from the Fortinet leaders? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: I feel like you're reading my email, but yes. We were getting many inbound from companies that are much, much larger. And, you know, I mean, I'll bring up CrowdStrike. We talked to them about two years ago. We were in a competitive with some of the other distributors. They decided to go a different direction based on some of the support that some of these other distributors would give them or potentially, you know, say that they would give them. But You know, if I go back six years, Bill, we were out there, you know, signing companies that would fog a mirror and just go after them because we needed to have more products for our sales teams to sell. Now the focus is curating the ones and the relationships that we currently have or almost ready to sign to make sure that they're really the right ones for us. But, yes, we're getting larger companies and larger at-bats with them. without having to prospect them, for sure. There's some, you know, multi, you know, in the $500 to $600 million range companies we're talking to on a regular basis. And a lot of times we say no because they're not ready for us or we're not ready for them. It could be a connection through systems that we don't think that we can, you know, we'll burn more cycles than it's worth. But we are getting a lot of those at bats. And You know, the other thing is we say we have a limited line card, but it keeps, you know, sneaking up on us, and then we push our vendors over to Climb Elevate just to transact, and I want to continue to limit our line card. We say it's 70. I want it to be 50, but really it's 100 right now because we haven't pushed them over to our Climb Elevate where we'll still transact, but it just burns cycles, and we want to focus our sales and marketing and service cycles on our top 50. Bill DeZellum | Analyst, Tyington Capital: Thank you. And a couple more questions. Let me shift to Citrix. The implication then of the way that that change took place last year is that the comparison that you all are going to have in Q2, Q3, and Q4 of this year could lead to very strong comps given that you last year simply had to fill in that hole and now you're going to be building off of that. Is that the right way to think about that? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: It is. I guess it feels like it's already been done with us, Bill, because we've been there, done there, forgot about it, right? We've already filled it in with other vendors. We know what our run rates are. And that's the nice thing about this recurring revenue model is we know that 80% to 90% of what we sold last year, that as long as we're doing a good job and the vendor is still producing a good product and good updates, that we're going to get that renewal. I mean, the goal is to have the renewal rate over 100%, which means they're picking up more license and seats going forward. But, yeah, we really haven't thought about it that way. We look at just what our run rate is. What is our piece with Citrix? We've already forgot about that. It's been in the news quite a bit just on the different taxes Citrix has made. Their last one was kind of funny that they said that they are truly a channel company, even though they cut a big chunk of the channel out a year ago. I think they thought people forgot about it. But we've replaced it. We have two or three different lines. We're getting ready to sign a line that goes back to our Citrix customers. We were replacing with some of the Microsoft business, which is a competitor to Citrix, and same thing with Parallels, which is another one of our vendors that we've replaced that whole with. Bill DeZellum | Analyst, Tyington Capital: Great. Thank you. And then one final question, please. I think that yesterday Vast and Supermicro signed or announced a deal. What are the implications, if any, for that with you all? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Yeah, and so VAST data, you know, they have their user conference. We have people there in Salt Lake this week of our team members, both from the European side, which is a bigger number, and then from the U.S. side. And I think it's a good thing. I assume they use the conference to announce that. But if you – I think it's only good, right? VAST, you know, says they're a software company, but they're still, you know, it's a big piece of hardware that goes in its distributors or it's the OEMs like a Supermicro. And we have a relationship with Supermicro we've had for the last 10 years. It's a good thing because right now a lot of their builds are being done by a company called Telrad that Arrow bought. So that's the build. So what does it do? It just makes it faster because right now, you know, VAST is dependent on this hardware, you know, GPUs, who has the GPUs, who has the metal to put their software on top of to run. So I think it'll actually speed up the actual delivery cycle of all these big you know, AI engines that need fast data storage, you know, because that's what that does. I mean, they are, it's about how fast they can deliver data up to an AI engine. So I think it's only a good thing. And Supermicro has some of the best products out there. I mean, that's how most of If everybody remembers the HCI, the compute space with Nutanix and Rubrik, that was all based on Supermicro for the longest time. So it's just a good alternative to what they currently had. So it's a number two, and I think it'll be good. Great. Bill DeZellum | Analyst, Tyington Capital: Thank you, and congratulations on a strong quarter. Thanks, Bill. Conference Operator | Operator: Thank you. We'll take our next question from Howard Root, who is a private investor. Please go ahead. Your line is now open. Howard, please check the mute function on your device. Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Sorry about that. Howard Root | Private Investor: Congratulations on a nice conclusion to the year. I'll try to be briefer. I got two questions, one on M&A. You know, it looks like the Interworks was kind of right within the middle of your playbook. You know, it's a territory expansion. You've got synergies. You knew them very well. And then it's 9.4 times adjusted EBITDA. Is that, you know, how do you see that fitting in? Is that the way to look at it? Is that a little expensive? What do you see as the market out there for acquisitions going forward? Has it come down based on market turmoil? Where are you right now? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: So, Bill, I'm sorry, Bill. Sorry, Howard. So, Howard, here's how we kind of think about it. And we go back to our early days of acquisitions, you know, when we were trading in that, you know, seven to nine range. And that's kind of where we look to start. And it depends on, you know, four or five different things. And with these guys, number one, we knew them for a long time. We know their parent company very well. So it was a comfort factor that way. Plus the Microsoft piece of it, as far as we want, you're like, why do you need really any Microsoft? And it's still just a great, um, cornerstone to have in your platform marketplace and in your company. Cause you can, you can add so many products around that to support it. But, but the other piece of it is, you know, what is their margin profile and their margin profile compared to us is double what we have in the U S. So will we pay a little bit more than that, that eight? And I always, I don't know why I always say, Hey, we're going to start at eight. And then what are the positives and negatives? If you look back to the, the, the DSS transaction, why was that as a less multiple? Real simple. I mean, they were all focused on Adobe. So if you lose Adobe, there's just more risk involved in that. So that's how that negotiation happened. On this side, their margins are higher. They're in a territory that we are not in and not have been selling into. And the nice thing about it, they're in a territory that's not that competitive that it's starving for new vendors to get into. So that's how the negotiations went to get to that. But I'm still looking in that same range. We started A and we'll go up or down from there. Howard Root | Private Investor: So just kind of looking on that, following up on that, to me, the only reason to eliminate the dividend is really to grow a pile to do bigger acquisitions. This is relatively smaller compared to like Douglas Stewart was bigger, and that was 18 months ago. I kind of look at, is that a slow pace for you over these 18 months? I mean, it seems that you want to do at least one or two a year. And then is that the way you look at the dividend? Because to cut the dividend to spend money internally, well, you're generating plenty of cash for your internal projects. It has to be using that cash, and we'd hate to see it pile up in Treasury, but really to apply it to buy synergistic targets. And you must be seeing plenty of them out there, maybe larger than this Interworks deal. Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Without giving you specifics, Howard, you're spot on. You're spot on. There's a lot of deals coming at us. We are going to use the capital. I mean, you know, we talked that we are very CapEx-like. And we are going to accelerate our acquisition interfaces. If you look at my travel, I've been in Western Europe more than I have been before because there's that many targets, there's that many ones coming at us. The roll-up that we have talked about that happened in the U.S. from 2006 to 2017 is happening in Europe, and we want to be part of it. Here's the good thing for Kleinman. You have these three massive distributors we talk about all the time. They're $50 billion plus. the targets that we're looking at are so insignificant for them unless they were a real strategic reason. We're not competing with them. We're competing with other strategics that are, you know, similar in size, which is only two or three of them over there, or they're doing a roll-up between the two companies to get larger to make more of a significant impact, or it could be a regional expansion. So right now, I can't tell you how many I've talked to, but how many that we're in discussions with is, you know, a lot more than a handful. So, yes, the dividend will be going, you know, toward the M&A side of things that we think, you know, like we always say, is it going to be a creative to us? Is it going to be an expansion? Is it going to be a vendor acquisition that we can't get or it's going to take too long to get that vendor sign that we think we can take to other regions? But it's all those things lined up. It has not changed, you know, since we started this. Howard Root | Private Investor: And the pace of acquisitions, you'd expect to do one or two in 2026? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Yes. Howard Root | Private Investor: Okay. All right. Well, yeah, I don't want to make you uncomfortable answering stuff on that. But it just seemed that we had 18 months since the last one, and that was not because of lack of effort, but just it didn't come together. And maybe now this is the breaking, and you get three here in the next year instead of zero. The second question for me on profitability, and here, you know, congratulations, you had a really tough comparable in Q4 and having to deal with that. So I'll kind of ignore that a little bit because of the large vendor transaction you had that affected billings and your gross profit. If you look at it over a year, your gross billings were up 18%. Your gross profit was up a little bit less than that. Your margin on gross billings was slipped below 5%. And your SG&A, because of the Douglas Stewart, kind of up 20%. So your income from operations only went up about 4% for the year. And quarterly, your leverage is kind of slipping a little bit. And can you give us a quick how that happened and where you see that go from here? And does the Fortinet and Darktrace additions change your profile. And it looks like Interworks kind of helps you a little bit on that financial profile as well. But do you see that reverting back up where your gross profit on gross billings is above 5% and your SG&A rises less than your increase in gross billings in the year? Dale Foster | Chief Executive Officer, CLIMB Global Solutions: So we're holding, you know, just look at that five range. And, yeah, we slipped it in a quarter. There's some other things in the background that have been happening, but I won't get into some of that stuff. But I can tell you that the focus is, and, you know, I wish I could share some of the slides I shared with our board. But, you know, it's showing how much manual stuff that we deal with in the company. And like I said on the earnings call, You know, we're doing the same thing that we did 30 years ago in distribution, and, you know, Vishal is helping us change that mindset. The first thing when the board agreed to going to a new ERP system was the first prime mover to get more efficient. The second one is taking that ERP system and the – associate applications with connectors and taking just a lot of costs out of the business, right? We are touching way too many, and I'll just give you some inside baseball. We do 12 quotes and perform 12 quotes for about every order that we get. The first move we had about four years ago was when we moved our average sale price per order up from, you know, $200 to $1,500. So we're doing the same work. We're just, you know, the quote size is seven times bigger. So that's number one. It's the efficiency that we think that we can get out of our systems to keep the same labor force that we have today and be, you know, one and a half times the size. And that is the real goal. And back to your, Howard, that you love to point out, you know, that 5-3-2. And this is what I talked about our SKOs, both in the U.S. and in Europe. And it's like how can I move my three to two and a half and my two to two and a half, right, so that I can split the profit and the cost or the SG&A to a 50-50, which I think is our goal and has been our goal for the last couple of years. But it is going to be about efficiencies. Of course, AI is heavy into our company right now doing that, but we look at it as a generative AI, which it just makes everybody more efficient so we can expand and do more with our top vendors. Howard Root | Private Investor: Great. Well, thanks for the explanation and thanks for continuing to make great progress in 2025. Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Yeah, thanks, Howard. Conference Operator | Operator: Thank you. At this time, there are no further questions in the queue. I will now turn the meeting back over to Mr. Dale Foster. Dale Foster | Chief Executive Officer, CLIMB Global Solutions: Thank you to our shareholders board and all the climb team members, you know, and I just want to welcome our new Greek team on board. We had our first kickoff in town hall yesterday with the team. Look forward to everybody being able to meet each other like I have over the last couple years. And with that, we'll conclude the call. Thank you. Conference Operator | Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. jsPDF 3.0.3 D:20260606090046-00'00'

NASDAQ:CLMB Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Call Operator: Please stand by. Your program is about to begin. Good morning, everyone, and thank you for participating in today's conference call to discuss CLIMB Global Solutions financial results for the third quarter ended September 30th, 2025. Joining us today are CLIMB's CEO, Mr. Del Foster, CFO, Mr. Matthew Sullivan, Chief Alliances Officer, Mr. Charles Bass, and Investor Relations Advisor, Mr. Sean Missouri, with Elevate IR. By now, everyone should have access to the third quarter 2025 earnings press release, which was issued yesterday afternoon at approximately 4.05 p.m. Eastern Time. The release is available in the Investor Relations section of Climb Global Solutions website at www.climbglobalsolutions.com. This call will also be available for webcast replay on the company's website. Following management remarks, we will open the call for your questions. I would now like to turn the call over to Mr. Mansouri for introductory comments. Sean Mansouri | Investor Relations Advisor, Elevate IR: Thank you. Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements which are being made only as of the date of this call, except as required by law The company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements. Our presentation also includes certain key operational metrics and non-GAAP financial measures, including gross billings, adjusted EBITDA, adjusted net income and EPS, and effective margin as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts and other important information in the earnings press release and Form 8K we furnished to the SEC yesterday. I'll now turn the call over to CLIMB's CEO, Dale Foster. Dale Foster | CEO: Thanks, Shawn, and good morning, everyone. In Q3, we generated double-digit organic growth and continued to benefit from our acquisition of Douglas Sewer Software, which we acquired in July of last year. We continue to deepen our partnerships with existing vendors while assigning new cutting-edge partners to our line card. Our team consistently delivers solid results, maintains operational discipline, and continues driving growth, even with the challenging comparables from last year. Before diving into Q3 operational updates, I'd like to quickly pass the call over to our Chief Alliance Officer, Charles Bass, to take you through our vendor selection highlights for the quarter. Charles? Charles Bass | Chief Alliances Officer: Thanks, Dale, and good morning, everyone. So, throughout the third quarter, we evaluated more than 70 potential vendor partners and entered into agreements with only four. This reflects our ongoing selective approach to vendor expansion. which prioritizes innovation, market differentiation, and long-term alignment with our strategic objectives. Each potential partner undergoes a comprehensive vetting process that assesses product differentiation, market demand, and integration potential within our go-to-market strategy. So our approach ensures that we continue to deliver cutting-edge solutions to our customers while maintaining the quality standards that have, you know, continued to drive sustainable growth and value creation across our business. What I'd like to do is quickly highlight two cases, two of these wins and how they position us for future success. So first, we launched a partnership with LionGuard. They're a Houston, Texas-based company providing advanced attack surface management and intelligent automation for managed service providers, or MSPs. LionGuard's platform delivers deep visibility across every asset in an MSP's environment, offering real-time intelligence and continuous change detection to proactively identify risk and maintain compliance. The addition enhances our ability to support MSP partners with tools that deliver really unmatched operational insight and control across increasingly complex IT ecosystems. So while the majority of our customers still consider themselves traditional VARs, more and more of our customers consider themselves service providers over time. So LionGuard is exactly the type of product that they need to be successful in position as well for the future. We also partnered with another Texas-based company called Halcyon. They're based in Austin, Texas. and they specialize in anti-ransomware and cyber resilience. Halcyon's product is designed to prevent, detect, and neutralize ransomware threats, helping organizations eliminate the business impact of these attacks. Halcyon represents a strategic addition to our cybersecurity portfolio, enhancing our capability to deliver comprehensive protection and resilience for customers facing increasingly sophisticated cyber threats. In fact, Halcyon is already teamed with one of our largest and best manufacturer partners, Sophos, to enhance their security offerings by co-selling alongside them. So Halcyon can be sold as a standalone product, obviously, but also co-sold with several of our existing partners, making them an ideal partner for Clive's future. So with that, Dale, I'll push it back to you. Dale Foster | CEO: Thank you, Charles. I'd also like to highlight our operations overseas. Our European team continues to demonstrate strong execution as we expand our capabilities in one of the market's fastest growing areas, which is artificial intelligence. AI has become a top priority for both our customers and partners, yet many are still defining practical strategies and identifying the right manufacturers to align with. To help bridge this gap, our team, led by Martin Bichler, launched Climb AI Academy in the DAC region earlier this year. The Climb AI Academy was designed to equip our infrastructure partners with the tools and expertise to effectively position themselves in the AI space while guiding AI consultants through a complexity of this rapidly evolving market. The program offers manufacturer neutral training, clear AI readiness guidelines, and structured curriculum that spans from foundational to expert levels. ensuring every participant receives tailored applicable knowledge. In addition to the AI Academy, it provides internationally recognized ISO and IEC certifications, such as certified AI manager course delivered by trainers with extensive real-world experience. This hands-on approach enables our partners to better translate theory into practice, ultimately helping them deliver more impactful AI-driven solutions to their customers. With more than 700 participants to date and highly positive feedback, our initiative is proving to be a powerful differentiator in helping partners navigate and succeed in accelerating AI market. Looking ahead, we'll continue to work through a healthy pipeline of strategic acquisition opportunities to enhance our offerings and expand our presence in Western Europe. We are seeing increasing interest in the European markets and believe our growing reputation as a trusted high-touch distribution partner positions us well to capture emerging opportunities across the region. These initiatives, coupled with our robust balance sheet and demonstrated track record of accretive M&A, will enable us to close out 2025 strong and deliver another year of record results. With that, I'm going to turn the call over to our CFO, Matt Sullivan, and he'll take you to the financial results. Matt? Matthew Sullivan | CFO: Thank you, Dale, and good morning, everyone. A quick reminder as we review our third quarter financial results, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. As reported in our earnings press release, gross billings in Q3 2025 increased 8% to $504.6 million compared to $465.2 million in the year-ago quarter. Distribution segment gross billings increased 9% to $481.9 million and solution segment gross billings decreased 5% to $22.7 million. Net sales in the third quarter of 2025 increased 35% to $161.3 million compared to $119.3 million, which primarily reflects double-digit organic growth from new and existing vendors, as well as contribution from our acquisition of DSS in July of last year. Gross profit in the third quarter increased 6% to $25.7 million compared to $24.3 million. Again, the increase was driven by organic growth from new and existing vendors in both North America and Europe, as well as contribution from DSS. Gross profit as a percentage of gross billings was 5.1% compared to 5.2% in the year-ago period. SG&A expenses in the third quarter were $16.2 million compared to $13.9 million for the same period in 2024. SG&A as a percentage of gross billings was 3.2% in Q3 2025 compared to 3% in the year-ago period. Net income in the third quarter of 2025 was $4.7 million or $1.02 per diluted share compared to $5.5 million or $1.19 per diluted share for the comparable period in 2024. Adjusted net income was $6 million or $1.31 per diluted share compared to $7.1 million, or $1.55 per diluted share, for the year-ago period. Adjusted EBITDA in the third quarter was $10.9 million, compared to $11.1 million in the prior year quarter. This slight decrease was primarily driven by a large vendor transaction in the year-ago period that carried a higher flow-through to adjusted EBITDA, as sales compensation related to this transaction was paid through a contingent earn-out. Adjusted EBITDA as a percentage of gross profit, or effective margin, was 42.3% compared to 45.7% in the year-ago period. Turning to our balance sheet, cash and cash equivalents were 49.8 million as of September 30, 2025, compared to 29.8 million on December 31, 2024, while working capital increased by 18.3 million during this period. The increase in cash was primarily attributed to the timing of receivable collections and vendor payments. As of September 30, 2025, we had $300,000 outstanding debt with no borrowings under our $50 million revolving credit facility with JPMorgan Chase. On October 28, 2025, our Board of Directors declared a quarterly dividend of 17 cents per share of our common stock payable on November 17, 2025 to shareholders of record on November 10, 2025. As we look to the remainder of the year, our priorities remain clear to build on our operational momentum and continue executing against the strategic initiatives that have driven our success to date. We're actively evaluating acquisition opportunities that align with our growth strategy, enhance our capabilities, and strengthen our presence across key markets. With solid momentum across our business and a proven track record of execution, we believe we will close out 2025 on a strong note and set the stage for another year of record performance. This concludes our prepared marks. We will now open it up for questions from those participating in the call. Operator, back to you. Operator | Conference Call Operator: Thank you. And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw your question at any time by pressing star 2. Once again, to ask a question, please press the star and 1 on your telephone keypad. We'll take our first question from Vincent Colicchio with Barrington Research. Please go ahead. Your line is open. Vincent Colicchio | Analyst, Barrington Research: Yeah, Dale, congrats on another strong double-digit organic growth quarter. Curious, how would you characterize the quarter? Was the growth core based across your top 20? Also, were there any large lumpy deals in the quarter? Dale Foster | CEO: Yeah, no lumpy deals. And then, hence, you know, we've talked about it probably too much. We talked about in Q2 that, you know, we had one of the large orders pull into Q2, and we went and see in Q3. And then, as Matt mentioned, you know, the comparable year over year, we had one large in Q3 of last year. And it's no secret, they're vast data. You know, they're a data center. all focused on the AI market and going into data centers to deliver as much data as fast as an AI engine will take it in. So outside of those two things, definitely organic growth, strong in the majority of our vendors. We only typically talk about two vendors over the last so many years, Sophos and SolarWinds. Sophos is a little flat for us. SolarWinds is going in the right direction. They were acquired by turn river and we're seeing some positives come out of that. Vincent Colicchio | Analyst, Barrington Research: And then in terms of industry's security, I assume still leads growth. Is that right? Dale Foster | CEO: It does. We're over 60% in the cybersecurity space and Charles can talk to it, but still that many companies coming at us do add to our line card and they're mainly in that security space. We have some in the adjacent markets, but And that's really the focus. We were attending the Canalis event in Chicago last week. And it's good to look at some of the data collectors that, you know, we don't have any skin in the game or neither do they on our side. And, you know, that's the, in the next three years, still one of the fastest growing markets if you look at all the different market segments in the IT space. Vincent Colicchio | Analyst, Barrington Research: And then maybe one for Matt. Were there any early pay price discounts of any magnitude that impacted margins? Matthew Sullivan | CFO: No, there were no new relationships on early pay discounts. Our similar customers continue to take advantage that have this offer to them, continue to take advantage of it. But as a percentage of gross billings, it's consistent period over period. Vincent Colicchio | Analyst, Barrington Research: And then, Dale, the training program you had highlighted in Europe, have you had a similar program in the U.S.? Dale Foster | CEO: ? We don't. Martin, you know, is out of Germany, and he started it. We really, you know, what got us kicked off was one of the vendors we signed called Unframed, which is in the AI building block. So if you want to, you know, have a certain structure in your company that you want to use AI for, this is where you can actually go and get those building blocks. So it started with that and then expanded into some other vendors, and he built it into a full academy. And we'll roll that into our other regions. You know, of course, the European side first, as Martin took the lead on, then you'll see it come to the U.S. As we, you know, we talk about that, you know, do we have another set of vendors that are AI vendors? And it's still consistent with probably what we said a year ago, and that is our vendors are building AI capability into their existing products. So, you know, we're going to see it that way. And, you know, if there is You know, different products, we'll pick it up and talk about them in a separate, you know, what we call in our different segments, our technology segments. Vincent Colicchio | Analyst, Barrington Research: Okay, thanks. I'll go back into the queue. Thanks, Vince. Thanks, Vince. Operator | Conference Call Operator: Thank you. And once again, that is star N1 if you would like to join the queue. We will move next with Howard Root, private investor. Please go ahead. Your line is open. Howard Root | Private Investor: Good morning, guys. Congratulations on another good quarter, and thanks for taking me call. I got a couple of little questions, a couple of little questions, and then a more general one. Kind of first, no mention of tariffs, and I think nothing's changed there, but remind me, is there any impact on tariffs on your business? Dale Foster | CEO: There really isn't, and that can weigh in. We just don't see it. I guess the biggest thing, and we didn't mention it, Howard, because it was a non-issue in this quarter, is just the FX with currencies. Because most of our vendors, we're buying in USD, and then we're selling in either Euros or Great British Pounds, and then Canadian dollars. So there's some there. The only one is the Canada side. So what we do is we look at it from a quoting standpoint, and our quotes are you know, that used to be 30-day quotes, and now they're like five days to deal with both, either a tariff issue or, you know, a currency issue, but nothing that's substantial. Howard Root | Private Investor: Okay, great. And then accounts receivable, accounts payable, you made, you know, notable declines in that, you know, dropping AR by 65 million sequentially and AP down by 50 million. Is that Kind of give me a rundown of how that's happening, and is that where it should be now going forward, or what would you expect going forward on AR and AP? Matthew Sullivan | CFO: Yeah, that ebbs and flows with each of the quarters, so when comparing that to December 31st of last year, Q4 is historically our largest quarter just in the business, so And Q4 of last year was a record quarter to date for us. So it's really just a function of clucking those receivables and paying those payables subsequent to year end. The levels that we saw at December 31st of last year from a receivables and payables perspective, We expect to execute on our strategy here for Q4. I'd expect those levels to return to where they were December of last year. Dale Foster | CEO: But, Howard, the biggest point of that, I mean, the main piece is just the timing of that. And it could be, and Matt and his team do a good job, that if we have a vendor that reaches out and said, hey, I want more cash at the end of this quarter, we'll pay them early with some kind of a condition, right, a consideration. So we'll pick up some margin that way. um you know matt and i have these discussions internally all the time i think we pay our vendors too fast uh and uh we probably collect too slow but you know collecting is the tough part right because we're going to the masses as a distributor so we're collecting from thousands of resellers you know vendors only collecting from you know four or five distributors so it's always something that we we watch because you know it's uh important on our working capital Howard Root | Private Investor: Okay. So, do you see this, I mean, the $50 million swings quarter to quarter is kind of part of your business? Is that an aberration? Matthew Sullivan | CFO: No, no. So, if, and then if you're comparing it to June, the June quarter, we had some, as we talked about in the Q2 call, we had some larger transactions with a higher sales price and higher cost of sale amount in Q2, which didn't necessarily repeat themselves. We collected them and paid the vendor payables in Q3. But as we have those larger transactions that we've alluded to over time, that will cause a spike in the receivable and payable accordingly. Dale Foster | CEO: Yeah, and Howard, those orders are $30 million orders, right? It's just one order that's $30 million, so you'll see it all at one time, and that's what was pulled forward in Q2. Howard Root | Private Investor: Okay, I get it. Now it's kind of the nature of the business with the large size of the orders. It's nothing out of the ordinary. Okay. On the gross billing side, you know, nice to see it continuing to go up. With DSS, is there more seasonality to it? Is the third quarter more soft with that business? Or what do you see as seasonality of your orders now with DSS making a part of it? Dale Foster | CEO: It is, right? So look at those. There are about 190 million, you know, there were adjusted gross buildings when we acquired them. We did the end of July of last year. So their seasonality is based on the state, you know, Think about it. We're selling mostly into education, so K-12 and higher ed. So they do all their buying in the summertime. All the states, 48 of the states get their budgets and their new money at the end of June. So they spend and get all their products, software, hardware, everything in place for the new school years. So it's typically strong, you know, really extinguishing budgets in May and then all the way through. You know, what we saw, though, is You know, our biggest vendor, and we talk about it from the DSS side, is Adobe. And I'd like to, you know, also, Adobe is probably one of the biggest AI companies out there that people don't realize of how much AI is in their products. If you've looked at their product suite, it's crazy how wide they go. And, you know, Adobe is doing the right thing. I mean, they're going in the education space. So if you're using Adobe products, when you go into the workforce, what are you going to do? Hey, I'm trained on Adobe. Of course, it's, you know, the biggest one out there. And everybody has to, you know, buy those licenses. So we'll see seasonality from that May through really October. But, you know, it really changes in how Adobe does things. And you'll see more gross profit sometimes with our adjusted gross billings going down due to the rebates that we're able to garner. So we're taking advantage of that side of it. Howard Root | Private Investor: Okay. And then the solutions segment was kind of the one negative with the gross billings down by 5%. What was the cause of that and what do you see going forward for that segment? Dale Foster | CEO: So my core solutions piece is really in the UK, right? And that's when we acquired CDF and it had the split distribution in the solutions piece. It's our US side of it that has some fluctuations. And we just have a small team in the US that has you know, some very large customers. And, you know, sometimes they're renewing, other times they're not. So that one's just a blip. You won't see that going forward like we saw in this past quarter. Howard Root | Private Investor: Okay. Okay. The bigger area is M&A. And I guess the little thing there, I saw 600,000 of acquisition-related costs in the quarter, but no deal. And the last deal was the DSS a year ago. What was the 600,000? What was that related to? Dale Foster | CEO: It's, you know, so we're prospecting, we're spending, and the cost of it, a lot of it, you know, is overseas stuff. And I'll just talk in general, Howard, that, you know, we're looking at larger deals because we look at the cost of doing a smaller deal, even though we have some little ones out there. But we're going to try to streamline our M&A. It just doesn't make sense, you know, in some of the really small ones to use all the teams that we've used in the past. So we're going to try to get that much more efficient because we have a pretty aggressive track record, pretty aggressive outlook for 2026. Of course, I'd love to tuck one in this year, but it's really going to go into 2026. So there's a bunch of different costs in there. There's some other costs in there, and I can't talk about it now, but in the future on some of our vendor acquisitions, it's kind of a collect all for some of that stuff. Howard Root | Private Investor: But safe to say that's all forward-looking on deals, not related to past deals done? Matthew Sullivan | CFO: Yeah, that's correct. What's in there for this current quarter is, you know, what Dale and I have alluded to, just cost-related to continuing to evaluate our pipeline of strategic acquisitions. And, you know, we have a deep pipeline that we continue to evaluate, and there's costs associated with obviously evaluating each of those. Howard Root | Private Investor: Okay. So then, as I always try to encourage you to talk future here, if you look at M&A and, you know, I think two different places, you said a healthy appetite and actively evaluating, and it's been now almost a year now since your last acquisition. And now you've got almost, well, you have $50 million cash and line of credit for $50 million, so you've got $100 million of cash available. Can you talk about what you're seeing out there in terms of size available? You got into a little bit of it, but You know, are we looking at, you know, $50 million deals, $100 million deals, cash deals, debt deals, equity deals, all the above? What's your vision kind of as to how much the M&A is going to affect the company and how much do you see if you're organic continuing to drive the growth of this company? Dale Foster | CEO: Yeah, the organic piece of it... And this goes back to us bringing on vendors and trying to shed vendors that are taking up cycles as quickly as possible. And that is something that Charles and his team fight all the time, right? We have nonstop. I mean, if you look at 72 vendors, and that goes to some of the investments we made. So we brought some other people on Charles' team to evaluate companies faster so we make sure we don't miss any. But with that goes, Oh my gosh, we have that much more opportunity. You know, our sales teams are like saying, Hey man, we are full up as far as, you know, our sales cycles go. So we try to shed some of the non-performers to get it out of the line card to, to, to get rid of the clutter. So that's a process that just keeps going. And I would be the first one to say, Hey man, we are starting to see some of the vendors, not as many vendors by quarter. So we see some slowdown in the market. We don't see that. And we haven't seen that for the last, you know, six quarters on the acquisition side. Size-wise, you know, we're looking at opportunities as big as $40 million and then, you know, some smaller ones that are strategic that are going to be sub $10 million, but strategic to build in technical capability in the company that I think we're lacking, right? And I always love to tell people, you know, the first thing, the last thing you hire is in a distribution when you have low margins is technical resources, right, to support your vendors. And the first thing to go when you're cutting is technical resources. So, or being just, you know, very good stewards of that and saying, okay, this is a good company. They have good developers. We need this kind of talent in the company. And this, these are the five vendors they can support. And we'll get more margin for that from our vendors. And we'll also become super entangled or sticky with, with the vendors and our customers. So there's two or three of them on my list right now that are more of the technical, you know, rationale for acquiring. And then the other ones are strictly into distribution, right? And they're, The two larger ones are overseas. And that's going to get, we'll pick up not only vendors, but also territories with that. We watch the markets. We're looking at the multiples. The multiples have come down a little bit overseas on some of the deals that have been done. So that's good for us. So yeah, we're chomping at the bit to get some of these closed. Howard Root | Private Investor: So then on multiples, I mean, it's $10 million to $40 million. That's your acquisition price. What type of gross billings or what type of multiples would you be looking at in those type of deals? Dale Foster | CEO: So we evaluate it this way, right? First, we look at saying, hey, this is where our multiple is. We think we're trading at a pretty high multiple to our competitors. And it's hard to define our competitors because we have the monster big ones. And then we have some smaller ones that are not public. So you have to do the best you can on the private markets. But we look at them a couple of ways. What do they bring to CLIMB, right? And our strategic plan is, is it a territory? Is it vendors? How good is the team? And is the cultural fit for us? I had one that I spent quite a bit of time with, and it just was not a cultural fit. It would have been a mess, I think, just because we just weren't going to get along in how we went the market. But the real key piece for me is what is the margin profile, right? There's higher margin European space, as we've seen with our acquisitions, So, you know, if that margin profile is a lot higher and we think we can maintain that and add more vendors to that, then that would garner a higher multiple. And, of course, they'd be typically asking for a higher multiple. Do they have a concentration on one vendor like Douglas Stewart? So, you know, hence the multiple was much lower, you know, a year when we acquired them. So, not a lot of factors, but those are the main core ones for that. Howard Root | Private Investor: Okay. Great. Well, congrats on another excellent quarter and, you know, hopefully close out the year on another high note. Thanks. Dale Foster | CEO: Yep, you got it. Thanks, Howard. Operator | Conference Call Operator: Thank you. We do have a follow-up from Vincent Colicchio with Barrington Research. Please go ahead. Your line is open. Vincent Colicchio | Analyst, Barrington Research: Yeah, just, Dale, just trying to assess if there's any signs of any kind of slowdown, sales cycles change, anything like that, or, you know, based on your numbers, it looks like a pretty healthy environment. Dale Foster | CEO: Yeah, you know, we, like I mentioned before, I mean, Sophos was kind of flat. We had a really good couple quarters in the beginning of this year with Sophos, so We're looking to finish strong with them. You know, Q4 is always, you know, and it's a cyclical nature because this could go back, you know, five years that we've still been doing license renewals. And a lot of people extinguish with budgets in Q4. So we look to have another strong quarter like we did, you know, a year ago. But we don't see the softness in the markets. You know, and we're always going to have to talk about it, Vince, until we get it. you know, twice our size, that, you know, the vast data transactions will be lumpy and we'll take advantage of them and we'll talk about them and be really open with everybody when we don't have them coming in year over year. All right. Thanks. Nice quarter. Vincent Colicchio | Analyst, Barrington Research: Thanks. Operator | Conference Call Operator: Thank you. And this concludes our Q&A session. I will now turn the call back to Mr. Foster for closing remarks. Dale Foster | CEO: Thank you, Operator. I'd like to thank everybody in the entire CLIMB team. including our shareholders, for their commitment, providing just a great experience to our customers and to our vendor partners. And with that, we'll close the call. Thank you. Operator | Conference Call Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time. jsPDF 3.0.3 D:20260606090048-00'00'

NASDAQ:CLMB Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Call Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Climb Global Solutions financial results for the second quarter ended June 30th, 2025. Joining us today are Climb's CEO, Mr. Dale Foster, the company's CFO, Mr. Matthew Sullivan, and the company's investor relations advisor, Mr. Sean Mansuri with Elevate IR. By now, everyone should have access to the second quarter 2025 earnings press release, which was issued yesterday afternoon at approximately 4.05 p.m. Eastern Time. The release is available in the Investor Relations section of Climb Global Solutions website at www.climbglobalsolutions.com. This call will also be available for webcast replay on the company's website. Following management remarks, we will open the call for your questions. I would now like to turn the call over to Mr. Mansuri for introductory comments. Sean Mansuri | Investor Relations Advisor, Elevate IR: Thank you. Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements. which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements. Our presentation also includes certain key operational metrics and non-GAAP financial measures, including gross billings, adjusted EBITDA, adjusted net income and EPS, and effective margin. as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts and other important information in the earnings press release and Form 8K we furnished to the SEC yesterday. I'll now turn the call over to CLIMB's CEO, Dale Foster. Dale Foster | Chief Executive Officer: Thank you, Sean, and good morning, everyone. As you can see, we had another strong quarter with material increases across all of our key financial metrics. During the quarter, we generated double-digit organic growth by strengthening relationships with customers, growing our line card with new innovative vendors, and expanding market share in both the U.S. and Europe. We also benefited this quarter from the incremental contribution and seasonal strength of our acquisition of Douglas Stewart Software, DSS, which typically sees higher demand for education customers as they ramp up ahead the next school year. Our CLIMB team continues to identify and align with the most innovative technologies in the market that not only strengthen our vendor ecosystem, but also address increasingly complex challenges our customers face. In Q2 alone, we evaluated 50 potential vendor partnerships and moved forward with just four of them. This disciplined approach reflects our commitment to quality over quantity, and our focus on delivering differentiated high-impact solutions that drive long-term value across our platform. Let me take a moment to highlight a few of these wins. First, we announced a partnership with Ignite, a leader in secure content, collaboration, intelligence, and governance. This partnership enables us to offer Ignite's cloud-native platform to our partners, their customers across the U.S., reinforcing our commitment to the expanding access of transformative technologies. By adding Ignite to our line card, we are equipping resellers with a trusted, scalable platform that fits seamlessly into both SMB and enterprise environments. This partnership underscores our mission to deliver partner-first technologies that move with speed of the modern business. In Q2, we also, our QAM UK and Ireland team secured an exclusive distribution agreement with IGEL, a global leader in secure endpoint OS solutions for UK and Ireland. This milestone builds on the partnership that we began in 2016 with Data Solutions out of Ireland, which we acquired in 2023. Our ability to drive lead generation and expanded IGEL addressable market in the region led to this sole distribution agreement further validating our strength of our channel, reach, execution, and commitment to Europe. We look forward to continuing our partnership with IGEL as we scale together in these key markets. In June, we brought on Vishal Pushpa, CLIMB's Chief Information Officer. Vishal is a dynamic IT executive with more than two decades of strategic leadership across high-tech manufacturing, logistics, distribution, services, and services. Vishal has led large-scale ERP, CRM, and HCM transformations and has overseen complex M&A integrations and driven a deployment of cutting-edge cloud solutions. AI, and automation, and enhanced security infrastructure. He brings a visionary approach to innovation and has a strong track record of fostering global calibration and anticipating future technology trends. We are pleased to have him join the Klein family and look forward to his invaluable contributions. In addition to Vishal's appointment, in May, we announced the promotion of Carlos Rodriguez to our President of North America. Carlos has been a key leader at Klein since 2020, bringing more then 20 years of experience in value-added distribution and a proven track record of driving growth across North America. Since joining Climb, he has played a pivotal role in expanding market share, building high-performance sales teams, and strengthening strategic vendor relationships. In his prior role as Vice President of Sales, Carlos led the development of Climb's dedicated vendor management team and has also consistently delivered impactful results through alignment and partner engagement. In this new role, As President, Carlos will oversee the North American sales with a focus on accelerating growth, deepening vendor and partner success, and further expanding CLIMB's market presence. We're excited to see Carlos bring his leadership and vision to his new role as we continue executing on our growth strategy. Looking ahead, we're focused on building on the momentum from the first half of the year by continuing to execute against our strategic priorities, with our ERP system Now fully in place, we're beginning to realize the benefits of improved operational efficiency and scalability, positioning us to drive stronger operating leverage as we grow. Additionally, we're actively evaluating strategic M&A opportunities in North America and overseas that align with our long-term vision and can expand both our capabilities and geographic reach. These initiatives, coupled with our robust balance sheet and demonstrated track record of success, will enable us to deliver on both organic and inorganic objectives in 2025 and beyond. With that, I will turn the call over to our CFO, Matt Sullivan, to take you through our financial results. Matt? Matthew Sullivan | Chief Financial Officer: Thank you, Dale, and good morning, everyone. A quick reminder as we review our second quarter financial results, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. As reported in our earnings press release, Gross billings in Q2 of 2025 increased 39% to $500.6 million compared to $359.8 million in the year-ago quarter. Distribution segment gross billings increased 40% to $477 million, and solutions segment gross billings increased 19% to $23.5 million. Net sales in the second quarter of 2025 increased 73% to $159.3 million compared to 92.1 million, which primarily reflects double-digit organic growth from new and existing vendors, as well as contribution from our acquisition of DSS in July of last year. Gross profit in the second quarter increased 42% to 26.3 million, compared to 18.6 million. Again, the increase was driven by organic growth from new and existing vendors in both North America and Europe, as well as contribution from DSS. Gross profit as a percentage of gross billings increased to 5.3% compared to 5.2% in the year-ago period. SG&A expenses in the second quarter were 16.4 million compared to 13 million for the same period in 2024. SG&A from DSS accounted for 900,000 of the increase. SG&A as a percentage of gross billings decreased to 3.3% in Q2 of 2025 compared to 3.6% in the year-ago period. Net income in the second quarter of 2025 increased 74% to $6 million, or $1.30 per diluted share, compared to $3.4 million, or $0.75 per diluted share, for the comparable period in 2024. Net income was impacted by a $400,000 charge related to the change in fair value of acquisition contingent consideration associated with DSS. Adjusted net income increased 68% to $6.4 million, or $1.39 per diluted share, compared to $3.8 million, or $0.83 per diluted share, for the year-ago period. Adjusted EBITDA in the second quarter increased 64% to $11.4 million, compared to $6.9 million in the prior year quarter. The increase was driven by the aforementioned organic growth from both new and existing vendors, as well as contribution from DSS. Adjusted EBITDA as a percentage of gross profit, or effective margin, increased 600 basis points to 43.3% compared to 37.3% in the year-ago period. Turning to our balance sheet, cash and cash equivalents were $28.6 million as of June 30, 2025, compared to $29.8 million on December 31, 2024, while working capital increased by $12.2 million during this period. The decrease in cash was primarily attributed to the timing of receivable collections and vendor payments. As of June 30, 2025, we had $500,000 of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility with JPMorgan Chase. On July 29, 2025, our Board of Directors declared a quarterly dividend of 17 cents per share of our common stock payable on August 15, 2025, the shareholders of record on August 11, 2025. To echo Dale's earlier comments, we're continuing to explore strategic acquisitions that align with our high-performance culture and strengthen our ability to meet evolving customer needs. With a robust balance sheet, we're well-positioned to pursue opportunities that complement our existing portfolio and accelerate growth in key markets. This momentum is a direct result of our team's hard work and execution, and we're excited to carry that forward as we advance both our organic and inorganic growth initiatives throughout 2025. This concludes our prepared marks. We will now open it up for questions from those participating in the call. Operator, back to you. Operator | Conference Call Operator: Thank you. And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw your question by pressing star 2. And once again, that is star and one if you would like to join the queue. We'll take our first question from Vincent Colicchio with Barrington Research. Please go ahead. Your line is open. Vincent Colicchio | Analyst, Barrington Research: Good morning, Dale. Good quarter. My first question is, did security and data center continue to lead growth in the quarter, or is it broadening out somewhat? Dale Foster | Chief Executive Officer: It has. Those are our top two, and security being the stronger of those two, Vince. But yeah, those are leading it. And it kind of makes sense, right? I mean, the security market continues to heat up. And then, you know, in the data center space, as we keep bringing in tools that are either data migration tools or, you know, storage tools, that's going to be our leader for quite some time. Vincent Colicchio | Analyst, Barrington Research: And how did your top 20 vendors perform versus the overall business? Are they keeping track with staying at a pace in line? Dale Foster | Chief Executive Officer: You know, if you take a look at our, you know, when you say the top 20, there's probably like five or six that, you know, at the bottom end of that, you know, from 12 to 20 that are taking, you know, go into the 20th. We have some of the other ones jump forward. Some of the ones, you know, we've talked about dark trace is going to make more of an impact as we go through the rest of this year, as we just got started with them. And yeah, know just got our all basically our teams aligned as we announced it and then uh you know that's going to be the the biggest impact for the second second half of the year but yeah it's it's new new entrance to get into that top 20. nothing really has changed that much in the top 10 but uh from 10 to 20 yeah we have dumping ones that are just you know performing better in the quarter and were there any large deals which made this quarter especially strong which may not necessarily recur in the following quarter Yeah, so what we do is, you know, we talk about this and we argue internally, you know, what we call out vast data because we consider it organic because we've had that company for, what, three years now. So we get lumpy with that. We had a vast order that we budgeted for Q3 that got pulled into Q2. So we'll have to make that up in Q3. So that definitely helped the quarter out to put us over the top. But just organically without that, we were still growing at a very good clip. Vincent Colicchio | Analyst, Barrington Research: And are you seeing meaningful synergies as of yet from the Douglas Stewart acquisition? Dale Foster | Chief Executive Officer: We do. So we already announced that they're on our ERP systems. And also their lines have moved into our common portfolio of vendors. We still are carving out and calling, hey, we can go after this K-12 and higher ed space. And You know, this is, you know, just like I said in my comments, this is the growth, you know, the excitement period for that is everybody's going in school year and everybody's, you know, extinguishing their budgets by the states in the end of June. And then, you know, buying new, going into the new school year. But, yeah, I mean, we have integrated that team into our teams. Our teams, you know, we have 14 teams, regional teams, and then some dedicated teams in North America. And they're already not only quoting, processing, but also learning the Douglas Stewart product lines. Vincent Colicchio | Analyst, Barrington Research: Okay, I'll go into the queue. Thanks. Thanks, Vince. Good talking to you. Operator | Conference Call Operator: Thank you. And once again, that is star and one if you would like to join the queue. We will move next with Howard Root, private investor. Please go ahead. Your line is open. Howard Root | Private Investor: Good morning, Dale and Matt. Congratulations. I mean, that was just another outstanding quarter. Very little to explain, actually, in the results. It's kind of hard to find stuff to pick on. But I got a couple of questions, I guess. First, a couple of little things on the income statement. I've always looked at it as your gross margin as a percent of gross billings, and that, as you said, moved up from 5% to 5.3%. And, you know, it's always that 5% was kind of the target. Is that a trend or is that just a little bouncing around? Or how do you see that going forward on gross margin? Matthew Sullivan | Chief Financial Officer: Thanks, Howard. So, yes, for Q2 of this year, we went from 5.2% of Q2 last year to 5.3% for this quarter. And, you know, internally, we continue to project it to be in that, you know, 5, 5.1%. The real driver is, of that higher percentage, a slightly higher percentage this quarter was the timing of the lumpy transactions that Dale just alluded to. You know, some have higher margins as their, you know, than our typical base business. But that's what really contributed to the higher gross profit as a percentage of gross billings this quarter. Dale Foster | Chief Executive Officer: But, dear, good question. And thanks for the question, Albert. But, you know, it's not going to be a trend that we're going to continue to see that expand. It'll just be lumpy just like it is before because VASA, they're big orders and they have, you know, typically a lot of margin with them. You know, it's something that we look at, like Matt said, you know, can we do, and we get asked by investors all the time, can we expand our margins? It's going to be with, you know, expanding our solutions team. And then as we've talked about, you know, we want to add more services to the company. That'll help move that up in the basis point. But right now, you know, still continued in that 5 to 5.1 range. Howard Root | Private Investor: Okay, great. And then on SG&A, I mean, that jumped up by 28% year over year, but your gross billings went up by 39%. So your percent goes from 3.6 down to 3.3%. And with you implementing ERP and growing and setting the stage, I mean, that's all understandable. But how do you see that going forward? Do you see that getting closer to 3% of gross billings? Is that going to be a trend? Matthew Sullivan | Chief Financial Officer: I think the percentage that you saw this quarter is what we expect to see as we move forward. So, you know, we had a $900,000 contribution of DSS this quarter that we didn't have in the prior year quarter. But that 3.3% range is more consistent with what we expect going forward. Dale Foster | Chief Executive Officer: Yeah, and Howard, so, you know, DSS wasn't, you know, comparable from last year because we recorded them in July of last year. So, that's the added SG&A. But we've integrated. They didn't have a lot of infrastructure. So if you look at, hey, can we clear out some of the back office, it's more about mending the teams together and then looking for efficiencies in that play. But that's the biggest thing is the DSS expenses. Howard Root | Private Investor: Okay, great. And then kind of on your international side, is there anything material on tariffs or on currency fluctuation that you see right now that could affect things going forward? Dale Foster | Chief Executive Officer: You know, so we talk about the tariff. We've had no real impact. And we have legal entities in the UK and Ireland and some of the other EU countries. So we can play with that as far as where we're dealing with in shipping. So we haven't had impact on that. You know, one thing that we had, you know, we have board meetings, of course, before these earnings calls, and we talk about our FX and how we deal with that. And we're just trying to come up with better schemes to deal with you know, our currency because most of our vendors were buying in U.S. dollars. So any kind of fluctuation as the dollar got weaker, you know, we're going to have that impact. So we're doing some hedging, but we're looking for better strategies because, you know, we have, you know, realized and unrealized gains. And, you know, some one quarter over another, you know, will affect us. And then a lot of times we'll get that pickup, but, you know, it'll be in a quarter or two quarters down. Good. Howard Root | Private Investor: So then look at a bigger picture. I kind of look back. It was back Q3 of 2022. So less than three years ago, you crossed over into the $1 billion in gross billings, and now you're crossing $2 billion. And back then on the call, I asked, you know, how does this continue? I mean, a billion is a big number. And your response was, in your market, a billion is still small potatoes, that there's really a lot of area going forward, which you've proved yourself correct over the last two-plus years. But as you cross to $2 billion, do you still see that? I mean, you still see yourself as a fairly small player in the overall market with the potential to continue this type of growth going forward? Or when will you reach kind of a little bit of a limitation, you know, the limits of large-size numbers? Dale Foster | Chief Executive Officer: You're right. I mean, we are still such a small player. And I can just give you some inside baseball information. We meet with vendors. You know, we talked about this quarter. We met with 50 different vendors. The vendors have choices, you know, how they want to go to market. And once they choose distribution, they get the big three, right? We had Ingram Micro, Cinexec Data, and Arrow. And that is worldwide. Those are the big three. The next largest one, I would say, exclusive networks is in the $5 billion to $6 billion range. They just got taken private in Q1 or the end of Q1. So we're still extremely small. But when these vendors come in, We talk about these big players, but we're talking about competing them in one of their smaller divisions. So, you know, our headroom between $2 billion and $30 billion, I would say, okay, that's a big gap so we can grow a lot. But if we take a look at where they actually compete against us in software applications, server security, data center only, you know, because we're so different in that space, we still have, you know, I would say, you know, it's $2 billion to $20 billion. You know, so compare it that way. It's a lot of headroom that we can go before we're disruptive to them where they would say, hey, we need to make some kind of move. We're just not that disruptive to them. We think we can still grow under that, you know, umbrella of being that emerging, you know, high-touch, fast-to-market, you know, channel partner. Howard Root | Private Investor: Great, great. I mean, that's just so unusual for me that it's just kind of a little bit. Hard to believe, but you've proven me wrong. Dale Foster | Chief Executive Officer: Well, Howard, if you, and we've talked about this, you know, if you look at our market, you know, all the roll-up of distributors in the United States happened, you know, ended up in, you know, 2013. So there's nobody, right? We have these three massive ones that are worldwide, but, you know, really focused in North America, and then us. And there's some other ones that are on the adjacent market space, but nothing that's directly competitive. And like Charles, our CMO, loves to say, you know, You know, hey, there could be two or three more climbs in our space, and we still would have that many vendors to look at and that many vendors on board. It's shocking how many $100 million ARR SaaS vendors are out there that we even haven't touched yet. The ones we touch, maybe they're not ready for us. Maybe we're not ready for them. But there's a lot of them to choose from, and that's the excitement of our market. A lot of good acquisition targets overseas and a lot of good vendors coming into our space. Howard Root | Private Investor: Great. Great. I appreciate it. And final question for me is just a little bit, if you could talk a little bit about your acquisition process and what you see out there in terms of the market for potential acquisitions and the valuation that you're seeing and then how you view currency to do the acquisition. What you've done so far has been cash and a little bit of debt, which you've done a great job of making it creative almost immediately and paying off the debt. But how do you see it going forward? Because I assume you're looking at a couple of bigger things as well as more things like what you've done already. Dale Foster | Chief Executive Officer: yeah correct so this year howard we're looking at ones that we would just use cash for they're they're not that big but they're they would be strategic for us so we look at it but we have a strategic plan as far as acquisitions you know we're looking at services companies because we want to add that and there's two two reasons for that you know we like the margin profile we want to become more sticky with vendors that we currently have and if we have services And if you look at the vendors, right, they're making 80% of margin selling their product. Why would they have an internal services team just for customer sat when they're only making 30%? So if they can offlat that to the channel, that's perfect for us. We won't compete with our customer base, but when they don't have those capabilities and the vendor wants us to do that, that's what I want to build into the company. So there's a couple of small ones we're looking at there. And then outside of that 2026 spot on, like what can really move the needle for climate? It's not strategic. It's going to have to be much more sizable. And that will be a 2026 into 2027 play for us. But, yeah, a lot of good targets out there, but we would do cash on anything this year. Howard Root | Private Investor: And valuations on those targets, has it changed at all? Dale Foster | Chief Executive Officer: Is it a strong market? Here's how we start, Howard. And it's funny because we're being rewarded in the market for being differentiators. as our go-to markets are, you know, our multiples are a lot higher. But we still start in that, you know, seven to nine multiple, and then it all depends. You know, if you look at Douglas Stewart, it was a much lower margin multiple because, you know, they were so concentrated with one vendor. We also look at the acquisitions as far as what vendors they bring in because we think that's the lifeblood of, you know, what we have inside of Climate and what we take out to the market. But we just start at that, and then it's the give and take that, you know, what is that company really going to bring to us and can we actually expand? Can we actually get it to all of our territories, depending on what they bring? But we started that, and have we paid more than the multiple we're trading at? No, we have not. So I know that's not a perfect answer, but the answer is it depends. Howard Root | Private Investor: No, that's very helpful. So congratulations once again to you guys and to the whole CLIMB team on another outstanding quarter. Just great job. Vincent Colicchio | Analyst, Barrington Research: Thanks, Howard. Good talking to you. Operator | Conference Call Operator: Thank you. And we do have a follow-up from Vincent Colicchio with Barrington Research. Please go ahead. Vincent Colicchio | Analyst, Barrington Research: Yeah, Dale. So obviously the business appears quite robust, but I am wondering, any signs of economic headwinds, any delays, anything of that nature? Dale Foster | Chief Executive Officer: We do not see it, Vince, and I think it goes back to – Howard's remarks that we are extremely small in our space. And you can say, hey, we're going to go to the $2 billion mark, but we're still small in our space. And if you look at, we've spent some time with the Canalys team, which is an analyst group. And if you look at the overall IT market or IT services, we're talking at $1 to $2 trillion space. So A lot of new entrants. We still see money flowing from the VCs into a lot of startups. You know, we're still having a huge pipeline of vendors coming toward us. And I've talked about this in the past, that we've had to go and find them. And over the last 18 months, it's they're finding us. So we don't. And, you know, I'll just talk, you know, about the downside for Q2. You know, we lost Citrix. We announced that, you know, in Q1 of our Ireland group when we acquired Data Solutions. The team, you know, was tracking very well in Q1 because we still had that. But in Q2, that was where the hole. And, you know, here's what I will say. Sales teams have sales cycles, and they have a lot of tools in their bag. If they're not selling Citrix, they're selling something else. We feel, and we did not change our budget going into this, knowing that this is coming, that we think we can fill that hole as well. So, you know, kudos to our overall teams. They're just performing and, you know, looking at, hey, okay, I don't have this. to sell anymore, I'm going to take this new product into my customer base. Vincent Colicchio | Analyst, Barrington Research: Okay. That's it for me. Thank you. Thanks, Vince. Operator | Conference Call Operator: Thank you. And this concludes our Q&A session. I will now turn the call over to Mr. Dale Foster for closing remarks. Dale Foster | Chief Executive Officer: Thanks, operator. Once again, thanks to all of our shareholders for supporting us. and also to the greater climb team on their excellent performance. You know, they've been continued to focus on growing climb. And with that, we'll end the call. Thank you. Operator | Conference Call Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time. jsPDF 3.0.3 D:20260606090049-00'00'