Climb Global Solutions, Inc.

Good morning, everyone, and thank you for participating in today's conference call to discuss Klein Global Solutions financial results for the fourth quarter and full year ended December 31st, 2022. Joining us today are Klein's CEO, Mr. Dale Foster, the company's CFO, Mr. Drew Clark, and the company's investor relations advisor, Mr. Sean Mansuri, with Elevate IR. By now, everyone should have access to the fourth quarter and full year 2022 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'll open the call for your questions. I'd now like to turn the call over to Mr. Mansouri for introductory comments.

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 can 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 non-GAAP financial measures, including adjusted gross billing, adjusted EBITDA, 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. With that, I'll turn the call over to CLIMB's CEO, Dale Foster.

Thank you, Sean, and good morning, everyone. 2022 was a great year for the CLIMB team. highlighted by record results across all of our key financial metrics. The most notable was our approximate 40% increase in both net income and adjusted EBITDA. This was driven by our focus on our three main initiatives to generate growth with our existing vendors, add new innovative vendors to our line card, and deliver on our acquisition objectives. In addition, we continued our strategy to expand CLIMB's presence overseas with the acquisition of Spinnaker in August of last year. Spinnaker has been completely integrated into our operating systems, and they contributed to both our top and bottom line during the quarter. As I have mentioned in the past, we are committed to a limited line card of vendors. This allows us to effectively cross-sell our brands to our customer base and remains an important differentiator for us. This past quarter, we evaluated 25 new prospective brands and signed agreements with only three, Cerebro, Simply, and CoreView, quickly touching on each. Cerebro is a cloud-based security operations center infrastructure product that provides threat analytics and management solutions. Simply, it's a developer of innovative cloud-based storage solutions to simplify complex workflow problems faced by media professionals worldwide. And finally, we signed CoreView, an industry-leading Microsoft 365 management framework built for enterprises. We look forward to a long and fruitful partnership with each one of these vendors as we take their products to the market. In August of last year, we announced the close of our acquisition of Spinnaker. Spinnaker is a UK-based IT channel distributor focused on storage, cloud, security, and data management across the EMEA region. Their combined executive team brings more than 40 years of IT distribution experience and, as a company, adds 15 new vendor partners to the Climb platform, with the most notable being Vast Data. Q4 marked the first full quarter of Spinnaker's integration into the financial and operating systems, as well as a full contribution to our top and bottom line. We've already begun to see the cross-filling benefits between the Climb U.S. and Climb EMEA teams. For example, our U.S. operations began to work with Logigate, who previously only had a relationship with the EMEA team. Conversely, our EMEA team began to work with our Data Dovey and Tintry vendors from our U.S. relationships. While these synergies are in their infancy, they demonstrate the power behind our growth strategy. We expect further cross-selling opportunities as we continue to scale and integrate our businesses across the globe. Turning to personal development, in November, we announced the appointment of Kimberly Bourne to our board of directors. She will serve on the audit committee and chair the nominating and corporate governance committee for clients. Kimberly brings over 25 years of experience leading and executing finance and accounting functions for both public and private companies. She also has an extensive track record in spearheading M&A transactions. Her deep experience in finance and M&A will be an asset to our acquisition strategy, and we were excited to have her on board. Looking ahead to 2023, we are already off to a great start this year. As we progress, we will continue to focus on expanding our line card with the most innovative companies in the market. We will also continue to evaluate new M&A targets, both domestically, internationally, to add further scale and operating leverage to our business. With a strong pipeline of targets and a strong balance sheet, we will continue to value acquisition opportunities that will be accretive and align with our strategic goals and culture. With that, I will turn the call over to Drew, our CFO.

Drew? Thank you, Dale, and good morning, everyone. As we review our financial results, I want to remind everyone that all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. Q4 results marked our seventh consecutive quarter of double-digit profitability improvements. As reported in our earnings press release, adjusted gross billings, which is a non-GAAP measure, increased 22% to $319.8 million compared to $262.1 million in the year-ago quarter. The increase reflects continued organic growth from new and existing vendors, as well as a full quarter of contribution from Spinnaker. In addition, net sales in the fourth quarter of 2022 increased 18% to $88.9 million compared to $75.5 million. Excluding the negative impact of foreign exchange currencies, net sales increased 20% to $89.1 million, which reflects approximately 13% organic growth and 7% from Spinnaker. Gross profit in fourth quarter increased 28% to 16.1 million compared to 12.6 million. The increase was primarily driven by organic growth from new vendors, our top 20 vendors in both North America and Europe, certain customers that did not fully utilize early pay discounts, as well as a contribution from our acquisition of Spinnaker. Our gross profit as a percentage of adjusted gross billings was 5% versus 4.8%. And as a percentage of net sales, was 18.1% compared to 16.7% in the prior year quarter. Total SG&A in the fourth quarter was 10 million compared to 8.2 million for the same period in 2021. SG&A as a percentage of adjusted gross billings remained flat at approximately 3.1% compared to the year-ago quarter. Net income in the fourth quarter of 2022 increased 38% to 4.8 million, or $1.06 per diluted share, compared to $3.4 million, or $0.78 per diluted share, for the comparable period in 2021. I would like to point out that excluding the negative impact of FX, net income actually increased 43% to $4.9 million, or $1.08 per diluted share, compared to $3.4 million, or $0.78 per diluted share, in the year-ago quarter. Adjusted EBITDA in the fourth quarter increased 44% to $7.4 million, compared to $5.1 million. The increase was driven again by organic growth from both new and existing vendors, as well as contributions from Spinnaker. Adjusted EBITDA as a percentage of gross profit or effective margin increased significantly to 45.9% compared to 40.7% in the year-ago period. This reflects our third quarter in a row of delivering both adjusted EBITDA and effective margin improvements, which speaks to the scalability of our business, excluding The 0.2 million of FX impact, our effective margin grew even higher to 46.7% during this quarter. Turning to our balance sheet, cash and cash equivalents were 20.2 million on December 31st, 2022, compared to 29.3 million in December 31st, 2021. While working capital decreased by 1.6 million during the period, the decrease in cash was primarily due to the acquisition of Spinnaker, as well as less customers utilizing early pay discounts compared to the prior period. As of December 31st, 2022, we had $1.8 million of debt outstanding with no borrowings outstanding under either our 20 million or 8 million GBP credit facilities. Subsequent quarter end on February 28th, 2023, our board of directors declared a quarterly dividend of 17 cents per share of common stock. payable on March 17th of 2023 to shareholders of record on March 13th, 2023. To echo Dale's point earlier, we will continue to evaluate M&A targets both domestically and abroad to enhance our geographic footprint in addition to our service and solution offerings. As we think about the financial profile of our business in the out years, we believe we can continue to generate double digit organic growth going forward in adjusted gross billings while also creating meaningful operating leverage in the business to ensure that growth on the bottom line outpaces the top line. Future acquisitions would be accretive to this profile and help us drive scale at even a quicker pace. Our confidence in delivering these results comes from our prior years of execution, as well as the inherent recurring nature of our business. Although we don't generate recurring revenue in the traditional sense of SaaS companies, we do generate reoccurring revenue as we average a roughly 85% renewal rate with our customers every year. We recognize the macro environment has been challenging in recent quarters and the future remains uncertain. However, we have not seen an impact to our business up to this point and continue to expect delivering another solid year of results in 2023. This now concludes our prepared remarks. We'll open it up for questions from those participating in the call. Operator, back to you, and thank you.

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Howard Root. Your line is now open.

Good morning, Dale and Drew. Can you hear me okay? Are you there? Yes. Yep, we can hear you. Okay, so great. So first off, congrats on a great quarter, you know, and the whole year to get over a billion dollars in adjusted gross billings is just phenomenal, especially in 2022. And what I really love, as I said before, is how you keep the model focused and simple. And kind of like to paraphrase Dolly Parton, it's amazing how hard it is to make it look that simple. I love that you're not grabbing the wheel and yanking it. You're going straight down the middle of the road because what you're doing right now is working. So two questions, one kind of more simple, and I guess maybe three. First one's simple. On hedging, you know, we talked about it last quarter. Is there anything your idea is on hedging for this foreign currency risk? I know the dollar is so strong, you almost don't want to hedge now. But what are you thinking going forward for hedging in 2023?

I think for 2023, Howard, and we just discussed this with the board, we're going to probably stay the status quo, but we will think every period, meaning every week, every month, we're going to look at where we have transactions that may be settling in different currencies, meaning Canada is an example. Many of our customers, if not all, will be paying us in Canadian dollars. We have a significant vendor that we pay in USD. So there is a gap there because we'll normally receive funds from our clients or customers in 35 plus or minus days. And we have a relationship with the vendor that we don't pay until 65 days. So we may look at some spot transactions to minimize that FX risk. But at this point, I don't think we're going to enter into any sophisticated hedging strategy where we've got to pay significant premiums for contracts, et cetera, that may wash themselves out. But again, we're going to monitor this on a very regular and close basis to make sure that we're not putting any undue risk into the business that we can't perhaps mitigate with reasonable spot contracts or perhaps trying to hedge the translation risk on the balance sheets, but nothing definitive at this point, but we're going to monitor it very closely. Okay, great.

On the second question, on the acquisitions environment, what do you see out there? I mean, you guys have done the last, I guess, three acquisitions, I mean, just flawless from the outside. I know there's always issues on the inside, but each one of them performed as expected. Spinnaker appears to outperform for what you got. And a 7% contribution in Q4 is just outstanding early results. But what do you see in terms of the pipeline out there and the scale of that pipeline bigger than what you've been doing? And any thoughts on how you would finance that? I mean, you've got great cash flow generation on a small scale. Are you looking at anything bigger? Or what's your take, Dale, on acquisitions in 2023? Yeah. What's that? I'm sorry. Howard, can you hear me? Yeah, I'm getting a little echo, but I can hear you.

So am I. Hey, Drew, can you hear me? Yeah, I can hear you, Dale. You've got that echo in the background.

I'm going to call back. Go ahead, Drew, and I'm going to call right back in.

Oh, you're fine right now.

Is that okay?

Yep, yep, that's good.

Okay, so yeah, Howard, you know, we're looking at them. We have a long list of potentials. Some in the same size as Spinnaker. Spinnaker turned out to be great for us, as you'll see as we keep reporting quarter after quarter. But the best fit for Spinnaker is the actual team and some of the vendors that he's bringing over. So you'll see me spend more time on targets to make sure we have a cultural fit so we don't make a mistake, and that's going to be up front before we actually pull the trigger. We have some we're looking at in the U.S., some we're looking at. uh in europe and beyond but um yeah we're being you know as careful as we can but um you know this this is the year and we've talked about it and before you know is that our erp is going to be implemented about halfway through the year so it's a lot of focus inward but like you said howard down the middle of the road you know we just had our sales kick off last week i kind of like to break things up into threes so take a look at the last three years what we've accomplished where we're going to go in the next three years we can see 2023 very clearly

pretty good idea 2024 a lot of the same from us uh and there's a lot of target vendors and a lot of uh you know target uh acquisition possibilities so same thing okay great and the last question um which i always ask and i always encourage you to start giving more kind of future looking guidance and you know the the good news is your business model is really you know straightforward uh the bad news for you is it's pretty easy to do the modeling i mean uh you know for us outside um you know, with 14% growth and adjusted growth billings in 2022, 22% growth in Q4, and then your gross margin right at 5%, SG&A sticking at 2%. So that's 3% net income before taxes, then you got a 24% tax bracket. So if I do the back of the envelope type stuff, if you do that same kind of 14, 16, 18% growth, you're looking at 1.3 billion in adjusted gross billings for 2023. about $20 million of net income or about $4.50 a share for bottom line after-tax gap net income, which, again, it's just hitting the cover right at the sweet spot of this business. Is that a way of looking at it, or what do you see? I'm not going to ask you to endorse my back-of-the-envelope guidance here. I'd encourage you to give me some more, but do you see things that are out of whack on that? I mean, is it just that? And I don't want to say simple in a derogatory way, but you know what I mean. Is it just that good, or is there something else that I'm missing when I'm looking at risks for 2023?

You're not missing anything as far as just your analysis and saying, hey, this is the end of the back of the page, because we're doing a lot of the same things. If you look at the actual IT market, and the good thing as far as our economics go, we're in software, so we don't have the logistics issues. We're 80-some percent software, so the delivery is easy. You know, if anything, do we see any slow-up in emerging vendors coming out? And the ones that we've already signed, you know, is it taking us longer to launch them? You know, with all the different layoffs and stuff, really not affected that much. And if we do have a vendor that's sizable, and some of ours have announced that, you know, they rely on the channel even more because they've got to have somebody to pick up the pieces on the marketing side and the sales side. So we kind of look at it pretty optimistically that way. Not that we can't have some bumps along the road, some lumpy quarters, but right now we don't see that. And I think we have a pretty good view for the next three to six months as far as, hey, it's pretty much status quo, just looking at the macro market.

Okay. Great. Congrats. Go ahead.

Howard, I would add to Dale's comment just briefly that we're going to be very conscientious in terms of watching any kind of economic indicators, obviously the interest rate environment we expect globally to continue to rise, which could impact some of the speed and level of activity from our VARs and their end customers. We're also continuing to make investments in our team, so our solutions business, we're bringing on headcount in advance of our ability to actually deliver implementation and level one and level two support services for certain vendors. So that's an investment in people that we're making that may not have an immediate contribution to GP adjusted EBITDA, et cetera. So, well, again, as Dale said, your back of the envelope analysis is not inaccurate per se, but we do have some things in the plans for 2023 investments. We've also made some significant improvements in our benefit programs and compensation levels to retain people and grow people in the business. So you may see some impact from that that would slightly modify your back of the envelope calculations.

So that 3% SG&A may fluctuate a little bit, but, you know, the growth and adjusted gross billings really gives you the freedom to do that without, to increase the dollars without changing the percentage very much, I would say. Yeah, correct. Yeah. Okay, great. Again, congratulations, not just to you two guys, but to everyone on the client team. An outstanding year, and thanks from the shareholders for what you guys are doing. Thanks.

Appreciate it, Howard.

As a reminder, to ask a question, please press star 1-1 on your telephone. Please stand by for our next question. Our next question comes from the company of Bloomberg. Your line is open. Please go ahead. Our next question comes from the company of Bloomberg. Your line is open. Please go ahead.

At this time, I show no further calls.

I would now like to turn the conference back to Dale Foster for closing remarks.

Thank you, operator, and thank you to our shareholders, you know, as we call stakeholders, our employees, our customers and vendors. You know, we're all in this together. Like you saw by the releases, just a great year in 2022. We see, you know, positive things in 2023 going forward. And like you heard on the question side, you know, much of the same. Really focused on our team this year. Our ERP implementation is front and center, and we're going to execute on that initiative along with, you know, continue to build our sales teams as we go out to market. So thank you and appreciate it.

This concludes today's conference call. Thank you for participating. You may now disconnect.

The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. you you you Thank you. Thank you.

Good morning, everyone, and thank you for participating in today's conference call to discuss Klein Global Solutions financial results for the fourth quarter and full year ended December 31st, 2022. Joining us today are Klein's CEO, Mr. Dale Foster, the company's CFO, Mr. Drew Clark, and the company's investor relations advisor, Mr. Sean Mansuri, with Elevate IR. By now, everyone should have access to the fourth quarter and full year 2022 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'll open the call for your questions. I'd now like to turn the call over to Mr. Mansouri for introductory comments.

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 can 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 non-GAAP financial measures, including adjusted gross billing, adjusted EBITDA, 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. With that, I'll turn the call over to CLIMB's CEO, Dale Foster.

Thank you, Sean, and good morning, everyone. 2022 was a great year for the CLIMB team. highlighted by record results across all of our key financial metrics. The most notable was our approximate 40% increase in both net income and adjusted EBITDA. This was driven by our focus on our three main initiatives to generate growth with our existing vendors, add new innovative vendors to our line card, and deliver on our acquisition objectives. In addition, we continued our strategy to expand CLIMB's presence overseas with the acquisition of Spinnaker in August of last year. Spinnaker has been completely integrated into our operating systems, and they contributed to both our top and bottom line during the quarter. As I have mentioned in the past, we are committed to a limited line card of vendors. This allows us to effectively cross-sell our brands to our customer base and remains an important differentiator for us. This past quarter, we evaluated 25 new prospective brands and signed agreements with only three, Cerebro, Simply, and CoreView, quickly touching on each. Cerebro is a cloud-based security operations center infrastructure product that provides threat analytics and management solutions. Simply, it's a developer of innovative cloud-based storage solutions to simplify complex workflow problems faced by media professionals worldwide. And finally, we signed CoreView, an industry-leading Microsoft 365 management framework built for enterprises. We look forward to a long and fruitful partnership with each one of these vendors as we take their products to the market. In August of last year, we announced the close of our acquisition of Spinnaker. Spinnaker is a UK-based IT channel distributor focused on storage, cloud, security, and data management across the EMEA region. Their combined executive team brings more than 40 years of IT distribution experience and, as a company, adds 15 new vendor partners to the Climb platform, with the most notable being Vast Data. Q4 marked first full quarter of Spinnaker's integration into the financial and operating systems, as well as a full contribution to our top and bottom line. We've already begun to see the cross-filling benefits between the Climb US and Climb EMEA teams. For example, our US operations began to work with Logigate, who previously only had a relationship with the EMEA team. Conversely, our EMEA team began to work with our Data Dovey and Tintry vendors from our US relationships. While these synergies are in their infancy, they demonstrate the power behind our growth strategy. We expect further cross-selling opportunities as we continue to scale and integrate our businesses across the globe. Turning to personal development, in November, we announced the appointment of Kimberly Bourne to our board of directors. She will serve on the audit committee and chair the nominating and corporate governance committee for clients. Kimberly brings over 25 years of experience leading and executing finance and accounting functions for both public and private companies. She also has an extensive track record in spearheading M&A transactions. Her deep experience in finance and M&A will be an asset to our acquisition strategy, and we were excited to have her on board. Looking ahead to 2023, we are already off to a great start this year. As we progress, we will continue to focus on expanding our line card with the most innovative companies in the market. We will also continue to evaluate new M&A targets, both domestically, internationally, to add further scale and operating leverage to our business. With a strong pipeline of targets and a strong balance sheet, we will continue to value acquisition opportunities that will be accretive and align with our strategic goals and culture. With that, I will turn the call over to Drew, our CFO. Drew?

Thank you, Dale, and good morning, everyone. As we review our financial results, I want to remind everyone that all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. Q4 results marked our seventh consecutive quarter of double-digit profitability improvements. As reported in our earnings press release, adjusted gross billings, which is a non-GAAP measure, increased 22% to $319.8 million compared to $262.1 million in the year-ago quarter. The increase reflects continued organic growth from new and existing vendors, as well as a full quarter of contribution from Spinnaker. In addition, net sales in the fourth quarter of 2022 increased 18% to $88.9 million compared to $75.5 million. Excluding the negative impact of foreign exchange currencies, net sales increased 20% to $89.1 million, which reflects approximately 13% organic growth and 7% from Spinnaker. Gross profit in fourth quarter increased 28% to 16.1 million compared to 12.6 million. The increase was primarily driven by organic growth from new vendors, our top 20 vendors in both North America and Europe, certain customers that did not fully utilize early pay discounts, as well as a contribution from our acquisition of Spinnaker. Our gross profit as a percentage of adjusted gross billings was 5% versus 4.8%. And as a percentage of net sales, was 18.1% compared to 16.7% in the prior year quarter. Total SG&A in the fourth quarter was 10 million compared to 8.2 million for the same period in 2021. SG&A as a percentage of adjusted gross billings remained flat at approximately 3.1% compared to the year ago quarter. Net income in the fourth quarter of 2022 increased 38% to 4.8 million, or $1.06 for diluted share, compared to $3.4 million, or $0.78 per diluted share, for the comparable period in 2021. I would like to point out that excluding the negative impact of FX, net income actually increased 43% to $4.9 million, or $1.08 per diluted share, compared to $3.4 million, or $0.78 per diluted share, in the year-ago quarter. Adjusted EBITDA in the fourth quarter increased 44% to $7.4 million, compared to $5.1 million. The increase was driven, again, by organic growth from both new and existing vendors, as well as contributions from Spinnaker. Adjusted EBITDA as a percentage of gross profit or effective margin increased significantly to 45.9% compared to 40.7% in the year-ago period. This reflects our third quarter in a row of delivering both adjusted EBITDA and effective margin improvements, which speaks to the scalability of our business. The 0.2 million of FX impact, our effective margin grew even higher to 46.7% during this quarter. Turning to our balance sheet, cash and cash equivalents were 20.2 million on December 31st, 2022, compared to 29.3 million in December 31st, 2021. While working capital decreased by 1.6 million during the period, the decrease in cash was primarily due to the acquisition of Spinnaker, as well as less customers utilizing early pay discounts compared to the prior period. As of December 31st, 2022, we had $1.8 million of debt outstanding, with no borrowings outstanding under either our $20 million or $8 million GBP credit facilities. Subsequent quarter end on February 28th, 2023, our Board of Directors declared a quarterly dividend of $0.17 per share of common stock. payable on March 17th of 2023 to shareholders of record on March 13th, 2023. To echo Dale's point earlier, we will continue to evaluate M&A targets both domestically and abroad to enhance our geographic footprint in addition to our service and solution offerings. As we think about the financial profile of our business in the out years, we believe we can continue to generate double digit organic growth going forward in adjusted gross billings while also creating meaningful operating leverage in the business to ensure that growth on the bottom line outpaces the top line. Future acquisitions would be accretive to this profile and help us drive scale at even a quicker pace. Our confidence in delivering these results comes from our prior years of execution, as well as the inherent recurring nature of our business. Although we don't generate recurring revenue in the traditional sense of SaaS companies, we do generate reoccurring revenue as we average a roughly 85% renewal rate with our customers every year. We recognize the macro environment has been challenging in recent quarters and the future remains uncertain. However, we have not seen an impact to our business up to this point and continue to expect delivering another solid year of results in 2023. This now concludes our prepared remarks. We'll open it up for questions from those participating in the call. Operator, back to you, and thank you.

As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Howard Root. Your line is now open.

Good morning, Dale and Drew. Can you hear me okay? Are you there? Yes. Okay, so great. So first off, congrats on a great quarter, you know, and the whole year to get over a billion dollars in adjusted gross billings is just phenomenal, especially in 2022. And what I really love, as I said before, is how you keep the model focused and simple. And kind of like to paraphrase Dolly Parton, it's amazing how hard it is to make it look that simple. I love that you're not grabbing the wheel and yanking it. You're going straight down the middle of the road because what you're doing right now is working. So two questions, one kind of more simple, and I guess maybe three. First one's simple. On hedging, you know, we talked about it last quarter. Is there anything your idea is on hedging for this foreign currency risk? I know the dollar's so strong, you almost don't want to hedge now. But what are you thinking going forward for hedging in 2023?

I think for 2023, Howard, and we just discussed this with the board, we're going to probably stay the status quo, but we will I think every period, meaning every week, every month, we're going to look at where we have transactions that may be settling in different currencies, meaning Canada is an example. Many of our customers, if not all, will be paying us in Canadian dollars. We have a significant vendor that we pay in USD. So there is a gap there because we'll normally receive funds from Our clients are customers in 35 plus or minus days, and we have a relationship with a vendor that we don't pay until 65 days. So we may look at some spot transactions to minimize that FX risk. But at this point, I don't think we're going to enter into any sophisticated hedging strategy where we've got to pay significant premiums for contracts, et cetera, that may wash themselves out. But again, we're going to monitor this on a very regular and close basis to make sure that we're not putting any undue risk into the business that we can't perhaps mitigate with reasonable spot contracts or perhaps trying to hedge the translation risk on the balance sheets. But nothing definitive at this point, but we're going to monitor it very closely. Okay, great.

On the second question, on the acquisitions environment, what do you see out there? I mean, you guys have done the last, I guess, three acquisitions I mean, just flawless from the outside. I know there's always issues on the inside, but each one of them performed as expected. Spinnaker appears to outperform for what you got, and a 7% contribution in Q4 is just outstanding early results. But what do you see in terms of the pipeline out there and the scale of that pipeline bigger than what you've been doing? And any thoughts on how you would finance that? I mean, you've got great cash flow generation on a small scale. Are you looking at anything bigger, or what's your take, Dale, on acquisitions in 2023? Yeah, can you hear me, Howard? What's that? I'm sorry. Howard, can you hear me? Yeah, I'm getting a little echo, but I can hear you.

So am I. Hey, Drew, can you hear me?

Yeah, I can hear you, Dale. You've got that echo in the background.

I'm going to call back. Go ahead, Drew, and I'm going to call right back in.

No, you're fine right now.

Is that okay?

Yep, yep, that's good.

Okay, so yeah, Howard, you know, we're looking at them. We have a long list of potentials, some in the same size as Spinnaker. Spinnaker turned out to be great for us, as you'll see as we keep reporting quarter after quarter. But, you know, the best fit for Spinnaker is the actual team and some of the vendors that he's bringing over. So you'll see me spend more time on targets to make sure we have a cultural fit so we don't, you know, make a mistake, and that's going to be up front before we actually pull the trigger. We have some we're looking at in the U.S., some we're looking at in Europe and beyond. But, yeah, we're being, you know, as careful as we can. But, you know, this is the year, and we've talked about it before, you know, our ERP is going to be implemented about halfway through the year. So it's a lot of focus inward. But like you said, Howard, down the middle of the road, you know, we just had our sales kickoff last week. I kind of like to break things up into threes. So take a look at the last three years, what we've accomplished, where we're going to go in the next three years. We can see 2023 very clearly. Pretty good idea. 2024, a lot of the same from us. And there's a lot of target vendors and a lot of target acquisition possibilities. So same thing.

Okay, great. And the last question, which I always ask and I always encourage you to start giving more kind of future looking guidance. And, you know, the good news is your business model is really straightforward. The bad news for you is it's pretty easy to do the modeling. I mean, you know, for us outside, you know, with 14% growth and adjusted growth billings in 2022, 22% growth in Q4, and then your gross margin right at 5%, SG&A sticking at 2%. So that's 3% net income before taxes, and you got a 24% tax bracket. So if I do the back of the envelope type stuff, if you do that same kind of 14, 16, 18% growth, you're looking at $1.3 billion in adjusted gross billings for 2023, about $20 million of net income or about $4.50 a share for bottom line after-tax gap net income, which, again, it's just hitting the cover right at the sweet spot of this business. Is that a way of looking at, or what do you see? I'm not going to ask you to endorse my back of the envelope guidance here. I'd encourage you to give me some more, but do you see things that are out of whack on that? I mean, is it, is it just that, and I don't want to say simple in a derogatory way, but you know what I mean? Is it just that good? Or is there something else that I'm missing when I'm looking at risks for 2023?

You're not missing anything as far as, you know, just your analysis and saying, Hey, this is the end of the back of the page. Because we're doing a lot of the same things. If you look at the actual IT market, and the good thing as far as our economics go, we're in software, so we don't have the logistics issues. We're 80-some percent software, so the delivery is easy. If anything, do we see any slow-up in emerging vendors coming out? And the ones that we've already signed, is it taking us longer to launch them? You know, with all the different layoffs and stuff, really not affected that much. And if we do have a vendor that's sizable, and some of us have announced that, you know, they rely on the channel even more because they've got to have somebody to pick up the pieces on the marketing side, on the sales side. So we kind of look at it pretty optimistically that way. Not that we can't have some bumps along the road, some lumpy quarters, but right now we don't see that. And I think we have a pretty good view for the next three to six months as far as, hey, it's pretty much status quo, just looking at the macro market.

Okay. Great. Congrats. Go ahead.

Howard, I would add to Dale's comments just briefly that we're going to be very conscientious in terms of watching any kind of economic indicators. Obviously, the interest rate environment we expect globally to continue to rise, which could impact some of the speed and level of activity from our VARs and their end customers. We're also continuing to make investments in our team. So our solutions business, we're bringing on headcount in advance of our ability to actually deliver implementation and level one and level two support services for certain vendors. So that's an investment in people that we're making that may not have an immediate contribution to GP adjusted EBITDA, et cetera. So, well, again, as Dale said, your back of the envelope analysis is not inaccurate per se, but we do have some things in the plans for 2023 investments. We've also made some significant improvements in our benefit programs and compensation levels to retain people and grow people in the business. So you may see some impact from that that would slightly modify your back of the envelope calculations.

So that 3% SG&A may fluctuate a little bit, but, you know, the growth and adjusted gross billings really gives you the freedom to do that without, to increase the dollars without changing the percentage very much, I would say.

Is that accurate?

Correct. Yeah. Okay, great. Well, again, congratulations, not just to you two guys, but to everyone on the client team. An outstanding year, and thanks from the shareholders for what you guys are doing. Thanks.

Appreciate it, Howard.

As a reminder, to ask a question, please press star 11 on your telephone. Please stand by for our next question. Our next question comes from the company of Bloomberg. Your line is open. Please go ahead. Our next question comes from the company of Bloomberg. Your line is open. Please go ahead. At this time, I show no further calls. I would now like to turn the conference back to Dale Foster for closing remarks.

Thank you, Robert, and thank you to our shareholders, you know, as we call stakeholders, our employees, our customers and vendors. You know, we're all in this together. Like you saw by the releases, just a great year in 2022. We see, you know, positive things in 2023 going forward. And then, like you heard on the question side, you know, much of the same. Really focused on our team this year. Our ERP implementation is front and center, and we're going to execute on that initiative along with, you know, continue to build our sales teams as we go out to market. So thank you and appreciate it.

This concludes today's conference call. Thank you for participating. You may now disconnect.