Climb Global Solutions, Inc.

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, 2024. 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. Aaron D'Souza with Elevate IR. By now, everyone should have access to the fourth quarter and full year 2024 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's remarks, we'll be open to call for your questions. I'd now like to turn the call over to Mr. D'Souza for introductory comments.

Thank you, Operator. 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 in Form 8K we furnished to the SEC yesterday. I would now like to turn the call over to CLIMB's CEO, Dale Foster.

Thank you, Aaron, and good morning, everyone. Our fourth quarter performance capped off an exceptional 2024, marking another year of record results across all key financial metrics. These achievements underscore our team's execution of our core initiatives. We continue to focus on organic growth by deepening relationships with existing vendors and customers while sending new emerging vendors to our line card and delivering on our acquisition goals. Throughout the year, we evaluated over 120 vendors and signed agreements with only 13 of them, focusing on the most innovative technologies in our market segments. In Q4, we evaluated 34 brands but only partnered with two of them. I'd like to quickly highlight a couple of these wins. First, we launched a partnership with Scality, a global leader in cyber resilient storage software for AI environments. This strategic collaboration aims to expand Scality's reach across North America, enabling organizations to access scalable, secure, and high-performance storage solutions for their growing data needs. Next, we signed an agreement with Smartsheet, a dynamic work management platform that empowers teams to collaborate, automate workflows, and drive innovation and scale with flexibility and security. We are excited to collaborate with each of these vendors and bring their products to market, building a mutually beneficial relationship along the way. We continue to make progress with the implementation of our new ERP system, a critical step in streamlining processes and enhancing real-time data accessibility across the global operations. While we still are in the early stages, we are already seeing improvements in transactional efficiency. As we continue optimizing our systems, we anticipate unlocking additional benefits, driving greater agility, visibility, and operational effectiveness across the organization. In January, we announced several changes to our executive leadership team. To start, we appointed Matt Sullivan, our chief financial officer following the retirement of Drew Clark. I'd like to thank Drew for his invaluable contributions to CLIMB over the years and congratulate Matt on his well-earned promotion to CFO. Since joining us in 2019 as vice president and corporate controller, Matt has risen internally to his most recent role as chief accounting officer, overseeing our global accounting functions, including external, internal reporting, compliance, and planning. He has also played a pivotal role in advancing CLIMB's growth strategy and helping drive our financial due diligence for five accretive acquisitions since 2020. Shortly after Matt's appointment, we announced the promotion of two leaders who have played a pivotal role also in driving CLIMB's growth and success. First, Kim Stevens has been appointed to our Chief Marketing Officer. Kim's proven track record of success and commitment to excellence is a testament to her talent and dedication as we nurture within CLIMB. Next, Charles Bass was promoted to our newly created role of Chief Alliance Officer for CLIMB Global Solutions. Charles has taken on the global responsibility in identifying, vetting, and onboarding our most innovative technologies in the marketplace into our ecosystem, positioning CLIMB as a trusted partner for growth. I'm proud of the achievements of these two individuals, and I look forward to seeing the impact that they will continue to make in their new roles. At the end of January, we announced the appointment of John McCarthy as our new chairman of the board. John has over 30 years of experience in the technology sector of leadership. He is also a board member, board director of CLIMB since 2019, and currently serves as the compensation committee chair. We're proud to have John leave our board, and CLIMB's executive team looks forward to working with him to drive our strategic vision forward. We're excited about the year ahead, and while we have some holes to fill due to the public exit of Citrix leaving the channel, we view this as an opportunity to strengthen our mix and further diversify our offerings. Looking ahead, we will continue building on a solid foundation to generate strong organic growth while further improving operating leverage. We will continue to also evaluate M&A opportunities that will enhance our services and solutions offerings, as well as expand our geographic footprint in the U.S. and overseas. These initiatives, coupled with our demonstrated track record of execution and a robust balance sheet, will enable us to deliver on our organic and inorganic initiatives in 2025. With that, I will turn the call over to our CFO, Matt Sullivan, to take you through the financial results.

Thank you, Dale, and good morning, everyone. I'm pleased to address you for the first time as CLIMB's new CFO. 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 52% to $605 million compared to $397 million in the year-ago quarter. Distribution segment gross billings increased 57% to $582 million, and solution segment gross billings decreased 9% to $23 million. Net sales in the fourth quarter of 2024 increased 51% to $161.8 million compared to $106.8 million, which primarily reflects 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 fourth quarter increased 48% to 31.2 million compared to 21.1 million. Again, the increase was driven by organic growth from new and existing vendors in both North America and Europe, as well as the contributions from DSS. Gross profit as a percentage of gross billings was 5.2% compared to 5.3% in the year-ago period. SG&A expenses in the fourth quarter were 17.1 million compared to 12.4 million for the same period in 2023. SG&A from DSS accounted for $2.2 million of the increase. SG&A as a percentage of gross billings decreased to 2.8 percent compared to 3.1 percent in the year-ago period. Net income in the fourth quarter of 2024 increased 33 percent to $7 million, or $1.52 per diluted share, compared to $5.2 million, or $1.15 per diluted share, for the comparable period in 2023. As referenced in our press release, net income was impacted by a $2.5 million charge related to a change in fair value of acquisition contingent consideration associated with Spinnaker Limited. Adjusted net income increased 87% to $10.3 million, or $2.26 per diluted share, compared to $5.5 million, or $1.21 per diluted share for the year-ago period. Adjusted EBITDA in the fourth quarter increased 75% to $16.1 million compared to $9.2 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 780 basis points to 51.5% compared to 43.7% in the year-ago period. Turning to our balance sheet, Cash and cash equivalents were 29.8 million as of December 31st, 2024, compared to 36.3 million on December 31st, 2023, while working capital decreased by about 9.3 million during this period. The decrease in cash was primarily attributed to the cash paid at closing for acquisition of DSS of 20.4 million, as well as the timing of receivable collections and vendor payments. As of December 31st, 2024, We had $800,000 of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility with JPMorgan Chase. On February 28, 2025, our Board of Directors declared a quarterly dividend of $0.17 per share of our common stock to shareholders of record as of March 17, 2025 and payable on March 21, 2025. Looking ahead, our strong liquidity position continues to provide 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 in both North America and overseas. With a disciplined approach to expansion and a focus on execution, we believe we are well positioned to deliver another year of growth and enhance profitability in 2025. This concludes our prepared remarks. We will now open it up for questions from those participating in the call. Operator, back to you.

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 remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. And we will pause for a moment to allow questions to queue. And we will take our first question from Vincent Calico with Barrington Research. Please go ahead.

Yeah, good morning, Dale. Nice job in the quarter. Thanks, Vince. You're welcome. Did you have any large unexpected deals in the quarter? Because it was, you know, quite a result.

Yeah, so, you know, and we've said this, I think it's coming up in a couple years, and it goes back to what I always did, but, you know, we acquired Spinnaker. You know, we acquired the vast... vendor relationship with that. And, you know, it's been, you know, if you listen to our strategic plans, you know, as far as technology starting here and taking it to, you know, really Western Europe, that's our plan. This is a vendor that came back to the U.S. So we started with a relationship there and then to the U.S. So we have some good things for 2025. But yes, we have some lumpy quarters. We had a large VAS deal that came in the end of Q4 that helped the numbers. But we also, just looking outside of that, just had a great growth across, you know, all of our divisions in Q4. And, you know, Q4s typically are a larger one. So, you know, if you're selling, you know, software applications in SAS and you keep hammering in that same quarter that's big, you should get that recurring revenue the next year. So we're taking advantage of that as well.

Did security continue to lead growth amongst your segments?

It did. It did. It is still making up between 55% and 65% of our portfolio. A lot of vendors put the word security, and now we're seeing new money flow into our vendors from their investors to build out AI components just to make their products better. So we'll see that really in 2025. We'll talk about that as the announcements come out.

And how did DSS perform versus your expectations?

You know, they do good. I mean, Q4 is not, you know, their biggest quarter, you know, because they're heavy in the education market. So it's really, you know, Q, you know, the end of Q2 and Q3. And then, but they were, you know, up year over year, but nothing, you know, it isn't one of their bigger quarters. They kick off as you're going into the buying seasons of, you know, the state and local governments.

Of the number of vendors, I'm forgetting the number offhand, that you added for the year, were all of them productive? How would you characterize that?

Yeah, so, you know, like I say, it's kissing a lot of frogs and, you know, vetting as much as you can up front before you sign a vendor. Because when you think a lot of the hard work is building that relationship, getting the vendors to say, hey, you know, this is a good fit for us. As soon as we say yes, that's when all the energy, you know, gets consumed inside the climb because we have to onboard them. You know, it goes from ops to finance, you know, before it even goes back to the sales team to start selling. So, you know, if I look at the, you know, of those 13 that we signed, you know, they're all up. Then, again, we're still pushing the ones that, you know, we signed, you know, could be quarters ago or years ago, and we're pushing them to our climb elevate team because they didn't perform. We'll still transact with them. But, you know, we just highlighted a couple in Q4 that we've already, you know, some of it's share shift that starts off as they're moving from a direct to an indirect model. And I know, you know, just on Scality alone, we've picked up, you know, probably $2 million or $3 million as we've launched that brand. So I'd have to go into individual ones. But, you know, we try to get to a fast no, and we also try to get to a quick move if they don't launch or, you know, run at the rate that we believe that they were when we signed them.

Okay, I'll go back on the queue. Thanks. Thanks, Vince.

Thank you. And as a reminder, if you would like to ask a question, please press the star and 1 on your telephone keypad now. And it appears that we have no further questions at this time. I will now turn the program back to Dale for any additional or closing remarks.

Thank you, operator. And again, thank you to our shareholders supporting us in 2024. You know, just a great year for CLIMB. Also, you know, I never want to miss thanking our teams. We have our sales kickoffs at the beginning of the year. We did one in North America, which we usually do. We did our first ever one in Europe for EMEA teams to finally get them together from all the different countries. We pulled into Bristol, UK and had a great couple days of planning and celebrating. But I want to thank our team members. Tremendous job in 2024. We have our work cut out for us in 2025. But we're in a good market space, as we've always talked about. So thank you again. Thank you, operator.

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.