Climb Global Solutions - Earnings Call - Q4 2024

Executive Summary

• Record quarter: Net sales rose 51% to $161.8M, gross billings up 52% to $605.0M, adjusted EBITDA up 75% to $16.1M, and diluted EPS increased to $1.52; adjusted diluted EPS was $2.26.
• Effective margin expanded 780 bps to 51.5% on operating leverage; GP as % of gross billings was 5.2% (vs. 5.3% LY).
• GAAP earnings were dampened by a $2.5M change in fair value of acquisition contingent consideration (Spinnakar) that is excluded from non-GAAP metrics, contributing to the large adjusted EPS beat vs GAAP EPS.
• Dividend: Board declared a $0.17 quarterly dividend payable Mar 21, 2025; balance sheet ended 2024 with $29.8M cash and $0.8M debt, preserving M&A capacity.
• Street estimates: S&P Global consensus data was unavailable at the time of analysis; we cannot benchmark beats/misses to consensus and will update when available (SPGI request limit reached).

What Went Well and What Went Wrong

What Went Well

• Effective margin and profitability: Adjusted EBITDA rose 75% to $16.1M and effective margin improved to 51.5% (+780 bps), reflecting operating leverage on record gross profit.
• Vendor curation and growth: Management evaluated >120 vendors in 2024 and signed 13, emphasizing quality; Q4 added Scality (AI-resilient storage) and Smartsheet, supporting organic growth in North America and Europe.
• ERP and integration progress: ERP implementation is already improving transactional efficiency, with management expecting greater agility and leverage across global operations.

“...another year of record results across all key financial metrics.” — CEO Dale Foster
“We continue optimizing our systems... driving greater agility, visibility and operational effectiveness.” — CEO Dale Foster

What Went Wrong

• GAAP headwind from fair value charge: A $2.5M change in fair value of contingent consideration (Spinnakar) reduced GAAP net income (excluded from adjusted results).
• Solutions softness: Solutions segment gross billings fell 9% YoY in Q4 to $23.0M even as Distribution grew 57% to $582.0M.
• Legacy vendor churn and mix: Management cited “holes to fill” from Citrix’s exit from the channel; security remains 55–65% of the portfolio, driving mix concentration and potential lumpiness from large deals (e.g., a large VAST deal at Q4-end).

Transcript

Operator (participant)

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 31, 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 open the call for your questions. I'd now like to turn the call over to Mr. D'Souza for introductory comments.

Aaron D'Souza (Investor Relations Advisor)

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 8-K we furnished to the SEC yesterday. I would now like to turn the call over to Climb's CEO, Dale Foster.

Dale Foster (CEO)

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 signing 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, 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 lead 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. 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 demonstrative 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.

Matt Sullivan (CFO)

Thank you, Dale. 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%, compared to 3.1% in the year-ago period. Net income in the fourth quarter of 2024 increased 33% 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 31, 2024, compared to $36.3 million on December 31, 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 31, 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 enhanced 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.

Operator (participant)

Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. We will take our first question from Vincent Colicchio with Barrington Research. Please go ahead.

Vincent Colicchio (Managing Director)

Yeah. Good morning, Dale. Nice job in the quarter.

Dale Foster (CEO)

Thanks, Vince.

Vincent Colicchio (Managing Director)

You're welcome. Did you have any large unexpected deals in the quarter? Because it was quite a result.

Dale Foster (CEO)

Yeah. We've said this, I think it's coming up on a couple of years. It goes back quite a way, Vince. We acquired Spinnaker. We acquired the VAST vendor relationship with that. If you listen to our strategic plans, as far as technology starting here and taking it to really Western Europe, that's our plan. This is a vendor that came back to the U.S. We started with a relationship there and then to the U.S. We have some good things for 2025. Yes, we have some lumpy quarters. We had a large VAST deal that came in the end of Q4 that helped the numbers. Also, just looking outside of that, we just had great growth across all of our divisions in Q4. Q4 is typically our larger one.

If you're selling software applications and SaaS and you keep hammering in that same quarter, that's big, you should get that recurring revenue the next year. We're taking advantage of that as well.

Vincent Colicchio (Managing Director)

Did security continue to lead growth amongst your segments?

Dale Foster (CEO)

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. We will see that really in 2025. We will talk about that as the announcements come out.

Vincent Colicchio (Managing Director)

How did DSS perform versus your expectations?

Dale Foster (CEO)

They do good. I mean, Q4 is not their biggest quarter because they're heavy into the education market. So it's really at the end of Q2 and Q3. They were up year over year, but it isn't one of their bigger quarters. They kick off as you're going into the buying seasons of the state and local governments.

Vincent Colicchio (Managing Director)

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

Dale Foster (CEO)

Yeah. Like I say, it's kissing a lot of frogs and vetting as much as you can upfront before you sign a vendor. Because when you think a lot of the hard work is building that relationship, getting the vendor to say, "Hey, this is a good fit for us." As soon as we say yes, that's when all the energy gets consumed inside of Climb because we have to onboard them. It goes from ops to finance before it even goes back to the sales team to start selling. If I look at those 13 that we signed, they're all up. Then again, we're still pushing the ones that we signed 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 we just highlighted a couple in Q4 that we've already, some of it's share shift that starts off as they're moving from a direct to an indirect model. I know just on Scality alone, we've picked up probably $2 million-$3 million as we've launched that brand. I'd have to go into individual ones, but we try to get to a fast no, and we also try to get to a quick move if they don't launch or run at the rate that we believe that they were when we signed them.

Vincent Colicchio (Managing Director)

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

Dale Foster (CEO)

Thanks, Vince.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press the star and one on your telephone keypad now. 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.

Dale Foster (CEO)

Thank you, Operator. Thank you to our shareholders supporting us in 2024. Just a great year for Climb. Also, 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 our EMEA team. Finally get them together from all the different countries. We pulled into Bristol, U.K., and had a great couple of days of planning and celebrating. I want to thank our team members. Tremendous job in 2024. We have our work cut out for us in 2025, but we are in a good market space, as we've always talked about. Thank you again. Thank you, Operator.

Operator (participant)

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