Climb Global Solutions, Inc. Q3 FY2024 earnings call

• Q3 marked record growth and profitability with strong performance driven by core initiatives and acquisitions. - Acquired Douglas Stewart Software (DSS) which brought 20 new vendor partners and rebranded DataSolutions Ireland to Climb Channel Solutions. - Achieved double-digit organic growth in US and Europe, signed new disruptive vendors. - Partnered with A-LIGN, a security and compliance solution provider. - Started building presence in Germany with a dedicated team. - Went live with a new ERP system, expecting operational efficiencies over time.

Adjusted gross billings (AGB) increased 65% to $465.2 million in Q3 2024 compared to $281.9 million in the prior year quarter. Net sales for the third quarter of 2024 grew 52% to $119.3 million. Gross profit in the third quarter increased 70% to $24.3 million. Adjusted EBITDA in the third quarter surged 96% to $9.9 million. DataSolutions and DSS combined contributed $81.3 million or 44% of the growth in AGB. The core business grew by $102 million, representing 56% of the increase with a year-over-year growth of 36%. Gross profit as a percentage of adjusted gross billings increased to 5.2% compared to 5.1% in the prior year. SG&A expenses in the third quarter were $13.9 million compared to $10.1 million in the same period of 2023, with SG&A as a percentage of AGB decreasing to 3% from 3.6% in the prior year. Net income in the third quarter of 2024 more than doubled to $5.5 million or $1.19 per diluted share, and adjusted net income also more than doubled to $7.1 million or $1.55 per diluted share.

• Focus on leveraging global infrastructure to drive organic growth. - Actively explore M&A targets to enhance geographic footprint and broaden service offerings. - Anticipate unlocking synergies from acquisitions and improving operating leverage. - Aim to close 2024 strong and maintain momentum for another record year.

Q: Curious if your top 20 vendors grew in line with the overall business.

A: Dale Foster stated that the core of the top vendors drove growth, with some new entrants, and public sector impact influenced growth.

Q: I assume security continues to drive lead growth amongst your technology segments. I'm curious if there's any technology segments that performed better or worse than expected outside of that.

A: Dale Foster mentioned VAST Data saw a pickup in the US, security was dominant with two-thirds of evaluated vendors being security-related.

Q: And Drew, your adjusted SG&A levels relative to AGB were relatively efficient. Is that a sustainable level? Or do you plan to make investments that will bring that to more normal levels?

A: Drew Clark said the goal is for SG&A expense level as a percentage of AGB to be in the 3% range, benefiting from scale and leverage from acquisitions, and will continue to invest in teams.

Q: Will the DACH region become a priority for an acquisition?

A: Dale Foster said the DACH region is a priority with Gerard Brophy leading the team and Martin Bichler on the ground in Munich.

Q: Should we expect somewhat of a pause before you do another acquisition here?

A: Dale Foster said 2025 plans include 1 to 2 acquisitions per year, depending on size.

Q: You had $609,000 of acquisition-related costs. In this quarter, did that happen to be lease termination, severance, kind of what were those activities?

A: Drew Clark said predominantly professional services, related to wrapping up earn-outs for DataSolutions and carryover expenses for Douglas Stewart Software & Services.

Q: As you think about future acquisitions, is there - generally, would you anticipate that there would be much in terms of severance or closing facilities, etcetera, or are you really just bringing them under your umbrella and letting them run and be as efficient as they choose to be?

A: Dale Foster said every acquisition is different, but no big severance plays as focus is on cultural fit.

Q: Historically, the fourth quarter has been meaningfully stronger than any other quarter of the year. Is there anything about this year that you think will make that different, or would it be reasonable to assume the fourth quarter will be meaningfully larger than - I guess it would be this quarter since this is your largest quarter of the year so far?

A: Dale Foster said fourth quarter is historically strong due to budget extinguishing and renewals, and ERP efficiencies expected by end of quarter.

Q: For quite some time now, several quarters, there continues to be just general macro question whether the market is softening, improving, holding steady, etcetera, etcetera. So, would you characterize what you were seeing here in the third quarter and through October, please?

A: Dale Foster said vendor pipeline is strong, software sector not impacted by tech refresh concerns, and macro environment still strong.