Climb Global Solutions, Inc. Q2 FY2025 earnings call

• The company had double-digit organic growth, strengthened customer relationships, and expanded market share in the U.S. and Europe.
• Benefited from the incremental contribution of the acquisition of Douglas Stewart Software (DSS), especially the seasonal strength for education customers.
• Evaluated 50 potential vendor partnerships in Q2 and moved forward with 4, including a partnership with Ignite for secure content collaboration and an exclusive distribution agreement with IGEL for secure endpoint OS solutions.
• Appointed Vishal Pushpa as Chief Information Officer and promoted Carlos Rodrigues to President of North America.
• ERP system in place is driving improved operational efficiency and scalability, and the company is evaluating strategic M&A opportunities.

In the second quarter of 2025, Climb Global Solutions saw strong financial performance. The Distribution segment had gross billings increase 40% to $477 million. The Solutions segment had gross billings increase 19% to $23.5 million. Net sales for the quarter were $159.3 million, a 73% increase from the prior year. Gross profit rose 42% to $26.3 million. SG&A expenses were $16.4 million, up from $13 million in the prior year. Net income increased 74% to $6 million, and adjusted net income was $6.4 million, up 68% from the prior year. Adjusted EBITDA increased 64% to $11.4 million. Gross profit as a percentage of gross billings was 5.3% compared to 5.2% in the prior year, and SG&A as a percentage of gross billings decreased to 3.3% from 3.6% in the prior year.

• Continuing to explore strategic acquisitions that align with the company's culture and can expand capabilities and geographic reach.
• Focused on executing growth strategies, leveraging the ERP system for operating leverage, and driving both organic and inorganic growth initiatives.
• Confident in building on the momentum from the first half of the year to achieve objectives in 2025 and beyond.

• Currency fluctuations could impact financial results, as the company deals with vendors primarily in U.S. dollars and hedging strategies are being evaluated.
• Potential impact of losing key vendors, such as the loss of Citrix, though the sales teams are working to fill any holes with other products.
• Market uncertainties and competition in the distribution and solutions space that could affect growth.

Q: Did security and data center continue to lead growth in the quarter or is it broadening out somewhat?

A: Security and data center are leading growth, with security being the stronger of the two, and the data center space continues to grow with added tools.

Q: How did your top 20 vendors perform versus the overall business?

A: Some top 20 vendors have new entrants jumping forward, with Darktrace expected to have a bigger impact in the second half of the year.

Q: Were there any large deals which made this quarter especially strong, which may not necessarily recur in the following quarter?

A: A VAST Data order budgeted for Q3 was pulled into Q2, which helped the quarter, but organically the company was still growing well.

Q: Are you seeing meaningful synergies as of yet from the Douglas Stewart acquisition?

A: Yes, DSS is on the ERP system, lines have moved into the common vendor portfolio, and the team is integrated and learning DSS product lines.

Q: On gross margin as a percent of gross billings, is that a trend or just bouncing around?

A: Gross margin percentage was slightly higher due to lumpy transactions with higher margins, but it's expected to be in the 5% to 5.1% range going forward.

Q: On SG&A, how do you see that going forward?

A: The 3.3% SG&A as a percentage of gross billings is more consistent with future expectations, with a $900,000 contribution from DSS in the current quarter.

Q: Any material on tariffs or currency fluctuation affecting international side?

A: Tariffs have had no real impact, but currency fluctuations are being addressed with hedging and looking for better strategies.

Q: On growth potential and being a small player, how does growth continue?

A: There is significant headroom for growth as the company competes in niche areas and is an emerging high-touch fast-to-market channel partner with much room between $2 billion and $20 billion in potential market size.

Q: Talk about acquisition process, valuation, and currency for acquisitions?

A: This year, the company is looking at small strategic acquisitions using cash, starting with 7 to 9 multiple valuations, and valuations depend on the vendor portfolio and synergies they bring.