Climb Global Solutions, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• The momentum from 2024 carried into Q1 with exceptional growth across key financial metrics.
• Organic growth in the U.S. and Europe, with evaluation of 50 potential vendor partners and signing of 4 agreements.
• Signed a contract with Darktrace, with a pipeline of over $30 million in potential gross billings.
• Progress on new ERP system improving efficiency across global operations.
• Hosted annual Climb Partner Conference in Miami, recognizing Freshworks as Strategic Partner of the Year.
• Appointed Paul Giovacchini to the Board of Directors, bringing over 30 years of experience in private equity and board leadership.
• Plan to remain active on the M&A front, leveraging the balance sheet for growth initiatives across existing and future markets.

Segment Performance:

• Distribution segment: Gross billings increased 36% to $453.6 million.
• Solutions segment: Gross billings increased 2% to $21 million.
• Net sales in Q1 2025: Increased 49% to $138 million compared to $92.4 million.
• Gross profit: Increased 37% to $23.4 million compared to $17 million in the prior year quarter.
• SG&A expenses: $16.8 million in Q1 2025 vs $12.5 million in the same period in 2024.
• Net income: Increased 35% to $3.7 million or $0.81 per diluted share compared to $2.7 million or $0.60 per diluted share in 2024.
• Adjusted net income: Increased 39% to $3.9 million or $0.86 per diluted share compared to $2.8 million or $0.62 per diluted share in 2024.
• Adjusted EBITDA: Increased 38% to $7.6 million compared to $5.5 million in the prior year quarter.

Guidance:

• Well positioned to sustain momentum, continue organic growth, and enhance operating leverage.
• Remain active and disciplined on M&A, evaluating accretive opportunities to strengthen offerings and expand reach.
• Leverage robust liquidity position to drive organic and inorganic growth initiatives throughout 2025.

Risks:

• Forward-looking statements subject to known and unknown risks and uncertainties as described in the company's SEC filings.
• Economic environment and tariffs could impact business, but over 80% of U.S. business is in U.S. dollars, limiting tariff impact overseas.

Q: Good morning, Dale. Do you -- the organic growth, were there any large deals in the quarter that you may want to call out? Or was it broad-based demand?

A: It was pretty much broad-based. We called the one out in Q4 of last year when we had our vast. We still have, like we said, probably for 2.5 years now, they'll be lumpy, but nothing that stood out for Q1. We had the additional advantage of DSS just like we did in Q4. But Q1 is not the strongest as we start moving into DSS's, I'm sorry, DSS, not DS, into their strongest quarters coming into the education space and the end of the state budgets that end in June. So we'll see those pick up. But no, it's just a good overall quarter. A lot of our bigger brands are growing at a little higher rate than they have before. And then some of our emerging brands are doubling down, and we're just getting more out of those guys.

Q: Has there been any change in sentiment given the uncertain economic environment? And also, can you talk about how tariffs may impact your business?

A: Yes. So we haven't -- we kind of feel it adjacent to us. And I'll talk about the tariffs first, and that is we're 80% -- over 80% in the U.S., we buy in U.S. dollars. Our vendors are U.S. So you take a look at 80% of it doesn't affect us. And then we look at overseas, we're still selling a lot of software. Most of our business overseas is in the U.K. and Ireland, but not a real impact. We don't see that right now just because of the lion's shares in the U.S. We deal with the Canadian side of things. We deal with our quoting. We put our new language on there as far as tariffs. So we don't quote at any distance like we do in the U.S. and where we have a quote that's good for 30 days and Canada is good for 5 days, so we try to get pretty close.

Q: So in the month of April, did you see organic growth trend as it did in the Q1?

A: Yes. I mean as far as -- we just don't talk about the future stuff as far as April goes. We're just finishing up. But still we're -- I mentioned Darktrace and we kicked off April 1 with them. And it's a relationship and I'll kind of share with the entire group, and that is some of these relationships take a long time to develop to get to the place where you do a contract. And then once you get to a contract to actually start executing. I was talking to Charles, our Alliance Chief. And we looked at our first time we talked to them was over 2 years ago. We got serious with them in June of last year. And here, we're just launching April 1 of this year. So the bigger vendor, the more opportunities, the longer it takes. We want to make sure we get it right. During that time, Darktrace got bought by Thoma Bravo. So delays some things, but we're super excited about our pipeline is growing very quickly with them. And I mentioned, I think, in one of the questions we had, and maybe it was your question last time, Vince, as far as, hey, what really gets you guys to the next, next level, and it's really adding. We have 3 large vendors. We want to get 10 large vendors that really will help us in our effective margin as that drop through and get more efficient with them.

Q: And are you starting to see some of the synergies you were hoping for in Europe?

A: We are. We announced at the last call that we knew Citrix, we were losing Citrix. We still took advantage of it in Q1 because we had legacy. We still have a little bit that's going to drag on for a couple of years. So the big hole for Citrix is it's starting to fill in Q2. We already have some mitigations that we're doing on new vendors. We've reorged our team over there. They're all in our systems like we talked about. We didn't mention because it wasn't a Q1 event, but just as of this past Monday, DSS, Douglas Stewart went on our ERP system live. So that's a good thing. So now every division, every company we've acquired is all on one ERP, all looking at the same numbers, and we'll just keep enhancing that. But yes, overall, everything is positive.