Climb Global Solutions, Inc. (NASDAQ:CLMB) Q4 2023 Earnings Call Transcript
Climb Global Solutions, Inc. (NASDAQ:CLMB) Q4 2023 Earnings Call Transcript February 29, 2024
Climb Global Solutions, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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, 2023. Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Drew Clark; and the company's Investor Relations Advisor, Mr. Sean Mansouri, with Elevate IR. By now, everyone should have access to the fourth quarter and full year 2023 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.climbgobalsolutions.com. This call will also be available for webcast replay on the company's website. Following management remarks, we'll open up the call for your questions. I'd now like to turn the call over to Mr. Mansouri for introductory comments. Please proceed.
Sean Mansouri: Thank you. 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 non-GAAP financial measures, including adjusted gross billings, adjusted EBITDA, adjusted net income and EPS, as well as 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 and Form 8-K we furnished to the SEC yesterday. I'll now turn the call over to Climb's CEO, Dale Foster.
Dale Foster: Thank you, Sean. And good morning, everyone. Our Q4 performance capped off another exceptional year for Climb as we generated record results in all of our key financial metrics and delivered on our acquisition objectives. These results were driven by continued focus on our core initiatives and the integration of DataSolutions which was acquired in October of 2023 and immediately benefited our top and bottom line. We also continue to generate organic growth in both the U.S. And Europe as we deepened our relationships with customers along with adding strategic vendors to our line card. As a brief reminder on our acquisition of DataSolutions, a leading distributor of cloud and security solutions in Ireland and the UK, their team brings a long-standing network of relationships to clients such as Check Point, Citrix, HPE Aruba to state a few.
DataSolutions also carries a robust recurring revenue base with more than 90% of its fiscal 2023 revenue coming from existing reseller partners. We are actively identifying cross selling opportunities and cost synergies and look forward to unlocking additional benefits as we further integrate DataSolutions into our financial and operating workflows. Throughout 2023, we evaluated a robust pipeline of emerging vendors as we were very thoughtful in selecting the right partners to add to our line card. We are focused on targeting and signing vendors that fit into our ecosystem and bring disruptive technology to the marketplace. For perspective, in Q4, we evaluated 13 vendors but signed agreements with only four of them. Quickly touching on a few of these wins, first, we launched a partnership with DNSFilter, a leading threat detection and content filtering application that redefines how organizations secure their largest threat vector, which is the Internet itself.
DNSFilter utilizes machine learning to protect over 26 million monthly users from phishing, malware and advanced security threats. Next, we partner with Kiteworks, a compliance and security application that enables organizations to identify, track, control and secure sensitive content communications under a single platform. Kiteworks protects over 35 million end users for almost or most 4,000 global enterprise and government agencies. We are thrilled to kick off our partnership with each of these innovative technologies and we look forward to building prosperous relationships with each of these vendors as we expand their reach throughout the channel. As we have often stated in the past, our goal is to build deep and meaningful relationships with our partners and vendors.
It is a differentiator between us and our large competitors. As a testament to our commitment, in November, we were named one of CDW's 2023 Distributors of the Year for providing a customer first relationship, as well as exemplary products, services and solutions to support the CDW partnership and our customers. We have grown side by side with CDW for more than 20 years as partners as we look forward to building on our mutual success in the years to come. In addition to CDW's Partner of the Year, Climb was awarded Wasabi Technology Distributor of the Year Award in both North America and EMEA. We are honoured to be recognized as Wasabi's Distributor of Choice and are excited to capitalize the momentum for 2023 into the year ahead. Turning to personal development.
In November, we announced the appointment of Kim Stevens to Worldwide VP of Marketing. Kim assumed the global marketing responsibility for Climb, including the creation of and execution of comprehensive marketing strategy, branding and also partner marketing. Kim’s appointment is part of a long-term growth strategy to expand our reseller coverage, operations and marketing presence. We are thrilled to have Kim to lead our global marketing efforts to align our branding as we further scale our footprint in the U.S. and overseas. Looking ahead to our strategy, it remains unchanged. Leverage our global footprint and drive organic growth, expanding our line card to the most innovative companies in the market. We will also continue to pursue M&A opportunities in both the U.S. and overseas that can broaden our geographic footprint and expand out vendor reach and also serve us in solution offerings.
Between a robust balance sheet, a growing pipeline of prospective vendors and a proven track record of accretive acquisitions, we are well positioned to continue driving shareholder value. With that, I will turn the call over to our CFO, Drew Clark, to take you through the financial results. Drew?
Drew Clark: Thank you, Dale. Good morning, everyone. As I've noted before, Dale gets to share all the fun exciting aspects of our business and I'm stuck with discussing another boring record quarter in terms of our operating and financial results. Quick reminder, as we review the financial results for our fourth quarter, all comparisons and variance commentary referred to the prior year quarter unless otherwise specified. Okay, let's jump into the results. As reported in our earnings press release, adjusted gross billings or AGB, which we all know is a non-GAAP measure, increased 24% to $397 million compared to $319.8 million in the year ago quarter. Net sales in the fourth quarter of 2023 increased 20% to $106.8 million compared to $88.9 million which primarily reflects organic growth from new and existing vendors as well as contributions from our acquisition of DataSolutions in October of 2023.
As we've often stated, we focus on AGB as the true metric of our top line growth as the calculation of net sales is influenced by product mix and the respective adjustment to convert AGB to net sales for financial reporting purposes under GAAP. In the fourth quarter, net sales grew at a lower rate because of the impact of DataSolutions, which sells HPE Aruba appliances in connection with Citrix and the aforementioned product mix quarter-to-quarter. Gross profit in the fourth quarter increased 31% to $21.1 million compared to $16.1 million. Again, the increase was primarily driven by organic growth from new vendors in our existing top 20 vendors in North America and Europe, as well as the contribution from DataSolutions. Gross profit as a percentage of AGB increased to 5.3% compared to 5% in the prior period and was positively impacted by DataSolutions and our vendor mix in the quarter.
SG&A expenses in the 4th quarter were $12.4 million compared to $9.1 million in the same period in 2022. SG&A as a percentage of AGB was 3.1% compared to 2.9% in the year ago period. The dollar growth included $1.8 million from DataSolutions and expenses associated with sales performance in terms of increased commissions and our human capital, base salaries, benefits, bonuses and stock compensation, all of which were in line with our budget and expectations. Net income in the fourth quarter of 2023 increased 10% to $5.2 million or $1.15 per diluted share compared to $4.8 million or $1.06 per diluted share for the comparable period in 2022. As mentioned in our press release, earnings per diluted share in the fourth quarter of 2023 was negatively impacted by $0.09 in foreign exchange currency and $0.06 in fees associated with the acquisition of DataSolutions.
Adjusted EBITDA in the fourth quarter increased 24% to $9.2 million compared to $7.4 million in the prior period. The increase, as previously noted, was primarily driven by organic growth as well as the contribution from DataSolutions. Adjusted EBITDA as a percentage of gross profit or effective margin was 43.7% compared to 45.9% in the year ago period. Our fourth quarter was impacted by the continued early pay discount taken by our key DMRs, which we expect to be the norm as we head into 2024, so future comparisons to the prior year will be comparable. Early pay in the quarter was $900,000 or 230 basis points, which would have generated a 46% effective margin on an apples-to-apples comparison. Again, as we move forward into 2024, we believe that the 2024 comparisons to 2023 will be comparable, so we will no longer have to discuss early pay discounts that were taken in excess of prior periods.
Turning to our balance sheet, cash and cash equivalents were $36.3 million on December 31, 2023 compared to $20.2 million on December 31, 2022, while working capital decreased by $4.5 million during this period. The increase in cash was primarily attributed to the timing of receivable collections and vendor payments, partially offset by the cash paid for the acquisition of DataSolutions, net of cash acquired of $12.7 million. As of December 31, 2023, we had $1.3 million of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility. Subsequent to quarter end and consistent with prior quarters, our Board of Directors declared on February 27, 2024 a quarterly dividend of $0.17 per share of our common stock payable on March 15, 2024 to shareholders of record as of March 11, 2024.
As Dale mentioned earlier, our strong liquidity position continues to provide us with the flexibility to execute our organic and inorganic growth strategies while expanding our relationships with vendor networks and customers across the globe. We will remain active in the M&A front as we evaluate accretive targets in both domestic and international markets. We look forward to executing on our goals and delivering another year of record results in 2024. This concludes our prepared remarks. We'll now open it up for questions from those participating in the call. Operator, back to you.
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