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, 2022. Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Drew Clark; and the company's Investor Relations adviser, Mr.

Sean Mansouri with Elevate IR..

By now, everyone should have access to the fourth quarter and full year 2022 earnings 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 remarks, we'll open the call for your questions..

I'd now like to turn the call over to Mr. Mansouri for introductory comments. .

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 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 and Form 8-K we furnished to the SEC yesterday..

With that, I'll turn the call over to Climb's CEO, Dale Foster. .

to generate growth with our existing vendors, add new innovative vendors to our line card and delivered on our acquisition objectives..

In addition, we continued our strategy to expand Climb's presence overseas with the acquisition of Spinnakar in August of last year. Spinnakar has been completely integrated into our operating systems, and they contributed to both our top and bottom line during the quarter.

As I have mentioned in the past, we are committed to a limited line card of vendors. This allows us to effectively cross-sell our brands to our customer base and remains an important differentiator for us. This past quarter, we evaluate 25 new prospective brands and signed agreements with only 3; CYREBRO, Simply and CoreView. Quickly touching on each..

CYREBRO is a cloud-based security operations center infrastructure product that provides thread analytics and management solutions. Simply is a developer of innovative cloud-based storage solutions to simplify complex portfolio problems faced by media professionals worldwide.

And finally, we signed CoreView, an industry-leading Microsoft 365 for management framework built for enterprises. We look forward to a long and fruitful partnership with each one of these vendors as we take their products to the market..

In August of last year, we announced the close of our acquisition of Spinnakar. Spinnakar is a U.K.-based IT channel distributor focused on storage, cloud, security and data management across the EMEA region.

Their combined executive team brings more than 40 years of IT distribution experience and as a company adds 15 new vendor partners to the Climb platform with the most notable being VAST data..

Q4 marked the first full quarter of Spinnakar's integration into the financial and operating systems as well as a full contribution to our top and bottom line. We've already begun to see the cross-selling benefits between the Climb U.S. and Climb EMEA teams. For example, our U.S.

operations began to work with LogicGate, who previously only had a relationship with the EMEA team. Conversely, our EMEA team began to work with our Datadobi and Tintri vendors from our U.S. relationships. While these synergies are in their infancy, they demonstrate the power behind our growth strategy.

We expect further cross-selling opportunities as we continue to scale and integrate our businesses across the globe..

Turning to personal development. In November, we announced the appointment of Kimberly Boren to our Board of Directors. She will serve on the Audit Committee and Chair of the Nominating and Corporate Governance Committee for Climb.

Kimberly brings over 25 years of experience leading and executing finance and accounting functions for both public and private companies. She also has an extensive track record in spearheading M&A transactions. Her deep experience in finance and M&A will be an asset to our acquisition strategy, and we were excited to have her on board.

Looking ahead to 2023, we are already off to a great start this year. As we progress, we will continue to focus on expanding our line card with the most innovative companies in the market..

We will also continue to evaluate new M&A targets, both domestically and internationally to add further scale and operating leverage to our business. With a strong pipeline of targets and a strong balance sheet, we will continue to value acquisition opportunities that will be accretive and aligned with our strategic goals and culture..

With that, I will turn the call over to Drew, our CFO.

Drew?.

Thank you, Dale, and good morning, everyone. As we review our financial results, I want to remind everyone that all comparisons and variance commentary refers to the prior year quarter, unless otherwise specified. Q4 results marked our seventh consecutive quarter of double-digit profitability improvements.

As reported in our earnings press release, adjusted gross billings, which is a non-GAAP measure, increased 22% to $319.8 million compared to $262.1 million in the year ago quarter. The increase reflects continued organic growth from new and existing vendors as well as a full quarter of contribution from Spinnakar..

In addition, net sales in the fourth quarter of 2022 increased 18% to $88.9 million compared to $75.5 million. Excluding the negative impact of foreign exchange currencies, net sales increased 20% to $89.1 million, which reflects approximately 13% organic growth and 7% from Spinnakar..

Gross profit in the fourth quarter increased 28% to $16.1 million compared to $12.6 million. The increase was primarily driven by organic growth from new vendors, our top 20 vendors in both North America and Europe, certain customers that did not fully utilize early pay discounts as well as the contribution from our acquisition of Spinnakar.

Our gross profit as a percentage of adjusted gross billings was 5% versus 4.8%, and as a percentage of net sales was 18.1% compared to 16.7% in the prior year quarter..

Total SG&A in the fourth quarter was $10 million compared to $8.2 million for the same period in 2021. SG&A as a percentage of adjusted gross billings remained flat at approximately 3.1% compared to the year ago quarter.

Net income in the fourth quarter of 2022 increased 38% to $4.8 million or $1.06 per diluted share, compared to $3.4 million or $0.78 per diluted share for the comparable period in 2021.

I would like to point out that excluding the negative impact of FX, net income actually increased 43% to $4.9 million or $1.08 per diluted share compared to $3.4 million or $0.78 per diluted share in the year ago quarter..

Adjusted EBITDA in the fourth quarter increased 44% to $7.4 million compared to $5.1 million. The increase was driven again by organic growth from both new and existing vendors as well as contributions from Spinnakar.

Adjusted EBITDA as a percentage of gross profit or effective margin increased significantly to 45.9% compared to 40.7% in the year ago period. This reflects our third quarter in a row of delivering both adjusted EBITDA and effective margin improvements, which speaks to the scalability of our business.

Excluding the $0.2 million of FX impact, our effective margin grew even higher to 46.7% during this quarter..

Turning to our balance sheet. Cash and cash equivalents were $20.2 million on December 31, 2022, compared to $29.3 million in December 31, 2021. While working capital decreased by $1.6 million during the period.

The decrease in cash was primarily due to the acquisition of Spinnakar as well as less customers utilizing early pay discounts compared to the prior period. As of December 31, 2022, we had $1.8 million of debt outstanding, with no borrowings outstanding under either our $20 million or GBP 8 million credit facilities.

Subsequent to quarter end on February 28, 2023, our Board of Directors declared a quarterly dividend of $0.17 per share of common stock, payable on March 17, 2023, to shareholders of record on March 13, 2023..

To echo Dale's point earlier, we will continue to evaluate M&A targets, both domestically and abroad to enhance our geographic footprint in addition to our service and solution offerings.

As we think about the financial profile of our business in the out years, we believe we can continue to generate double-digit organic growth going forward in adjusted gross billings, while also creating meaningful operating leverage in the business to ensure that growth on the bottom line outpaces the top line..

Future acquisitions would be accretive to this profile would help us drive scale at even a quicker pace. Our confidence in delivering these results comes from our prior years of execution as well as the inherent recurring nature of our business.

Although we don't generate recurring revenue in the traditional sense of SaaS companies, we do generate reoccurring revenue as we average of roughly 85% renewal rate with our customers every year. We recognize the macro environment has been challenging in recent quarters and the future remains uncertain.

However, we have not seen an impact to our business up to this point and continue to expect delivering another solid year of results in 2023..

This now concludes our prepared remarks. We'll open it up for questions from those participating in the call. Operator, back to you and thank you. .

[Operator Instructions] Our first question comes from Howard [ Root ]. .

Dale And Drew, can you hear me, okay?.

Yes, we can hear you. .

All Okay. .

Okay. Okay. That's Great. So first off, congrats on a great quarter and the whole year to get over $1 billion in adjusted gross billings, it's just phenomenal, especially in 2022.

And what I really love, as I said before, is how you keep the model focused and simple and kind of like to paraphrase Dale part and it's amazing how hard it is to make it look that simple..

I love that you're not grabbing the wheel and your internet, you're doing straight down the middle of the road because what you're doing right now is working. So I have 2 questions, 1 kind of more simple and, I guess, maybe 3. First one, simple on hedging. We talked about it last quarter.

Is there anything your idea is on hedging for this foreign currency risk? I know the dollar is so strong, you almost don't want to hedge now.

But what are you thinking going forward for hedging in 2023?.

I think for 2023, Howard, and we just discussed this with the Board, we're going to probably stay the status quo, but we will, I think every period, meaning every week, every month, we're going to look at where we have transactions that may be settling in different currencies, meaning Canada as an example, many of our customers, if not all, will be paying us in Canadian dollars.

We have a significant vendor that we pay in USD. So there is a gap there because we'll normally receive funds from our clients are customers in 35 plus or minus days and we have a relationship with the vendor that we don't pay until 65 days. So we may look at some spot transactions to minimize that FX risk..

But at this point, I don't think we're going to enter into any sophisticated hedging strategy where we've got a significant premiums for contracts, et cetera, that may wash themselves out.

But again, we're going to monitor this on a very regular and close basis to make sure that we're not putting any undue risk into the business that we can't perhaps mitigate with reasonable spot contracts or perhaps trying to hedge the translation risk on the balance sheet..

But nothing definitive at this point, but we're going to monitor it very closely. .

Okay. Great. On the -- second question on the acquisition environment, what do you see out there? I mean, you guys have done the last, I guess, 3 acquisitions, I mean just flawless from the outside. I know there's always issues on the inside, but each one of them performed as expected.

Spinnakar appears to outperform for what you got and 7% contribution in Q4 was just outstanding early results, but what do you see in terms of the pipeline out there and the scale of that pipeline bigger than what you've been doing? And any thoughts on how you would finance that? I mean you've got great cash flow generation on a small scale.

Are you looking at anything bigger? Or what's your take, Dale, on acquisitions in 2023?.

Yes. Can you [ repeat it ], Howard. .

What's that? I'm sorry. .

Howard, can you hear me?.

Yes, I'm getting a little echo, but I can hear you. .

So am I. Drew... .

Yes, I can hear you, Dale, you've got that echo in the background... .

I'm going to call back. Go ahead, Drew. And I'm going to call right back in. .

No. It's okay, All fine, working now. .

Is that Okay?.

Yes. That's good. .

Yes. .

Okay. So yes, Howard, we're looking at them. We have a long list of potentials some in the same size as Spinnakar. Spinnakar turned out to be great for us, as you'll see as we keep reporting quarter-after-quarter. But the best fit for Spinnakar is the actual team and some of the vendors that he's bringing over.

So you'll see me spend more time on targets to make sure we have a cultural fit, so we don't make a mistake and that's going to be upfront before we actually pull the trigger. We have some were looking at the U.S., some we're looking at in Europe and beyond. But yes, we're being as careful as we can..

But this is the year, and we've talked about it before, our ERP is going to be implemented by halfway through the year. So it's a lot of focus inward. But like you said Howard, down the middle of the road, we just had our sales kickoff last week. I kind of like to break things up into 3 years.

So you take a look at the last 3 years, what we've accomplished where we're going to go in the next 3 years, we can see 2023 very clearly, a pretty good idea 2024. A lot of the same from us. And there's a lot of target vendors and a lot of target acquisition possibilities. So same thing. .

Okay. Great. And the last question, which I always ask, and I always encourage you to start giving more kind of future-looking guidance. And the good news is your business model is really straightforward.

The bad news for you is it's pretty easy to do the model, right? I mean, for us, outside with 14% growth in adjusted gross billings in 2022, 22% growth in Q4. And then your gross margin right at 5%, SG&A is sticking at 2%. So that's 3% net income before taxes, and you got a 24% tax bracket..

So if I do the back of the envelope type stuff, if you do that same kind of 14%, 16%, 18% growth, you're looking at $1.3 billion in adjusted gross billings for 2023 about $20 million of net income or about $4.50 a share for bottom line after-tax GAAP net income, which, again, it's just hitting the cover right at the sweet spot of this business.

Is that a way of looking at it?.

Or what do you see -- I'm not going to ask you to endorse my back of the envelope guidance here. I'd encourage you to give it some more. But do you see things that are out of whack on that? I mean is it just that -- I don't want to say simple in a derogatory way, but you know what I mean.

Is it just that good? Or is there something else that I'm missing when I'm looking at risks for 2023?.

You're not missing anything as far as just your analysis and saying, "Hey, this is in the back of the page." Because we're doing a lot of the same things. If you look at the actual IT market and the good thing as far as our economic scale, we're in software, so we don't have the logistics issues, right, we're 80-some-percent software.

So the delivery is easy. If anything, it's -- do we see any slow up in emerging vendors coming out and the ones that we've already signed, is it taking us longer to launch them with all the different layoffs and stuff really not affected that much..

And if we do have a vendor that's sizable and some of us have announced that they rely on the channel even more because it's got to -- they got to have somebody to pick up the pieces on the marketing side on the sales side. So we kind of look at it pretty optimistically that way. Not that we can't have some bumps along the road, some lumpy quarters.

But right now, we don't see that. And I think we have a pretty good view for the next 3 to 6 months as far as, let's say, it's pretty much status quo, just looking at the macro market. .

Great. Congrats -- Go ahead. .

Howard, I would just -- I would add to Dale's comments just briefly that we're going to be very conscientious in terms of watching any kind of economic indicators. Obviously, the interest rate environment we expect globally to continue to rise, which could impact some of the speed and level of activity from our VARs and their end customers.

We're also making -- continuing to make investments in our team. So our solutions business, we're bringing on headcount in advance of our ability to actually deliver implementation in Level 1 and Level 2 support services for certain vendors.

So that will -- that's an investment in people that we're making that may not have an immediate contribution to GP, adjusted EBITDA, et cetera..

So well, again, as Dale said, your back of the envelope analysis is not inaccurate per se, but we do have some things in the plans for 2023 investments we've also made some significant improvements in our benefit programs and compensation levels to retain people and grow people in the business.

So you may see some impact from that would slightly modify your back-of-the-envelope calculations. .

So that 3% SG&A may fluctuate a little bit, but the growth in adjusted gross billings really gives you the freedom to do that without -- to increase the dollars without changing the present any very much, I would say. .

Yes, that correct. .

Yes, it's correct. .

Yes. Okay. Great. Well, again, congratulate not just you guys, but to everyone on the client team, an outstanding year and thanks from the shareholders for what you guys are doing. .

[Operator Instructions] Our next question comes from the company of Bloomberg. At this time, I show no further calls. I would now like to turn the conference back to Dale Foster for closing remarks. .

Thank you, operator, and thank you to our shareholders, as we call stakeholders, our employees and our customers and vendors, it's all -- we're all in this together. Like you saw by the releases, just a great year in 2022. We see positive things in 2023 going forward.

And like you heard on the question side, much of the same, really focused on our team this year. Our ERP implementation is front and center, and we're going to execute on that initiative along with still continue to build our sales teams as we go out to market. So thank you, and I appreciate it. .

This concludes today's conference call. Thank you for participating. You may now disconnect..