Good morning, everyone, and thank you for participating in today's conference call to discuss Climb Global Solutions' financial results for the first quarter ended March 31, 2024. Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Andrew Clark; and the company's Investor Relations Advisor, Mr. Sean Mansouri, with Elevate IR. By now everyone should have access to the first quarter 2024 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.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, adjusted net income and EPS 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.

Thank you, Sean. And good morning, everyone. We continue to make progress in growing Climb and strengthening our customer and vendor relationships in the first quarter as we produced double-digit organic growth in North America. We benefited from a recent acquisition of DataSolutions in Europe. Although we generated solid top-line growth, we experienced softer volumes across a few key vendors, primarily related to their sales cycles. This includes a key vendor from our acquisition of DataSolutions in October 2023. While this adversely affected our bottom line in Q1, we expect to return to growth with these vendors over the back half of the year. As many of you are aware, our acquisition of DataSolutions brought a deep network of relationships to Climb as well as a robust recurring revenue base with more than 90% of its fiscal 2023 revenue coming from existing reseller partners. We've already begun to take advantage of cross-selling opportunities between Climb U.S. and Climb EMEA teams. For example, we signed global agreements with Delinea, SolarWinds and SUSE, to name a few. Although these synergies are still in their early stages, we expect to uncover additional cross-selling opportunities as well as drive further operating efficiencies as we continue to integrate DataSolutions into our global operations. During the quarter, we deepened current partnerships with signing new marquee vendors to our line card. We evaluated 32 vendors and signed agreements with only 4 of them, demonstrating our commitment to participating and partnering with the most innovative cutting-edge technologies in the market. For example, in Q1, we expanded our partnership with Jamf. They are a leading provider of Apple device management and security software that enables businesses to efficiently manage and secure their Apple devices, ensuring seamless integration, enhanced productivity and streamlined workflows. Initially, we partnered with Jamf to launch their products in Canada. But based on the strong initial results, we reevaluated the scope to expand distribution in the United States, demonstrating our ability to successfully launch products and offer additional geographic exposure through our network of resellers. As we've often said in the past, we strive to build longstanding meaningful relationships with our partners. As a result, we are seeing increased exposure from targeted media coverage and industry interviews with our global teams, in addition to receiving several notable recognitions from key vendor partners. In the first quarter, Climb was awarded distributor or partner of the year by numerous vendors, including Delinea, Wasabi, Trend Micro, LogicGate, to name a few. These awards are an affirmation of our strategic direction and speak to our approach to a limited line card so that we can focus on going deeper with our vendor partners and truly add value to their sales efforts. We are excited to build upon the strong growth we have achieved together. Looking to the remainder of 2024, we have a solid foundation in place to continue driving organic growth with existing vendors while signing new market-leading technologies to our line card. We expect to uncover additional synergies and cross-selling opportunities as we further integrate DataSolutions into our operating platforms. Our ERP implementation is also on track to go live this summer, which will enable us to drive further operating efficiencies through our global operations. We will continue to leverage our strong liquidity position to explore new acquisitions that will enhance our offerings and expand our presence in both domestic and international markets. We believe the combination of these initiatives will lead to another year of record growth and profitability. With that, I will turn the call over to our CFO, Drew Clark. He will take you through the financial results. Thank you, Drew.

Thank you, Dale. Good morning, everyone. Quick reminder as we review the financial results for our first quarter, all comparisons in the variance commentary refer to the prior year quarter unless otherwise specified. Before we jump into the results, let me reiterate Dale's comments about our positive outlook for the balance of 2024 and beyond, despite the lower than expected operating results for the first quarter. As reported in our earnings press release, adjusted gross billings or AGB, which is a non-GAAP measure, increased 16% to $355.3 million for the quarter compared to $306.7 million in the year-ago quarter. Net sales in the first quarter of 2024 increased 9% to $92.4 million compared to $85 million, which primarily reflects organic growth from new and existing vendors as well as the contribution from our acquisition of DataSolutions in October of last year. Again, as we have previously 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 first quarter, we had an increase in the sale of security, maintenance, and cloud products, which are recorded net of related cost of sales and therefore leads to a larger adjustment from AGB to net sales. DataSolutions also has a higher adjustment of AGB to net sales and their net sales were 31% for the quarter compared to our consolidated 26%. Gross profit in the first quarter increased 12% to $17 million compared to $15.2 million. Again, the increase was primarily driven by organic growth from new and existing vendors in both North America and Europe as well as contributions from DataSolutions. Gross profit as a percentage of adjusted gross billings was 4.8% compared to 5.0%, driven by a decline in our solutions business gross profit and related margin percentage and early pay in North America. SG&A expenses in the first quarter were $12.5 million compared to $10.2 million for the same period in 2023. SG&A was in line with our internal budget and sequentially from the fourth quarter. SG&A as a percentage of adjusted gross billings was 3.5% compared to 3.3% in the year-ago period. The increase was primarily driven by expenses from DataSolutions, which we expect to reduce as we further integrate their business into our financial operating systems and as their sales rebound in the second half of the year. Net income in the first quarter of 2024 was $2.7 million or $0.60 per diluted share compared to $3.3 million or $0.74 per diluted share for the comparable period in 2023. As mentioned in our earnings press release, earnings per diluted share in the first quarter of 2024 was negatively impacted by $0.01 in foreign exchange and $0.04 in acquisition fees, a portion of which related to the carryover of the DataSolutions transaction as well as prospective opportunities. Adjusted EBITDA in the first quarter was $5.5 million compared to $5.7 million. The decrease was primarily driven by increased SG&A expenses related to DataSolutions and lower gross profit generated in the quarter relative to expectations that we expect to return to in the back half of the year. Adjusted EBITDA as a percentage of gross profit or effective margin was 32.5% compared to 37.4% in the year-ago period. Clearly, this is an unacceptable achievement, but we are confident in returning to target levels in the future quarters. Turning to our balance sheet, cash and cash equivalents were $43.6 million as of March 31, 2024, compared to $36.3 million at December 31, 2023, while working capital remained flat during this period. The increase in cash was primarily attributed to the timing of receivable collections and vendor payments. As of March 31, 2024, we had $1.2 million of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility. On April 29th, consistent with prior quarters, our Board of Directors declared a quarterly dividend of $0.17 per share of our common stock to shareholders of record as of May 13, 2024, and payable on the 17th of May 2024. To echo Dale's earlier comments, our strong balance sheet provides us with great flexibility to evaluate M&A opportunities, both domestically and abroad, to enhance our service and solution offerings across existing and future geographies. We will continue to maintain a limited and very focused line card to ensure we are partnering with the most innovative vendors in the market while also taking advantage of some scale opportunities. Our ERP implementation, coupled with further integration of DataSolutions and our U.K. operations, will enable us to drive operating efficiencies throughout our global footprint. We believe these initiatives will enable us to grow adjusted EBITDA at a rate that exceeds our increase in adjusted gross billings. So we will keep on climbing. This concludes our prepared remarks. We'll now open it up for questions from those participating on the call. Operator, back to you.

Our first question comes from Vincent Colicchio from Barrington Research.

Yes. Dale, so to be clear, was the light volume with key vendors, was that a timing issue? Or was it a lengthening of their sales cycles?

Yes. A couple of things, Vince. If you look at the quarter, we have vendors that finish their fiscal years in different sections. We have some of the bigger vendors that actually ended in March. Sometimes, they leak over. We have two or three vendors that are going through different ERP implementations as well, so they get kind of stalled. We had vendor issues that pulled into Q4, and some that are pushing into Q2. So looking at it, we had a large deal with our Spinnakar acquisition a year ago that didn't reoccur in Q1. Thus, looking at those factors, it was just a mix, but nothing underlying. We were discussing as a team that of our top 20 vendors, 16 of them grew in Q1, and of our top 20 customers, 17 of them grew in Q1. So the underlying piece is still very strong; it’s just a timing issue for Q2.

So where you saw the volume softness, do you expect to be on budget with those clients for the year?

We do, as Drew mentioned in his comments. I mean, we think we have a strong back half of the year. Some of it is already coming into our Q2 that we didn't see in Q1. We don’t push to bring things into a certain quarter to hit an exact number. Our vendors tend to push for that when we do favors for them regarding timing. The numbers are what they are; some drift into the next quarter, while some get pulled forward.

Okay. And then outside of the aforementioned vendors where there was volume, within your top 20, are you growing in line with the rest of the business? What does that look like?

Yes, we are. The newer the vendor, the higher their growth rate. Emerging vendors typically grow at a faster rate. As a vendor matures, their growth slows down; this is common across industries. We have larger vendors that experience single-digit growth, but we compensate for it with the growth from emerging vendors. This balance is something we focus on as a management team to achieve over 10% growth. Overall, our top-line revenue has grown, and while it depends on the vendor mix, the margin profile per vendor also varies. It's a complex scenario, but that’s how we manage it quarter-by-quarter.

And has there been any change in areas of segment strength, technology, and data center? Do those continue to be the key drivers?

Yes, our main pillars are security and data center space. Previously, we mentioned winning the contract with CDW for the VAST business, which is the first time we've had a significant vendor transition to the U.S. with Spinnakar or ClimbGate teams. We expect that to pick up in the second half of the year. We’re just getting started and have already received initial orders from that contract, which falls within the data center space. Additionally, we will build a supportive network of vendors around leaders in security like Sophos and SolarWinds.

Our next question comes from Howard Root from Climb Global Solutions.

I'm not from Climb Global Solutions. Two small questions and then a more general one for Dale. First, the adjusted gross billings, I think, went up $48 million in Q1 versus Q1 a year ago, 16%. Can you give us a breakdown of how much of that is organic versus how much of that is DataSolutions or any other acquisitions?

Yes. I'll let Drew jump in. I mean, he's got the exact numbers. But I think it's probably close to being split 50-50.

Yes. That's correct, Howard; a little more split. DataSolutions generated approximately $29 million in the quarter for us. However, as Dale mentioned in his response to Vince, that was lower than our expectations while still ahead of the prior year quarter, really due to 2023. One of their large vendors had significant pull-through in Q4, which resulted in a strong fourth-quarter result that exceeded our expectations. Unfortunately, that detracted from Q1. However, DataSolutions is performing on par, and we're excited about that.

Okay. So why do you say second-half rebound rather than a Q2 rebound? And I assume that applies to the DataSolutions key vendor mainly.

Yes. DataSolutions' second quarter is historically their weakest quarter. Also, Q2 has generally been one of our lower quarters in terms of both top line and gross profit. While Q2 will be solid, the larger rebound will occur with some of those vendors, especially within the DataSolutions portfolio and Spinnakar vendors that we acquired in Q3 and Q4. Dale, do you have other thoughts?

No. Yes, we're on track with the DataSolutions team. Just to add to that, Howard, we integrated the sales teams in early January for DataSolutions, and some of their managers are now running our Climb U.K. team. So that team is integrated already. The next part of the integration will align with our ERP rollout projected for July-August. We believe by the end of this year, all our companies will be on one system for consolidated reporting. Many are already on our systems, but we want to complete integration for the last two years by the end of Q3.

Yes. Good luck with that one. We all know how hard that is to pull off, but it has to be done. Second question, I've always modeled it keeping it simple, like 5% gross profit of adjusted gross billings, then SG&A below 3%, so net income is above 2%. This quarter, I think somewhat because of the acquisition, and costs, you're at 4.8% on gross profit, 3.5% on SG&A, so net income is down at 0.8%. Are those realistic targets for the business, the 5%, 3%, 2%? How do you look at that? Or am I off on my assessment of where the numbers should be?

Yes. I believe your initial modeling is accurate. We had a softer quarter in terms of gross profit margins and some margin profiles for larger vendors. However, we don't foresee a long-term trend in that manner. As these vendors mature, they attempt to reduce the margin profile, not only for us but for our reseller partners as well. However, as a distributor, as they grow, our efficiency in transactions improves. Thus, they somewhat balance each other out. In recent years, we have seen enough emerging vendors with a higher margin profile to offset these larger ones. It's a continuous discussion, as we evaluate more than 42 additional vendors that we are in preliminary discussions with.

Okay. Great. So the good news is the economy doesn't really affect you. The bad news is it's all on you. So success and failure is on your execution.

Right, that's the good news; it's all on us. We can make those choices, or we'll take all the blame as well. However, we believe we have enough market insight to make informed decisions rather than just feeling it out. We can target specific vendors and act quickly. Our team is taking advantage of vendor relationships, such as Delinea, and you can expect to see continued growth in that area.

Congrats on the quarter, the 16% revenue growth; overall, it's great year-over-year. Challenges arise, but you guys are addressing them.

Our next question comes from Bill Dezellem from Tieton Capital.

A couple of questions. First of all, allow me to circle back to your February 20th press release referencing Global Technologies. That release seemed a little bit different than your typical release. Would you please talk about that relationship and what it means or does not mean?

Yes. Thanks, Bill. So regarding Global Technologies, they're a diverse supply partner, and we are increasingly asked by our customer base and vendors to develop partnerships that focus on a diverse and secure supply chain. We have known the founders of Global Technologies for some time. They are also technical support for vendors. It’s in early stages, but we are responding to our larger customers' needs. We see opportunities in the government space, particularly through the 8(a) program. While there aren't specific successes to report yet, we recognize it's a key aspect of Climb's growth strategy.

So you broke up in part of that answer. But essentially, this isn't a joint venture; it's not an acquisition, but you're working together specifically for the federal space. Is that the essence?

No, the federal piece will come. Right now, it's primarily focused on larger partners seeking a diverse supply chain. However, we see potential for the government space as well through these relationships.

Great. Relative to your line card, I know in this type of business, you've experienced it before—as have other firms—you often find a vendor or two who become exceptionally successful, and you benefit significantly from that growth. My question is: how many vendors on your line card today do you see that could potentially experience rapid growth in revenue in the next one to two years?

Yes. If I were to ask my management team, we'd likely have differing opinions about our top five or six vendors. We place our bets on the management teams of these vendors based on their go-to-market strategies. However, market conditions can heavily influence this. Most of our vendors are not yet cash flow-positive and are still focused on developing their channel teams. If I were to choose three vendors that I believe will excel, I would likely pick three different vendors than my sales leaders would. Overall, we maintain a robust pipeline, and share shifts are favoring us as larger distributors move in a different direction. These shifts provide us opportunities to position ourselves for upcoming growth.

Our next question comes from Vincent Colicchio from Barrington Research.

Yes. One more for me. The share gains you're seeing with certain software vendors from larger distributors—are they mostly small, emerging companies? Or do you see some of them as sizable in their own right?

It depends on your definition, Vince. In our view, if a vendor can reach $100 million in revenue, that represents a mid-to-large vendor for us. For instance, Sophos itself has around $800 million in revenues, while SolarWinds ranges between $400 million and $500 million, indicating they are indeed sizable vendors. This shift in market competition is notable. As customers increasingly seek more efficient ways to market, our approach offers tailored high-touch service, making us a preferable option among vendors looking to scale their presence.

This concludes our question-and-answer session. I would like to turn the floor back over to Dale Foster for closing comments.

Thank you, operator. I'd like to thank all the stakeholders that we continue to work with, helping us build an exceptional company and focusing on the channel. We have a great team, and we're committed to executing our strategic plan for the benefit of all our shareholders. With that, I appreciate everyone joining us today.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.