Climb Global Solutions, Inc. Q4 FY2025 Earnings Call

Good morning, everyone, and thank you for joining today's conference call to go over Climb Global Solutions' financial results for the fourth quarter and the full year ending December 31, 2025. With us today are Climb's CEO, Dale Foster; the CFO, Matthew Sullivan; and Investor Relations adviser, Sean Mansouri. Everyone should now have access to the earnings press release for the fourth quarter and full year 2025, which was distributed yesterday afternoon around 4:05 p.m. Eastern Time. This release can be found in the Investor Relations section of Climb Global Solutions' website at www.climbglobalsolutions.com. Additionally, this call will be available for webcast replay on the company's website. I would 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 key operational metrics and non-GAAP financial measures, including gross billings, adjusted EBITDA, adjusted net income and EPS, and effective margin as supplemental measures of performance for our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures, in accordance with SEC rules. I'd now like to turn the call over to Climb's CEO, Dale Foster.

Thank you, Sean, and good morning, everyone. 2025 was another exceptional year for Climb as we generated record results across all key financial metrics. These achievements reflect the continued execution of our teams that are driving organic growth by strengthening relationships with existing vendors and customers, selectively adding innovative technologies to our line card, and delivering operational efficiencies throughout our business. In the fourth quarter alone, we evaluated nearly 100 potential vendor relationships and signed agreements with only 2 of them. Notably, in December, we launched our partnership with Fortinet, a global leader in cybersecurity and securing network solutions serving enterprises and government customers worldwide. Fortinet is quickly becoming a primary onboarding focus, and we expect to ramp them up quickly, making them a meaningful contributor to both their business and our client business. We look forward to building a long-term, mutually beneficial relationship with Fortinet and their channel while delivering incremental value to our reseller network. While we focused most of our efforts in Q4 on onboarding Fortinet, there were other positive achievements from the alliance perspective. The fourth quarter of 2025 was only the second full quarter since we kicked off our relationship with Darktrace, a cybersecurity company that uses self-learning AI to detect, investigate, and respond to cyber threats in real-time across the entire organization's digital infrastructure. In Q4, Climb had 70 partners transact over $13 million in Darktrace product offerings with significantly more quoted pipeline ahead of us. We continue to work closely with the Darktrace team to expand partner enablement and drive broader adoption across our channel, positioning the relationship for sustained long-term growth. In addition to strengthening our vendor portfolio, earlier this week, we announced the acquisition of interworks.cloud, a Greece-based specialist cloud distributor serving the Southeastern Europe reseller market, including Greece, Malta, Cyprus, and Bulgaria and more. Interworks brings an established regional platform with over 600 cloud resellers and managed service providers, along with a curated vendor portfolio that includes Acronis, Google Workspace, AnyDesk, Blackwall, and most notably, Microsoft. I have had the pleasure of working alongside the Interworks team for nearly a decade now, and over that time, we have developed a strong alignment in our culture, strategy, and partner focus. They bring an experienced management team, a well-established Microsoft CSP business, and a multi-country footprint with deep expertise in cloud marketplace and MSP-focused distribution. Together, these capabilities enhance our ability to drive cross-sell opportunities, deepen our engagement with our vendors and reseller partners, and further position Climb as a distributor of choice across the Southeastern Europe region. A critical component of this transaction is that we are bringing the full Interworks organization into Climb, and this team will become part of our overall EMEA go-to-market structure. Maintaining the strength of their local leadership and partner relationships was a priority for us, and we believe continuity at the operational level will be essential in sustaining momentum in the region. At the same time, by integrating Interworks into our broader infrastructure, we will provide additional resources, scale, and strategic investment to accelerate their growth. We expect the transaction to be immediately accretive to our earnings and adjusted EBITDA and look forward to unlocking synergies and cross-selling opportunities as we integrate Interworks into our global platform in the coming months. Looking ahead, we remain focused on accelerating organic growth. At the same time, we have our internal development team building generative AI solutions to make our entire team more efficient. We will also continue to pursue accretive M&A opportunities that can strengthen our vendor portfolio and expand our geographic footprint. We believe these initiatives, coupled with our disciplined execution and strong balance sheet, will enable us to deliver on our organic and inorganic growth objectives in 2026. With that, I will turn the call over to our CFO, Matt Sullivan, who will take you through the financial results.

Thank you, Dale, and good morning, everyone. A quick reminder as we review the financial results for our fourth quarter, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. As reported in our earnings press release, gross billings increased 3% to $625.4 million compared to $605 million in the year-ago quarter. Distribution segment gross billings increased 4% to $602.3 million, and Solutions segment gross billings remained flat at $23.1 million. Net sales in the fourth quarter of 2025 increased 20% to $193.8 million compared to $161.8 million, which primarily reflects organic growth from new and existing vendors. As we've mentioned in the past, the calculation of net sales is influenced by product mix and the respective adjustment to convert gross billings to net sales for financial reporting purposes under U.S. GAAP. In the fourth quarter, we had an increase in sales of products that were recognized on a gross basis, which leads to a smaller adjustment from gross billings to net sales. Gross profit in the fourth quarter was $29.8 million compared to $31.2 million. The decrease was primarily driven by a large vendor transaction in the year-ago period that carried a higher-than-average margin profile. Selling, general and administrative expenses in the fourth quarter of 2025 were $18.2 million compared to $17.1 million in the year-ago period. SG&A as a percentage of gross billings was 2.9% for the fourth quarter of 2025 compared to 2.8% in the year-ago period. Net income in the fourth quarter of 2025 remained flat at $7 million, or $1.52 per diluted share, compared to the prior year period. Adjusted net income was $7 million or $1.53 per diluted share compared to $10.3 million or $2.26 per diluted share for the year-ago period. Adjusted EBITDA in the fourth quarter of 2025 was $13 million compared to $16.1 million for the same period in 2024. The decrease was primarily driven by a large vendor transaction in the year-ago period that carried a higher flow-through to adjusted EBITDA, as sales compensation expense related to this transaction was paid through a contingent earn-out, and that was included in the change in fair value of acquisition contingent consideration add-back with adjusted EBITDA in the year-ago period. Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit, was 43.6% compared to 51.5% for the same period in 2024. Turning to our balance sheet, cash and cash equivalents were $36.6 million as of December 31, 2025, compared to $29.8 million on December 31, 2024, while working capital increased by $27.7 million during this period. The increase was primarily attributed to the timing of receivable collections and payables. As of December 31, we had $200,000 of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility. Consistent with our capital allocation priorities, the Board has determined to suspend our quarterly cash dividend beginning in the first quarter of 2026. This decision allows us to retain additional capital to support organic growth initiatives and strategic acquisitions while further strengthening our financial flexibility. Based on the company's strong return on equity, the company plans to reinvest the capital for higher growth initiatives. Looking ahead, our strong liquidity position provides us with the flexibility to pursue both organic and inorganic growth opportunities while expanding our relationships with vendors and customers worldwide. We will continue to be active on the M&A front as we evaluate accretive targets that can strengthen our vendor profile and expand our geographic footprint. With a disciplined approach to expansion and a continued focus on execution, we believe we are well positioned to deliver another year of growth and enhance profitability in 2026. Dale, back to you.

Yes. Thanks, Matt. And before we open this up for questions, I'd like to address a couple of points, especially some that have come up over the last couple of days when everyone has seen some of the AI disruption in the market. First, regarding the dividend, a thoughtful decision made by our Board, and one that I fully support. As we evaluate the opportunities in front of us, we believe the best way to drive long-term shareholder value at this stage is through disciplined capital allocation and strategic reinvestments in the business. We operate in an ecosystem where many of our customers and vendors are backed by private equity firms, which gives us a unique perspective on how successful operators deploy capital, accelerate growth, and enhance returns with their portfolio companies. We intend to take a similar tactic at Climb. We've already begun to do so with our now six acquisitions in the last six years, including the addition of interworks.cloud. With a strong balance sheet and liquidity position, our priority is to allocate capital toward initiatives that improve operational efficiency and strengthen our competitive position. This includes continuing to streamline processes, leveraging AI and automation tools where appropriate, utilizing prudent leverage when it enhances our returns, and pursuing strategic acquisitions in our ecosystem that align with our go-to-market strategy. We believe all of this will create long-term shareholder value. The second point concerns the recent AI disruption and how these AI engines and large language models will interface with or potentially displace the SaaS vendors we currently carry or are prospecting. I've been around long enough to remember similar discussions around the emergence of cloud. AWS announced cloud was open for business back in 2006, which was 20 years ago. Just last year, cloud workloads passed a 50% threshold compared to on-prem or private environments. The current environment for cloud is very much hybrid. I do believe AI will move much faster than cloud adoption, but I still foresee it being a hybrid market. While we are a smaller and nimble company in our market, we are still connecting technology builders with users. We can pivot quickly, as we have done over these past eight years. As the market moves, we will move at that same speed. Whether we have standalone AI systems, AI agents, hybrid SaaS, or Platform-as-a-Service, we will be selling emerging technology products that solve real-world problems, and regardless of the computing environment, we believe we will have a role as that connector of technology. This concludes our remarks, and we'll take it to the operator for questions.

And we'll take our first question from Keith Housum with Northcoast Research.

Congratulations on the acquisition here. Just looking at that large acquisition that happened in the prior year, can you guys give any scope in terms of how big that was, so we can better understand the year-over-year performance without that? Any way that we can scale it out?

Yes. So we talked a bit about it last quarter. And thanks, Keith, for joining and dialing in. When you remove that large transaction in Q4 of last year, our recurring and organic growth still was in the high teens for Q4 compared to Q4 of last year.

Great. And that's both on a gross billings as well as EBITDA basis?

Correct. Yes.

Great. Appreciate that. And then you guys, I think it was early last year, announced the departure of Citrix. Can you talk a little bit about the impact that had in the quarter? Have you guys been able to completely offset that loss with other vendors?

Yes, I'll take that quickly. So we still had input from Citrix, and we still have it through 2029. It's some residual support because of the nature of some of the agreements that go out with our customers that's a year-over-year recurring. But we did have an impact—not as significant in Q1 of 2025. The rest of the year, we viewed it as a $50 million to $60 million hole. However, our team, even with that big gap, grew 3%. They made up the entire $60 million in the last three quarters—this is a testament to, number one, picking up new vendors. They have picked up vendors that we have on the U.S. side, as I've said before. We have continued to sign global contracts. The sales teams are choosing what they want to sell, and their performance has been impressive.

Great. Impressive. I appreciate that. Turning over to the Interworks acquisition here, the 86% growth in EBITDA year-over-year. How should we think about the go-forward run rate? Was there anything unique in that 86%? Or is that roughly $1 million in EBITDA a good starting point for those guys?

Yes. That's a good starting point for them. But there are a couple of things that we didn't get into detail on the call. Microsoft came up and said, 'Hey, we're going to consolidate our distribution worldwide,' and they set a threshold for their partners. There was a significant scramble over the last 14 months. If you don’t meet this threshold, you'll lose your distribution agreement with Microsoft. Both we and interworks.cloud were in that same position on our client side. We want to keep that relationship because Microsoft is a Tier 1 and where people want to be. So number one, we were able to combine as a company to meet that $30 million threshold with Microsoft. Number two, we are moving into a cloud environment, and we've discussed it for a while. During my upcoming CPC event with all of our top customers and vendors, I'll present a slide just on our past failures. One of the failures we've had is we haven't achieved our goals with the 2.0 launch of our cloud marketplace or platform. Interworks is already there, transacting in an effective way with their clients, almost like a self-service. They work a lot with MSPs and hybrid VARs, as do we, but at a faster pace. So there will be a learning curve and DNA transfer between the two companies. Their parent company we acquired them from is Infiterra, the platform that both of us use. We see more of our vendors transitioning to this platform and marketplace. The Greek team will help us educate our teams on the U.S. and European sides.

Great. I appreciate that. The working capital increase and the timing of collections—has that already been worked through? How should we think about that going forward?

Yes. So that's a usual timing difference. With the large transaction at the end of last year, those receivables and payables have already been collected during 2025, and it's been worked through here in early 2026.

We'll take our next question from Vincent Colicchio with Barrington Research.

Yes, Dale, congrats on beating the expectations this quarter. Was your growth broad-based across your top 20 on an organic basis? Were there any lumpy deals in the quarter?

Thanks, Vince. Good to talk to you. There were no lumpy deals in the quarter as we had before 2024 and Q4; it was across our vendors. Darktrace continues to rise up. We talked about our top two vendors, Sophos and SolarWinds. SolarWinds experienced disruption when they were acquired by Turn Capital or Turn/River during their pricing model changes. Fortunately, we finished strong with SolarWinds once they settled their pricing structure and go-to-market strategy. The top 20 vendors made the most significant impact, and that has been stable.

And has the revenue momentum that you've seen in the quarter carried through into '26?

You're always going to see Q4 as our biggest quarter due to our recurring revenue from annual subscriptions. Q4 has always been large, and it will continue to be significant as that's when renewals come up. The Douglas Stewart acquisition will begin a rebranding rollout next week for all Climb projects in the SLED and education segments. Typically, though, Q1 experiences a decline, as we saw last year due to its flat nature. Other than that, the trends are pretty cyclical, just like they have been for the last five to six years.

On the AI side, have you identified use cases for internal use? Are you at that stage?

Yes, we have. Our new CIO, Vishal, has been with us for 7 to 8 months, and he has become quite popular in our company, as everybody is looking to him to address efficiency issues. He's front and center at our sales kickoffs, and people are engaged. We've been tackling various internal challenges. We went live with our ERP almost two years ago, and now we are looking at making it more efficient with AI tools. Vishal’s background with WWT—a $30 billion reseller, one of our customers—has given him early exposure to a lot of these efficiencies. His strategy revolves around expediting processes, and he's identified numerous areas for improvement.

What is the timeline for when Interworks can provide cross-selling synergies?

Our teams have the Microsoft distribution agreement already, and Microsoft is aware of this ahead of time. We have the agreement for all EU countries. If you visualize the geography, we have the U.K. and Ireland, along with our presence in Southeastern Europe. Between those two, we have 20 countries we'll target with the Microsoft agreement and all the associated products. Interworks will onboard vendors they see as a good fit for us, and on their side, they already have cloud marketplace vendors that will be beneficial. You'll see these integrate very quickly, and since we are already using the same platform, it will be seamless for our teams and customers.

In your conversations with resellers, what is the pulse on the market regarding the health of the market versus the prior quarter?

I will provide a better answer on that next week during an open session with our resellers. From the vendor standpoint, there are numerous vendors approaching us, and we frequently say no due to the overwhelming demand. We're increasing our threshold for new partners as our capacity for onboarding becomes limited. We need to assess what is realistic in the first 18 months we work with a new vendor, as we’ve drastically raised our expectations. On the reseller side, we haven't observed a slowdown; we've noted some consolidation between companies, which is a natural process for us. We typically transact with both parties anyway, so it's mainly a timing issue.

We'll take our next question from Bill Dezellem with Tieton Capital.

Would you please walk through the size of the Fortinet relationship and what the potential is for that to move the needle for Climb?

Yes. So our relationship with Fortinet has taken off, beginning at the top with the C-level executives. They have some of the largest distributors globally, so their need for Climb is to fill gaps and serve a wider market than just Tier 1 or Fortune 500 companies. Their overall sales break down to about a $2.5 billion addressable market in the U.S. They compete against Palo Alto, Juniper, and Cisco at the top. Were considered #4. We carry some smaller lines below them, but nothing as expansive as Fortinet's offerings. They acknowledged the benefits of our targeted distribution model. Our field sellers connecting with their field sellers works effectively to introduce Fortinet to new resellers previously unknown to them. We anticipate that Fortinet could become one of our top three vendors by this time next year.

If I do that math, are you saying that this could lead to $250 million of gross billings for you by '27?

Yes, I believe so. I think it will take us about 18 months to reach that run rate, given our strong relationship with them. The magic happens when our field sellers engage with theirs in new accounts and present their value proposition effectively. That momentum will carry our teams forward more independently, enhancing our collaboration.

Do you see other companies in a similar situation where their C-suite is recognizing the value you provide?

Yes, absolutely. We are receiving many inquiries from larger firms. I can mention CrowdStrike as an example. A couple of years ago, they decided to go a different direction based on what some logistic supporters claimed they could provide. However, over the past six years, we have focused more on establishing high-performing relationships rather than seeking as many vendors as possible. Yes, larger companies are approaching us with promising opportunities without requiring extensive prospecting. Many of them range between $500 million and $600 million in size, and often, we reject them if they aren't prepared yet or if our systems can't accommodate them. There has been an increase in opportunities coming our way.

Regarding Citrix, the way that change occurred last year suggests that your comparisons for Q2, Q3, and Q4 could potentially yield stronger results—i.e., you last year only had to fill that hole.

Yes, that’s a correct assessment. I think we are past that hurdle already, as we have filled it with new vendors. We've pretty much moved past that in our focus. The ideal recurring revenue model allows us to track 80% to 90% of last year’s sales and ensure renewals. Of course, our aim is always to exceed 100% renewal rates, indicating an increase in licenses and seats. But we have already moved beyond considering that singular event as it is all in the past now with our new partnerships.

What are the implications for your recent deal with VAST and Supermicro?

Yes, VAST Data is having their user conference, and our team members are present there this week from both the European and U.S. sides. I see this as a positive development. VAST considers itself a software company, but there’s a significant hardware aspect to what they do as well. We have maintained a relationship with Supermicro for the last 10 years. It’s a beneficial development, as VAST's plans are heavily dependent on hardware capabilities, such as GPUs, for their software to perform efficiently. As they work with Supermicro, it should hasten the delivery of AI engines that require rapid data storage, which is VAST's core competency. Overall, I view this as a positive sign for our business.

We'll take our next question from Howard Root, who is a private investor. Howard, please check the mute function on your device.

Congratulations on a nice conclusion to the year. I'll try to be brief. I have two questions. One on M&A. It looks like the Interworks deal fits right within your playbook. It's a territory expansion, you've got synergies, and you are familiar with them. The multiple is 9.4x adjusted EBITDA. How do you see that fitting in? Is that a fair evaluation, or is it a bit high? What do you see on the market side for acquisitions going forward? Has it adjusted due to market volatility? What’s your current standing?

Howard, you're right; we look at similar evaluations. We often start in the 7 to 9 range, and it can vary based on several factors. With Interworks, we have a strong comfort level as we know them and their parent company well. The Microsoft component is crucial to us, as it's a significant advantage to have in our portfolio. Their margins are also higher than ours in the U.S., and we believe we can take advantage of their established presence in a relatively uncompetitive area ripe for new vendors. Thus, we were willing to pay slightly above the typical range for that comfort level and those strategic benefits. But we remain rooted in our previous evaluation ranges.

To me, the only reason to eliminate the dividend is to grow cash reserves for bigger acquisitions. This acquisition seems smaller in comparison to Douglas Stewart from 18 months ago. Does it seem like you're proceeding slower than your typical pace of 1 or 2 acquisitions per year? Is the cutoff of the dividend primarily aimed at facilitating larger acquisitions?

Without giving too many specifics, your analysis is accurate. We have an abundance of deals coming our way, and we plan to utilize the capital we retain. We've been very CapEx-light, and we're looking to boost the pace of acquisitions. I've been traveling more throughout Western Europe because there are numerous promising targets. The roll-up trend we witnessed in the U.S. from 2006 to 2017 is commencing in Europe, and we aim to be part of it. The advantage for Climb is that the three massive distributors we frequently mention are over $50 billion. The targets we are evaluating don’t attract the same attention from those large companies unless it is for a strategic reason. We are not competing with them but with similar-sized strategic firms that may be looking to expand.

Given the pace of your acquisitions, would you expect to complete 1 or 2 deals in 2026?

Yes.

It seems we haven't seen any acquisitions in the past 18 months and that the last deal didn't align. Any insights into why that was? But is it likely that now we’re poised for a resurgence with perhaps 3 deals in the next year?

Yes, you’re correct. We’re in position to have more acquisitions, and we expect to pursue multiple opportunities. We are identifying more targets that align well with our strategy.

Regarding profitability, congratulations on successfully navigating tough comparisons in Q4. However, looking over the year, while gross billings were up 18%, gross profit increased at a slower rate. Your margin on gross billings dipped below 5%, and SG&A was up due to Douglas Stewart. Overall, your income from operations rose only about 4% for the year. Can you provide insight into how this all happened and what to expect moving forward? Do you see Fortinet and Darktrace altering your financial profile, and does Interworks impact this as well?

Howard, we are maintaining our margins in that 5% range. Yes, we slipped slightly this quarter due to some background factors I won't disclose. The focus now is on improving efficiencies through our systems. We need to enhance our practices from 30 years ago in distribution. We're striving to be the 'fastest of the turtles.' We've advanced our average sale price from $200 to $1,500, but we are touching too many processes. We are implementing a new ERP system and integrating AI to increase efficiency. I’m focused on maintaining our labor force while doubling our output. It’s about creating efficiencies across our structures while keeping our teams intact. Our goal remains to have a balanced leverage of profits and costs in the future.

At this time, there are no further questions in the queue. I will now turn the meeting back over to Mr. Dale Foster.

Thank you to our shareholders, Board, and all the Climb team members. I want to welcome our new Greek team on board. We had our first kickoff and town hall yesterday with the team. I look forward to everyone having the opportunity to meet each other, as I have over the past few years. With that, we'll conclude the call. Thank you.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.