Q4 2022 Climb Global Solutions Inc Earnings Call
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Speaker 4: 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 ,
Speaker 4: Mr. Dale Foster, the company CFO , Mr. Drew Clark, and the company's investor relations advisor, Mr. Sean Mencery, with Elevate IR. By now, everyone should have access to the fourth quarter and full year 2022 earnings press release.
Speaker 4: which was issued yesterday afternoon and approximately 4.05 pm eastern time. The release is available in the Invest Relations section of Climb Global Solutions website at www.climbglobalsolutions.com
Speaker 4: This call will also be available for webcast replay on the company's website. Following management remarks will open the call for your questions.
Speaker 4: I'd now like to turn the call over to Mr. Mansoury for introductory comments.
Speaker 5: 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 security litigation reform act of 1995.
Speaker 5: These forward-looking statements are subjecting certain known and unknown risks and uncertainties as well as assumptions that can 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.
Speaker 5: Do not place undue reliance on any forward-looking statements which are being made only as a date of this call.
Speaker 5: 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-gaft financial measures, including adjusted gross billing, adjusted EBITDA, and effective margin, as supplemental measures of performance of our business.
Speaker 5: 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 4 May K we furnished to the SEC yesterday. With that, I'll turn the call over to climb CEO Dale Foster.
Speaker 6: Thank you, Sean, and good morning, everyone. 2022 was a great year for the Climb team, highlighted by record results across all of our key financial metrics. The most notable was our approximate 40% increase in both net income and adjusted EBITDA.
Speaker 6: This was driven by our focus on our three main initiatives. To generate growth, whether existing vendors add new, innovative vendors to our line card and deliver on our acquisition objectives.
Speaker 6: In addition, we continued our strategy to expand Climes' presence overseas with the acquisition of Spinnaker in August of last year.
Speaker 6: Spinnaker has been completely integrated into our operating systems and they contributed to both our top and bottom line during the quarter.
Speaker 6: 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 evaluated 25 new prospective brands and signed agreements with all the three. To re-bro, simply and core view.
Speaker 6: quickly touching on each. Cerebro is a cloud-based security operation center infrastructure product that provides threat analytics and management solutions.
Speaker 6: Simply, as a developer of innovative cloud-based storage solutions to simplify complex workflow problems faced by media professionals worldwide.
Speaker 6: And finally, we sign core view and industry leading Microsoft 365 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.
Speaker 6: In August of last year, we announced the close over acquisition of Spinnaker. Spinnaker is a UK-based IT Channel distributor focused on storage, cloud security and data management across the Amir region.
Speaker 6: 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 VAS data. Q4 marked the first full quarter of spinikers integration into the financial and operating systems as well as a full contribution to our top and bottom line.
Speaker 6: We've already begun to see the cross-filling benefits between the climate U.S. and climate media teams. For example, our U.S. operations began to work with Lodgegate, who previously only had a relationship with the AMEA team. Conversely, our AMEA team began to work with our data-dovey and country vendors from our U.S. relationships.
Speaker 6: While these synergies are in their empathy, 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 announce the appointment of Kimberly Born to our Board of Directors.
Speaker 6: She will serve on the audit committee and chair the nominating and corporate governs committee for Cod. Kimberly brings over 25 years of experience leading and executing finance and accounting functions for both public and private companies.
Speaker 6: She also has an extensive track record and 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 it on board.
Speaker 6: 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.
Speaker 6: With a strong pipeline of targets and a strong balance sheet will continue to value acquisition opportunities that will be Decreative and aligned with our strategic goals and culture. With that, I will turn the call over to Drew our CFO . Drew. Thank you, Dale. Good morning, everyone. As we review our financial results, I want to remind everyone that all comparisons and variance commentary refer to the prior year quarter unless otherwise specified.
Speaker 6: Q4 results marked our seventh consecutive quarter of double-digit profitability improvements.
Speaker 6: As reported in our earnings press release, adjusted gross billings, which is a non-gat measure, increased 22 percent to 319.8 million compared to 262.1 million in the year ago quarter.
Speaker 6: The increased reflexes continue organic growth from new and existing vendors as well as a full quarter of contribution from Spenaker.
Speaker 6: In addition, that sales in the fourth quarter of 2022 increased 18% to 88.9 million compared to 75.5 million.
Speaker 6: excluding the negative impact of foreign exchange currencies, that sales increased 20% to 89.1 million, which reflects a approximately 13% organic growth and 7% from Spenagre.
Speaker 6: Gross profit in the fourth quarter increased 28% to 16.1 million compared to 12.6 million.
Speaker 6: 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 a contribution from our acquisition of Spinnaker. Our gross profit as a percentage of adjusted gross buildings.
Speaker 6: with 5% versus 4.8% and as a percentage of met sales with 18.1% compared to 16.7% in the prior year quarter.
Speaker 6: Federal SNA in the fourth quarter was 10 million compared to 8.2 million for the same period in 2021. SNA as a percentage of adjusted gross billings remained flat at approximately 3.1% compared to the year ago quarter. Then income in the fourth quarter of 2022 increased 38% to 4.8 million.
Speaker 6: or $1.6 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, that income actually increased 43% to $4.9 million or $1.8 per diluted share.
Speaker 6: Compared to 3.4 million, we're 78 cents for diluted share in the year-go quarter. Adjust the debit in the fourth quarter, increase 44% to 7.4 million, compared to 5.1 million.
Speaker 6: The increase was driven again by organic growth from both new and existing vendors, as well as contributions from Spenaker. Adjusted EBITDA as a percentage of gross profit or effective margin, increased significantly to 45.9% compared to 40.7% in the year-go period. This reflects our third quarter in a row of delivering both adjusted EBITDA and effective margin improvements.
Speaker 6: which speaks to the scalability of our business. Excluding the .2 million of FX impact are affected margin through even higher to 46.7% during this quarter. Turning to our balance sheet, cash and cash equivalents were 20.2 million on December 31st, 2022.
Speaker 6: compared to 29.3 million in December 31, 2021. While working capital decreased by 1.6 million during the period.
Speaker 6: The decreasing cash was primarily due to the acquisition of Spinnaker as well as less customers utilizing early pay discounts compared to the prior period As of December 31st 2022, we had $1.8 million of debt outstanding with no borrowings outstanding under either our 20 million or 8 million GBP credit facilities
Speaker 6: Subsequent to quarter end on February 28, 2023, our Board of Directors declared a quarterly dividend of 17 cents per share of common stock, payable on March 17, 2023 to shareholders of record on March 13, 2023. Deco Dales Point earlier, we will continue to evaluate M&A targets both domestically.
Speaker 6: creating meaningful operating leverage in the business to ensure that growth on the bottom line outpaces the top line. Future acquisitions would be accreted to this profile when helpless drive scale of even a quicker pace.
Speaker 6: 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 recurring revenue as we average a roughly 85% renewal rate with our customers every year.
Speaker 6: We recognize the macro environment has been challenging in recent quarters and the future 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. If now concludes or prepared remarks, we'll open it up for questions from those participating in the call. Operator back to you and thank you.
Speaker 4: As a reminder to ask a question, please press store 11 on your telephone and wait for your name to be announced. To withdraw your question, please press store 11 again. Please stand by while we compile the Q&A roster.
Speaker 4: Our first question comes from Howard. Ruth, your line is now open.
Speaker 6: Good morning, Dailin Drew. Can you hear me okay? Are you there, Russ?
Speaker 6: Good morning, Dale and Drew. Can you hear me? Okay. Are you there? Yes. We can hear you. Okay.
Speaker 6: Okay, so first off, congrats on a great quarter, you know, and the whole year to get over a billion dollars in adjusted gross billings is 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 dollar partners amazing how hard it is to make it look that simple.
Speaker 6: I love that you're not grabbing the wheel and you're going straight down the middle of the road because what you're doing right now is working. So I have two questions. One kind of more simple. And I got 33. First one simple on hedging. We talked about a 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? Turner City Federation of the Douglas swept into secure? Your
Speaker 6: 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
Speaker 6: Our clients are customers in 35 plus or minus days, and we have a relationship of the vendor that we don't pay until 65 days. So we may look at some spot transactions to minimize that effects risk. But at this point, I don't think we're going to enter into any sophisticated hedging strategy where we've got a date.
Speaker 6: significant premiums for contracts, et cetera, that...
Speaker 6: They 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 a reasonable spot contract or perhaps trying to hedge the translation risk on the balance sheets, but nothing defended at this point, but we're going to monitor it very closely. Okay, great.
On the second question, on the acquisitions environment, what do you see out there? I mean, you guys have done, I guess, three 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. Spinnaker appears to outperform for what you got in a seven percent contribution in Q-PORs, just outstanding early results.
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 a deal on acquisitions in 2023? Yeah, you can see me whenever. What's that? Sorry. Yeah, we're going to hear me. Yeah, I'm getting a little echo, but I can just hold on.
Yeah, I can you deal you've got that echo in the background. I want to go ahead, Drew. And I'm going to call right back in. Is that okay? Yep. Yep. Okay. So yeah, we're looking at them. We have a long list of potentials. Um.
Some in the same size, a Spenaker Spenaker turned out to be great for us. This you'll see as we keep reporting quote-unquote for quarter. But the best fit for Spenaker 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.
You know, make mistakes and that's going to be up front before we actually pull the trigger. We have somewhere looking at the US, somewhere looking at in Europe and beyond, but yeah, we're being, you know, as careful as we can, but this is the year and we've talked about it and before, you know, or 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, you know, we just had our sales kickoff last week. Find your buddy on Twitter.
I kind of like to break things up into threes. So take a look at the last three years, what we've accomplished, where we're going to go in the next three years, we can see 2023 very clearly, pretty good idea of 2024, a lot of the same from us, and there's a lot of target vendors and a lot of acquisition possibilities. 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 straight forward. The bad news for you is it's pretty easy to do the modeling. I mean, for us outside, with 14% growth and adjusted growth buildings in 2022, 22% growth and Q4.
and then your gross margin right at 5% as G&A's picking 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 time of 14, 16, 18% growth, you're looking at 1.3 billion in adjusted gross buildings for 2023.
about 20 million of net income or about $4.50 a share for bottom line after tax gap net income, which again, it's just hitting the cover, right up the sweet spot of this business. Is that a way of looking at her? What do you see, and I'm not gonna ask you to endorse my back at the envelope, Dad, you see her, I encourage you to give me some more, but do you see things that are out of whack on that? I mean, is it just that?
And 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 you know just your analysis and saying, this is 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 is for our economics go we're in software, so we don't have the logistics issues right? Or maybe some percent software, so the delivery is easy. If anything, 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. If we do have a vendor that's sizable and some of us have announced that, they rely on the channel even more because they've got to have somebody to pick up the pieces on the marketing set on the sales side.
So we kind of look at it pretty optimistically that way. Not that we can 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 three to six months as far as I answer. It's pretty much status quo. Just looking at the macro market. Okay, yeah, great. Congrats. I'll go ahead. Go ahead. I would add just to Dale's comment.
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.
Our team, so our solutions business, we're bringing on headcount in advance of our ability to actually deliver implementation and level one and level two support services for certain vendors. So that's an investment in people that we're making that may not have an immediate contribution to GP, just a deeper, et cetera. So, well, again, as Dale said, you're back to the envelope analysis.
not inaccurate per se, but we do have some things. In the plans for 2023 investments, we 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 impacts on that that would slightly modify your back of the envelope calculations. So that 3% S-GNA may fluctuate a little bit, but the growth and adjusted growth feelings really gives you the freedom to do that without...
I think it increased the dollars without changing the percentage very much. I would say yeah, correct. Correct. Okay. Great. Well, again, congratulations. Not just you two guys, but everyone on the client team an outstanding leader and thanks from the shareholders for what you guys are doing. Thanks. Appreciate it Howard.
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Our next question comes from the company of Bloomberg. Your line is open. Please go ahead.
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.
much of the same really focused on our team this year. Our European implementation is front and center. And we're going to execute on that initiative along with, you know, to continue to build our sales teams as we go out to market. So thank you and appreciate it.
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