Q3 2023 Climb Global Solutions Inc Earnings Call
Good morning, everyone and thank you for participating in today's conference call to discuss climbed global solutions financial results for the third quarter ended September 30th 2023 Joy.
Joining us today or climb C E O. Mr. Dale Foster the company's C. F O. Mr Drew Clark and the company's Investor Relations adviser Mister Shawn mandatory with elevate I R.
By now everyone should have access to the third quarter 20 twenty-three earnings press release, which was issued yesterday afternoon at approximately 405 P M Eastern time.
Released it's available and the Investor Relations section of crime Global solutions website at Www climbed global solutions Dot com.
This call will also be available for webcast replay on the company's website.
Following management remarks will open up the call for your questions.
I'd now like to turn the call over to Mister <unk> for introductory comments.
Thank you.
I introduced Gail 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 S. E C.
Do not place undue reliance on any forward looking statements.
Which are being made only added the date of this call <unk>.
Except as required by law the company undertakes no obligation to revise or publicly released the results of any revision to any forward looking statements.
Our presentation also include certain non-GAAP financial measures.
Occluding adjusted gross billings adjusted EBITDA, adjusted net income and EPS as well as effective margin as supplemental measures of performance of our business.
All non-GAAP measures had been reconciled to the most directly comparable GAAP measures in accordance with I C. C rules.
You'll find reconciliation charts and other important information in the earnings press release and form 8-K, we furnished V. S. C C yesterday.
I'll now turn the call over to climb C E O Bill Foster.
Good morning, everyone.
Made steady progress on our coordination is during the quarter is reflected by another period of organic growth and profitability alongside a recent acquisition of data solutions and.
The high level. This acquisition enabled us to deepen our line card and officially global market share in Europe I'd like to publicly welcome the data solutions team to the coin family I look forward to working with a new team in the months ahead.
Previously mentioned our commitment is to have a focus vendor line card by selecting the most innovative technology companies in the market.
Out of our 29 brands that we value evaluate in the third quarter, we sign agreements with only three of them.
Excuse me I'd like to quickly highlight a couple of these wins first we partner with gig I O a pioneer in artificial intelligence and high performance data Center solutions. This collaboration represents another step forward in our data center product line and will enable us to deliver additional cutting edge solutions to the channel to optimize theater center operation.
<unk>.
We kicked off a relationship with security Compass, a leading provider of security cyber security solutions that integrates directly with existing desk pick up tools and workflows, allowing organizations to real really secure and compliant software to the market quickly and cost effectively.
We're excited to collaborate with each of these vendors and bring your products to market building a mutually beneficial relationship along the way.
In early October we close the acquisition of data solutions headquartered in Dublin, Ireland, leading security distributor <unk>.
Especially described distributor of clouded security solutions with sales in both Ireland and the UK.
David solution spray the deep network of relationships decline, including 14 focused vendor partnerships such as checkpoint Citrix New star to name a few.
In addition to their strong vendor relationships.
Solutions curious a robust recurring revenue base with more than 90 per cent of their physical 2023 revenue coming from existing partners. We expect this acquisition to be immediately accretive to earnings and adjusted EBITDA, We've already identified cross filling opportunities and look forward to unlocking additional potential as we integrate data solutions into the climb up.
<unk> systems in the months ahead.
Shortly after the acquisition of data solutions, we announced our technical services Division known as cloud Knowhow completed a rebound brand to climb global services. This rebranding second segment signifies our commitment to unifying are operating divisions under one uniform brand to build a truly global plot.
<unk> currently our service team delivers migration modernization management and services for M. S. P's resellers in respect of end users clients on platforms, such as Microsoft Agger manage engine in it Chronis. We're excited about the continued expanding of our professional services arm to provide a more comprehensive solution.
Are growing customer base across the globe.
Quickly touching on the macro environment, despite broader challenges and global uncertainty or vendor and acquisition pipelines remain strong and customer sentiment for the next year continues to be positive. We continue to monitor a revolving economic landscape and a potential of softening in the markets, we serve particularly with <unk>.
Large competitors have experienced softness and the hardware sector. However.
However, we believe we were still well positioned to drive value and growth to our customers and vendors in the future as we scale our global footprint.
As I've mentioned before our team is always focused on the long game.
Looking ahead, we will remain diligent in our M&A strategy as we evaluate opportunities that can bolster our line card and are immediately.
Financial profile.
Both in North America, and overseas with a strong balance sheet and a robust pipeline of targets that we can be selective as we pursue acquisitions that will further add scale as.
As we aligned with our culture Street vehicles.
But this I will turn the call over to her CFO drew Clark.
You through the financial results. Thank you true.
<unk> good morning, everyone.
Alright, let me go.
I would like to remind everyone that all compare persons in various commentary.
<unk> unless otherwise specified.
Right.
And our earnings press release, adjusted gross billings or AVB.
Measure in <unk>.
81.9.
<unk>.
<unk>.
The third quarter of 2023 increase approximately.
Five millions compared to some <unk>.
Reflecting organic Rosie Martin do an existing vendors.
Communicate a four.
On a D V D. As the troops electric are on top of my throat.
The calculation that <unk> in respect of adjustment or P. G D to <unk> can I ask.
Replace a purpose undergrad.
The third quarter, we had an increase in sales security maintenance.
<unk> latest cost of sales and there are <unk>.
That's it for me.
Gross profit and the third.
6% to $14.3 million compared to.
5 million again, the increase was primarily driven by organic rose from new vendors and our existing top 20 vendors in North America and Europe.
This growth was partly all set by several large customers taking advantage of early pay discounts or E. P compared to the year ago period. For example in the month of September we had approximately 500000 more than E P taken as compared to the prior year.
Email.
Okay.
<unk>.
Okay.
Okay.
Dash.
Okay.
The nurse.
Right.
Okay.
Mmm.
Sure.
Sarah.
So.
Basically.
Yeah.
Sure.
<unk>.
Yeah.
Okay.
Okay.
Four four.
<unk>.
Okay.
Okay.
Okay.
Okay.
Sure.
Alright.
Eric.
Okay.
Okay.
Perfect.
Okay.
<unk>.
Sure.
Okay.
And.
Take care.
Friday Friday.
Order a prescription.
Okay.
Increase.
Okay.
<unk> cost.
Okay.
[noise] perfect question.
<unk>.
The 31st of all.
Right here.
Alright.
Are you a customer.
Seriously.
Turning to our balance sheet cash and catch a cold Lynch were 49.8 million on September 30th 2023, compared to 20.2 million December 31st 2022, while working capital increased by 5.2 million. During this period. The increase in cash was primarily attributed to the timing of receivable collections and better payments the benefit of increased D. P is the time.
The collection of our receivables.
Which is maintained our D. S L metric in the U S below 32 days.
As of September 30th 2023, we had 1.4 million of outstanding debt with no borrowings outstanding on drugs 50 million dollar revolving credit facility with J P. Morgan Chase.
Subsequent quarter, Ed and consistent with prior quarters, our board of directors declared on October 31st 2023 quarterly dividend 17 cents per share of our <unk> payable on November 17th 2023 to shareholders of record as of November 13th 2023.
Looking ahead, we will continue to leverage our strong liquidity position to explore acquisition opportunities in both domestic international markets. This one able us to expand our services solution offerings reach new customers and accelerate our expansion into new markets. We look forward to closing out the fourth quarter on a strong note and continuing to execute our game plan in 2024 and beyond.
This now concludes our prepared remarks, we will now open it up for questions for those participating in the call operator back to Ya.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you'll need to press star one one on your telephone and wait for your name to be announced again, that's star one one on your telephone and wait for your name to the announced to withdraw your question.
<unk>. Please press star one one again, please stand by while we compiled Q&A roster.
Our first question comes from thence Calico with Barrington Research. Please go ahead.
Yes Hello.
Hello, guys I, just wanted to call out cause I couldn't hear truth comments very well until he started talking about the balance sheet.
Having said that.
A curious if any vendor categories slowed in in the quarter versus your expectations, and and and and how they're how how the overall businesses trending in October.
Yeah, just for looking into Q I mean, we have we we looked at it with a pockets you know typically you know the government fiscal year in September 30th and you know we had a tough comparable from the year before but we just have some purpose or a couple of pockets, where salt salt, but they were by territory's in that really by part part of categories. So two things, we we kind of <unk>.
<unk> and that is you know what is our quote volume look like because we can you know track over the years, what the quote to order turn into we had some of it pushing to queue for you know I can just tell you a few for it looks good from some of the the vendors that we've signed and the ones that were going besides the data solutions oriented great.
Those teams, but mostly in a sales and marketing standpoint, but uhm, we haven't noticed any way you know we are looking at the the amount of pipeline like <unk> I think it is one of our biggest quarters of evaluating new vendors that are coming at us at 29, It's a big number and signing three of them. We still have three in the pipe that we're not able to launch yet just to do the timing of.
That many vendors coming at us and I think the last thing I'll mention as you know, we we talk about signing some of these vendors and trying to keep a limited line card well. We don't really you know talk about publicly is that we push vendors that are non-performing or performing at a more of a flat level. They go to our division called climbed elevate and they get trans.
<unk>, but they don't get access to our sales and marketing teams like a vendor in our our core portfolio. So we still transact when they're ready to to really put money into the market or higher team members that are gonna cover territory's then we can bring it back into the fold, but other than that they stay into.
In our climb elevate team.
And did you top 20 vendors perform in line with the rest of your business.
They did you know across the board you know that those are the ones that are driving that and same with our customers. We had some of our larger customers, a little flat and a quarter as well and we had some stuff on our spinnaker sorry, we can talk about you know that got pushed into queue for that we already have those orders and and we just didn't get them in the last week of.
September.
And then data solutions any help on what type of revenue contribution you expect a few four and maybe at 24.
Yeah <unk> <unk> at this point, we're not gonna share that information, Vince, but we'll we'll try and provide some info as we get into the.
Q for earnings call.
Okay, and then so so the organic growth for the quarter.
I feel very little came from your your <unk> acquisition is that correct correct. Yeah. The spinnaker contributed very little in the prior year quarter required them in August and did not have a big had a very minor contribution and this quarter.
Okay I'll go back to the queue. Thank you.
Makes sense.
Thank you please stand by for our next question.
Our next question comes from Howard <unk>, an individual investor. Please go ahead.
Good morning, Dale Andrew Congratulations on another solid quarter can you hear me okay.
<unk>, Thanks, I wasn't sure.
If I could ask you just a couple of questions on the data solutions acquisition, just to get a little bit more kind of detailing the numbers. So.
You can pay around in a little over 16 million for it and then there's a post causing earn out without giving the the amount is that like you know our 10% potential or is that is that more substantial of a potential earn out amount for that acquisition get a urinalysis has arrange hour that would be.
85% to 115 per cent of the EBIT number. So it's it's gonna be probably in terms of the consideration that we've disclosed.
And the and the filings it's gonna be about 15 to 20 per cent.
So.
3.3 million.
Fiscal year March 31 for that you're you're paying around five times EBITDA is that kind of the way you look at acquisitions going forward is that kind of normal pricing for ya.
We we were fortunate to get a little bit of a discount on the EBIT multiple but as we said before over in Europe that the transactions will probably have.
Premium.
You too <unk>.
The the gentleman aside from the Germans.
Alright so.
We would expect actually slightly.
Like the higher than that if I'll go first base or western Europe.
We thought it was a very <unk> and ask.
I'll just get a little more details soon.
Physicians.
We're training and that's typical of fifth of North America.
But they are a bit more.
Concentration you know if there's a discount nutrition vendors or customers and then also look at their margin profile. There's a lot of things that go into it. This one came out from a company that was running the book on and and they were.
Basically pushed out to multiple distributors that or looking at them and they're being attractive not only for the Irish market or for some other vendors and and the one that jumps out of the page that it should jump out as it you're almost a tier one vendor was citrix.
Citrix and Microsoft go very well and that's one of the ones we have as a distributor in the UK that we want to bolster to go to the.
Alright.
<unk> and where they're two companies combined we can do that in effect of way and you know just be efficient to learn those proud of categories.
Okay, and then just kind of a final one on that so can you give us kind of a perspective.
Q3, and I'm looking forward for data solutions Q3 is what the amount is just a gross billings revenue I realized he didn't have any of that in for your number but if they'd been added in is that at 10 million increase in Q3 is that a 5 million dollar increase in Q3 and adjusted gross billings, if you've had them in.
Fold for that quarter.
Yeah, So there's a little bit of cyclicality too to their business.
And if you looked at again as we said in Q4 hour. They they will be accretive obviously at the top line there'll be accretive in terms of EBITDA and there'll be accretive for us in terms of an E. P. S calculation.
Don't have the exact numbers in front of me and.
Wouldn't want us to talk about those at the moment, but it's it's gonna be a very very good transaction force ultimately, but I think it's a fair number Howard them being you know over 130 million and adjusted gross billings Dot net sales because we'll have to go through all the netting process, but right now it's been begging around $10 million a month, but then they have some cyclicality, but.
You know they also have some in the core business with some of their top vendors and you know, we we talked about it and some of the early releases that they you know starting the Irish market very strong there you know when we were presenting this to the board for approval you look at the vendors that they have and.
A percentage of our market share in wallet that they have for the Irish side is in the 90 per cent tile.
But it and then they moved you know in the last three and a half years to the U K and are quickly gaining market share their so where do they go they they tend to be you know one of the leaders in that space of their product fix product mix.
And do you see that.
Having legs outside of the UK or is that kind of where it stops you know [laughter] of course, you know that we take a look at their top by brands. We take a look at their contracts and say, okay can we spend this contract into the rest of Western Europe.
Selling and we we get found some really neat things in the company and that is they already since they're an E U country, it's easy to ship into the other 28 you state. So it makes it easy for us after the breakfast. The you know happened so that that's potential in some of their contracts, but we've already looked and added them to some of our existing.
Contracts for vendors that we had in common like I think it was kato an orca, but yeah, what will to do that if we were able to expand you know this is some of our first conversation citrix to other places like that would be a big one for us on top of you know just the team we acquired.
Dare I say a huge win for Ya yeah.
Yeah. It's my second question General area is I'm looking at a Q for which you know last year you just knocked the cover off the ball with your adjusted gross billings about $320 million, which is a big step up obviously from Q3, and it's obviously seasonally your strongest quarter.
But you know.
You have words in a press release about broader challenges them an accurate environment you know there's other.
The issue is global uncertainty that kind of thing, but in terms of of posting a number above that kind of Ah with with the data solutions, maybe adding 30 million or so and adjusted gross doings <unk>.
Confident and and exceeding last year's exceptionally strong number in queue for for you just to gross billings, you're you're you're talking to a a sales marketing guys. So yeah, I'm very confident Howard and and what the team is performing we already have you know October numbers is driven a team put out a flash reports. So we're on track that's our goal.
To do that <unk> I don't see you know yeah, there can be some obstacles as far as getting stuff in you know the last couple of days because a lot of you know everybody weights and you know we just the vendors way to push these things in like I said, we we track our call volume. So we can know if there's gonna be a dip coming in because we know how many cause it takes to get one order depending on certain manufacturers.
We track that data, but wait <unk> I'm I'm comfortable that will be on target for.
You know Q4.
Great great well congrats again in another solid quarter elaborate a continued focus on performance and execution. Thanks. Thanks.
<unk>.
<unk> operator, [noise] excuse me can you hear US okay, yes, you're coming on my side I know a few people are working on the back end for some of our listeners.
<unk> bye for our next question.
Our next question comes from Bill <unk> with tightened capital management. Please go ahead.
Yeah. Thank you I'll I'll, just say drew in relation to your last question. If you were answering knee prior questionnaires.
Question, There was a lotta garble that came through it and and was not only difficult to decipher, but like indecipherable.
On on the site.
Mmm relative to to my question. The early pay discount I am surprised with higher interest rate that your customers are are doing additional early pay discounts or or more early they did pay discounts this year than they did last year.
Here, So <unk> have you raised and your.
Incentive for the early pay discount or what what's the dynamic behind the scenes there. Please.
Sure Bill can you hear me, yes, okay. So the dynamic is.
We have one of our large D M r's that.
Historically was very inconsistent [noise].
There.
Publicly traded their private and they brought on a new CFO about a year and a half ago.
Who's reorganizing his team they're focused on a number of different initiatives and for whatever motivation. They are now adhering to the time frame on early pay discount.
Don't have a real understanding as to why but we just know that that's been a mandate from him to his team to not forego. The early pay discount. So I don't know it again with your balance sheet. The financing terms looked like but they're taking full advantage of it now they were probably taking early pay.
Maybe 30 to 40 per cent of the time. It was very inconsistent we didn't have any rhyme or reason, but they are now taking it.
So in terms of assuming it that behavior continues.
Over the course of the next the next 12 months then we've <unk>.
We won't have the same increase at least from them in an early pay discounts in the comparable is will be a bit more even is that is that kind of how you were looking at it.
Correct and as we've stated we you know we were very.
Positive on the fact that we were able to maintain.
Gross profit as a percentage of adjusted gross billings at a consistent level. Despite the increased level early pay taken by a couple of R. P D Mars.
Great. Thank you and congratulations getting money <unk>. Thank you.
Thank you bye.
For our next question as a reminder to ask a question. Please click what stocks are one one on your telephone and wait for you need to be announced.
Our next question is from Bob sales with Alan K Capital Management. Please go ahead.
Hi, Uhm two questions and you really <unk> from my connection you really broke up as you were walking through the dynamics of the.
The quarter with respect to the end of the quarter and macro. So my question is can you just talk a little bit about the organic growth one more time and just for those of US It didn't hear what you saw it.
And the dynamics as it played out and the resultant seven per cent growth in adjusted gross billings.
So yeah. The the dynamic bothers you didn't hear it before yeah, we had a nice mid single digit growth and adjusted gross billings <unk>.
Despite quote unquote headwinds that many of our larger distributors experienced over the past several quarters predominantly due to hardware you know our outlook remains is Dale mentioned earlier fairly confident in the fact that will.
<unk> b at the previous quarter for fourth quarter results from 2022 at least at the top line. Obviously gross profit is going to be impacted by what we expect to continue to really pay discount taken by several demorest.
<unk>.
We're confident that we can continue to execute and deliver on the longterm well we have some economic headwinds maybe they get into the data center security space and trickle down from hardware, we're not seeing a lot of that but we're starting to see a little bit slowly, but surely some some opportunities are getting pushed to the next quarter, but we're still pretty bullish on the fact.
That will continue to execute the game plan that we've had over the past <unk> and you know we we track you know we have quite a few <unk> customers that we sell to that are public and I've already put their earnings releases out like a C. D. W. They have a bigger hardware components and you know some of the times you know when we went through the last couple of years the hardware a piece of the data center and everybody move.
<unk> to a remote play so there's a lot of sales on the hardware side of things. What we say is you know we're still 90 per cent software. So we see you know a different product mix quarter by quarter, depending on the ebb and flow <unk>. One thing that you know that we always count on is that we're having so many different <unk>.
Vendors coming out is from a security standpoint than what you already have a lot of vendors on our security portfolio. That's why that continues to be strong and everybody's doing security in a little different way with the acquisition of data solutions. It comes with them a strong C. T O. That's gonna help us really kick off a division that's gonna really focus on AI products most of our.
Vendors are talking about already already have some kind of machine learning built into their products, but the now they're starting in the marketing side to to push that the element or the potential in their products. So just a lot of good things in the software I T Security data center space and that's R. Two top categories.
Great. Thank you and then my second question is the data solutions acquisition it looks.
Well it looks like it looks like a home runs in terms of accretion I wanted to understand the tax situation given that is a I I assume I wish the dumbest child company and whether that presents any of the advantages advantages there because of the the I understand you.
Yeah, we we look to you know we're looking at that right now and will you know we did have an entity when we acquired C. D up that had cause they were getting ready for a potential breakfast you know three years ago. So yeah. We'll look at that will look at you know where we can deal with a tech savings to the Irish tax on businesses, a 12.5% I believe so.
So yeah, well, we're we're continue to look at that were orders actually start from where they get transacted and where we can take advantage of that you know and into the the rest of the countries and then you know back to the the U K team.
Great. Thank you.
Thank you at this time I'm showing no further questions I would like to turn it back today or lasting for closing remarks.
Thank you out brighter and you know thanks, everyone for joining today I again want to welcome our data solutions team. We've had the luxury of spending some time in Dublin over the last six months with the teams. Our teams are getting integrated some of our sales and marketing team where in the UK over the last couple of days getting things kicked off and will really start talking as a.
The combined team going into 2024. Thank you for your support of the shareholders and we look to have a strong 20 twenty-three. Thank you.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Mmm Mmm.
[music].
Mmm.
[music].
Okay.
[music].