Q2 2026 Climb Global Solutions Inc Earnings Call

Speaker #1: The second quarter, ended June 30, 2026. Joining us today are climbs CEO Mr. Dale Foster, the company CFO Mr. Matthew Sullivan, and the company's investor relations advisor Mr. Sean Mansouri, with Elevate IR.

Speaker #1: By now everyone should have access to the second quarter 2026 earnings press release, which was issued yesterday afternoon at approximately 4:05 Eastern Time. The release is available in the investor relations section of climbglobalsolutions website at www.climbglobalsolutions.com.

Speaker #1: This call will also be available for webcast replay on the company's website. Following management's remarks, we'll open the call for your questions. I would now like to turn the call over to Mr. Mansouri for an introductory comments.

Speaker #2: 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.

Speaker #2: These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to different material leave from those reflected in these forward-looking statements.

Speaker #2: 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 #2: 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.

Speaker #2: 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 of our business.

Speaker #2: All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. I'll now turn the call over to climb CEO Dale Foster.

Speaker #2: Please stand by. Your meeting is about to begin. Good morning, everyone, and thank you for participating in today's conference call to discuss Climb Global Solutions' financial results for the second quarter ended June 30th, 2026.

Speaker #3: Thank you, Sean. And good morning, everyone. We executed on several strategic initiatives in Q2 that are central to climb's long-term success. We generated double-digit organic growth with 19 of our top 20 vendors benefited from our acquisition of Innoworks.

Speaker #2: Joining us today are Climb's CEO, Mr. Dale Foster, the company CFO, Mr. Matthew Sullivan, and the company's investor relations advisor, Mr. Sean Mansouri, with Elevate IR.

Speaker #3: We bolstered our line card to make further investments in our systems need to support the larger and more efficient global platform. Our strong vendor performance is evidence of the momentum we are generating across the business.

Speaker #2: By now, everyone should have access to the second quarter 2026 earnings press release. Which was issued yesterday afternoon at approximately 4:05 Eastern Time. The release is available in the investor relations section of Climb Global Solutions' website at www.climbglobalsolutions.com.

Speaker #3: Rather than pursuing scale for its own sake, we focused on strengthening existing partnerships and identifying emerging technologies that offer better value proposition for our reseller network and their customers.

Speaker #3: During the second quarter, we evaluated 34 new brands and signed agreements with only 2 of them. Our first agreement was with Avonti. A Utah-based global enterprise IT and security software company with more than 1,000 employees and approximately $1 billion in annual revenue.

Speaker #2: This call will also be available for webcast replay on the company's website. Following management's remarks, we'll open the call for your questions. I would now like to turn the call over to Mr. Mansouri for introductory comments.

Speaker #3: Avonti provides an AI-powered platform designed to helps organizations manage, automate, and secure complex digital workplaces. With a primary focus on cases spanning endpoint management, IT service management, patch and exposure management, and zero trust security.

Speaker #3: 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.

Speaker #3: Through this relationship, climb will expand channel access to Avonti's autonomous endpoint management, offering an enabled and enabling partners to help customers improve operational efficiency and strengthen security and reduce risk.

Speaker #3: These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to different materially from those reflected in these forward-looking statements.

Speaker #3: We also signed a company called Check MK, a German-based provider of comprehensive IT infrastructure monitoring and observability solutions. Its platform helps organizations track and the health and performance and availability of their entire technology stack, including network servers, applications, and cloud resources.

Speaker #3: 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 #3: 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.

Speaker #3: Check MK combines automated discovery, customizable dashboards, and enterprise-grade scalability to support a broad range of IT environments and give customers greater visibility into increasingly complex infrastructures.

Speaker #3: 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 the performance of our business.

Speaker #3: In addition to those new agreements, we expanded 2 existing relationships. First, we broadened our relationship with Logic Monitor. From a few select customers to all of North America, giving our partners more access to its AI-powered hybrid observability platform.

Speaker #3: All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. I'll now turn the call over to Climb CEO, Dale Foster.

Speaker #3: We also launched Quantum, on our primary line card, in Q2. Quantum's portfolio includes high-performance storage, AI-enabled workflow management, and long-term data preservation solutions designed to help public and private sector end users manage data growth and storage constraints.

Speaker #4: Thank you, Sean. And good morning, everyone. We executed on several strategic initiatives in Q2 that are central to Climb's long-term success. We generated double-digit organic growth with 19 of our top 20 vendors benefited from our acquisition of Innoworks, and we bolstered our line card to make further investments in our systems need to support the larger and more efficient global platform.

Speaker #3: These expanded relationships illustrate how we work with our vendors to build momentum over time. We begin with a focused go-to-market strategy: invest in the relationship as demand develops, and expand our support as the opportunity grows.

Speaker #4: Our strong vendor performance is evidence of the momentum we are generating across the business. Rather than pursuing scale for its own sake, we focus on strengthening existing partnerships and identifying emerging technologies that offer a better value proposition for our reseller network and their customers.

Speaker #3: Dark Trace is an example of the strategy in action. Within 12 months of joining the climb platform, Dark Trace became one of our top 20 vendors and was the largest growth driver among our new vendor relationships during the quarter.

Speaker #3: Fortinet also continues to ramp meaningfully. With gross billings increasing materially from Q1 as we expand our internal capabilities and work closely with Fortinet's leadership team, to expand the channel.

Speaker #4: During the second quarter, we evaluated 34 new brands and signed agreements with only two of them. Our first agreement was with Avonti. A Utah-based global enterprise IT and security software company with more than 1,000 employees and approximately a billion dollars in annual revenue.

Speaker #3: While the relationship is still developing, we are encouraged by the progress to date and believe Fortinet can be one of climb's largest vendor relationships over time.

Speaker #4: Avonti provides an AI-powered platform designed to help organizations manage, automate, and secure complex digital workplaces, with a primary focus on cases spanning endpoint management, IT service management, patch and exposure management, and zero trust security.

Speaker #3: We also are making progress on the development of our cloud platform. Which is intended to create a more efficient way to for customers and partners to purchase, manage, and renew cloud-based software through the climb platform.

Speaker #4: Through this relationship, Climb will expand channel access to Avonti's autonomous endpoint management, offering enablement and enabling partners to help customers improve operational efficiency, strengthen security, and reduce risk.

Speaker #3: During the quarter, we hired an experienced platform architect who is developing the initial structure and technical blueprint, which we expect to complete soon. Adobe will be one of the first vendor prioritization priorities for the integration and over time we expect the same platform capabilities to support additional vendor lines.

Speaker #4: We also signed a company called Check MK, a German-based provider of comprehensive IT infrastructure monitoring and observability solutions. Its platform helps organizations track and the health and performance and availability of their entire technology stack, including network servers, applications, and cloud resources.

Speaker #3: Alongside these organic initiatives, we continue to integrate Innoworks into our broader global platform. We will preserve the local expertise and relationships that have supported Innoworks' success while identifying opportunities to leverage climb's broader infrastructure across the region.

Speaker #4: Check MK combines automated discovery, customizable dashboards, and enterprise-grade scalability to support a broad range of IT environments and give customers greater visibility into increasingly complex infrastructures.

Speaker #3: These initiatives align with the strategy we outlined earlier this month at our first investor day at the NASDAQ market site. Where we provided a deeper look at climb's unique model and long-term priorities.

Speaker #3: We also presented our goals to more than double our FY2020 adjusted EBITDA by 2030. To organic growth, deeper vendor relationships, partner relationships, and operating leverage, and strategic M&A.

Speaker #4: In addition to those new agreements, we expanded two existing relationships. First, we broadened our relationship with Logic Monitor. From a few select customers to all of North America, giving our partners more access to its AI-powered hybrid observability platform.

Speaker #3: Thank you again to the investors that joined us in person, and as well as those that joined us by webcast. As we position climb for the next phase of growth, we strengthened our board with the appointment of Peter Bell.

Speaker #4: We also launched Quantum on our primary line card. In Q2, Quantum's portfolio includes high-performance storage, AI-enabled workflow management, and long-term data preservation solutions designed to help public and private sector end users manage data growth and storage constraints.

Speaker #3: Peter brings more than 35 years of experience across venture capital, technology, operations, and strategic advisory roles. His experience identifying disruptive technology, scaling technology business, and navigating the M&A landscape is directly relevant to our long-term strategy and will be and will add operating investment, strategic perspective to our team as well as scale of our global platform.

Speaker #4: These expanded relationships illustrate how we work with our vendors to build momentum over time. We begin with a focused go-to-market strategy, invest in the relationship as demand develops and expand our support as the opportunity grows.

Speaker #3: Looking ahead, we are focused on driving organic growth. Selectively expanding our line card and evaluating the creative M&A opportunities with Europe as our key focus area.

Speaker #4: Dark Trace is an example of the strategy in action. Within 12 months of joining the Climb platform, Dark Trace became one of our top 20 vendors and was the largest growth driver among our new vendor relationships during the quarter.

Speaker #3: Our strong balance sheet provides a flexibility to invest in these priorities while maintaining a disciplined approach to capital allocation. We believe these initiatives, coupled with our robust balance sheet, will enable us to continue driving value to our shareholders.

Speaker #4: Fortinet also continues to ramp meaningfully, with gross billings increasing materially from Q1 as we expand our internal capabilities and work closely with Fortinet's leadership team to expand the channel.

Speaker #3: With that, I will turn the call over to Matt Sullivan, our CFO, for the financial results. Matt?

Speaker #4: While the relationship is still developing, we are encouraged by the progress to date and believe Fortinet can be one of Climb's largest vendor relationships over time.

Speaker #2: Thank you, Dale. And good morning, everyone. A quick reminder, as we review the financial results for our second quarter, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified.

Speaker #4: We also are making progress on the development of our cloud platform. Which is intended to create a more efficient way to for customers and partners to purchase, manage, and renew cloud-based software through the Climb platform.

Speaker #2: As reported in our earnings press release, gross billings in the second quarter of 2026 increased 17% to $587.3 million, compared to $500.6 million in the year ago quarter.

Speaker #4: During the quarter, we hired an experienced platform architect who has developed the initial structure and technical blueprint, which we expect to complete soon. Adobe will be one of the first vendor prioritization priorities for the integration, and over time we expect the same platform capabilities to support additional vendor lines.

Speaker #2: Distribution segment gross billings increased 8% to $562.9 million, while solutions segment gross billings increased 4% to 24.4 million. Net sales in the second quarter of 2026 increased 9% to $174.2 million, compared to $159.3 million in the prior year period.

Speaker #4: Alongside these organic initiatives, we continue to integrate Innoworks into our broader global platform. We will preserve the local expertise and relationships that have supported Innoworks' success while identifying opportunities to leverage Climb's broader infrastructure across the region.

Speaker #2: This increase reflects double-digit organic growth from new and existing vendors, as well as a contribution from our acquisition of Interworks on February 24, 2026.

Speaker #4: These initiatives, aligned with the strategy we outlined earlier this month at our first investor day at the NASDAQ market site, where we provided a deeper look at Climb's unique model and long-term priorities.

Speaker #2: Gross profit in the second quarter of 2026 increased 15% to $30.2 million, compared to $26.3 million for the same period in 2025. The increase was driven by organic growth from new and existing vendors in both North America and Europe, as well as the contribution from Interworks.

Speaker #4: We also presented our goals to more than double our FY 2020-5 adjusted EBITDA by 2030, to organic growth, deeper vendor relationships, partner relationships, and operating leverage, and strategic M&A.

Speaker #2: Selling general and administrative expenses in the second quarter of 2026 were $20.7 million, compared to $16.4 million in the prior year period. The year-over-year increase primarily reflects SG&A-associated with Interworks and variable sales compensation attributed to the growth in gross profit.

Speaker #4: Thank you again to the investors that joined us in person, as well as those that joined us by webcast. As we position Climb for the next phase of growth, we strengthened our board with the appointment of Peter Bell. Peter brings more than 35 years of experience across venture capital, technology, operations, and strategic advisory roles.

Speaker #2: SG&A in Q2 2026 was also impacted by higher legal and professional fees, as well as increased investments in IT infrastructure, designed to improve workflows, strengthen our operating infrastructure, and drive efficiencies across our global sales organization to support future growth.

Speaker #4: His experience identifying disruptive technology, scaling technology business, and navigating the M&A landscape is directly relevant to our long-term strategy and will be and will add operating investment, strategic perspective, to our team as well as scale of our global platform.

Speaker #2: SG&A is a percentage of gross billings was 3.5% for the second quarter of 2026, compared to 3.3% for the prior year period. Net income in the second quarter of 2026 was $5.5 million, or $0.30 per diluted share, compared to $6 million, or $0.33 per diluted share for the prior year period.

Speaker #4: Looking ahead, we are focused on driving organic growth, selectively expanding our line card, and evaluating creative M&A opportunities, with Europe as our key focus area.

Speaker #4: Our strong balance sheet provides a flexibility to invest in these priorities while maintaining a disciplined approach to capital allocation. We believe these initiatives, coupled with our robust balance sheet, will enable us to continue driving value to our shareholders.

Speaker #2: Adjusted net income was $5.5 million, or $0.30 per diluted share, compared to $6.4 million, or $0.35 per diluted share for the year ago period.

Speaker #2: Both net income and adjusted net income in the second quarter of 2026 were impacted by a higher effective tax rate than the prior year, compared to the prior year period.

Speaker #4: With that, I will turn the call over to Matt Sullivan, our CFO for the financial results. Matt?

Speaker #2: Adjusted EBITDA in the second quarter of 2026 was $11.3 million, compared to $11.4 million in the same period in 2025. The decrease was primarily driven by the aforementioned investments focusing on efficiencies to support long-term growth initiatives.

Speaker #2: Thank you, Dale. And good morning, everyone. A quick reminder as we review the financial results for our second quarter, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified.

Speaker #2: As reported in our earnings press release, gross billings in the second quarter of 2026 increased 17% to $587.3 million, compared to $500.6 million in the year ago quarter.

Speaker #2: Effective margin, which is defined as adjusted EBITDA, as a percentage of gross profit, was 37.5%, compared to 43.3% for the same period in 2025.

Speaker #2: Distribution segment gross billings increased 8% to $562.9 million, while Solutions segment gross billings increased 4% to $24.4 million. Net sales in the second quarter of 2026 increased 9% to $174.2 million, compared to $159.3 million in the prior year period.

Speaker #2: Turning to our balance sheet, cash and cash equivalents were $56.6 million as of June 30, 2026, compared to $36.6 million on December 31, 2025.

Speaker #2: The increase in cash was primarily attributed to the timing of receivable collections and payables. As of June 30, 2026, we have no debt or outstanding borrowings under our $50 million revolving credit facility.

Speaker #2: This increase reflects double-digit organic growth from new and existing vendors, as well as a contribution from our acquisition of Interworks on February 24, 2026.

Speaker #2: Our strong financial position gives us flexibility to support working capital needs, invest in the business, and actively pursue M&A opportunities. We will continue to deploy capital strategically and evaluate opportunities based on their fit and ability to strengthen the client platform while maintaining the discipline needed to advance our long-term objectives.

Speaker #2: Gross profit in the second quarter of 2026 increased 15% to $30.2 million, compared to $26.3 million for the same period in 2025. The increase was driven by organic growth from new and existing vendors in both North America and Europe, as well as the contribution from Interworks.

Speaker #2: This concludes our prepared remarks. Operator, please open the line for questions.

Speaker #2: Selling general and administrative expenses in the second quarter of 2026 were $20.7 million, compared to $16.4 million in the prior year period. The year-over-year increase primarily reflects SG&A associated with Interworks and variable sales compensation attributed to the growth in gross profit.

Speaker #1: Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2.

Speaker #1: Once again, that is star 1 to ask a question. And we'll pause for a moment to allow everyone a chance to join the queue.

Speaker #2: SG&A in Q2, 2026 was also impacted by higher legal and professional fees, as well as increased investments in IT infrastructure, designed to improve workflows, strengthen our operating infrastructure, and drive efficiencies across our global sales organization to support future growth.

Speaker #1: And we'll take our first question from Keith Housum with North Coast Research. Your line is now open.

Speaker #3: Good morning, gentlemen. Appreciate the opportunity. Hey, Matt, as we kind of think about the results for this quarter, if I compare to last year, if I remember right, last year had some more one-time-related items related to vast data.

Speaker #2: SG&A is a percentage of gross billings was 3.5% for the second quarter of 2026, compared to 3.3% for the prior year period. Net income in the second quarter of 2026 was $5.5 million, or $0.30 per diluted share, compared to $6 million or $0.33 per diluted share for the prior year period.

Speaker #3: How tough of a comparable was that for you this quarter? Good morning, Keith.

Speaker #4: No, go ahead, Matt.

Speaker #3: No, you go ahead.

Speaker #4: So Keith, number one, thanks for joining us on investor day in New York. It was good to see you. The we knew it was going to be a tough comp going into Q2 because we had a $30 million deal with vast data, and then another one that was going to be in Q3 got pulled into Q2.

Speaker #2: Adjusted net income was $5.5 million, or $0.30 per diluted share, compared to $6.4 million, or $0.35 per diluted share, for the year-ago period.

Speaker #4: So we had a really tough comp to do that. But going into the quarter, one of our bigger vendors, Sophos, had a down Q1 and really came back in Q2, so that helped it out.

Speaker #2: Both net income and adjusted net income in the second quarter of 2026 were impacted by a higher effective tax rate to the prior compared to the prior year period.

Speaker #4: But we've really were thrilled by the teams and, like I mentioned in the opening remarks with Darktrace, really going to the next level. Some of the other performers and when if you remember, when I first said we had 19 of our 20 vendors outperformed and grew in Q2.

Speaker #2: Adjusted EBITDA in the second quarter of 2026 was $11.3 million compared to $11.4 million in the same period in 2025. The decrease was primarily driven by the aforementioned investments focusing on efficiencies to support long-term growth initiatives.

Speaker #2: Effective margin, which is defined as adjusted EBITDA, as a percentage of gross profit, was $37.5%, compared to $43.3% for the same period in 2025.

Speaker #4: So that tough comp, but good to see our top vendors taking off.

Speaker #3: No, absolutely. And you guys mentioned Fortinet having significant growth this quarter versus the first quarter. Is there a good opportunity for them to eclipse the speed or pace that Darktrace has achieved over the past year?

Speaker #2: Turning to our balance sheet, cash and cash equivalents were $56.6 million as of June 30, 2026, compared to $36.6 million on December 31, 2025.

Speaker #3: How are you thinking about Fortinet's ability to climb? I guess over the next 12 months.

Speaker #2: The increase in cash was primarily attributed to the timing of receivable collections and payables. As of June 30, 2026, we have no debt or outstanding borrowings under our $50 million revolving credit facility.

Speaker #4: For sure. I mean, it was a 10x factor from Q1 of this year to Q2 of this year. Of course, the bigger you get, it doesn't grow as fast.

Speaker #4: But we're hosting QBRs in our locations, our teams are so much more integrated than they were even in Q1. We started this relationship in November.

Speaker #2: Our strong financial position gives us flexibility to support working capital needs, invest in the business, and actively pursue M&A opportunities. We will continue to deploy capital strategically and evaluate opportunities based on their fit and ability to strengthen the client platform while maintaining the discipline needed to advance our long-term objectives.

Speaker #4: So it'll continue and I think I said it, it'll be one of our top five vendors probably this time next year. It continues to grow.

Speaker #4: And if you looked at their financial results this week, for a company that's $6, 7 billion in size, they grew 14% in Q1. Q2, they were up double digits as well.

Speaker #2: This concludes our prepared remarks. Operator, please open the line for questions.

Speaker #3: Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two.

Speaker #4: So just a great relationship. And as your teams get closer and closer, everything gets faster, right, as far as getting more of our customers on board.

Speaker #3: Once again, that is star one to ask a question. And we'll pause for a moment to allow everyone a chance to join the queue.

Speaker #4: And Fortinet's portfolio goes so wide, right? They go from firewalls all the way to access and security cameras. So just a good technology company that we're going to expand on.

Speaker #3: And we'll take our first question from Keith Housem with North Coast Research. Your line is now open.

Speaker #3: Great. Good to hear it. And as I look at your SG&A expenses, I know you guys are have a lot of different fires going on right now in terms of some of the IT efficiencies and some of the restructuring legal fees.

Speaker #4: Good morning, gentlemen. Appreciate the opportunity. Hey, Matt, as we kind of think about the results for this quarter, if I and compared to last year, if I remember right, last year had some more one-time items related to vast data.

Speaker #3: As you look at that, how much would you say was one-time or non-recurring? And how should we think about it for the rest of the year?

Speaker #4: How tough of a comparable was that for you this quarter?

Speaker #5: Yeah, Keith, we need to. No, go ahead, Matt.

Speaker #4: Go ahead, Matt.

Speaker #4: No, you go ahead.

Speaker #2: Yeah. So in the quarter, we had about $500K of what I would call non-recurring type expenses. It relates to some of the legal and professional costs and then some of the investments in our IT infrastructure.

Speaker #5: So, Keith, number one, thanks for joining us on Investor Day in New York. It was good to see you. We knew it was going to be a tough comp going into Q2 because we had a $30 million deal with Vast Data, and then another one that was going to be in Q3 got pulled into Q2.

Speaker #5: So we had a really tough comp to do that. But going into the quarter, one of our bigger vendors Sophos had a down Q1, and really came back in Q2.

Speaker #2: So looking thinking about it from an effective margin perspective, we declined from Q1 our SG&A as a percentage of gross billings was declined by 20 basis points from Q1 to Q2, which was consistent with our trajectory from Q1 to Q2 of last year.

Speaker #5: So that helped it out. But we've really were thrilled by the teams and, like I mentioned in the opening remarks with Darktrace, really going to the next level.

Speaker #5: Some of the other performers and when if you remember when I first said we had 19 of our 20 vendors outperformed and grew in Q2.

Speaker #2: So that's kind of how we're thinking about it, that consistent effective margin flow that we've historically experienced is what we expect to see in the future.

Speaker #5: So that tough comp, but good to see our top vendors taking off.

Speaker #3: Great.

Speaker #4: And if you take out the and Keith, real quick, I mean, I hate talking about one-timers because it seems like every quarter you have a one-timer, right?

Speaker #4: No, absolutely. And you guys mentioned Fortinet having significant growth this quarter versus the first quarter. Is there a good opportunity for them to eclipse the speed or pace that Darktrace has achieved over the past year?

Speaker #3: Right.

Speaker #4: You're like, "Hey, this is one-time," but it's something different. But if you look at we know and we have our internal budget and stuff, and we're right on track for the investments that we put in.

Speaker #4: And then, of course, we're very opportunistic as a company. So when we say, "Hey, you know what? We should invest more in this IT piece of it, and it's going to be an expense that we didn't budget for," we're still going to do it because the efficiency that we get for the rest of our next 10 years is worth doing now.

Speaker #4: How are you thinking about Fortinet's ability to climb? I guess over the next 12 months.

Speaker #5: For sure. I mean, it was a 10x factor from Q1 of this year to Q2 of this year. Of course, the bigger you get, it doesn't grow as fast.

Speaker #5: But we're hosting QBRs in our locations. Our teams are so much more integrated than they were even in Q1. We started this relationship in November.

Speaker #4: So that's what we've done in both Q1 and Q2. And some of it will be in Q3.

Speaker #3: Yeah. So in your head, Dale, in terms of the investment in the cloud marketplace and the IT, how fast is your payback? Is that a payback you can get back in a year?

Speaker #5: So it'll continue and I think I said it be one of our top five vendors probably this time next year. It continues to grow.

Speaker #5: And if you looked at their financial results this week, for a company that's $6, 7 billion in size, they grew 14% in Q1. Q2, they were up double digits as well.

Speaker #4: From the IT side, for sure.

Speaker #3: Yeah. Okay. Okay. Got it.

Speaker #4: Yeah. And we're doing so we and we've talked about our ERP went live two years ago, July. And now we're tweaking it, and we're trying to use the best tools for the job.

Speaker #5: So just a great relationship. And as your teams get closer and closer, everything gets faster, right, as far as getting more of our customers on board.

Speaker #4: So with Vishal coming on, he's been on board a year now. We've expected a lot from him. He's delivered. Getting the right team members in.

Speaker #5: And Fortinet's portfolio goes so wide, right? They go from firewalls all the way to access and security cameras. So just a good technology company that we're going to expand on.

Speaker #4: So you're going to continue to see that piece of it. And we know I'm going to get the comments. I mean, on our SG&A side, we need to keep a very close watch on it and continue to get the efficiency we can drive it down.

Speaker #4: Great. Good to hear it. And as I look at your SG&A expenses, I know you guys are held a lot of different fires going on right now in terms of some of the IT efficiencies and some of the restructuring legal fees.

Speaker #3: Right. Right. Okay. Guys, I appreciate the opportunity. I look forward to seeing the growth going forward. Thanks.

Speaker #4: As you look at that, how much would you say was one-time or non-recurring? And how should we think about it for the rest of the year?

Speaker #4: Thanks, Keith.

Speaker #1: Thank you. Our next question will come from Vincent Colicchio with Barrington Research. Your line is now open.

Speaker #5: Go ahead, Matt.

Speaker #2: Yeah. So, in the quarter, we had about $500,000 of what I would call non-recurring type expenses. It relates to some of the legal and professional costs, and then some of the investments in our IT infrastructure.

Speaker #5: Hey, Dale. I'm curious. Are geopolitical factors having any impact on sentiment in Europe? And also, are you hitting your cross-selling objectives in Europe setting inner works aside, given how recent that is?

Speaker #3: Yeah. On the cross-selling side, I'll take that first. Not that big of an impact other than the teams are getting to know each other and we're going to start seeing vendors getting loaded onto the platform that they're using over there.

Speaker #2: So looking thinking about it from an effective margin perspective, we declined from Q1 our SG&A as a percentage of gross billings was declined by 20 basis points from Q1 to Q2, which was consistent with our trajectory from Q1 to Q2 of last year.

Speaker #3: So we'll see that piece of it. But we're also getting the teams integrated together on just territorial vendors because we both have the Microsoft agreement for all of Europe.

Speaker #2: So that's kind of how we're thinking about it, that that consistent effective margin flow that we've historically experienced is what we expect to see in the future.

Speaker #3: So now we're think about it. We're in Southern Europe with Greece. We're in UK, Ireland, and we're going to just keep going to the middle.

Speaker #3: Of Europe on that side. On the macro side, we had a board meeting this week. It came up. We talked about macro environments. I know it sounds we're 2 billion dollars.

Speaker #4: Great.

Speaker #5: And if you take out the and Keith, real quick, I mean, I hate talking about one-timers because it seems like every quarter you have a one-timer, right?

Speaker #5: You're like, "Hey, this is one time," but it's something different. But if you look at what we know, and we have our internal budget and stuff, we're right on track for the investments that we put in.

Speaker #3: We're still so extremely small in our market. And the companies and that we carry in the pockets of that we go after resellers, we just haven't seen it.

Speaker #5: And then, of course, we're very opportunistic as a company. So when we say, "Hey, you know what? We should invest more in this IT piece of it, and it's going to be an expense that we didn't budget for," we're still going to do it because the efficiency that we get for the rest of our next 10 years is worth doing now.

Speaker #3: I mean, of course, it's going to be on the fringes, but nothing really impact. We're not in the hardware business. So logistics isn't an issue, just like it wasn't during COVID.

Speaker #3: So we just haven't seen it. And I think I say that a lot. We're still that small.

Speaker #5: So we're that's what we've done in both Q1 and Q2. And some of it will be in Q3.

Speaker #5: Vast data was good to you. I believe in the year-go period, does that pipeline there remain substantial?

Speaker #4: Yeah. So, in your head, Dale, in terms of the investment in the cloud marketplace and the IT, how fast is your payback? Is that a payback you can get back in a year?

Speaker #3: It does. And as people that have been on this call before, I mean, it's just going to remain lumpy because the deals are so large in size.

Speaker #5: From the IT side? For sure.

Speaker #3: A lot of it is a waiting game with data centers being built that data is known for delivering data to AI engines and LLMs very quickly.

Speaker #4: Yeah. Okay. Okay. Got it.

Speaker #5: Yeah. And we're doing so we and we've talked about our ERP went live two years ago, July. And now we're tweaking it. And we're trying to use the best tools for the job.

Speaker #3: That's their claim. And they have less than 100 customers worldwide. So it's going to be lumpy and we have a pretty strong pipeline with them already.

Speaker #5: So with Vishal coming on, he's been on board a year now, we've expected a lot from him. He's delivered. Getting the right team members in.

Speaker #5: So you’re going to continue to see that piece of it. And we know I’m going to get the comments. I mean, on our SG&A side, we need to keep a very close watch on it and continue to get the efficiency so we can drive it down.

Speaker #5: And has the gross billings momentum you experienced in the quarter carried through in the early Q3?

Speaker #3: We just finishing up July. We'll have a strong July. Some of it falling over from the quarter, which happens. But yeah, we look at the percentage that is pretty traceable between first half and second half of the year.

Speaker #4: Right. Right. Okay. Guys, I appreciate the opportunity. I look forward to seeing the growth going forward. Thanks.

Speaker #5: Thanks, Keith.

Speaker #1: Thank you. Our next question will come from Vincent Colicchio with Barrington Research. Your line is now open.

Speaker #3: In our second half of the year, it was always stronger than our first half, and we have the same expectations for that. Fortinet's going to be a driver in Q3 and Q4.

Speaker #6: Hey, Dale. I'm curious. Our geopolitical factors have any impact on sentiment in Europe? And also, are you hitting your cross-selling objectives in Europe setting inner works aside given how recent that is?

Speaker #3: We'll talk about that again. But yeah, we have a good momentum going into it.

Speaker #5: And one from Matt, could you remind us what the tax rate was so high this quarter?

Speaker #4: Yeah. On the cross-selling side, I'll take that first. Not that big of an impact other than the teams are getting to know each other and we're going to start seeing vendors getting loaded onto the platform that they're using over there.

Speaker #2: Yeah. So compared to Q2 of last year, our effective rate was higher this quarter than the Q2 of last year because there was a discrete item related to or there was a greater adjustment for a discrete item in Q2 of last year.

Speaker #4: So we'll see that piece of it. But we're also getting the teams integrated together on just territory vendors because we both have the Microsoft agreement for all of Europe.

Speaker #2: For when restricted stock vests. So as we've had the run-up in the stock over the or stock value over the years, as awards vest from many years prior when the fair value was much lower, the company receives a tax benefit.

Speaker #4: So now we're think about it. We're in Southern Europe with Greece. We're in UK, Ireland, and we're going to just keep going to the middle.

Speaker #4: Of Europe on that side. On the macro side, we had a board meeting this week. It came up. We talked about macro environments. I know it sounds we're 2 billion dollars.

Speaker #2: Now, as those much prior year rewards become fully vested and the awards are more closer award fair value are more closer than to our value of the stock today, we have less of a discrete favorable impact on our taxes which is therefore driving our tax rate to be more consistent with where we would expect it going forward.

Speaker #4: We're still so extremely small in our market. And the companies and that we carry in the pockets of that we go after our resellers, we just haven't seen it.

Speaker #4: I mean, of course, it's going to be on the fringes, but nothing really impactful. We're not in the hardware business, so logistics isn't an issue, just like it wasn't during COVID.

Speaker #4: So we just haven't seen it. And I think I say that a lot. We're still that small.

Speaker #5: Okay. Thanks, gentlemen.

Speaker #3: Thanks, Vince.

Speaker #1: Thank you. Our next question comes from Bill Dezellem with Titan Capital.

Speaker #6: Vast data was good to you I believe in the year ago period. Does that pipeline there remain substantial?

Speaker #3: of all, Fortinet initially had restricted you from certain opportunities. And you referenced that at the analyst meeting. Would you update on kind of where we sit today and what success you are seeing with Fortinet specific to that issue now?

Speaker #4: It does. And as people that have been on this call before, I mean, it's just going to remain lumpy because the deals are so large in size.

Speaker #4: A lot of it is a waiting game with data centers being built that data is known for delivering data to AI engines and LLMs very quickly.

Speaker #4: That's their claim. And they have less than 100 customers worldwide. So it's going to be lumpy and we have a pretty strong pipeline with them already.

Speaker #5: Yeah. So we were restricted until May 4th of this year. I think it was the top 50 customers. They didn't want disruption. The goal with Fortinet is always been for net new look at I mentioned their technology stack goes extremely wide.

Speaker #6: And has the gross billings momentum you experienced in the quarter carried through in the early Q3?

Speaker #5: And if you look at a lot of our vendors, our vendors are extremely narrow as far as where they go in security stack. So for us, it's just a great fit.

Speaker #4: We just finishing up July. We'll have a strong July. Some of it falling over from the quarter, which happens. But yeah, we look at the percentage that is pretty traceable between first half and second half of the year.

Speaker #5: So yeah, it ended in May. Yeah, some share shift will happen, but it's and some of the customers and what we like to say is let the customers choose where they want to acquire product from.

Speaker #5: Some of it helped there. We have some really cool initiatives inside teams for generating net new business. And then we're looking at where if you look at if you go to Fortinet's website and you look at their technology partnerships, there's so many that we have in common.

Speaker #4: In our second half of the year is always stronger than our first half. And we have the same expectations for that. Fortinet's going to be a driver in Q3 and Q4.

Speaker #4: We'll talk about that again. But yeah, we have a good momentum going into it.

Speaker #6: And one from Matt. Could you remind us what the tax rate was so high this year quarter?

Speaker #5: The vendors we already had on our line card, so we're just doubling down on those. So we're doing more events together. And do truly cross-sell level stuff.

Speaker #2: Yeah. So compared to Q2 of last year, our effective rate was higher this quarter than the Q2 of last year because there was a discrete item related to or there was a greater adjustment for a discrete item in Q2 of last year.

Speaker #5: So yeah, you figure we had April and May, we still couldn't touch the top 50. We're seeing some of the stuff come from those groups and they'll continue to the momentum.

Speaker #3: And Dale, that's I guess part of where I was going is relative to those top 50, are you seeing to what degree are you seeing them making choices to move to client?

Speaker #2: For when restricted stock vests. So as we've had the run-up in the stock over the or stock value over the years, as awards vest from many years prior when the fair value was much lower, the company receives a tax benefit.

Speaker #5: Yeah. In region, in territory, and this goes back to what we are known for as a company, right? We are a show-up type of Salesforce with all of our and you got to meet a lot of them in New York.

Speaker #2: Now, as those much prior year rewards become fully vested, and the awards are closer to fair value — are more closely aligned to our value of the stock today — we have less of a discrete favorable impact on our taxes. This is therefore driving our tax rate to be more consistent with where we would expect it going forward.

Speaker #5: These sellers are in region, in territory, visiting their customers. They do not get that experience from any of our competitors, right? We don't do overlays in the company.

Speaker #5: So when you go and you talk to our field rep, that's the person that's going to deal with everything to do with climb and what you're acquiring.

Speaker #6: Okay. Thanks, gentlemen.

Speaker #4: Thanks, Vince.

Speaker #1: Thank you. Our next question comes from Bill DeZellum with Titan Capital.

Speaker #5: So we're going to see more of it. As we get more in line with their field sellers as well, that's when good things happen.

Speaker #7: Thank you. I have a group of questions. First of all, Fortinet initially had restricted you from certain opportunities, and you referenced that at the analyst meeting.

Speaker #5: There's the bigger resellers out there. Those are bid opportunities that'll come up over the next couple of years, but really it's hand-to-hand combat and all the regions.

Speaker #7: Would you update on kind of where we sit today, and what success you are seeing with Fortinet specific to that issue now?

Speaker #3: Great. So essentially, we should not think about this as a light switch turning on with these top 50 and more so that as the relationship with the client team builds, they're simply going to be it's just going to be a natural progression where they're going to give more business to the people that they see and like that are showing up every day.

Speaker #4: Yeah. So we were restricted until May 4th of this year. I think it was the top 50 customers. They didn't want disruption. The goal with Fortinet is always been for net new business.

Speaker #4: And if you look at I mentioned their technology stack goes extremely wide. And if you look at a lot of our vendors, our vendors are extremely narrow as far as where they go in security stack.

Speaker #5: For sure. And it's the buying experience, right? I mean, if we can make it more streamlined, we're going to get more customers. If we are giving them products that they can take to their end users that show a differentiator or they can build more of the technology and we're mostly security in that stack, that's another positive.

Speaker #4: So for us, it's just a great fit. So yeah, it ended in May. Yeah, some share shift will happen, but it's and it's some of the customers and what we like to say is let the customers choose where they want to acquire product from.

Speaker #4: Some of it helped there. We have some really cool initiatives inside teams. For generating net new business. And then we're looking at where if you look at if you go to Fortinet's website and you look at their technology partnerships, there's so many that we have in common.

Speaker #5: But if you look at just the North American Sales for Fortinet, and they put it out there, it's about 2.5 billion dollars. And that all goes through four or five distributor partners.

Speaker #5: So it's a big, big pond. We're trying to focus on our resellers, what they want in that stack, and then try to grow it to buy more Fortinet products.

Speaker #4: The vendors we already had on our line card. So we're just doubling down on those. So we're doing more events together. And do truly cross-sellable stuff.

Speaker #3: Thank you. And speaking of a big pond, Dale, the Avante relationship, we didn't talk a lot about that at the analyst meeting. Would you dive into that and go into some more detail?

Speaker #4: So yeah, you figure we had April and May, we still couldn't touch the top 50. We're seeing some of the stuff come from those groups and they'll continue to the momentum.

Speaker #7: And Dale, that's, I guess, part of where I was going—is, relative to those top 50, are you seeing, to what degree are you seeing them making choices to move to Climb?

Speaker #3: How fast that it will ramp and I mean, to just ultimately the size that you think this could be for client?

Speaker #5: Yeah. And the reason we didn't get into it too much because we were just getting launched. We just had our launch plan with them and all the territories.

Speaker #4: In region, in territory. And this goes back to what we are known for as a company, right? We are a show-up type of Salesforce with all of our and you got to meet a lot of them in New York.

Speaker #5: But let me just back up to when I talk about onboarding vendors and how Charles and his team go through picking vendors and we're just continue to look upstream at larger vendors because if we're going to move the needle, we can't sign a vendor that we're going to get to 5 to 10 to 15 million in a couple of years, right?

Speaker #4: These sellers are in region, in territory, visiting their customers. They do not get that experience from any of our competitors, right? We don't do overlays in the company.

Speaker #4: So when you go and you talk to our field rep, that's the person that's going to deal with everything to do with Klein and what you're acquiring.

Speaker #5: It's not going to matter if it's cross-sellable and it's easy part of adding to a purchase order, hey, that's great. And what we'll look at that.

Speaker #5: But Avante, 950 plus million dollars, great team. We get to meet the C-level guys a couple of weeks ago in New York with the refresh program.

Speaker #4: So we're going to see more of it. As we get more in line with their field sellers as well, that's when good things happen.

Speaker #4: There's the bigger resellers out there. Those are bid opportunities. That'll come up over the next couple of years, but really it's hand-to-hand combat and all the regions.

Speaker #5: So I only see good things from that. And we're getting more and more at bats with bigger vendors. We have another one we'll announce in a couple of weeks that is a 650 million dollar vendor in the security stack space.

Speaker #5: So that we're going to continue to look at the bigger vendors that make sense for us that don't have the same go-to-market or technology that is it might be an overlap of 20%, but not more than 50%.

Speaker #7: Great. So essentially, we should not think about this as a light switch turning on with these top 50 and more so that as the relationship with the Klein team builds, they're simply going to be it's just going to be a natural progression where they're going to give more business to the people that they see and like that are showing up every day.

Speaker #5: But you'll see that relationship grow and grow. And Avante came to us and said, "Okay, you guys are out in the field. We're not getting that from our other channel players.

Speaker #5: And we're going to see more of that move over as well." As they've moved to how do I want to put it nicely? Cancel contracts with some of our competitors because they're just not getting out of what they want.

Speaker #4: For sure. And it's the buying experience, right? I mean, if we can make it more streamlined, we're going to get more customers. If we are giving them products that they can take to their end users that show a differentiator or they can build more of the technology and we're mostly security in that stack, that's another positive.

Speaker #3: And ultimately with Avante, do you see this as a top 20, a top 10, top 5? Where do you see them ultimately falling?

Speaker #4: But if you look at just the North American sales for Fortinet and they put it out there, it's about 2.5 billion dollars. And that all goes through four or five distributor partners.

Speaker #5: A top 20. Definitely a top 20 vendor. And like I said, in the opening remarks, board meeting this week, went through some of the stuff.

Speaker #4: So, it's a big, big pond. We're trying to focus on our resellers, what they want in that stack, and then try to grow it to buy more Fortinet products.

Speaker #5: And we pulled some of the data. And I'll give the shareholder some of it. So in 2022, we had 48 vendors that made up about 90% of our adjusted gross billings.

Speaker #7: Thank you. And speaking of a big pond, Dale, the Avante relationship, we didn't talk a lot about that at the analyst meeting. Would you dive into that and go into some more detail?

Speaker #5: And today, 84 vendors make up 90%. So you can see we're much more diversified. Of course, I would like that number to be a little less because we're trying to continue to trim off vendors that are burning too much time of my core team and put them into our climb elevate group.

Speaker #7: How fast that it will ramp and I mean, to just ultimately the size that you think this could be for Klein?

Speaker #5: But we're very diversified. And then what makes up our we have 45 vendors that do more than 10 million dollars in sales. And in 2022, we had only 22 vendors in 2022 that did 10 million dollars or more.

Speaker #4: Yeah. And the reason we didn't get into it too much because we were just getting launched. We just had our launch plan with them and all the territories.

Speaker #4: But let me just back up to when I talk about onboarding vendors and how Charles and his team go through picking vendors and we're just continue to look upstream at larger vendors because if we're going to move the needle, we can't sign a vendor that we're going to get to 5 to 10 to 15 million in a couple of years, right?

Speaker #5: So better vendor portfolio that we're delivering and working on more focused vendors.

Speaker #3: Great. And then one additional question, please. What additional details do you have on the marketplace? I think you mentioned that Adobe will be first.

Speaker #4: It's not going to matter if it's cross-sellable and it's easy part of adding to a purchase order, hey, that's great. And what we'll look at that.

Speaker #4: But Avante, 950-plus million dollars, great team we get to meet the C-level guys, a couple of weeks ago in New York with their refresh program.

Speaker #3: And additional details beyond what you had earlier this month in New York.

Speaker #5: Yeah. So we've had a platform all along. And we've the issue with having a platform that you don't control is you don't control the roadmap of when you want a vendor added.

Speaker #4: So I only see good things from that. And we're getting more and more at bats with bigger vendors. We have another one we'll announce in a couple of weeks that is a 650 million dollar vendor in the security stack space.

Speaker #5: So if I look at just back to the efficiency play, and I want a vendor added because it's going to save us so much time and money internally just transacting that vendor, I have to go into a roadmap of whoever I use as a platform and wait for that to come up.

Speaker #4: So we're going to continue to look at the bigger vendors that make sense for us that don't have the same go-to-market or technology that is it might be an overlap of 20%, but not more than 50%.

Speaker #5: And even if we do some of the devs on ourself, it still takes longer. So we're going to have kind of a hybrid. We're developing with the architectures already been pretty much set.

Speaker #4: But you'll see that relationship grow and grow. And Avante came to us and said, "Okay, you guys are out in the field. We're not getting that from our other channel players.

Speaker #5: And then we'll have a committee as far as what we really need to that because we want the experience to be what the customer wants, right?

Speaker #4: And we're going to see more of that move over as well as they've moved to how do I want to put it nicely? Cancel contracts with some of our competitors because they're just not getting out of what they want."

Speaker #5: How much of an online experience they can determine, how much of an individual in person relationship they can determine. We want to have both of those.

Speaker #5: And right now, they have the personal experience, but we need one that's more online that they can get answers a lot faster than waiting for their teams.

Speaker #7: And ultimately with Avante, do you see this as a top 20, a top 10, top 5? Where do you see them ultimately falling?

Speaker #5: So it'll be a continued investment that we have. This is the first step, bringing somebody that Vishal has had a history with. I've known the companies these work for.

Speaker #4: A top 20. Definitely a top 20 vendor. And like I said, in the opening remarks, the board meeting this week, went through some of the stuff.

Speaker #5: So we'll announce this and continue as we go. But we'll have some of our stuff done in Q4 of this year.

Speaker #4: And we pulled some of the data. And I'll give the shareholders some of it. So in 2022, we had 48 vendors that made up about 90% of our adjusted gross billings.

Speaker #3: Great. Thank you. And congratulations on the forward progress.

Speaker #5: Thanks, Bill.

Speaker #1: Thank you. We'll take our next question from Howard Root with Fair Hope Capital. Your line is now open.

Speaker #4: And today, 84 vendors make up 90%. So you can see we're much more diversified. Of course, I would like that number to be a little less because we're trying to continue to trim off vendors that are burning too much time of my core team.

Speaker #6: Good morning, guys. And thanks for taking my questions. First, congratulations once again on the great growth in billings. I mean, you guys continue to do excellent work there.

Speaker #4: And put them into our climb elevate group. But we're very diversified. And then what makes up our we have 45 vendors that do more than 10 million dollars in sales.

Speaker #6: I just have two questions. One, just a little follow-up on the SG&A line. Going up 26% year over year looks kind of troubling, but obviously we talked about that at Q1 because that was where the jump was.

Speaker #4: And in 2022, we had only 22 vendors in 2022 that did 10 million dollars or more. So better vendor portfolio that we're delivering and working on more focused vendors.

Speaker #6: And Q1 to Q2, you actually took it down from 3.7% to 3.5% of your gross billing. But kind of the target was always at 3% level.

Speaker #6: And it's kind of sticky here and going up a little bit Q1 to Q2. What do you see kind of as a percentage of gross billings the SG&A what's your target over the rest of this year and into 2027?

Speaker #7: Great. And then one additional question, please. What additional details do you have on the marketplace? I think you mentioned that Adobe will be first.

Speaker #6: Can you get that down to 3%? Is that a reasonable target near term?

Speaker #7: And additional details beyond what you had earlier this month in New York.

Speaker #5: So I want to say yes, Howard, but a couple of things will happen and we'll call them out, right? If we have some bigger vast deals and if I look and Matt and I and Matt went through the last eight quarters and we had a couple of times we did below three and some of the times a couple of quarters were just above three.

Speaker #4: Yeah. So we've had a platform all along. And we've the issue with having a platform that you don't control is you don't control the roadmap of when you want a vendor added.

Speaker #4: So if I look at just back to the efficiency play, and I want a vendor added because it's going to save us so much time and money internally just transacting that vendor, I have to go into a roadmap of whoever I use as a platform and wait for that to come up.

Speaker #5: So of course, that is the goal. But it's the catch-22 part of it is if I invest in some of the technology that will make me efficient for years to come, I want to do that now and not wait.

Speaker #4: And even if we do some of the dev on ourselves, it still takes longer. So we're going to have kind of a hybrid. We're developing, but the architecture's already been pretty much set.

Speaker #5: So that is some of what's being churned up in my SG&A. So I'm trying to be a good steward of it now because I know that we focus quarterly.

Speaker #4: And then we'll have a committee as far as what we really need to that because we want the experience to be what the customer wants, right?

Speaker #5: But I don't want to sacrifice something that if I could do and put in place now for an efficiency that's going to give me 2027 at a much better rate and I don't have to pay those dollars then, I'll do that.

Speaker #4: How much of an online experience they can determine? How much of an individual in-person relationship they can determine? We want to have both of those.

Speaker #5: So yeah, that's our goal. And we know that our Q3s and Q4s are very strong. Our Adobe relationship really kicks off because it's the buying season.

Speaker #4: And right now, they have the personal experience, but we need one that's more online, where they can get answers a lot faster than waiting for their teams.

Speaker #5: So we'll see those numbers go up without putting extra resources on. We're making some cost-cutting measures inside. We'll talk about that in Q3 as well.

Speaker #4: So it'll be a continued investment that we have. This is the first step, bringing somebody that Vashal has had a history with. I've known the companies these work for.

Speaker #6: And so okay, go ahead.

Speaker #4: So, we'll announce this and continue as we go, but we'll have some of our stuff done in Q4 of this year.

Speaker #5: Just to reiterate what Dale was saying there. Historically, our effective margin grows from Q1 to Q4 of every year or ramps up from Q1 to Q4 of every year.

Speaker #7: Great. Thank you. And congratulations on the forward progress.

Speaker #5: There are fluctuations in it from given quarter to quarter, but if you and we've talked quite a bit about the large non-reoccurring at this point vast transactions from Q2 of last year.

Speaker #4: Thanks, Bill.

Speaker #1: Thank you. We'll take our next question from Howard Root with Fair Hope Capital. Your line is now open.

Speaker #6: Good morning, guys. And thanks for taking my questions. First, congratulations once again on the great growth in billings. I mean, you guys continue to do excellent work there.

Speaker #5: And if you take the impact of that out and take the impact of Interworks contribution from Q2 of this year, who obviously wasn't in Q2 of last year, we still grew adjusted EBITDA at the strong double-digit organic growth or strong double-digit growth levels of gross billings and gross profit.

Speaker #6: I just have two questions. One, just a little follow-up on the SG&A line. Going up 26% year over year looks kind of troubling, but obviously we talked about that at Q1 because that was where the jump was.

Speaker #6: And from Q1 to Q2, you actually took it down from 3.7% to 3.5% of your gross billing. But kind of the target was always at the 3% level.

Speaker #5: So yeah, there's a couple of things to peel back there and a couple of things to continue to tweak but still a strong quarter when you take those pieces out of it.

Speaker #6: And it's kind of sticky here and going up a little bit Q1 to Q2. What do you see kind of as a percentage of gross billings the SG&A what's your target over the rest of this year and into 2027?

Speaker #6: Right. So I guess the flip side to that, though, is from where you were like three, four years ago when I first started covering you guys, you're adding so much more service to your offering.

Speaker #6: It's not just here's a product buy. You're personal hands-on. And if it does take three and a half percent SG&A, is there a way of getting your gross margin on billings up from that 5% to 6% and capture it that way?

Speaker #6: Can you get that down to 3%? Is that a reasonable target, near term?

Speaker #4: So I want to say yes, Howard, but a couple of things will happen. And we'll call them out, right? If we have some bigger vast deals and if I look and Matt and I and Matt went through the last eight quarters and we had a couple of times we did below three and some of the times a couple of quarters were just above three.

Speaker #6: Is that something you're looking at or something you think is possible, or is it market just doesn't allow that?

Speaker #5: So yeah, Howard, and I would say North America the market doesn't allow it, right? And that's the big piece of it. And I talked about it in New York.

Speaker #4: So of course, that is the goal. But it's the catch-22 part of it is if I invest in some of the technology that will make me efficient for years to come, I want to do that now and not wait.

Speaker #5: And that is some of the acquisition plans that we have overseas, they have double digits to triple what we are, right? So if we're doing 5%, they're doing 10 to 15 percent because the competition is less.

Speaker #4: So that is some of what's being churned up in my SG&A. So I'm trying to be a good steward of it now because I know that we focus quarterly.

Speaker #5: And if you look at the territorial selling in the US, we're looking at that as in Europe as territorial selling, but it's typically in-country.

Speaker #4: But I don't want to sacrifice something that if I could do and put in place now for an efficiency that's going to give me 2027 at a much better rate and I don't have to pay those dollars then, I'll do that.

Speaker #5: So their margins are higher, less competition. And like I said, in New York, if we can mimic our size in the US, in Europe and beyond, we can move that because if we look at the margins just the contribution of my solutions team, 11, 12 percent, that makes a big impact.

Speaker #4: So yeah, that's our goal. And we know that our Q3s and Q4s are very strong. Our Adobe relationship really kicks off because it's the buying season.

Speaker #4: So we'll see those numbers go up without putting extra resources on. We're making some cost-cutting measures inside. We'll talk about that in Q3 as well.

Speaker #5: It makes them look double the size but the issue is always been, can we do it as efficiently in Europe and beyond as we do in the US?

Speaker #5: And that is what we're working on with our systems and platform where we're cutting some of the costs out because we have been becoming more efficient.

Speaker #6: And so, Howard, just okay. Go ahead.

Speaker #4: Just to reiterate what Dale was saying there. Historically, our effective margin grows from Q1 to Q4 of every year. Or ramps up from Q1 to Q4 of every year.

Speaker #5: So if you ask me this a couple of years ago without the acquisitions, then where we're targeting, I would have said it's really tough to do.

Speaker #5: And now I'm going to change that and say we can do that. And you'll see us on some of our acquisitions, look at the Greek side of things.

Speaker #4: There are fluctuations in it from given quarter to quarter. But if you and we've talked quite a bit about the large non-reoccurring at this point vast transactions from Q2 of last year.

Speaker #5: The margin profile is much better. They're small. So that's why we need to grow that. But we'll, I think we can move that number.

Speaker #6: Great. Thanks. And my second question is on the M&A environment. And at the investor day, what I heard was you guys kind of are picking up the pace maybe on at least the evaluations and the targets and obviously increasing the size that you could do in an M&A.

Speaker #4: And if you take the impact of that out and take the impact of Interworks contribution from Q2 of this year, who obviously wasn't in Q2 of last year, we still grew adjusted EBITDA at the strong double-digit organic growth or strong double-digit growth levels of gross billings and gross profit.

Speaker #6: Can you comment on is looking forward to the rest of this year on your M&A target list and your ability to do bigger deals and you've done before?

Speaker #4: So yeah, there's a couple of things to peel back there and a couple of things to continue to tweak but still a strong quarter when you take those pieces out of it.

Speaker #5: You were spot on, Howard. And then this meeting that we had with the board this week was really just for me to lay out the strategy for the next three to five years.

Speaker #6: Right. So I guess the flip side to that, though, is from where you were like three, four years ago when I first started covering you guys, you're adding so much more service to your offering.

Speaker #5: And making sure that the board and I are aligned at where we're going and we're not afraid if we want to take on some debt.

Speaker #5: But yeah, those two things you said, we're accelerating the targets. We've had them all along. And like I've said in the past, I've got to get comfortable with that target because our business is a relationship business.

Speaker #6: It's not just here's a product buy. You're personal hands-on. And if it does take three and a half percent SG&A, is there a way of getting your gross margin on billings up from that 5% to 6% and capture it that way?

Speaker #5: And what's the relationship with our vendors? What's the relationship with our customers? How well are they liked in the market? Do they have a lot of the same philosophy as go-to-market and culture that we do?

Speaker #6: Is that something you're looking at or something you think is possible? Or is it market just doesn't allow that?

Speaker #5: So it takes some time, but I've been working on them for the last two to three years. And now we are at the point where we've got some really good targets.

Speaker #4: So yeah, Howard. And I would say North America, the market doesn't allow it, right? And that's the big piece of it. And I talked about it in New York.

Speaker #5: Ones that we want to get accomplished. And we got two that are very large. That we can do. We're not going to be able to do them with cash, but we'll use the best form of capital to do that.

Speaker #4: And that is some of the acquisition plans that we have overseas, they have double digits to triple what we are, right? So if we're doing 5%, they're doing 10 to 15 percent because the competition is less.

Speaker #5: And that's probably in the form of debt.

Speaker #6: Great. Thanks, and congrats again on the quarter.

Speaker #4: And if you look at the territorial selling in the US, we're looking at that as in Europe as territorial selling, but it's typically in-country.

Speaker #5: Thanks, Howard. Appreciate it.

Speaker #1: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to Dale Foster.

Speaker #4: So their margins are higher, less competition. And like I said, in New York, if we can mimic our size in the US, in Europe and beyond, we can move that because if we look at the margins just the contribution of my solutions team is 11, 12 percent.

Speaker #5: Thank you, Howard. I appreciate it. And thanks again for everybody joining the call. I want to thank the greater climb team and when we talk about relationships, we have to talk about it in the form of going to customers and going to our vendors.

Speaker #5: They're both our customers. Our team is just doing a great job on both sides of that. We're halfway through 2026. A lot of momentum going into the second half and we look to have a great year for 2026.

Speaker #4: That makes a big impact. It makes them look double the size but the issue is always been, can we do it as efficiently in Europe and beyond as we do in the US?

Speaker #4: And that is what we're working on with our systems and platform. Where we're cutting some of the costs out because we have been becoming more efficient.

Speaker #5: So I appreciate it. Thank you, operator.

Speaker #4: So can we if you ask me this a couple of years ago without the acquisitions and where we're targeting, I would have said it's really tough to do.

Speaker #4: And now I'm going to change that and say we can do that. And you'll see us on some of our acquisitions. Look at the Greek side of things.

Speaker #4: The margin profile is much better. They're small. So that's why we need to grow that. But we'll I think we can move that number.

Speaker #6: Great. Thanks. And my second question is on the M&A environment. And at the investor day, what I heard was you guys kind of are picking up the pace maybe on at least the evaluations and the targets and obviously increasing the size that you could do in an M&A.

Speaker #6: Can you comment on is that the correct interpretation or what do you see looking forward to the rest of this year on your M&A target list and your ability to do bigger deals and you've done before?

Speaker #4: You were spot on, Howard. And then this meeting that we had with the board this week was really just for me to lay out the strategy for the next three to five years.

Speaker #4: And making sure that the board and I are aligned at where we're going and we're not afraid if we want to take on some debt.

Speaker #4: But yeah, those two things you said. We're accelerating the targets. We've had them all along. And like I've said in the past, I've got to get comfortable with that target because our business is a relationship business.

Speaker #4: And what's the relationship with our vendors? What's the relationship with our customers? How well are they liked in the market? Do they have a lot of the same philosophy as go-to-market and culture that we do?

Speaker #4: So it takes some time, but I've been working on them for the last two to three years. And now we are at the point where we've got some really good targets.

Speaker #4: Ones that we want to get accomplished. And we've got two that are very large that we can do. We're not going to be able to do them with cash, but we'll use the best form of capital to do that.

Speaker #4: And that's probably in the form of debt.

Speaker #6: Great. Thanks, and congrats again on the quarter.

Speaker #4: Thanks, Howard. Appreciate it.

Speaker #1: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to Dale Foster.

Speaker #4: Thank you, Robert. Appreciate it. And thanks again for everybody joining the call. I want to thank the Greater Climb team and when we talk about relationships, we have to talk about it in the form of going to customers and going to our vendors.

Speaker #4: They're both our customers. Our team is just doing a great job on both sides of that. We're halfway through 2026. A lot of momentum going into the second half and we look to have a great year for 2026.

Speaker #4: So I appreciate it. Thank you, operator.