Wayside Technology Group, Inc. Aktie

Good morning, everyone, and thank you for participating in today's conference call to discuss Climb Global Solutions' financial results for the first quarter ended March 31, 2026. Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Matthew Sullivan; and the company's Investor Relations adviser, Mr. Sean Mansouri with Elevate IR.

By now, everyone should have access to the first quarter 2026 earnings press release, which was issued yesterday afternoon at approximately 4:05 p.m. Eastern Time. The release is available in the Investor Relations section of Climb Global Solutions website at www.climbglobalsolutions.com.

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

Thank you. Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. -- these forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.

These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements. which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements.

Our presentation also includes certain 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. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules.

I'd now like to turn the call over to Climb's CEO, Dale Foster.

Thank you, Sean, and good morning, everyone. In the first quarter, we generated double-digit organic growth in our core business and also had some benefit from our acquisition of Interwork cloud. We remained disciplined in our signing high-quality vendors to our line card, while moving slower performing vendors to our Climb division. Our performance underscores the momentum across the business, driven by the strength of our global platform and the depth of both vendors and partners.

During the quarter, we evaluated 39 net new brands and selected only 2 consistent with our strategy of cultivating strong high-impact vendor relationships across our platform. Notably, we signed Czech MK, an industry recognized innovator in comprehensive enterprise-grade monitoring and observability. As a strategic distributor, we provide channel partners with streamlined access to Czech MK's unified monitoring and servability platforms.

Delivering deep visibility across hybrid environments and key domains, including infrastructure, networks and applications from a single solution. Combined with enterprise-grade scalability, high automation and open core architecture, Czech MK enables partners to confidently position and sell and deploy unified monitoring platform at scale seamlessly across diverse customer environments and use cases.

We also launched a company called Logic Monitor during the quarter, following the successful pilot with a large customer in the fourth quarter of 2025. Logic Monitor is an AI-powered hybrid observability platform that provides unified visibility across cloud, on-prem and multi-cloud environments, enabling organizations to proactively identify and resolve issues.

Through this partnership, we are bringing Logic Monitors capabilities to our partner ecosystem, equipping VARs and MSPs with a differentiated solution, enhanced visibility, improves operational resilience and drives long-term customer value. We look forward to building our relationship with both Czech MK and Logic Monitor as we take their products to market.

Alongside expanding our vendor portfolio in February, we acquired Interwork a Greek distributor that brings over 600 cloud resellers and managed service provider relationships as well as strong vendor to our existing strong line card.

While early in the integration process, we are seeing meaningful opportunities to deepen our presence in Southeastern Europe by leveraging Interwork's established network as well as expanding cross-sell opportunities across our broader platform.

Overall, we are encouraged by this early progress we're seeing and look forward to generating additional synergies as we fully integrate the teams in the months ahead.

As we continue to scale our global platform, we are focused on driving greater alignment and efficiency across the organization. To support this effort, we promoted Cera Peters to Senior Director of Alliances to our EMEA team. there is working closely with regional leadership to replicate the process discipline and execution framework that we have produced -- that have produced strong results in North America.

Importantly, our underlying alliance strategy remains unchanged. We continue to take a highly selective approach to onboarding new vendors while prioritizing deep engagement with existing partners.

As our pipeline of opportunities expand, -- we are also seeing increased activity across both new valuations and reevaluations, which require a similar level of effort and reflect the deep growth and maturity of our vendor portfolio.

Looking ahead, we remain focused on driving organic growth while maintaining a disciplined approach to capital allocation. As we continue to scale the business, we are investing in infrastructure need to support that growth. including advanced automation and AI-enabled tools that enhance visibility, streamline our workflows and improve overall operating efficiencies.

We currently have over 41 IT projects in the works that have streamlined and will continue to stream line our workflows. We're using AI tools and agents to connect our partners that will help our team be more efficient as we grow. These initiatives are designed to increase throughput across the platform and enable us to support higher volumes of activity without the commensurate increase in head count.

At the same time, we continue to view M&A as a strategic lever to complement our organic growth. We are actively evaluating opportunities that align with our high-performance culture as well as our service offerings and in our geographic reach. We believe these initiatives will enable us to execute on our 2026 plan and deliver yet another year of strong results.

With that, I will turn the call over to our CFO, Matt Sullivan. Matt?

Thank you, Dale, and good morning, everyone. A quick reminder as we review the financial results for our first quarter, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. As reported in our earnings press release, gross billings in Q1 2026 increased 14% to $542.8 million compared to $474.6 million in the year ago quarter.

Distribution segment gross billings increased 15% to $520.9 million and Solutions segment gross billings increased 4% to $21.9 million. Net sales in the first quarter of 2026 increased 32% to $182.4 million compared to $138 million in the year ago period.

This reflects double-digit organic growth from new and existing vendors as well as contributions from our acquisition of Interwork on February 24, 2026.

Gross profit in the first quarter of 2026 increased 13% to $26.5 million compared to $23.4 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.

Selling, general and administrative expenses in the first quarter of 2026 were $20.3 million compared to $16.8 million in the year ago period. The increase in SG&A expenses was primarily driven by onetime investments to drive organic growth from new vendors and in our infrastructure to support long-term growth initiatives.

More specifically, we expanded our IT capabilities to enhance system efficiencies and further aligned our sales organization across teams and geographies and continue to build out our Fortinet focused sales resources.

In addition, SG&A reflects higher legal and professional fees associated with strategic initiatives, including our stock split. SG&A as a percentage of gross billings was 3.7% for the first quarter of 2026 compared to 3.5% for the prior year period.

Net income in the first quarter of 2026 was $3.3 million or $0.18 per diluted share compared to $3.7 million or $0.20 per diluted share for the prior year period. Adjusted net income was $3.6 million or $0.19 per diluted share compared to $3.9 million or $0.22 per diluted share for the year ago period.

Both net income and adjusted net income in the first quarter of 2026 were impacted by a higher effective tax rate compared to the prior year period. Adjusted EBITDA in the first quarter of 2026 increased 4% to $7.9 million compared to $7.6 million for the same period in 2025.

The increase was primarily driven by organic growth from both new and existing vendors partially offset by the aforementioned investments in our infrastructure to support long-term growth initiatives. Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit was 29.9% compared to 32.7% in for the same period in 2025.

Excluding the previously mentioned onetime investments and costs, effective margin for the first quarter of 2026 was higher compared to the prior year period.

Turning to our balance sheet. Cash and cash equivalents were $41.8 million as of March 31, 2026, compared to $36.6 million on December 31, 2025. The increase in cash was primarily attributed to the timing of receivable collections and payables.

As of March 31, 2026, we had no outstanding debt or borrowings outstanding under our $50 million revolving credit facility. As previously mentioned, our Board approved a 4-for-1 forward stock split effective in March to enhance liquidity and broaden access to our shares, while maintaining each stockholders' proportionate ownership.

We believe this action improves the accessibility of our stock and supports a more efficient trading environment for a broader base of investors. Looking ahead, our balance sheet remains a strategic asset with over $41 million of cash and no outstanding debt, we have ample liquidity and flexibility to execute on our growth initiatives in 2026.

We remain active in evaluating accretive M&A opportunities that can deepen our vendor portfolio, broaden our geographic footprint and enhance our operating platform. We believe these initiatives, coupled with our demonstrated track record of success will enable us to continue driving value creation for our shareholders.

This concludes our prepared remarks. We will now open up the line for questions. Operator?

[Operator Instructions]. We'll move first to Keith Housum with North Coast Research.

And thanks for the opportunity here. In terms of the extra spending here on the SG&A for the quarter, I noticed you guys had a number of onetime items, including IT and legal costs and investments like before in that. Can you perhaps bifurcate that a little bit more so we understand like I'm assuming increased costs before net will continue going forward, some of your onetime IT costs probably onetime in nature. Any way to bifurcate some that growth in SG&A to understand a little bit more going forward?

Keith, the buses go ahead, Matt. I'll fill in.

I was going to say the largest driver there or a big piece of the driver there was the Ford net investment. And the investment in that relationship has been -- is slightly different than the investment in the typical onboarding of a new vendor where we had increased cost, building out teams and additional onetime costs as we start that relationship here in Q1 of 2026.

So that really was about $0.5 million worth of costs that were in the first quarter that it was a driver -- negative reduction to adjusted EBITDA that we expect to turn the other direction as we move into the remainder of 2026.

Keith, this is 1 of the -- Keith, real quick. This is 1 of the things. We typically -- when we sign vendors, we'll do some small investments and a lot of times, it's paid by the vendors. If you take a look at Fortinet, it's a market cap $60 billion company, I think, $6 billion in annual sales. And the relationship was just a little different. We agreed and didn't have it in all of our budget to put this investment out there because we see it such an opportunity.

It's an anchor for us as we go forward. And it's 1 of the top 4 cybersecurity vendors in the world. So that's why we put this investment in there. the sales are coming along, and we'll be able to report those better in Q2 as we have been ramping those up along with the team that we've born on board.

Yes. That was my follow-up question. What's kind of the breakeven point for that? And how fast does it take to ramp up some like Fortinet. Will you see the return on investment here before the end of the year on that?

We will. I mean Q2 is already ramping up pretty quickly, but it will be Q3 when we'll see that return on investment. So yes, there'll be some of those SG&A costs in Q2 of that team and then covered in Q3.

Okay. Got you. And then the -- it looks like the mix between gross and net revenue here despite really on the gross side. I think the highest has been several quarters if not several years. Is that attributable to some of the new vendors? Or is there anything you can point to as we think about going forward, the split between gross and net revenue.

It's not an impact of the new vendors. It's really just the product mix of our existing vendors. And that can fluctuate from a given quarter, you're right, it is the highest this quarter of any quarter in recent time. But that's really driven by our existing vendors and what specific products we are selling to them.

Okay. Got you. And then the memory issue is wreaking havoc in the hardware world, in your realm in the software space, are you guys seeing a benefit as people prioritize some of their spending away from hardware with increased prices towards software? Is it too early to tell? What's your thoughts on that?

We did not see the impact, Keith. I mean some of the delays on potential people doing installs or if they're doing a hybrid cloud or going into a data center, we see some of that. But remember, 80% to 90% of ours are reoccurring revenue and renewal, so we just haven't seen that slow down. We haven't seen the seed licenses decrease like everybody got crazy in Q1 to talk about, I think, the adults are coming back and saying, "Hey, this is sophisticated software that people are selling where we've got 2 things going for us.

Number one, we have a strong renewal stream, and number two, we're 60-some percent in the cybersecurity world, which people are always going to protect their infrastructure first.

Got you. And maybe the last question for you. In terms of the targeted onetime investments that IT in the first quarter, what's your expected ROI on that? And I guess, are you satisfied with some of the progress you've made with those initiatives?

Yes. So our new CIO that's done on board to be coming up on a year in Q2. Just I wanted to point out, the first time I'd pointed out how many projects we have going because the list continues to grow. We went to our ERP over 1.5 years ago, and we've been streamlining it. But now we're using so many of the AI tools to just make our systems faster. And that is not only the ERP place of it, but all of the associated applications that we can use agents to do a lot of the work that we've had to do before manually.

So here's our goal that I have said, and that is we're throwing technology at it, so we don't have to increase headcount, as I mentioned in my remarks, and that is we need to be able to scale this business. our goal is to double it in the next 3 years but not double our head count because we would just be running on a treadmill at that point.

So that's -- our goal is using the technology, and it's out there to use we just keep putting the projects on the list to make it more efficient.

We'll move next to Vincent Colicchio with Barrington Research.

Yes, Dale, was the organic growth broad-based in the quarter across your -- and were there any lumpy deals that impacted the period.

Yes. It is our top 20 that happened. We had some fallover typically happens that from Q4, they come in, the deals didn't get closed on that side. But no, it was just a good quarter for us. when you look at just the vendor performances, we had some vendors that finished their fiscal year at the end of March. So there's going to be and some of our new members -- or new vendors that did that. But other than that, it's just across all of our vendors and decent performance.

And as gross billings momentum carried through April?

Yes. I mean we're closing in April. We don't want to talk too much about that. But Yes, we are not seeing a slowdown definitely in our workloads. So that's where our focus is right is how would it become more efficient with those workloads. But if you look at our adjusted gross billings, so the whole talk about AI, and it's going to take over this and it's going to take our receipts.

Here's my comment on that, and I've commented before on it. is that we're going to use AI more than we're going to sell it this year, including our vendors are going to use it more internally, to develop the products faster. That's the thing that gets talked about the most when we have all of our QBRs with our vendors. -- is how much faster they're being able to develop products.

AI does a great job with repetitive process, and that's how we're using it inside of con. But when it comes to sophisticated, somebody that's going to go and attack your network. We're seeing the tools that we're selling as important as ever, and we haven't seen that slow down.

And curious about VAST data. Does the pipeline remain substantial there?

Yes, it's still going to be lumpy with VAS, but it's still I mean if you look at best as a company, how much money they've raised, they only -- they appeal to the high-speed data pull for AI engines, and that's where they're claim to fame is, they're still on a good job. So you'll see throughout this year, some more lumpy deals that are coming in.

But it's just hard to predict because they're all based in back to Keith's comment about memory. They're going to be affected by that. Anybody that's going into data centers going to be affected by some of the chip stuff.

Is it -- are you able to give us some help in terms of when Interwork will provide meaningful cross-selling synergies -- or is that tough to talk about in terms of timing?

It's the cross-sell that we have, and this is our strategic plan when we acquire companies in various regions and the opportunities that typically start with vendors in the U.S. and move there. They have a big Microsoft practice, which goes right in line with our Microsoft practice in the U.K. And I mentioned that before that we meet the threshold to stay as a distributor.

We're working on becoming a frontier distributor, which is a new designator by Microsoft. We think that -- and here's the uniqueness about Interwork. They transact all of their business through a cloud platform, which we have a small portion of our business. So we want some of that DNA to come to our newly dedicated MSP team in the U.S. and then to the greater company in Europe as well that we can transact on a platform as we keep getting better and better with our systems.

So it's going to be going both ways. Then on -- from the Greek team to us on how they actually transact and from vendors to the great team that they're looking to add more vendors. So you'll see the cross-selling and really the onboarding of new vendors in Southern Europe with -- and as I mentioned, there Peter has taken that role and that was 1 of the reasons for it.

Move next to Howard Root with Fairhome Capital.

I want to follow up a little bit more on the SG&A line. So that -- if you look sequentially, I think it went up about $2 million and year-over-year, about a $3.5 million increase -- you kind of pointed out that Fortinet was about $500,000 of that. And then you called it primarily onetime investments.

Can you -- the other like $1.5 million sequentially. Can you kind of give us a little bit more detail on what that was and quantified. And then when you say 1 time, does that mean 1 quarter? Or is that going to continue into Q2 and for the rest of the year?

Yes. yes. So when we refer to that as onetime, I mean, specifically with the Fortinet relationship, that was a net cost of about $0.5 million to Climb as a company. We expect that to begin to turn to a positive contribution in the later part of 2026. And we start to see that in Q2 here and really see that ramp up in Q3 and beyond.

And like I said earlier, that was a different type of investment than our usual investment cycle. And then we had other onetime professional and legal type costs associated with the stock split and some other initiatives there. So like I mentioned in the prepared remarks, our -- if you exclude those items, our effective margin from Q1 of 2026 compared to Q1 of 2025, increased. And typically, Q1 is our lowest effective margin quarter of the fiscal year.

So even if you look back at 2025 that 32.5% or so, that continued to climb as the year progressed, and we expect no changes to that trajectory as we move forward here in 2026.

So just looking forward on Go ahead, Dale. -- sorry.

Yes, real quick, Howard. -- when Matt and I look at it as we're going through the quarter, we just have some mess, we say onetime things, but we had some legal stuff that we typically didn't have in the past for those quarters. So it was unfortunate, but a lot of those are onetime things as the quarter, as we pointed out.

If you look at the actual SG&A, I think it went from 3.5% to 3.7%. But yes, we got to get that in the other direction. And as you often point out, can we get to the and I talked about it now with some of our investors and of course, our Board how do we get our 5% to more of a 50-50 on our SG&A and our effective margin. So that is the goal that we have. And we do not see -- and our vision has not changed on that.

Okay. So the -- I wish you guys would start giving a little bit of guidance. But just looking at this line, generally, it's around a little $20 million, $20.5 million for the quarter. Do you see Q2 on a dollar basis being I've decreased from that, an increase from that are relatively the same?

Well, it all depends -- we'd have to go by percentages, Howard, because it all depends on our Q2 is going to be typically higher than Q1. We're going in with our education that's where all the buying starts happening and all the quoting starts happening. So -- and that's how our gross profit is affected by the commissions that we put out there. So I can't give you a hard number that way. But percentage-wise, we're going to see that drop.

Okay. So then you mentioned the 532, which we talked about before, I mean, 5% gross profit off of your gross billings, which is kind of the way to look at your business, I think, then 3% for SG&A, leaving 2% roughly for income from operations via depreciation as well. And you said that's still kind of your target, but is that a goal? Is that an expectation? Or is that just kind of -- what is that an.

Yes, our gold, Howard, and we -- and our executive meetings, we kicked off this year, including presenting to the Board is to get that to a 50-50. And this -- we had our sales kickoff both in the U.S. and overseas, and it's to get the 5 to 2.5%, 2.5%. I mean, we know where our competitors are. We know we can get there, but it's an efficiency play for us to get to split that 5% in half and drop that through.

So that is our hard target to get to. that we have set for ourselves as a management team.

And our expectation is that 532 doesn't change?

Okay. 532, but 2.5% would be what your real goal is here, not just to better than that.

That's where we have our site set is to take the $5 and just put it in half and half of it is going to our SG&A, the other Hasco dropping through.

Okay. All right. Then just bigger picture, and I don't want to get too nitty I mean, congrats on the revenue growth, you guys are still doing a great job. On the M&A environment, though, the Interwork, it was kind of 1 of these new things where it was kind of acquire or go out because of the Microsoft vendor that you talked about before and they had to get bigger or they just weren't going to have that card. Do you see that continuing in the environment? Or how do you see more generally the M&A environment in terms of the opportunities and the valuations today?

Yes. So the valuations are still stayed and this is targeting mostly in Europe, a little bit in the Middle East that we're looking at we'll prospect 2 years out into some territories. But yes, it was opportunistic that we did it with this company because we already had a relationship with them from the cloud platform piece of it. So yes, we're doing it that way.

But -- right now, there's still a lot of opportunities on my list, a lot that I've met with when I was -- Matt and I were over in Greece with the team. and did a stop by to talk to some other potential targets out there. So it's good -- it all depends, and everything is depends on what that company internally does -- are they reliant on 1 vendor, 1 territory.

There's some different factors that go into the valuation piece of it. From a where we acquired Douglas Stewart at 4.5% up to paying close to 8.5% for other companies, and it just depends on what their makeup is and where we see that we can effectively grow them and how quickly we can grow them is what we pay.

Great. All right. Congrats on the progress.

We move next to Bill Dezellem with Titan Capital.

After signing the Fortinet agreement, given the size of that organization, has that led to any follow-on effects with other large vendors that basically raise their eyes to what climb may be able to accomplish?

Thanks for the question, Bill. It actually has -- we've had this -- our talk track is we're going after emerging vendors. And if you look at our line card, and even our top vendors that we talk about solar wins and so forth have been great partners for us and continue to be that. But as far as looking at like a Tier 1 vendor like a Juniper, Fortinet, that are out there, we typically don't market toward that environment.

So when this 1 came up, it was not an immediate -- oh my gosh, this is going to be great. It's going to change Climb. -- for the better. I -- my first reaction to was, I don't want to change our culture where we become like a broad line distributor, right? Because I think there's so much value in what we do and what we take to market.

But to your point, after that happened, Charles Bass, which runs our alliances team, we've had some pretty large companies reach out to us say, "Hey, I didn't realize you guys did this. I didn't realize you win is wide in some of the markets that you do. And if you look at the North American market, you have the 3 large distributors, now all public with Ingram going public last year.

And then it's all the way down to where we see climb we're very small compared to these $50 billion, $60 billion companies. We don't want to be them, but we're having vendors that are coming to us and saying, "Hey, either we want to keep them honest or we want to do a targeted approach to a group of resellers that we think you touch much better than the broadliners do.

So -- the answer is yes. I won't give you names, of course, until we announce them. But yes, it's nice to have them coming to us instead of us going and trying to knock on every door.

So Dale, the implication then of what you just said is that there are other meaningful potentially needle-moving vendors that you are in discussions with now?

I'll leave it at that, yes.

And I'll try to not let you leave it at that. Would you anticipate that if these -- if any 1 of these come to fruition that it would happen this calendar year? Or are these discussions much more drawn out than that?

No, that would happen in this calendar year on the ones we're looking at. But I mean, it's just like -- we expected Fortinet to have a little faster start than we have. It always is you're putting energy and as we showed in Q1, we're putting resources and expenses into getting it going. But as I told my field sales team that I'm putting tons of pressure on, right, to launch this and getting into net new customers, and that's where we're really going after. -- is that is, hey, we're going to take advantage of this vendor line for the next 5, 10, 15 years, right?

Because I think we're just a better go-to-market play than our competitors. So that's why we're putting the energy in right now. I mean everybody has their day jobs to do, but we're pushing to our field teams to say, "Hey, this is important to us. It's going to drag along a lot of cross-sell opportunities.

If you take a look at Fortinet's technology partner page on their website, you'll see all the vendors that they work with. There's quite a few on the list. One number one, there are 7 or 8 that we already work with. So there's cross-selling and we do marketing programs together with them. But if you look at that list, it is big on the solar security side and associated platform side, even on the monitoring piece of it.

So yes, more new targets for us, but Yes, it's -- I see more and more of that coming our way.

And if you were to sign 1 more of them, the onetime investments that you've discussed here relative to Fortinet, would those scale to, let's just call them, vendor B -- or are these resources really dedicated to Fortinet and you would then have the same scaling that you would do for vendor B. Would you help us understand behind the scenes how that would work?

Yes. I'll give you an example that's real time. So when we acquired Douglas Stewart, Adobe was a big part of that relationship, and they had a separate team and that team being maintained separate until we put them to our ERP. Now the Adobe platform, the Adobe marketing, all that stuff is part of climb, right? We want a 1 climb approach to how we go to market. Same thing for net, it will eventually morph into our overall team and become part of the climb ecosystem.

But right now, we kept it separate so we can track it so we can show our progress. But every everybody -- we have 80 some sellers in North America. They're all selling for net products just like they're all selling Adobe. It wasn't that way to start with.

So it depends on the -- you're not going to like the sense, but it depends on the opportunity, right? If the vendor, if it already is in our same work stream like most of the vendors we sign are. It just goes right in. And as I mentioned in my remarks, we are pushing vendors that are not in our top 70 or that are drifting or don't have the investment to our Climb Elevate team, which is really a transactional team.

It doesn't get marketing, it doesn't get sales support, but just transactional. And I'm trying to continue to move vendors off so we can focus on our core. I would like -- we started 100 vendors, we're down to 70 in our core. I would like that number to go down to 50 because -- if you look at our top 20, they represent 90-some percent of our business, we want to keep doing that focus, and that's what our vendors want on the top side, and that's what our customers expect to be able to deliver the message.

How many sales -- I mean how many vendors can a sales rep really represent, so we want to limit that. So we're really extension of the vendor sales force.

Great. Thank you for the additional perspective.

Thanks, Bill.

And there are no further questions at this time. I would now like to hand back to Dale Foster for any additional or closing remarks.

Thank you, operator. Again, thanks to the entire client team. Hard work this year. A lot of things going on, a lot of moving parts Also, I want to welcome the team members from our new acquired Greek team in both Semanie and Afton. Matt and I had a chance to go over and spend time with them. And it was just a doubling down on the culture that we produce that we have at Climb.

It's the same thing that same strand goes right through our team in Greece and just a great time. So they fit with not only our go-to-market, but they have the same type of values that we have as far as taking care of our customers and our vendors.

Last thing I want to mention is we will be doing an Investor Day on July 7 in New York City. And for our shareholders, we'll be sending out invoice for that I'd love to see you in New York. Thank you,operator.

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

Good morning, everyone, and thank you for participating in today's conference call to discuss Climb Global Solutions' financial results for the fourth quarter and full year ended December 31, 2025.

Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Matthew Sullivan; and the company's Investor Relations adviser, Mr. Sean Mansouri with Elevate IR. By now, everyone should have access to the fourth quarter and full year 2025 earnings press release, which was issued yesterday afternoon and approximately 4:05 p.m. Eastern Time. The release is available in the Investor Relations section of Climb Global Solutions' website at www.climbglobalsolutions.com. This call will also be available for webcast replay on the company's website. [Operator Instructions]

I'd now like to turn the call over to Mr. Mansouri for introductory comments.

Thank you. Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements.

Our presentation also includes certain 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. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures, in accordance with SEC rules.

I'd now like to turn the call over to Climb's CEO, Dale Foster.

Thank you, Sean, and good morning, everyone. 2025 was another exceptional year for Climb as we generated record results across all key financial metrics. These achievements reflect the continued execution of our teams that are driving organic growth by strengthening relationships with existing vendors and customers, selectively adding innovative technologies to our line card and while driving and delivering operational efficiencies throughout our business.

In the fourth quarter alone, we evaluated nearly 100 potential vendor relationships and signed agreements with only 2 of them. Notably, in December, we launched our partnership with Fortinet, a global leader in cyber security and securing secured network solutions serving enterprises. They also serve service providers, government customers worldwide. Fortinet is quickly becoming a primary onboarding focus, and we expect to ramp them up quickly and will become a meaningful contributor to both their business and client business. We look forward to building a long-term mutual beneficial relationship with Fortinet and their channel while delivering incremental value to our reseller network.

While we focused most of our efforts in Q4 on onboarding Fortinet, there were other positive achievements from the alliance perspective. The fourth quarter of 2025 was only the second full quarter since we kicked off our relationship with Darktrace. As a reminder, Darktrace is a cybersecurity company that uses self-learning AI to detect, investigate and respond to cyber threats in real time across the entire organization's digital infrastructure. In Q4, Climb had 70 partners transact over $13 million in Darktrace product offerings with significantly more quoted pipeline ahead of us. We continue to work closely with the Darktrace team to expand partner enablement and drive broader adoption across our channel, positioning the relationship for sustained long-term growth.

In addition to strengthening our vendor portfolio, earlier this week, we announced the acquisition of interworks.cloud, a Greece-based specialist cloud distributor serving the Southeastern Europe reseller market, including Greece, Malta, Cyprus and Bulgaria and more. Interworks brings an established regional platform with over 600 cloud resellers and managed service providers, along with a curated vendor portfolio that includes [ Cronos ], Google Workspace, AnyDesk, Blackwall, and most notably, Microsoft. I've had the pleasure of working alongside the Interworks team for nearly a decade now. And over that time, we've developed a strong alignment in our culture, strategy and partner focus. They bring an experienced management team, a well-established Microsoft CSP business and a multi-country footprint and deep expertise in cloud marketplace and MSP-focused distribution. Together, these capabilities enhance our ability to drive cross-sell opportunities, deepen our engagement with our vendors and reseller partners and further position Climb as a distributor of choice across the Southeastern Europe region.

A critical component of this transaction is that we are bringing the full Interworks organization into Climb, and this team will become part of our overall EMEA go-to-market structure. Maintaining this the strength of their local leadership and partner relationships was a priority for us, and we believe continuity at the operational level will be essential and sustaining momentum in the region. At the same time, by integrating Interworks into our broader infrastructure, we can provide additional resources, scale, strategic investment to accelerate their growth. We expect the transaction to be immediately accretive to our earnings and adjusted EBITDA and look forward to the unlocking synergies and cross-selling opportunities as we integrate Interworks into our global platform in the coming months.

Looking ahead, we remain focused on accelerating organic growth. And at the same time, we have our internal development team building generative AI solutions to make our entire team more efficient. We will also continue to pursue accretive M&A opportunities that can strengthen our vendor portfolio and expand our geographic footprint. We believe these initiatives, coupled with our disciplined execution and strong balance sheet, will enable us to deliver on our organic and inorganic growth objectives in 2026.

With that, I will turn the call over to our CFO, Matt Sullivan, and he will take you through the financial results. Matt?

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

As reported in our earnings press release, gross billings increased 3% to $625.4 million compared to $605 million in the year ago quarter. Distribution segment gross billings increased 4% to $602.3 million, and Solutions segment gross billings remained flat at $23.1 million. Net sales in the fourth quarter of 2025 increased 20% to $193.8 million compared to $161.8 million, which primarily reflects organic growth from new and existing vendors. As we've mentioned in the past, the calculation of net sales is influenced by product mix and the respective adjustment to convert gross billings to net sales for financial reporting purposes under U.S. GAAP. In the fourth quarter, we had an increase in sales of products that were recognized on a gross basis and therefore, leads to a smaller adjustment from gross billings to net sales.

Gross profit in the fourth quarter was $29.8 million compared to $31.2 million. The decrease was primarily driven by a large vendor transaction in the year-ago period that carried a higher-than-average margin profile. Selling, general and administrative expenses in the fourth quarter of 2025 were $18.2 million compared to $17.1 million in the year-ago period. SG&A as a percentage of gross billings was 2.9% for the fourth quarter of 2025 compared to 2.8% in the year-ago period.

Net income in the fourth quarter of 2025 remained flat at $7 million or $1.52 per diluted share compared to the prior year period. Adjusted net income was $7 million or $1.53 per diluted share compared to $10.3 million or $2.26 per diluted share for the year-ago period. Adjusted EBITDA in the fourth quarter of 2025 was $13 million compared to $16.1 million for the same period in 2024. The decrease was primarily driven by a large vendor transaction in the year-ago period that carried a higher flow-through to adjusted EBITDA as sales compensation expense related to this transaction was paid through a contingent earn-out. And that was included in the change in fair value of acquisition contingent consideration add back with an adjusted EBITDA in the year-ago period. Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit, was 43.6% compared to 51.5% for the same period in 2024.

Turning to our balance sheet. Cash and cash equivalents were $36.6 million as of December 31, 2025 compared to $29.8 million on December 31, 2024, while working capital increased by $27.7 million during this period. The increase was primarily attributed to the timing of receivable collections and payables. As of December 31, we had $200,000 of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility.

Consistent with our capital allocation priorities, the Board has determined to suspend our quarterly cash dividend beginning in the first quarter of 2026. This decision allows us to retain additional capital to support organic growth initiatives and strategic acquisitions while further strengthening our financial flexibility. Based on the company's strong return on equity, the company plans to reinvest the capital for higher growth initiatives.

Looking ahead, our strong liquidity position provides us with the flexibility to pursue both organic and inorganic growth opportunities while expanding our relationships with vendors and customers worldwide. We will continue to be active on the M&A front as we evaluate accretive targets that can strengthen our vendor profile and expand our geographic footprint. With a disciplined approach to expansion and a continued focus on execution, we believe we are well positioned to deliver another year of growth and enhance profitability in 2026.

Dale, back to you.

Thanks, Matt. And before we open this up for questions, I'd like to address a couple of points on -- some of them have just come up over the last couple of days when -- everybody has seen some of the AI disruption in the market. First, on the dividend, a thoughtful decision made by our Board, and one that I fully support. As we evaluate the opportunities in front of us, we believe the best way to drive long-term shareholder value at this stage is through disciplined capital allocation and strategic reinvestments in the business. We operate in an ecosystem where many of our customers and vendors are backed by private equity firms, which has provided us kind of a unique perspective on how successful operators deploy capital and accelerate growth and also enhance the returns with our portfolio of companies.

We intend to take a similar tactic at Climb. And [ kindly ], we've already begun to do so in the way of our now 6 acquisitions in the last 6 years with the addition of interworks.cloud. With a strong balance sheet and liquidity position, our priority is to allocate capital toward initiatives that improve operational efficiency and strengthen our competitive position. That includes continuing to streamline processes, leveraging AI and automation tools where appropriate, utilizing prudent leverage when it enhances our returns and pursuing strategic acquisitions in our ecosystem that align with our go-to-market strategy. And we believe all this will create long-term shareholder value for our shareholders.

The second point, which is over the last couple of days on the AI disruption, these are the disruption of AI engines and large language models or LLMs that have come into our market. And more specific, they're going to interface with or take out SaaS vendors we currently are carrying or prospecting. So I've been around a long time in this business and remember a similar talk track around the cloud. I had to do a look up. But AWS announced in 2006 that cloud was open for business. That was 20 years ago. And just 20 years later, it was just last year that cloud workloads that were workloads in storage in the cloud just passed the 50% threshold versus on-prem or private clouds or private on-prem environments.

So the real world environment today for cloud is really a hybrid one. Do I believe -- [ or yes ], that AI will move much faster than 20 years is an adoption rate? For sure, that's going to happen. But we still believe it's going to be more of a hybrid environment, just like cloud is. I think it's 98% hybrid right now. So the AI environment will be a hybrid one. While we are very small and we're a very nimble company in our market, we are still connecting technology builders with users. We can pivot quickly, as we have done over the last 8 years. As the market moves, we will move and move at that same speed.

And whether we have a stand-alone AI systems, AI agents, hybrid SaaS that's out there or platform of service we will be selling emerging technology products that solve real-world problems. And regardless of the computing environment, we believe we will have a place as that connector of technology.

And this concludes our remarks, and we'll take it to the operator for questions.

[Operator Instructions] And we'll take our first question from [ Keith Housman ] with [ North Coast ] Research.

Congratulations on the acquisition here. just looking at that large acquisition that happened in the prior year, can you guys just give any scope in terms of how big that was in terms of we want to kind of think about what the year-over-year performance was without that? Any way to kind of scale it out?

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

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

Correct. Yes.

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

Yes, I'll take it quickly. So we still had input from Citrix, and we still have it through 2029 at some residual stuff because of the nature of some of the agreements that go out with our customers, that's the year-over-year recurring. But -- so we had an impact, not as impactful in Q1 of 2025. But then the rest of the year, we looked at as a $50 million to $60 million hole.

And if you -- I was at our SKO at over in the U.K., and our team still with that big hole grew at 3%. So they made that entire $60 million up in the last 3 quarters, which is a testament to number one, picking up new vendors. They picked up vendors that we have on the U.S. side. And like I said, and we've continued to say that we're signing global contracts now. So it's the choice of the sales teams in their regions on what they want to sell, and some of them are pushed on them. Other ones are that they're prospecting on their own. So the team did an incredible job.

I mean, we kept -- and like I'd love to say, Keith, is that where salespeople will take the next product and take it out to market. And they filled that pretty quickly and expanded some relationships with vendors that actually compete with Citrix, and we took some of that over back that we lost.

Great. Impressive. Appreciate that. Turning over to the Interworks acquisition here. The 86% growth in EBITDA year-over-year

[Audio Gap]

how should -- is that roughly $1 million in EBITDA a good starting point for those guys?

Yes. That's a good starting point for them. But if -- there's a couple of things that we didn't get into detail on the call, but -- so Microsoft came up and said, "Hey, we're going to consolidate our distribution worldwide," and they set a threshold. So there was a lot of scrambling over the last 14 months that said if they don't meet the structural deal, lose your distribution agreement with Microsoft. And both us and interworks.cloud were in the same position on our Climb side.

And we want to keep that relationship because we believe Microsoft is a Tier 1 but it's also where people want to go. And so there's 2 reasons. Number one, we were -- to combine as a company, we get to that $30 million threshold of Microsoft. Number two, we are moving into a cloud environment, and we've talked about it for a while, and I'm going to have our CPC event with all of our top customers and vendors next week.

But I'm going to have a slide just on our failures. And 1 of the failures we've had is we haven't been able to get to our 2.0 of expedition of our cloud marketplace or platform. Well, Interworks is already there. They're transacting in a very eloquent way with our customers, almost like a self-service. And they do a lot with MSPs, hybrid VARs that we do this as well, but not as quickly as they do.

So it's going to be a learning curve in the DNA transfer between the 2 companies. Their parent company that we acquired them from is called [ Infotera ], which is the platform that we both use and actually all of our locations use that platform. So we see more and more of our vendors going on to the platform and marketplace. And the Greek team will help us and educate our teams on the U.S. side and the Europe side.

Great. I appreciate that. And then I guess, final question for me before I turn it over. The working capital increase and the timing of collections, has that already been worked through? Or how should we think about that going forward?

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

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

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

So thanks, Vince, good to talk to you. So no lumpy deals in the quarter like we had before 2024 in Q4, but it was across our vendors. The ones I talked about, Darktrace continues to rise up. We talk about our top 2 vendors, Sophos and SolarWinds. SolarWinds, I think we talked about in the last release, acquired by [ Turn Capital ] or Turn/River. And -- so there was some disruption as they went through their pricing model changes, but we actually finished really strong with SolarWinds as they've gotten through some of their pricing structure and their go-to-market. But other than that, it's -- the top 20 make the biggest impact, and it's been very stable.

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

You're always going to see Q4, and it's always been this way with us is always our biggest quarter because people going back to -- we have a reoccurring revenue with our annual subscription. So Q4 has always been large, so it will continue to be large because that's when the renewals come up.

We do -- the Douglas Stewart acquisition, and you'll see a rebranding kick off next week for all the Climb stuff on the slide and education side. But they typically have a down quarter in Q1 that we experienced last year because it's just flattened and all the buying picks up for that. But other than that, it's pretty cyclical like it has been for the last 5, 6 years.

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

We have. So Vishal, our new CIO, has been on board now for 7, 8 months. He is the most popular person in our company because everybody is looking to him to solve efficiency issues, right? And we've -- he is front and center on our sales kickoff. So we have a tech guy kicking off, and people are asking. And it becomes quite the entertainment, having our CIO be the center of extension, which is great because we're just solving so many internal things that we need to work on.

We went live with our ERP almost 2 years ago. And now it's how to make that more efficient, what AI tools. And if you look at Vishal's background, right, so you came from WWT, which is a $30 billion reseller, 1 of our customers, 1 we have great relationships with. But he's already gone through a lot of this because of the -- they have the dollars to really spend on this and adopt it early. So he's really running kind of the same plan that he had at WWT. So he sees what needs to be done, and it's how fast we can implement it.

So we've done a couple of things. We have a bigger implementation and development team inside of Climb. We have outsourced some of the smaller connector products -- projects that we have, whether it's EDI or XML or API. So everything is moving faster. And he's identified so many different efficiencies because we still -- and what I'd like to say is we're the fastest of the turtles. So if you look at distribution has been done what we've been doing for 30 years. What we're doing is moving a license key from a vendor all the way to a user. And our goal is to do that much faster, but we're still doing things that we did 15, 20 years ago. So Vishal's saying, hey, we can do this much quicker and without the expense of the labor that we have right now.

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

So our teams -- because we have the Microsoft distribution agreement already and Microsoft is well aware of ahead of time with confidentiality of the agreement, we have it for all the EU countries. So we are going to -- if you take a look at it, just from just a mental geographic look, here, we have the U.K. and Ireland that we're very strong in. And now we have Southeastern -- or Southwestern Europe, Southeastern Europe. And between those 2, we have 20 countries in between there that we're going to attack with that Microsoft agreement and then all of the cottage industry products that go with that.

So Interworks, #1, will be onboarding vendors that they see as a great fit that we have because we have a big robust portfolio of vendors compared to them. And then on their side, they already have in the cloud on the marketplace vendors that are transacting that we will take advantage of. So you'll see those integrate very quickly. And the fact that we're already using the same platform, it's really getting those 2 interconnected so that the teams see pretty seamless and so to our customers.

Last question for me. In your conversations with resellers, what is the pulse in the market in terms of the health of the market versus the prior quarter?

Yes. I would be better to answer that next week as we have an open session with our resellers. But as far as -- and I'll take this from the vendor standpoint first, and that is, Vince, there are so many vendors coming at us, right? We have to say no, we have to say no. Because it's that many, and we have to keep moving our threshold up as far as what can we do in the first 18 months. It used to be $2 million or $3 million. Now, is it $15 million that we can do in the first 18 months before we can find them. What is the real go to market? Does it fit ours? So we're just asking a lot more questions because we know when Charles, our Chief Alliance Officer, says yes, that's when all the man-hours kick in for us. So we want to make sure that we have a good base to start with before we say yes to that vendor to onboard them.

On the reseller side, we haven't seen a slowdown. We've seen some consolidation between companies buying each other up, which is a natural occurrence for us. But for us, we're typically transacting with both parties anyway. So it's just a timing thing.

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

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

Yes. So Bill, thanks. So the -- take a look at Fortinet there on the NASDAQ, right? A great company. We -- the relationship started from the top. It usually starts in the middle and then moves up. But this one started at the top with the C-levels. They have some of the bigger distributors that are out there. They have 2 of the largest distributors in the world.

So why did they need Climb? It's really for what we do for companies that are just getting into the market, and that is to fill in a lot of the gaps and being that high-touch distributor that's going into a wider market than just Tier 1 or Fortune 500 companies. So if you look at what their overall sales -- and I think they break them down -- it's about a $2.5 billion addressable market in the U.S. that they're already selling into.

And who are they competing is, right? If you look up the stack, they're competing with Palo Alto, Juniper and Cisco. That's the 3 big above them. They're considered #4. And then below them, we carry some of the lines below them, but they said, wait a second, we have a targeted distributor. They have field sellers. And I think this would be the most important thing to take away, and that is when we're talking to their executives, they said wait a second. You mean we can fly into a region because we have regional sales people. And we can -- and your sales reps will take us into 3 new resellers that we've never met before. I'm like, that's what they do every day with vendors. They don't get that from Tier 1 or the top distributors because they can't take them in there when they're selling Cisco, Juniper and Palo Alto and those customers because they're like, hey, we're displacing 1 of our other vendors.

We don't have that issue at all. We don't have a really cross-competing product with Fortinet. We have a bunch of smaller ones, but nothing that goes as wide as Fortinet goes. And if you look at what they do, I mean, Fortinet goes all the way from firewall to cameras, right? I mean, they are such engineering-type company, so it's a good fit for us. And the acceptance -- so look at $2.5 billion, 10% of that is something that we're going after in the next 18 months, and we think we can get there. And I think Fortinet will be our top 3 vendor this time next year.

So Dale, if I do that math, 10% of $2.5 billion, are you saying that you're thinking that this could lead to $250 million of gross billings for you in, I guess, it would be '27 if we look out a year from now?

Yes, I think so. I think it's 18 months that we'll get on that run rate for them. It's a relationship the Fortinet team, the first thing that really happens -- and when I say this magic happens, it's when our field sellers get with their field sellers and go into new accounts and give the value pitch. It only takes a couple times to do that. And then our teams take it from them, and they don't have to do a 4-legged call. It's them delivering the Fortinet pitch as they get familiar with it. So we're getting closer and closer to them. They've been just a great partner [ audit ]. They feel like a small company touch to us, which is refreshing.

That's helpful. And then -- and congratulations, by the way. It's a great win. Actually, let me take that one step further. Do you see other companies that are in a similar situation, where all of a sudden, someone in their C-suite is saying the same thing that you heard from the Fortinet leaders?

I feel like you're reading my email, but yes, we were getting many inbounds from companies that are much, much larger. And I mean, I'll bring up Crowdstrike. We talked to them about 2 years ago. We were in a competitive with some of the other distributors. They decided to go in a different direction based on some of the -- just some of the support that some of these other [ sites ] would give them or potentially say that they would give them.

But if I go back 6 years, Bill, we were out there signing companies that would fog and mirror and just go after them because we needed to have more products for our sales teams to sell. Now the focus is curating the ones and the relationships that we currently have or almost ready to sign to make sure that they're really the right ones for us. But yes, we're getting larger companies and larger at bats with them without having to prospect them, for sure. There's some multi -- in the $500 million, $600 million range companies we're talking to on a regular basis.

And a lot of times, we say no because we're -- they're not ready for us or we're not ready for them. It could be a connection through systems that we don't think that we can -- we'll burn more cycles than it's worth. But we are getting a lot of those bets. And the other thing is we say we have a limited line card, but it keeps sneaking up on us, and then we push our vendors over to Climb Elevate just to transact. And I want to continue to limit our line card. We say it's 70. I want it to be 50, but really, it's 100 right now because we haven't pushed them over to our Climb Elevate where we'll still transact, but we -- it just burn cycles, and we want to focus our sales and marketing and service cycles on our top 50.

And a couple of more questions. Let me shift to Citrix. The implication then of the way that, that change took place last year is that the comparison that you all are going to have in Q2, Q3 and Q4 of this year could lead to very strong comps given that you last year simply had to fill in that hole, and now you're going to be building off of that. Is that the right way to think about that?

It is. I guess it feels like it's already been done with us, Bill, because we've been there, done there, forgot about it, right? We have already filled it in with other vendors. We know what our run rates are. And that's the nice thing about this recurring revenue model as we know that 80% to 90% of what we sold last year as long as we're doing a good job and the vendor is still producing a good product and good updates, that we're going to get that renewal. I mean, the goal is to have the renewal rate over 100%, which means they're picking up more licenses and seats going forward.

But yes, we don't -- we really haven't thought about it that way. We look at just what our run rate is. What is our piece with Citrix, we've already forgot about that. It's been in the news quite a bit, just on the different taxes Citrix has made. Their last one was kind of funny that they said that they are truly a channel company, even though they cut a big chunk of the channel a lot a year ago, I think they thought people forgot about it. But we've replaced it. We have 2 or 3 different lines. We're getting ready to sign a line that goes back to our Citrix customers. We were replacing it with some of the Microsoft business, which is a competitor of Citrix. And same thing with [ Parallels ], which is another 1 of our vendors that we replaced that hole with.

Great. And then one final question, please. I think that yesterday, VAST and [ Super Micro ] signed or announced the deal. What are the implications, if any, for that with you?

Yes. And so the VAST Data, they have their user conference. We have people there in Salt Lake this week of our team members, both from the European side, which is a bigger number and then from the U.S. side. And I think it's a good thing. I assume they used the conference to announce that. But if you -- I think it's only good, right? VAST says they're a software company, but there's still -- it's a big piece of hardware that goes in its distributors or it's the OEMs like the [ Super Micro ] and we have a relationship with [ Super Micro ] we've had for the last 10 years. .

It's a good thing because right now, a lot of their bills were being done by a company called [ Telrad ] that Arrow bought. So that's the build. So what does it do? It just makes it faster because right now, VAST is dependent on this hardware GPUs, who has the GPUs, who have the metal to put their software on top of to run. So I think it will actually speed up the extra delivery cycle of all these big AI engines that need fast data storage because that's what that VAST does. I mean, they are -- it's about how fast they can deliver data up to an AI engine. So I think it's only a good thing. And [ Super Micro ] has some of the best products out there. I mean, that's how most of the -- if everybody remembers the HCI, the compute space with [ Nutanix ] and [ Rubrik ], that was all based on [ Super Micro ] for the longest time. So it's just a good alternative to what they currently had. So it's the #2, and I think it will be good.

We'll take our next question from [ Howard Root ], who is a private investor.

Sorry about that. Yes. Yes. Congratulations on a nice conclusion to the year. I'll try to be brief. I got 2 questions. One on M&A. It looks like the Interworks was kind of right within the middle of your playbook. It's a territory expansion. You've got synergies, you knew them very well. And then it's a 9.4x adjusted EBITDA. Is that -- how do you see that fitting in? Is that the way to look at it? Is that a little expensive? What do you see is the market out there for acquisitions going forward? Has it come down based on market turmoil? Or where are you right now?

So Bill -- I'm sorry, Bill. Sorry, Howard. So Howard, here's how we kind of think about it, and we go back to our early days of acquisitions, when we were trading in that 7 to 9 range, and that's kind of where we look to start. And it depends on 4 or 5 different things. And with these guys, number one, we knew them for a long time. We know their parent company very well. So is the comfort factor that way, plus the Microsoft piece of it as far as we want here, like why do you need relining Microsoft? And it's still just a great cornerstone to have in your platform marketplace and in your company because you can add some of your products around that to support it.

But the other piece of it is what is their margin profile? And their margin profile compared to us is double what we have in the U.S. So will we pay a little bit more than that -- and I don't know why. I was to say, hey, we're going to start at 8 and then what are the positives and negatives? If you look back to the DSS transaction, why was that a less multiple? Real simple. I mean, they were all focused on Adobe. So if you lose Adobe, there's just more risk involved in that. So that's how that negotiation happened.

On this side, their margins are higher. They're in a territory that we are not in and not have been selling into. And the nice thing about it, they're in a territory that's not that competitive that is starving for new vendors to get into. So that's how the negotiations went to get to that. But I'm still looking in that same range we start today, and we'll go up or down from there.

So just kind of looking on that and following up on that. To me, the only reason to eliminate the dividend is really to grow a pile to do bigger acquisitions. This is relatively smaller compared to, like, Douglas Stewart was bigger, and that was 18 months ago. I kind of look at -- is that a slow pace for you over these 18 months? I mean, it seems that you want to do at least 1 or 2 a year. And then is that the way you look at the dividend? Because to cut the dividend to spend money internally, where you're generating plenty of cash for your internal projects, it has to be using that cash. And we hate to see it pile up in treasury, but really to apply to buy synergistic targets, and you must be seeing plenty of them out there and maybe larger than this Interworks deal.

Without giving you specifics, Howard, you're spot on. Spot on. There's a lot of deals coming at us. We are going to use the capital. I mean, we talked that we are a very CapEx play and we are going to accelerate our acquisition interfaces. I have -- if you look at my travel, I've been in Western Europe more than I have been before because there's that many targets, there's that many ones coming at us. It's the roll-up that we have talked about that happened in the U.S. from 2006 to 2017 is happening in Europe, and we want to be part of it.

Here's the good thing for Climb. You have these 3 massive distributors we talk about all the time. They're $50 billion plus. The targets that we're looking at are so insignificant for them unless they were a real strategic reason. We're not competing with them. We're competing with other strategics that are similar in size. There's only 2 or 3 of them over there or they're doing a roll up between the 2 companies to get larger -- to make more of a significant impact or could be a regional expansion.

So right now, I can't tell you how many I've talked to, but how many that we're in discussions with is a lot more than a handful. So yes, the dividend will be going toward the M&A side of things that we think like we always say, is it going to be accretive to us? Is it going to be an expansion? Is it going to be a vendor acquisition that we can't get or it's going to take too long to get that vendor signed that we think we can take to other regions. But it's all those things lined up, it has not changed since we started this.

And the pace of acquisitions, you'd expect to do 1 or 2 in 2026?

I'm -- yes.

Okay. All right. Well, I don't want to make you uncomfortable answering stuff on that. But it just seems that we had 18 months since the last one, and that was not because of lack of effort, but just -- it didn't come together. And maybe now this is the breaking, and you get 3 here in the next year instead of 0.

Second question for me on profitability. And here, congratulations. You had a really tough comparable in Q4 and having to deal with that. So I'll kind of ignore that a little bit because of the large vendor transaction you had that affected billings and your gross profit. But if you look at it over a year, your gross billings were up 18%. Your gross profit was up a little bit less than that. Your margin on gross billings was -- slipped below 5% in your SG&A because of the Douglas Stewart, kind of up 20%. So your income from operations only went up about 4% for the year. And quarterly, your leverage is kind of slipping a little bit.

And where -- can you give us a quick -- how that happened and where you see that go from here? And does the Fortinet and Darktrace additions change your profile? And it looks like Interworks kind of helps you a little bit on that financial profile as well. But do you see that reverting back up or your gross profit on gross billings is above 5% and your SG&A rises less than your increase in gross billings in the year?

So we're holding -- and just look at that 5% range, and we slipped in a quarter. There are some other things in the background that have been happening that I won't get into some of that stuff. But I can tell you that the focus is -- and I wish I could share some of the slides that I shared with our Board. But it's showing how much manual stuff that we deal with in the company. And like I said on the earnings call, we're doing the same thing that we did 30 years ago in distribution.

And Vishal is helping us change that mindset. The first thing when the Board agreed to go into a new ERP system was the first prime mover to get more efficient. The second one is taking that ERP system and the associated applications with connectors and taking just a lot of cost out of the business, right? We are touching way too many, and I'll just give you some insight baseball. We do 12 quotes and perform 12 quotes for about every order that we get. The first move we had about 4 years ago was when we moved our average sale price per order up from $200 to $1,500. So we're doing the same work. We're just seeing the quote size is 7x bigger. So that's number one.

It's the efficiency that we think that we can get out of our systems to keep the same labor force that we have today and be 1.5x the size. And that is the real goal. And back to your -- Howard, that you love to point out, that [ 532 ]. And this is what I talked about, our SKOs, both in the U.S. and Europe and then say, how can I move my 3 to 2.5 and my 2 to 2.5, right, so that I can split the profit and the cost of the SG&A to a 50-50, which I think is our goal and has been our goal for the last couple of years.

But it is going to be about efficiencies. Of course, AI is heavy into our company right now doing that. But we look at it as a generative AI, which it just makes everybody more efficient so we can expand and do more with our top vendors.

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

Thank you to our shareholders, Board and all the Climb team members. And I just want to welcome our new Greek team on board. We had our first kickoff and town hall yesterday with the team. I look forward to everybody meeting each other like I have over the last couple of years. And with that, we'll conclude the call. Thank you.

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

Good morning, everyone, and thank you for participating in today's conference call to discuss Climb Global Solutions' financial results for the third quarter ended September 30, 2025.

Joining us today are Climb's CEO, Mr. Dale Foster, CFO; Mr. Matthew Sullivan; Chief Alliances Officer, Mr. Charles Bass; and Investor Relations adviser, Mr. Sean Mansouri with Elevate IR.

By now, everyone should have access to the third quarter 2025 earnings press release, which was issued yesterday afternoon at approximately 4:05 p.m. Eastern Time. The release is available in the Investor Relations section of Climb Global Solutions website at www.climbglobalsolutions.com. This call will also be available for webcast replay on the company's website. Following management remarks, we will open the call for your questions.

I would now like to turn the call over to Mr. Mansouri for introductory comments.

Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements.

Our presentation also includes certain key operational metrics and non-GAAP financial measures, including gross billings, adjusted EBITDA, adjusted net income and EPS and effective margin as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts and other important information in the earnings press release and Form 8-K we furnished to the SEC yesterday.

I'll now turn the call over to Climb's CEO, Dale Foster.

Thanks, Sean, and good morning, everyone. In Q3, we generated double-digit organic growth and continued to benefit from our acquisition of Douglas Stewart Software, which we acquired in July of last year. We continue to deepen our partnerships with existing vendors while signing new cutting-edge partners to our Line Card. Our team consistently delivers solid results, maintains operational discipline and continues driving growth even with the challenging comparables from last year.

Before diving into Q3 operational updates, I'd like to quickly pass the call over to our Chief Alliance Officer, Charles Bass, to take you through our vendor selection highlights for the quarter. Charles?

Thanks, Dale, and good morning, everyone. So throughout the third quarter, we evaluated more than 70 potential vendor partners and entered into agreements with only 4. This reflects our ongoing selective approach to vendor expansion, which prioritizes innovation, market differentiation and long-term alignment with our strategic objectives. Each potential partner undergoes a comprehensive vetting process that assesses product differentiation, market demand and integration potential within our go-to-market strategy. So our approach ensures that we continue to deliver cutting-edge solutions to our customers while maintaining the quality standards that have continued to drive sustainable growth and value creation across our business.

What I'd like to do is quickly highlight 2 cases -- 2 of these wins and how they position us for future success. So first, we launched a partnership with Liongard, they're a Houston, Texas-based company, providing advanced attack surface management and intelligent automation for managed service providers or MSPs. Liongard's platform delivers deep visibility across every asset in an MSP's environment, offering real-time intelligence and continuous change detection to proactively identify risk and maintain compliance. The addition enhances our ability to support MSP partners with tools that deliver really unmatched operational insight and control across increasingly complex IT ecosystems. So while the majority of our customers still consider themselves traditional VARs, more and more of our customers consider themselves service providers over time. So Liongard is exactly the type of product that they need to be successful and position us well for the future.

We also partnered with another Texas-based company called Halcyon, they're based in Austin, Texas. And they specialize in anti-ransomware and cyber resilience. Halcyon's product is designed to prevent, detect and neutralize ransomware threats, helping organizations eliminate the business impact of these attacks. Halcyon represents a strategic addition to our cybersecurity portfolio, enhancing our capability to deliver comprehensive protection and resilience for customers facing increasingly sophisticated cyber threats. In fact, Halcyon is already teamed with one of our largest and best manufacturer partners, Sophos, to enhance their security offerings by co-selling alongside them. So Halcyon can be sold as a stand-alone product, obviously, but also co-sold with several of our existing partners making them an ideal partner for Climb's future.

So with that, Dale, I'll push it back to you.

Thanks, Charles. I'd also like to highlight our operations overseas. Our European team continues to demonstrate strong execution as we expand our capabilities in one of the market's fastest-growing areas, which is artificial intelligence. AI has become a top priority for both our customers and partners, yet many are still defining practical strategies and identifying the right manufacturers to align with. To help bridge this gap, our team led by Martin Bichler launched Climb AI Academy in the DACH region earlier this year.

The Climb AI Academy was designed to equip our infrastructure partners with the tools and expertise to effectively position themselves in the AI space, while guiding AI consultants through a complexity of this rapid evolving market -- rapidly evolving market. The program offers manufacturer-neutral training, clear AI readiness guidelines and structured curriculum that spans the foundational -- from foundational to expert levels, ensuring every participant receives tailored applicable knowledge.

In addition to the AI Academy, it provides internationally recognized ISO and IEC certifications, such as Certified AI Manager course delivered by trainers with extensive real world experience. This hands-on approach enables our partners to better translate theory into practice, ultimately helping them deliver more impactful AI-driven solutions to their customers. With more than 700 participants to date and highly positive feedback, our initiative is proving to be a powerful differentiator in helping partners navigate and succeed in accelerating AI market.

Looking ahead, we'll continue to work through a healthy pipeline of strategic acquisition opportunities to enhance our offerings and expand our presence in Western Europe. We are seeing increasing interest in the European markets and believe our growing reputation as a trusted high-touch distribution partner positions us well to capture emerging opportunities across the region. These initiatives, coupled with other -- with our robust balance sheet and demonstrated track record of accretive M&A will enable us to close out 2025 strong and deliver another year of record results.

With that, I'm going to turn the call over to our CFO, Matt Sullivan, and he'll take you through the financial results. Matt?

Thank you, Dale, and good morning, everyone. A quick reminder as we review our third quarter financial results, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified.

As reported in our earnings press release, gross billings in Q3 2025 increased 8% to $504.6 million, compared to $465.2 million a year ago quarter. Distribution segment gross billings increased 9% to $481.9 million and Solutions segment gross billings decreased 5% to $22.7 million. Net sales in the third quarter of 2025 increased 35% to $161.3 million compared to $119.3 million, which primarily reflects double-digit organic growth from new and existing vendors as well as contribution from our acquisition of DSS in July of last year.

Gross profit in the third quarter increased 6% to $25.7 million, compared to $24.3 million. Again, the increase was driven by organic growth from new and existing vendors in both North America and Europe as well as contribution from DSS. Gross profit as a percentage of gross billings was 5.1%, compared to 5.2% in the year ago period.

SG&A expenses in the third quarter were $16.2 million compared to $13.9 million for the same period in 2024. SG&A as a percentage of gross billings was 3.2% in Q3 2025, compared to 3% in the year ago period. Net income in the third quarter of 2025 was $4.7 million or $1.02 per diluted share, compared to $5.5 million or $1.19 per diluted share for the comparable period in 2024.

Adjusted net income was $6 million or $1.31 per diluted share compared to $7.1 million or $1.55 per diluted share for the year ago period. Adjusted EBITDA in the third quarter was $10.9 million compared to $11.1 million in the prior year quarter. The slight decrease was primarily driven by a large vendor transaction in the year ago period that carried a higher flow-through to adjusted EBITDA as sales compensation related to this transaction was paid through a contingent earn-out.

Adjusted EBITDA as a percentage of gross profit or effective margin was 42.3% compared to 45.7% in the year ago period.

Turning to our balance sheet. Cash and cash equivalents were $49.8 million as of September 30, 2025, compared to $29.8 million on December 31, 2024. While working capital increased by $18.3 million during this period. The increase in cash was primarily attributed to the timing of receivable collections and vendor payments. As of September 30, 2025, we had $300,000 outstanding debt with no borrowings under our $50 million revolving credit facility with JPMorgan Chase.

On October 28, 2025, our Board of Directors declared a quarterly dividend of $0.17 per share of our common stock payable on November 17, 2025 to shareholders of record on November 10, 2025.

As we look to the remainder of the year, our priorities remain clear: to build on our operational momentum and continue executing against the strategic initiatives that have driven our success to date. We're actively evaluating acquisition opportunities that align with our growth strategy, enhance our capabilities and strengthen our presence across key markets. With solid momentum across our business and a proven track record of execution, we believe we will close out 2025 on a strong note and set the stage for another year of record performance.

This concludes our prepared remarks. We will now open it up for questions from those participating in the call. Operator, back to you.

[Operator Instructions] We'll take our first question from Vincent Colicchio with Barrington Research.

Yes, Dale, congrats on another strong double-digit organic growth quarter. Curious, how would you characterize the quarter? Was the growth broad-based across your top 20? Also, were there any large lumpy deals in the quarter?

Yes, no lumpy deals. And then, hence, we've talked about it probably too much. We talked about in Q2 that we had one of the large orders pull into Q2 and we wouldn't see in Q3. And then as Matt mentioned, the comparable year-over-year, we had one large in Q3 of last year. And it's no secret, they're a vast data. The data center all focused on the AI market and going into data centers to deliver as much data as fast as an AI engine will take it in. So outside of those 2 things, definitely organic growth, strong in the majority of our vendors. We only typically talk about 2 vendors over the last so many years, Sophos and SolarWinds. Sophos is a little flat for us. SolarWinds is going in the right direction, they're acquired by Turn River, and we're seeing some positives come out of that.

And then in terms of industries, security, I assume, still leads growth. Is that right?

It does. We're over 60% in the cybersecurity space, and Charles can talk to it, but still that many companies coming at us to add to our Line Card and they're mainly in that security space. We have so many adjacent markets, but that's really the focus. We were attending the Canalys event last week. And it's good to look at some of the data collectors that we don't have any skin in the game or neither do they on our side. And that's the -- in the next 3 years, still one of the fastest growing markets if you look at all the different market segments in the IT space.

And then maybe one for Matt. Were there any early pay price discounts of any magnitude that impacted margin?

No. No new -- I mean, there were no new relationships on early pay discounts. Our similar customers continue to take advantage that have this offer to them, continue to take advantage of it. But as a percentage of gross billings, it's consistent period-over-period.

And then, Dale, the training program you had highlighted in Europe, did you -- have you had a similar program in the U.S.?

We don't. Martin is out of Germany, and he started it. We really what got us kicked off is one of the vendors we signed called Unframe, which is in the AI building blocks. So if you want to have a certain structure in your company that you want to use AI for. This is where you can actually go and get those building blocks. So it started with that and then expanded into some other vendors and he built it into a full academy. And we'll roll that into other regions. Of course, the European side first as Martin took the lead on then you'll see it come to the U.S.

As we talk about that, do we have another set of vendors that are AI vendors and it's still consistent with probably what we said a year ago, and that is our vendors are building AI capability into their existing products. So we're going to see it that way. And if there is different products, we'll pick it up and talk about them in a separate what we call in our different segments, our technology segments.

[Operator Instructions] We will move next with Howard Root, private investor.

Congratulations on really good quarter. I got a couple of little questions and then a more general one. Kind of first, no mention of tariffs, and I think nothing's changed there. But remind me, is there any impact on tariffs on your business?

There really isn't, and Matt can weigh in. We just don't see it. We -- I guess the biggest thing and we didn't mention it, Howard, because it was a nonissue in this quarter is just the FX with currencies because most of our vendors were buying in USD and then we're selling in either euros or Great British pounds and then Canadian dollars. So there's some there. The only one is the Canada side. So what we do is we look at it from a quoting standpoint and our quotes are that used to be 30-day quotes and now they're like 5 days to deal with both either a tariff issue or a currency issue, but nothing that's substantial.

Okay. Great. And then accounts receivable, accounts payable, you made some notable declines in that drop in AR by $65 million sequentially and AP down by $50 million. Is that -- kind of give me a rundown of how that's happening? And is that where it should be now going forward? Or what would you expect going forward on AR and AP?

Yes, that ebbs and flows with each of the quarters. So when comparing that to December 31 of last year, December -- our Q4 is historically our largest quarter just in the business. So -- and Q4 of last year was a record quarter to date for us. So it was -- it's really just a function of collecting those receivables and paying those payables subsequent to year-end. Those volume -- the levels that we saw at December 31 of last year from a receivables and payables perspective, as we expect to execute on our strategy here for Q4, I'd expect those levels to return to where they were in December of last year.

Howard -- the biggest point of that. I mean the main piece is just the timing of that. And it could be -- and Matt and his team do a good job that if we have a vendor that reaches out and said, "Hey, I want more cash at the end of this quarter." We'll pay them early with some kind of a condition, right, consideration. They'll pick up some margin that way.

Matt and I have these discussions internally all the time. I think we pay our vendors too fast and we probably collect too slow, but collecting is the tough part, right? Because we're going to the masses as a distributor. So we're collecting from thousands of resellers, vendors only collecting from 4 or 5 distributors. So it's always something that we watch because it's important on our working capital.

Okay. So do you see this -- I mean, $50 million swings quarter-to-quarter is kind of part of your business? Is that an aberration?

No. So -- and then if you're comparing it to June -- the June quarter, we had some -- as we talked about in the Q2 call, we had some larger transactions with a higher sales price and higher cost of sale amounts in Q2, which didn't necessarily repeat themselves. We collected them and paid the vendor payables in Q3. But as we have those larger transactions, that we've alluded to over time, that will cause a spike in the receivable and payable accordingly.

Yes. And Howard, those orders are $30 million orders, right? It's not it's just one order that's $30 million. So you'll see it all at one time, and that's what was pulled forward in Q2.

Okay. I get it. Now it's kind of the nature of the business with the large size of the orders...

[indiscernible] the ordinary.

Okay. On the gross billings side, nice to see it continue to go up. With DSS, is that -- is there more seasonality to it? Is the third quarter more soft with that business? Or what do you see as seasonality of your orders now with DSS making a part of it?

It is, right? So look at the -- there are about $190 million. There are adjusted gross billings when we acquired them, we did at the end of July of last year. So their seasonality is based on the state -- if you think about it, we're selling mostly into education, so K-12 and higher-ed. So they do all their buying in the summertime, all the states, 40 of the states get their budgets and their new money at the end of June. So they spend and get older products, software, hardware, everything in place for the new school years. So it's typically strong, really extinguishing budgets in May and then all the way through.

What we saw, though, is our biggest vendor, and we talked about it from the DSS side is Adobe. I'd like to also -- Adobe is probably one of the biggest AI companies out there that people don't realize of how much AI is in their products. If you've looked at their product suite, it's crazy how wide they go. And Adobe is doing the right thing. I mean, they're going in the education space. So if you're using Adobe product, when you go into the workforce, what are you going to do? Hey, I'm trained on Adobe. Of course, it's the biggest one out there, and everybody has to buy those licenses.

So we'll see seasonality from that May through really October. But it's really changes in how Adobe does things, and you'll see more gross profit sometimes with our adjusted gross billings going down, just do the rebates that we're able to garner. So we're taking advantage of that side of it.

Okay. And then the Solutions segment was kind of the one negative with the gross billings down by 5%. What was the cause of that? And what do you see going forward for that segment?

So my core Solutions piece is really in the U.K., right? And that's when we acquired CDF and had the split distribution and the Solutions piece. It's our U.S. side of it that has some fluctuations. And we just have a small team in the U.S. that has some very large customers. And sometimes they're renewing other times they're not. So that one's just a blip. You won't see that going forward like we saw in this past quarter.

Okay. Okay. The bigger area is M&A. And I guess a little thing there. I saw $600,000 of acquisition-related costs in the quarter. But no deal and the deal -- last deal was the DSS a year ago. What was the $600,000, what was that related to?

It's -- so we're prospecting more spending and the cost of it -- a lot of it is overseas stuff. And we're -- and I'll just talk in general, Howard, that we're looking at larger deals because we look at the cost of doing a smaller deal, even though we have some little ones out there, but we're going to try to streamline our M&A that it just doesn't make sense in some of the really small ones to use all the teams that we've used in the past. So we're going to try to get that much more efficient because we have a pretty aggressive track record -- pretty aggressive outlook for 2026.

Of course, I'd love to talk one in this year, but it's really going to go into '26. So there's a bunch of different costs in there. There's some other costs in there, and I can't talk about it now, but in the future, on some of our vendor acquisitions, there's -- it's kind of a collect all for some of that stuff.

But safe to say that's all forward-looking on deals, not related to past deals done?

That's correct. What's in there for this current quarter is -- what Dale and I have alluded to, just costs related to continuing to evaluate our pipeline of strategic acquisitions. And we have a deep pipeline that we continue to evaluate, and there's costs associated with obviously evaluating each of those.

Okay. So then as I always try to encourage you to talk future here. If you look at M&A and I think 2 different places you said a healthy appetite and actively evaluating, and it's been now almost a year now since your last acquisition. And now you got almost, well you have $50 million cash and a line of credit for $50 million. So you got $100 million of cash available. Can you talk about what you're seeing out there in terms of size of deal, you got into a little bit of it, but are we looking at $50 million deals, $100 million deals, cash deals, debt deals, equity deals, all of the above? What's your vision kind of as to how much the M&A is going to affect the company? And how much do you see your organic continuing to drive the growth of this company?

Yes. The organic piece of it, and this goes back to us bringing on vendors and trying to shed vendors that are taking up cycles as quickly as possible, and that is something that Charles and his team fight all the time, right? We have nonstop. I mean, if you look at 72 vendors and that goes to some of the investments we made. So we brought some other people on Charles' team to evaluate companies faster so we make sure we don't miss any. But with that goes, oh my gosh, we have that much more opportunity, our sales teams are like saying, "Hey, man, we are full up as far as our sales cycles go." So we try to shed some of the nonperformers to get it out of the Line Card to get rid of the clutter. So that's a process that just keeps going.

And I would be the first one to say, "Hey, man, we are starting to see some of the vendors." Not as many vendors by quarter, though we see some slowdown in the market. We don't see that, and we haven't seen that for the last 6 quarters. On the acquisition side, size-wise, we're looking at opportunities as big as $40 million and then some smaller ones that are strategic that are going to be sub-$10 million, but strategic to build in technical capability in the company that I think we're lacking, right? And I always love to tell people, the first thing -- the last thing you hire is in a distribution when you have low margins, is technical resources, right? to support your vendors. And the first thing to go when you're cutting is technical resources. So we're being just very good stewards of that and saying, okay, this is a good company. They have good developers. We need this kind of talent in the company. And these are the 5 vendors they can support, and we'll get more margin for that from our vendors. And we'll also become super entangled or sticky with the vendors and our customers.

So there's 2 or 3 of them on my list right now that are more of the technical rationale for acquiring. And then the other ones are strictly into distribution, right? And the 2 larger ones are overseas. And that's going to get -- we'll pick up not only vendors but also territories with that. We watch the markets. We're looking at the multiples. The multiples have come down a little bit overseas on some of the deals that have been done, so that's good for us. So yes, we're confident a bit to get some of these closed.

So then on multiples, I mean, it's $10 million to $40 million, that's your acquisition price. What type of gross billings? Or what type of multiples would you be looking at in those type of deals?

So we evaluate it this way, right? We firstly look at saying, "Hey, this is where our multiple is. " We think we're trading at a pretty high multiple to our competitors, and it's hard to define our competitors because we have the monster big ones and then we have some smaller ones that are not public, so you have to do the best you can in the private markets. But we look at them a couple of ways. What do they bring to Climb, right? And our strategic plan is, is it a territory? Is it vendors? How good is the team? And is the cultural fit for us?

I had one that I spent quite a bit of time with, and it just was not a cultural fit. It would have been a mess I think, just because we just weren't going to get along in how we went to market. But the real key piece for me is what is the margin profile, right? There's higher margin European space as we've seen with our acquisitions. So if that margin profile is a lot higher, and we think we can maintain that and add more vendors to that, then that would garner a higher multiple. And of course, they'd be typically asking for a higher multiple. Do they have a concentration on one vendor like Douglas Stewart. So hence, the multiple is much lower a year when we acquired them. So not a lot of factors, but those are the main core ones for that.

We do have a follow-up from Vincent Colicchio with Barrington Research.

Yes. Dale, just trying to assess if there's any signs of any kind of slowdown in sales cycles change, anything like that? Or based on your numbers, it looks like a pretty healthy environment.

Yes. We -- like I mentioned before, I mean, Sophos was kind of flat. We had a really good couple of quarters in the beginning of this year with Sophos. So we're looking to finish strong with them. Q4 is always -- and it's a cyclical nature because this could go back 5 years that we've still been doing license renewals. And a lot of people extinguished with budgets in Q4. So we look to have another strong quarter like we did a year ago. But we don't see the softness in the markets. And we're always going to have to talk about it, Vince, until we get twice our size. The vast data transactions will be lumpy and want to take advantage of them, and we'll talk about them and be really open with everybody when we don't have them coming in year-over-year.

Thank you. And this concludes our Q&A session. I will now turn the call back to Mr. Foster for closing remarks.

Thank you, operator. I'd like to thank everybody and the entire Climb team, including our shareholders for their commitment, providing just a great experience to our customers and to our vendor partners. And with that, we'll close the call. Thank you.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at anytime.

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 30, 2025. Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Matthew Sullivan; and the company's Investor Relations adviser, Mr. Sean Mansouri with Elevate IR.

By now, everyone should have access to the second quarter 2025 earnings press release, which was issued yesterday afternoon at approximately 4:05 p.m. Eastern Time. The release is available in the Investor Relations section of Climb Global Solutions website at www.climglobalsolutions.com. This call will also be available for webcast replay on the company's website.

Following management's remarks, we will open the call for your questions. I would now like to turn the call over to Mr. Mansouri for introductory comments.

Thank you. Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.

These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements.

Our presentation also includes certain key operational metrics and non-GAAP financial measures, including gross billings, adjusted EBITDA, adjusted net income and EPS and effective margin as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts and other important information in the earnings press release and Form 8-K we furnished to the SEC yesterday.

I'll now turn the call over to Climb's CEO, Dale Foster.

Thank you, Sean, and good morning, everyone. As you can see, we had another strong quarter with material increases across all of our key financial metrics. During the quarter, we generated double-digit organic growth by strengthening relationships with customers, growing our line card with new innovative vendors and expanding market share in both the U.S. and Europe. We also benefited this quarter from the incremental contribution and seasonal strength of our acquisition of Douglas Stewart Software or DSS, which typically sees higher demand for education customers as they ramp up ahead of the next school year.

Our Climb team continues to identify and align with the most innovative technologies in the market to not only strengthen our vendor ecosystem, but also address increasingly complex challenges our customers face. In Q2 alone, we evaluated 50 potential vendor partnerships and move forward with just 4 of them. This disciplined approach reflects our commitment to quality over quantity and our focus on delivering differentiated high-impact solutions that drive long-term value across our platform. Let me take a moment to highlight a few of these wins. First, we announced the partnership with Ignite, a leader in secure content collaboration intelligence and governance.

This partnership enables us to offer Ignite's cloud-native platform to our partners, their customers across the U.S. reinforcing our commitment to the expanding access of transformative technologies. By adding Ignite to our line card, we are equipping resellers with a trusted, scalable platform that fits seamlessly into both SMB and enterprise environments. This partnership underscores our mission to deliver partner-first technologies that move with speed of the modern business. In Q2, we also -- our Climb's U.K. and Ireland team secured an exclusive distribution agreement with IGEL, a global leader in secure endpoint OS solutions for U.K. and Ireland. This milestone builds on the partnership that we began in 2016 with DataSolutions out of Ireland, which we acquired in 2023.

Our ability to drive lead generation and expanded IGEL addressable market in the region led to the sole distribution agreement further validating our strength of our channel reach, execution and commitment to Europe. We look forward to continuing our partnership with IGEL as we scale together in these key markets.

In June, we brought on Vishal Pushpa, Climb's Chief Information Officer. Vishal is a dynamic IT executive with more than 2 decades of strategic leadership across high-tech manufacturing, logistics, distribution, services -- and services. Vishal has led large-scale ERP, CRM and HCM transformations and has overseen complex M&A integrations and driven a deployment of cutting-edge cloud solutions, AI and automation and enhanced security infrastructure.

He brings a visionary approach to innovation and has a strong track record of fostering global calibration and anticipating future technology trends, We are pleased to have him join the Climb family and look forward to his invaluable contributions. In addition to Vishal's appointment, in May, we announced the promotion of Carlos Rodrigues to our President of North America. Carlos has been a key leader at Climb since 2020, bringing more than 20 years of experience in value-added distribution and a proven track record of driving growth across North America.

Since joining Climb, he has played a pivotal role in expanding market share, building high-performance sales teams and strengthening strategic vendor relationships. In his prior role as Vice President of Sales, Carlos led the development of Climb's dedicated vendor management team and has also consistently delivered impactful results through alignment and partner engagement. In this new role, as President, Carlos will oversee the North American sales with a focus on accelerating growth, deepening vendor and partner success and further expanding Climb's market presence.

We're excited to see Carlos bring his leadership and vision to this new role as we continue -- to his new role as we continued executing on our growth strategy.

Looking ahead, we're focused on building on the momentum from the first half of the year by continuing to execute against our strategic priorities. With our ERP system now fully in place, we're beginning to realize the benefits of improved operational efficiency and scalability, positioning us to drive stronger operating leverage as we grow.

Additionally, we're actively evaluating strategic M&A opportunities in North America and overseas that align with our long-term vision and can expand both our capabilities and geographic reach. These initiatives, coupled with our robust balance sheet and demonstrated track record of success will enable us to deliver on both organic and inorganic objectives in 2025 and beyond.

With that, I will turn the call over to our CFO, Matt Sullivan, to take you through our financial results.

Matt?

Thank you, Dale, and good morning, everyone. A quick reminder as we review our second quarter financial results, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. As reported in our earnings press release, gross billings in Q2 of 2025 increased 39% and to $500.6 million compared to $359.8 million in the year ago quarter. Distribution segment gross billings increased 40% to $477 million and Solutions segment gross billings increased 19% to $23.5 million. Net sales in the second quarter of $5 million increased 73% to $159.3 million compared to $92.1 million, which primarily reflects double-digit organic growth from new and existing vendors as well as contribution from our acquisition of DSS in July last year.

Gross profit in the second quarter increased 42% to $26.3 million compared to $18.6 million. Again, the increase was driven by organic growth from new and existing vendors in both North America and Europe as well as contribution from DSS. Gross profit as a percentage of gross billings increased to 5.3% compared to 5.2% in the year ago period. SG&A expenses in the second quarter were $16.4 million compared to $13 million for the same period in 2024. SG&A from DSS accounted for $900,000 of the increase. SG&A as a percentage of gross billings decreased to 3.3% in Q2 of 2025 compared to 3.6% in the year ago period.

Net income in the second quarter of 2025 increased 74% to $6 million or $1.30 per diluted share compared to $3.4 million or $0.75 per diluted share for the comparable period in 2024. Net income was impacted by a $400,000 charge related to the change in fair value of acquisition contingent consideration associated with DSS. Adjusted net income increased 68% to $6.4 million or $1.39 per diluted share compared to $3.8 million or $0.83 per diluted share for the year ago period.

Adjusted EBITDA in the second quarter increased 64% to $11.4 million compared to $6.9 million in the prior year quarter. The increase was driven by the aforementioned organic growth from both new and existing vendors as well as contribution from DSS. Adjusted EBITDA as a percentage of gross profit or effective margin increased 600 basis points to 43.3% compared to 37.3% in the year ago period.

Turning to our balance sheet. Cash and cash equivalents were $28.6 million as of June 30, 2025, compared to $29.8 million on December 31, 2024, while working capital increased by $12.2 million during this period.

The decrease in cash was primarily attributed to the timing of receivable collections and vendor payments. As of June 30, 2025, we have $500,000 outstanding -- of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility with JPMorgan Chase.

On July 29, 2025, our Board of Directors declared a quarterly dividend of $0.17 per share of our common stock payable on August 15, 2025, to shareholders of record on August 11, 2025. To echo Dale's earlier comments, we're continuing to explore strategic acquisitions that align with our high-performance culture and strengthen our ability to meet evolving customer needs. With a robust balance sheet, we're well positioned to pursue opportunities that complement our existing portfolio and accelerate growth in key markets.

This momentum is a direct result of our team's hard work and execution and we're excited to carry that forward as we advance both our organic and inorganic growth initiatives throughout 2025. This concludes our prepared remarks. We will now open it up for questions from those participating in the call. Operator, back to you.

[Operator Instructions] We'll take our first question from Vincent Colicchio with Barrington Research.

Dale. Good quarter. My first question is, did security and data center continues to lead growth in the quarter? Or is it broadening out somewhat?

It has. Those are our top 2 and security being the stronger of those 2, Vince. But yes, those are leading it. And it kind of makes sense, right, in the security market continues to heat up. And then in the data center space as we keep bringing in tools that are either data migration tools or storage tools, that's going to be our leader for quite some time.

And how did your top 20 vendors perform versus the overall business? Are they keeping track staying at a pace in line?

If you take a look at our -- when you say the top 20, there's probably like 5 or 6 at the bottom end of that from 12 to 20 or taking -- go into the 20 as we have some of the other ones jump forward. Some of the ones we've talked about Darktrace is going to make more of an impact as we go through the rest of this year as we just got started with them and just got out -- basically, our teams aligned as we announced it and then that is going to be the biggest impact for the second half of the year. But yes, it's new entrants that can get into that top 20.

Nothing really has changed that much in the top 10, but from 10 to 20, yes, we have jumping ones that are just performing better in the quarter.

And were there any large deals which made this quarter especially strong, which may not necessarily recur in the following quarter?

Yes. So what we do is we talked about this and we argue internally what we call out VAST Data because we consider it organic because we've had that company for, what, 3 years now? So we get lumpy with that. We had a VAST order that we budgeted for Q3 that got pulled into Q2. So we'll have to make that up in Q3. But -- so that definitely helped the quarter out to put us over the top. But just organically without that, we were still growing at a very good clip.

And are you seeing meaningful synergies as of yet from the Douglas Stewart acquisition?

We do. So we already announced that they're on our ERP systems and also there are lines have moved into our common portfolio of vendors we still are carving out and calling, hey, we can go after this K-12 and higher ed space. And this is -- just like I said in my comments, this is the growth -- the excitement period for that is everybody is going in school year and everybody is extinguishing their budgets by the states in the end of June and then buying new going into the new school year.

But yes, I mean, we have integrated that team into our teams. Our teams -- we have 14 teams, regional teams and then some dedicated teams in North America, and they're already not only quoting processing, but also learning the Douglas Stewart product lines.

[Operator Instructions] We will move next with [ Howard Root ], Private Investor.

Congratulations. I mean that was just another outstanding quarter. Very little to explain actually in the results. It's kind of hard to find stuff to pick on. But the -- I got a couple of questions. I guess, first on a couple of little things on the income statement. I've always looked at it as your gross margin as a percent of gross billings and that, as you said, moved up from 5% to 5.3%. And it's always that 5% was kind of the target. Is that a trend? Or is that just a little bouncing around? Or how do you see that going forward on gross margin?

Thanks, Howard. That -- so yes, for Q2 of this year, we went from 5.2% of Q2 last year to 5.3% for this quarter. And internally, we continue to project it to be in that 5%, 5.1%. The real driver of that higher percentage -- a slightly higher percentage this quarter was the timing of that, the lumpy transactions that Dale just alluded to. Some have higher margins as they're -- than our typical base business. But that's what really contributed to the higher gross profit as a percentage of gross billings.

But -- good question. And thanks for the question, Howard. But it's not going to be a trend that we're going to continue to see that expand, it'll just be lumpy, just like it is before because VAST, they have big orders and they have typically a lot of margin with them. It's something that we look at like Matt said, can we do -- and we get asked by investors all the time, can we expand our margins, it's going to be with expanding our solutions team. And then as we've talked about, we want to add more services to the company, that will help move that up in the basis point. But right now, still continued in that 5% to 5.1% range.

And then on SG&A, I mean that jumped up by 28% year-over-year, but your gross billings went up by 39%. So your percent goes from 3.6% down to 3.3%. And with you implementing ERP and growing and setting the stage, I mean, that's all understandable. But how do you see that going forward? Do you see that getting closer to 3% of gross billings? Is that going to be a trend?

I think the percentage that you saw this quarter is what we expect to see as we move forward. So we had a $900,000 contribution -- $900,000 contribution of DSS this quarter that we didn't have in the prior year quarter. But that 3.3% range is more consistent with what we expect going forward.

Yes. And Howard, so DSS wasn't a comparable from last year because we acquired them in July of last year. So that's the added SG&A. But on a -- we've integrated, they didn't have a lot of infrastructure. So if you look at, hey, can we clear out some of the back office, it's more about mending the teams together and then looking for efficiencies in that play. But that's the -- biggest thing is the DSS expenses.

And then kind of on your international side, is there anything material on tariffs or on currency fluctuation that you see right now that could affect things going forward?

So we talked about the tariff, we've had no real impact. And we have legal entities in the U.K. and Ireland and some of the other EU countries. So we can play with that as far as we're dealing with and shipping. So we haven't had impact on that. One thing we have board meetings, of course, before these earnings calls and we talk about our FX and how we deal with that. And we're just trying to come up with better schemes to deal with our currency because most of our vendors were buying in U.S. dollars, so any kind of fluctuation as the dollar got weaker, we're going to have that impact. So we're doing some hedging, but we're looking for better strategies because we have realized and unrealized gains and some -- one quarter over another will affect us. And then a lot of times, we'll get that pickup but it will be in a quarter or 2 quarters down.

So then looking bigger picture. I kind of look back, it was back Q3 of 2022. So less than 3 years ago, you crossed over into the $1 billion in gross billings, and now you're costing $2 billion and back on the call, I asked how does this continue? I mean, $1 billion is a big number. And your response was, in your market, $1 billion still small potatoes that there's really a lot of area going forward, which you've proved yourself correct over the last 2-plus years.

But as you cross the $2 billion, do you still see that? I mean you still see yourself as a fairly small player in the overall market with the potential to continue this type of growth going forward? Or when will you reach kind of a little bit of a limitation large -- the limits of large-sized numbers?

You're right. I mean we are still such a small player. And I can just give you some inside baseball, we meet with vendors. We talked about this quarter, we met with 50 different vendors. The vendors have choices, how they want to go to market. And once they choose distribution, they get the big 3, right? We got Ingram Micro, SYNNEX Tech Data and Arrow and that is worldwide. Those are the big 3.

The next largest one, I would say, Exclusive Networks is in the $5 billion to $6 billion range. They just got taken private in Q1 or the end of Q1. So we're still extremely small. But when these vendors come in, we talk about these big players, but we're talking about competing them in such as -- one of their smaller divisions. So our headroom between $2 billion and $3 billion, I would say, okay, that's a big gap so we can grow a lot.

But if we take a look at where they actually compete against us in software application, service security, data center only because we're still different in that space. we still have, I would say, it's $2 billion to $20 billion. So compare it that way. It's a lot of headroom that we can go before we'd be -- where we're disruptive to them where they would say, hey, we need to make some kind of move. And we're just not that disruptive, then we think we can still grow under that umbrella of being that emerging high-touch fast to market channel partner.

I mean that's just so unusual for me that it's just kind of a little bit hard to believe, but you've proven me wrong.

Well, Howard, if you -- and we've talked about this, if you look at our market, all the roll-up of distributors in the United States ended up in 2013. So there's nobody, right? We have these 3 massive ones that are worldwide, but really focused in North America and then us. And there are some other ones that are on the adjacent market space, but nothing that's directly competitive.

And then Charles, our CMO loves to say, hey, there could be 2 or 3 more Climbs in our space, and we still would have that many vendors to look at and that many vendors on board. It's shocking how many $100 million ARR SaaS vendors are out there that we even touched it. The ones we touch, we -- maybe they're not ready for us, maybe we're not ready for them, but there's a lot of them to choose. And that's the excitement of our market. A lot of good acquisition targets overseas and a lot of good vendors coming into our space.

I appreciate it. And then final question for me is just a little bit -- if you could talk a little bit about your acquisition process and what you see out there in terms of the market for potential acquisitions and the valuation that you're seeing? And then how you view currency to do the acquisition, what you've done so far has been cash and so a little bit of debt, which you've done a great job of making it accretive almost immediately and paying off the debt. But how do you see it going forward? Because I assume you're looking at a couple of bigger things as well as more things like what you've done already?

Yes, correct. So this year, Howard, we're looking at ones that we would just use cash for. They're not that big, but they would be strategic for us. So we look at it -- we have a strategic plan as far as acquisitions. We're looking at services companies because we want to add that, and there's 2 reasons for that. We like the margin profile. We want to become more sticky with vendors that we currently have. And if we have services, and if you look at the vendors, right, they're making 80% of margins selling their product. Why would they have an internal services team just for customer set when they're only making 30%.

So if they can offlet that to the channel, that's perfect for us. We won't compete with our customer base, but when they don't have those capabilities and the vendor wants us to do that, that's what I want to build into the company. So there's a couple of small ones we're looking at there. And then outside of that 2026 spot on, like what can really move the needle for Climb, it's not strategic. It's going to have to be much more sizable. And that will be a 2026 in the 2027 play for us. But yes, we -- a lot of good targets out there, but we would do cash anything this year.

And valuations on those targets, that changed at all? Or is it a strong market...

Yes. Here's how we start, Howard, and it's funny because we're being rewarded in the market for being a differentiator as our go-to-market, our multiples are a lot higher. But we still start in that 7 to 9 multiple. And then it all depends. If you look at Douglas Stewart, it was a much lower margin multiple because they were still concentrated with one vendor.

We also look at the acquisitions as far as what vendors they bring in because we think that's the lifeblood of what we have inside of Climb and what we take out to the market. But we just started that. And then it's the give and take that what is that company really going to bring to us and can we actually expand? Can we actually get it to all of our territories depending on what they bring. But we started that. And as we paid more than the multiple we're trading at, no, we have not.

So I know that's not a perfect answer, but the answer is it depends.

No, that's very helpful. So congratulations once again to you guys and to the whole Climb team on another outstanding quarter, just great job.

Thanks, Howard. Good talking to you.

And we do have a follow-up from Vincent Colicchio with Barrington Research.

Yes, Dale. So obviously, the business appears quite robust, but I am wondering any signs of economic headwinds, any delays, anything of that nature?

We do not see it, Vince. And I think it goes back to Howard's remarks that we are extremely small in our space. And you can say, hey, we're going to go to the $2 billion mark, but we're still small in our space. And if you look at -- we've spent some time with the Canalys team, which is an analyst group. And if you look at the overall IT market or IT services, we're talking $1 trillion to $2 trillion space. So lot of new entrants. We still see money flowing from the VCs into a lot of startups.

We're still having a huge pipeline of vendors coming toward us. And I've talked about this in the past that we've had to go and find them. And over the last 18 months, it's they're finding us. So we don't. And I'll just talk about the downside for Q2. We lost Citrix. We announced that in Q1 of our Ireland Group when we acquired DataSolutions, the team was tracking very well in Q1 because we still have that. But in Q2, that was where the hole -- and here's what I will say. The sales teams have sales cycles and they have a lot of tools in their bag, if they're not selling Citrix, they're selling something else.

We feel and we did not change our budget going into this, knowing that this is coming, that we think we can fill that hole as well. So kudos to our overall team, they're just performing. And looking at, hey, okay, I don't have this to sell anymore. I'm going to take this new product into my customer base.

Thank you. And this concludes our Q&A session. I will now turn the call over to Mr. Dale Foster for closing remarks.

Thanks, operator. Once again, thanks to all of our shareholders for supporting us and also to the greater Climb team on their excellent performance. They've been continued to focus on growing Climb. And with that, we'll end the call. Thank you.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.