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, 2023. Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Drew Clark; and the company's Investor Relations Adviser, Mr. Sean Mansouri with Elevate IR. By now, everyone should have access to the first quarter 2023 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's remarks, we'll open the call for your questions. I'd now like to turn the call over to Mr. Mansouri with introductory comments.

Thank you, Amy. 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 non-GAAP financial measures, including adjusted gross billings, adjusted EBITDA 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, our momentum from 2022 record year has carried into our first quarter with significant growth in all of our key financial metrics. Our performance was driven by continuing to execute on our core initiatives, generating organic growth with existing vendors while adding new vendors to our line card. In addition, we continue to drive growth and margin expansion from our integration of Spinnakar, which we acquired last August of last year. Excluding Spinnakar, we generated double-digit growth on both the top and bottom line, demonstrating the strength of our core business as we continue to scale our line card in the U.S. and abroad. On the 18 vendors that we evaluated throughout the quarter, we signed agreements with only 4 of them, demonstrating our commitment to a limited line card that is focused on the most innovative technology brands in the market. I'd like to highlight one of the latest partnerships that we launched in Q1 in North America. We partnered with LogicGate, a vendor that was first part of the Spinnakar portfolio of vendors. They are a leading provider of transformative risk and compliance solutions delivered on the Risk cloud platform. We look forward to growing our relationship with LogicGate, as we continue to scale our business globally. As many of you are aware, M&A will continue to be an important component of our growth strategy as we continue to evaluate potential targets that would extend our geographic reach as strategic vendors as well as enhance our Climb team. We began this initiative in 2020 with the acquisition of Interwork Technologies, a Toronto-based value-added specialty distributor, followed by the acquisition of CDF Group, a U.K. cloud software, IT distributor and service provider. As I mentioned earlier, last August,…

Thank you, Dale, and good morning, everyone. Dale gets the exciting content, and I get the boring. As we discuss our first quarter financial results, I'd like to remind everyone that all comparisons and variance commentary refer to the prior year quarter, unless otherwise specified. So let's get started. Q1 results marked our eighth consecutive quarter of double-digit profitability improvement. We are qualified or Dale likes to remind me that I was only here for 7 of those. As reported in our earnings press release, adjusted gross billings, which is a non-GAAP measure, increased 29% to $306.7 million compared to $238.7 million in the year ago quarter. The increase was driven by organic growth from new and existing vendors as well as a contribution from our acquisition of Spinnakar, which closed in August of last year. In addition, net sales in the first quarter of 2023 increased 19% to $85 million compared to $71.3 million, which reflects double-digit organic growth from new and existing vendors as well as a contribution from Spinnakar, offset by a slight reduction due to the impact of FX. Gross profit in the first quarter increased 27% to $15.2 million compared to $12.0 million. The increase was primarily attributable to 20% growth from new vendors and our existing top 20 vendors in both North America and Europe as well as a contribution from Spinnakar less the FX impact of our international business. Gross profit as a percentage of adjusted gross billings remained flat at 5.0%. And as a percentage of net sales increased 110 basis points to 17.9% compared to 16.8% in the prior year quarter. SG&A expenses in the first quarter were $10.3 million compared to $8.2 million for the same period in 2022. SG&A as a percentage of adjusted gross billings decreased to 3.3%…

[Operator Instructions] Our first question comes from Vincent Colicchio with Barrington Research.

Yes. Nice quarter. So in terms of the -- your commentary related to the economy, you had mentioned no issues for renewals as of yet. Curious if there's any signs of economic impacts such as pushbacks on pricing, any changes in sales cycles or if any of your vendor categories are slowing a bit. Any of that would be -- any response to that would be helpful.

Yes. Thanks, Vince. Some of the comments come from. We had our partner, adviser counsel last week. So we have big customers, small customers. We have all of our top 20 vendors. So just -- it's noise in the marketplace. Like I said in the commentary, there was rightsizing at some of these companies, both on the vendor side and the customer side. So maybe a little softness on that piece of it. Like I said, we feel pretty insulated because software -- so we don't have to deal with the logistics side of things. And then just the product mix that we sell. People -- I think Drew mentioned that often that people are not going to not have protection under the network for the security, whether it's endpoint, whether it's firewall. So a lot of that software that we cover across our whole portfolio is pretty critical to the infrastructure. So we're just going to keep an eye on it and that's why we kind of mentioned that we do see some stuff out there in the broader market.

So are security and data management, your fastest-growing categories, and I assume you expect that to continue, if it is.

Yes. They are the fastest -- I mean, and they're also very large, right? So whether -- when you look at the security piece of it and what we sell, we're -- cybersecurity is just a big collect all for either security or -- endpoint security for your data to protect from ransomware and one of the fastest-growing markets out there, we witness the same thing in the data center space. And we cover both. So we do a lot of data movement, data management products when people want to get into the cloud. And then they realize, you know what, I don't want to have all my critical into the cloud. I don't want a hybrid setup. So they'll have some on-prem as well or they'll do shared local data center with another company or companies. So those are definitely two fastest. We still have just great hooks into the DevOps space, and that's why you'll see more and more products that we signed there. And that's just unique. I think the margins potentially are better in certain areas. And we continue to look. I mean we have 6 categories that we self-define that we sell into, but that doesn't limit us to say we can't -- you know what, there's another group of products that fit with us that are adjacent that we might add as another part of our portfolio.

Drew, you had a nice year-over-year improvement in adjusted EBITDA margins. Assuming your sales momentum continues, can we expect similar year-over-year improvements going forward?

Yes, Vince, I think as you know, we don't provide quarterly guidance, but I would say that we're cautiously optimistic that the trend that we've had sequential year-over-year improvement will continue. To Dale's point, we have a high renewal rate. People are not going to discontinue renewing security applications that protect endpoints all the way back into the data center. Will that slow down potentially. But we're again cautiously optimistic and confident that we'll continue to have the growth that we've experienced over the last several quarters.

And in terms of the acquisition market, Dale, have valuations improved? And if we see the economy weaken here, do you think it may make you more -- a bit more cautious? Or do you think you'll take advantage of better pricing?

We're opportunistic. So hopefully, we'll take better pricing that's out in the market. We have both for North America, I've mentioned before. And then it's really our target is Western Europe, but there's still some in the U.S. We haven't seen a lot of change there. I think people are really focused on their internal businesses right now. Not that we haven't had the meetings. We haven't signed the NDAs. We have quite a few out there that we continue to scope out. But nothing really has changed there. Of course, we'd be looking for a discount. But then what are we actually getting in that business? Is it really in the right space. And we're going to do it very strategically as we've done in the past 3.

Our next question comes from Howard Root, Individual Investor.

Congrats, Dale and Drew. That's just simply outstanding quarter, this go around. Can you hear me okay?

Yes. Howard, don't tell us we're boring. We know we're boring.

Drew gets the award for the funniest CFO, but that's a very shallow pool. So it's not the same phrase. So two questions I have today, one, kind of a housekeeping one and one bigger picture. The housekeeping is on the stock grant that you announced -- that the company announced to you, Dale, a week or 2 ago with 35,000 shares. And my question is not on the amount because I don't consider that to be disproportionate at all, but it's on the idea of the immediate vesting where as I see it, I think it's about a $1.3 million G&A expense that's going to all hit in Q2 and without the vesting, it's kind of a onetime grant, and it doesn't have the golden handcuffs vesting over the next 3 or 4 years to keep you where we need you, which is in the CEO role there at Climb. Can you give any -- I know it wasn't your decision because you're the recipient of it, but can you give the -- relay the Boards why that happened, how that happened? And is this a one-off deal? Or is this part of the compensation package because it's just very unusual in my experience.

Yes. I'll -- and Drew can chime in as well, but it's more of a one-off deal, and it's really a timing issue, Howard, this -- a couple of things. Let me just go back 5 years ago when the company had an entire different slate of Board members. And we've done a lot of things really on the governance side. We've created committees that weren't created before. We've done a lot of things from changing out audit firms, lawyers, you name it. And one of the things that we lacked and we took care of in 2022 was a compensation committee. And we brought on consultants to help us do that process. So it was really a timing catch-up piece of it. It's not ideal, but we'll get through it. And you won't see something like that. Again, it will be more into just the regular flow, and we'll share a lot of that stuff as we go forward.

Yes, Howard, I would augment Dale's commentary with a couple of things that the Board did concurrently. As Dale referenced, we -- the Board to the compensation committee engaged an external compensation consulting firm that was very helpful to the comp committee and the Board. Worked hand in hand with the management team to create a new compensation program that is really salary, bonus, long-term incentive plan that changes some of the metrics we have today and some of the timing. So there's a 3-year cliff test that's going to be put into place with our LTIP program. And we also engaged legal counsel to help harmonize the named executive officer compensation agreements. So we pulled this all together and without getting into too much detail, there were some adjustments made to Dale's employment agreement where he gave some things back to the company. And in connection with that, plus rewarding him for the historical performance that I think all the shareholders would absolutely applaud if you've bought when Dale joined and you look at the stock price today, you should be extremely satisfied with the performance of the company under Dale's leadership. So there was a number of factors that went into that onetime grant. But as Dale mentioned, it's not something that will occur again. And we believe with our executive employment plans in place, there are plenty of handcuffs and incentives for us to stay here and drive value for the next 5-plus years.

Great. So just a follow-up on that. Am I correct it's about a $1.3 million expense that will get in Q2 on that one grant.

Correct. There will be an operating expense that will flow through the income statement. From my perspective, yes, it's going to be an EPS reduction obviously. But if you look at adjusted EBITDA for us, we always add back share-based compensation, and that's not going to be recurring. So to your point, could we have done some type of multiyear vesting? Yes, possibly, but we just felt that this was the right solution from the compensation committee and the Board and Dale was, I think, satisfied with the end result.

Okay. So that bigger picture and much bigger picture. I mean, a year ago, we were plotting you guys crossing $1 billion in adjusted gross billings, and now you're annualizing at $1.2 billion, 20% growth. And I was always told trees don't grow to the sky. But I don't have an appreciation for where you are in kind of reaching your market potential. I mean that $1.2 billion sounds like a big number, but you're playing in a huge, huge industry. And so if you take your slice of that and just in general terms, not asking for specific guidance, but are you in the early innings, the middle innings, the later innings of -- excluding acquisitions, just organic growth with your approach and adding these 4 really focused new product offerings, say, every quarter. Is it something that you can continue with this 20% growth and not reach the upper end of your market? Or are we kind of -- is that too much to ask over the next couple of years?

Yes, Howard, here's my take. And that is if you look at the 3 competitors that we talk about, the smallest one being about $40 billion in sales, the gap between where they play and where we are is that we could double in size without anybody even knowing who we are other than the companies that are coming out of startup phase, looking for a market. And I never -- I tell manufacturers and vendors that we sign. I never want to tell them how to go to market. But if they choose to go the routes that we actually can get their products into very quickly, then we're all in with them. Once they pick that route, then we'll start putting our resources toward that. So yes, can we double and triple in size? I see that. I mean if we look at the next 5 years, I don't see any obstacles. There's that many vendors coming out. I just can't tell you how many calls my vendor alliance team does per week on a new vendor that we've never heard of before. So it used to be in the early days, 5 years ago, we were -- my team loves to say it, we were desperate. So we are going to sign anybody that could fog a mirror and say, "Hey, we just need to really build out our line card." Now we have them coming toward us. I think some of it's -- some of the branding that we're doing that we're getting seen. Some of it is just word-of-mouth by vendors. I mentioned our Pat summit last week, it couldn't have gone better. And what we also believe is that there's 1,000 people in the IT markets that we service at vendor side and they continually jump jobs. So we follow the jockeys. This person is running VP of Channels at one company, 2 years later, there's another one and they're like, hey, I want to work with the Climb team. This is what they did for me, and I want to onboard them. So we're getting first look instead of second looks. First looks would be the big [distis], and now we're getting those first looks instead of saying, hey, let's find them as well as [boutique].

Yes, Howard, sorry, I would add that we've included in our investor presentation deck that's available on the corporate website, some total addressable market indicators. And if you look at the TAM for the space that we operate in, it's $20 billion roughly, we're doing $1.2 billion. You can extrapolate if we get share shift, new products as Dale's referenced, and we continue to grow and do a great job for our vendor partners. Can we double and triple the size of the top line over the next 5 years? We're confident we can it.

Great. Very helpful. And yes, I did buy when Dale came in, and I am very happy. So thanks for the performance, Keep up the great work.

And I'm showing no further questions at this time. I would now like to turn the conference back to Dale Foster for closing remarks.

Thank you, operator, and thank you to all of our shareholders and team members that makeup of our Climb family and dedicated to our growth and performance. We look forward to giving an update after Q2. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.