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, 2024. Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Andrew Clark; and the company's Investor Relations Advisor, Mr. Sean Mansouri, with Elevate IR. By now everyone should have access to the first quarter 2024 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.climbgobalsolutions.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 non-GAAP financial measures, including adjusted 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. With that, I'll turn the call over to Climb's CEO, Dale Foster.

Thank you, Sean. And good morning, everyone. We continue to make progress in growing Climb and strengthening our customer and vendor relationships in the first quarter as we produced double-digit organic growth in North America. And we benefited from a recent acquisition of DataSolutions in Europe. Although we generated top -- solid top line growth, we experienced softer volumes across a key few vendors, primarily related to our timing with -- the timing with respect to their sales cycles. This includes a key vendor from our acquisition of DataSolutions in October 2023. Well, this adversely affected our bottom line in Q1. We expect to return to growth with these vendors over the back half of the year. As many of you are aware, our acquisition of DataSolutions brought a deep network of relationships decline as well as a robust recurring revenue base with more than 90% of its fiscal 2023 revenue coming from existing reseller partners. We've already begun to take advantage of cross-selling opportunity between Climb U.S. and Climb EMEA teams. For example, we signed global agreements with Delinea, SolarWinds and SUSE, to name a few. Although these synergies are still in their early stages, we expect to uncover additional cross-selling opportunities as well as drive further operating efficiencies as we continue to integrate DataSolutions into our global operations. During the quarter, we deepened current partnerships with signing new marquee vendors to our line card. We evaluated 32 vendors and signed agreements with only 4 of them, demonstrating our commitment to participating and partnering with the most innovative cutting-edge technologies in the market. For example, in Q1, we expanded our partnership with Jamf. They are a leading provider of Apple device management and security software that enables businesses to efficiently manage and secure their Apple devices, ensuring seamless integration,…

Thank you, Dale. Good morning, everyone. Quick reminder as we review the financial results for our first quarter, all comparisons in the variance commentary refer to the prior year quarter unless otherwise specified. Before we jump into the results, let me reiterate Dale's comments about our positive outlook for the balance of 2024 and beyond, despite the low expectation operating results for the first quarter. As reported in our earnings press release, adjusted gross billings or AGB, which is a non-GAAP measure, increased to 16%, which is $355.3 million for the quarter compared to $306.7 million in the year ago quarter. Net sales in the first quarter of 2024 increased 9% to $92.4 million compared to $85 million, which primarily reflects organic growth from new and existing vendors as well as the contribution for our acquisition of DataSolutions in October of last year. Again, as we have previously stated, we focus on AGB as the true metric of our top line growth as the calculation of net sales is influenced by product mix and the respective adjustment to convert AGB to net sales for financial reporting purposes under GAAP. In the first quarter, we had an increase in the sale of security, maintenance and cloud products, which are recorded net of related cost of sales and therefore leads to a larger adjustment from AGB to net sales. DataSolutions also has a higher adjustment of AGB to net sales and their net sales were 31% for the quarter compared to our consolidated 26%. Gross profit in the first quarter increased 12% to $17 million compared to $15.2 million. Again, the increase was primarily driven by organic growth from new and existing vendors in both North America and Europe as well as contributions from DataSolutions. Gross profit as a percentage of adjusted…

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

Yes. Dale, so to be clear, was the light volume with key -- with certain key vendors, was that a timing issue? Or was it a lengthening of their sales cycles?

Yes. A couple of things, Vince. And that is, yes, if you look at the quarter, we have vendors that finish up their fiscal years in different sections. We have some of the bigger ones that actually ended in March. Sometimes, they leak over. And it's funny, we have 2 or 3 of them that are going through different ERP implementations as well, so they get kind of stuck up in that. But we had some vendor stuff that pulled into Q4, some that are pushing into Q2. So if we look at it and then we had a large deal with our Spinnakar acquisition a year ago that didn't reoccur in Q1. So just -- if you look at the puts and takes on it, it was just back and forth, but nothing underlying. And we were talking about as a team. Of our top 20 vendors, 16 of them grew in Q1. Of our top 20 customers, 17 of them grew in Q1. So the underlying piece is still very strong. It's just the timing of quarter 2.

So the -- where you saw the volume softness, do you expect for the year to be on budget with those clients?

We do, as Drew mentioned in his comments. I mean, we think we have a strong back half of the year. Some of it is already coming in into our Q2 stuff that we didn't see in Q1. And we don't -- just to be open, I mean, we don't push to bring things into a certain queue to make an exact number. Our vendors do when we do favors for them as far as, hey, when they need to do as far as timing goes. So hey, the numbers are what they are and some of them drift into the next Q, some of them get pulled forward on that side.

Okay. And then the -- outside of the aforementioned vendors where there was volume, within your top 20, are you growing in line with the rest of the business better? What does that look like?

Yes, we are. I mean, of course, the newer the vendor and depending on their life cycle, they're growing at a faster rate. That's when we talk about, hey, we want to really try to get double-digit growth because that's where the emerging vendors are. As a vendor becomes more mature, their growth slows down, it's just almost every industry. So we have some larger vendors that are in the single-digit growth and we make it up -- make up for it with the emerging ones. So that combination is what we talk about as a management team to focus and get to that over 10% rate. But if you look at the numbers, our top line grew overall with the revenues and it just depends on the vendor mix and then the margin profile per vendor. So there's a lot of little moving parts, but that's how we deal it quarter-by-quarter.

And has there been any change in areas of segment strength, technology and data center? Do those continue to be the key drivers?

Yes. Our 2 main ones, our pillars, our security and the data center space. So we mentioned in the previous call that, hey, we won the contract with CDW for the [ VAST ] business. It's the first time we've had a real big vendor move to the U.S. and started with Spinnakar in the U.K. or [ ClimbGate ] teams. So we'll see that pick up in the second half of the year. We're just getting going. We're just getting our first orders with that, but that's in the data center space. And then we'll build, just like we do in security, when you have somebody like Sophos in the monitoring space, SolarWinds, we'll build a cottage industry of vendors around them that support them that are cross-sellable.

Our next question comes from [ Howard Root ] from Climb Global Solutions.

I'm not from Climb Global Solutions. Individual investor. Two small ones and then a more general one for Dale. First, the adjusted gross billings, I think, went up $48 million Q1 versus Q1 a year ago, 16%. Can you give us a breakdown of how much of that is organic and -- versus how much of that is DataSolutions or any other acquisitions?

Yes. I'll let Drew jump in. I mean, he's got the exact numbers. But it's -- I think it's -- well, it's probably split 50-50, or close to that.

Yes. That's correct, Howard, a little more. DataSolutions generated approximately $29 million in the quarter for us. Again, as Dale mentioned in his response to Vince, that was lower than our expectation, ahead of the prior year quarter, about [indiscernible] really with 2023. But one of our -- their large vendors had some significant pull-through in Q4, which obviously gave us a very strong fourth quarter result and exceeded our expectations. But unfortunately, that detracted from Q1. But DataSolutions is performing on par, so we're excited about that. And their contribution was very meaningful in Q4 and not as impactful in Q1.

Okay. So -- and then why do you say second-half rebound rather than a Q2 rebound? And I assume that applies to the DataSolutions key vendor mainly.

Yes. DataSolutions, their 2 quarter is -- second quarter is their weakest quarter historically. And then as you know, if you look at our historical trends, Q2 tends to be one of our lower quarters as well in terms of both top line as well as gross profit. So Q2 will be solid, but we'll see a bigger rebound with some of those vendors, especially DataSolutions portfolio and then the Spinnakar vendors that we acquired in Q3 and Q4. Dale, do you have other thoughts?

No. Yes. We're on track with the DataSolutions team. And just to add to that, Howard, we integrated the sales teams early January for DataSolutions and some of their managers are running now our Climb U.K. team. So that team is pretty integrated. That's step one. The next part of the integration is upcoming. It will be in line with our ERP that's going to roll out in July-August time frame. And we believe by the end of this year, we'll have every company -- we have a lot of them on our systems right now, but everything we've acquired in the last 2 years will all be under one. And Drew is running the project, but the focus is by the end of Q3 so that we have a true Q4 on one ERP for reporting. And you can imagine from 3 different disparate systems, trying to pull those altogether. And it's not like we're special. Every company goes through it, but we want to get through it in Q3.

Yes. Well, good luck with that one. We all know how hard that is to pull off, but it has to be done. Second question, kind of -- I've always modeled it kind of keeping it simple, like 5% -- gross profit 5% of adjusted gross billings, then SG&A below 3%, so net income is above 2%. And this quarter, I think somewhat because of the acquisition and cost there, you're at 4.8% on gross profit, 3.5% on SG&A, so net income is down at 0.8%. Are those realistic targets for the business, the 5%, 3%, 2%? Or how do you look at that? Or am I off on my assessment of where the number should be?

Yes. I think your first modeling is more accurate. Like we said, we had a little softer in Q1 and some of the margin profile of some of our bigger vendors. But I don't -- we don't see that -- we don't see the trend. We know as these vendors get bigger, it's the larger the vendor, there's 2 parts that happen. They expect there's less work to be done in the channel, so they try to reduce the margin profile, not only to us, but also our reseller partners. But on the other flip side of that, as a distributor and reseller partner, as they grow and it gets wider of their business, we're more efficient in actually transacting it. So we save the dollars on that. So it kind of goes for a one-for-one, but that's a pretty good way to look at it. And if you look over the last couple of years, we have enough emerging vendors coming in that have a higher margin profile on that to make up for these larger ones. And we -- I can just tell you, it's nonstop. We talked about evaluating 42. There's probably another 10 or 15 that we talked to that we are just -- don't even get off to the next phase because they're just not ready even to have a channel talk yet. So if it wasn't for that robust vendors just coming out of the start-up phase, I would say, okay, it's going to slow down a little bit. We don't see that at all.

Okay. Great. And then just more general, and I would like to do this kind of pulling it up to 30,000 feet. Dale, how do you see the sales environment and trajectory, in particular the economy and interest rates? Does any of the macro effects going on worldwide affect you in your business in any way? And how would you see that going forward the next year or 18 months?

Yes. I'm not that smart, Howard. So on the macro side, we look at it and we're like it has to have some kind of impact on us. But here's what I would say is, we are so small in our market space with our peers, right? If you take a look at the big 3 distributors, they're all $40 billion plus. They do a lot more hardware than we do. We are software, software. So we compete with divisions inside of each of those big guys. What we're seeing though is, the larger they get in some of their vendors, because if you look at -- their top 10 vendors are bringing in 90% of the revenues. As soon as you get down the line card, those vendors are not getting the care and targeted approach that we provide, so we're seeing share shift from our competitors to us in a pretty big way. If I look at just the ones that we talked about that we won awards for, if you take a look at those vendors, the share shift that they're pushing to us because they're just getting a much higher touch white-glove service to sell their products out to the market. So on the positive side, our teams are really taking advantage of that. But we don't see the effect because we're looking at a much smaller target audience. We're not selling to 30,000 resellers, we're selling to 7,000 globally, where our competitors are doing that. So it's -- we just don't see it as much. And we think we can -- we have a lot of levers we can pull. We have a great balance sheet. So we will just go and say, hey, this is where we're going to target now. We can move very quickly and put a sales team like we have on a specific vendor and capture a bunch of their business and then do the same thing. So it's much more of a tactical approach there.

Okay. Great. So the good news is the economy doesn't really affect you. The bad news is it's all on you. So success and failure is on your execution.

That's -- right, that's the good news, it's all on us. I mean, we can make those choices or we'll take all the blame of that as well. But we feel that we have enough feelers out there where we can actually know a little better than putting your finger in the wind and say, hey, we're going to go after this market, or the vendors are approaching us and saying, hey, can you guys help us in this situation because we've had budget cuts and we can actually fund you through the channel via margin. And we're like, yes, we'll double down with that. We've built a team with Delinea, and they've just been a great partner for us, and you'll see those numbers continue to grow with Delinea.

Okay. Great. Congrats on the quarter, the 16% revenue growth, great overall year-over-year and challenges come up, but you guys are addressing it.

Our next question comes from Bill Dezellem from Tieton Capital.

A couple of questions. First of all, allow me to circle back to your February 20th press release referencing Global Technologies. That release seemed a little bit different than your typical release. Would you please talk about that relationship and what it means or does not mean?

Yes. Thanks, Bill. Yes, so Global Technologies, they're a diverse supply and we're getting asked more and more from our customer base and some of our vendors that we will have a partnership or a division that does for a diverse and secure supply chain. So we've done this. We've known the founders of Global Technologies. They're actually also [Technical Difficulty] for vendors. So it's early stages, but it's -- we have big customers that need that. We're looking at the government side of that as well, if you're familiar with the 8(a) program. So my background is the Fed space, so it's -- the government contracts are key to that. So nothing they can report right now that, hey, we've had all these big wins, but it's definitely another component of Climb that we need to have as a diverse supplier. And that's why we build -- we put that relationship together.

And so you broke up in part of that answer. But essentially, this isn't a joint venture, it's not an acquisition, but you're working together in -- specifically for the federal phase -- space. Is that the essence?

No, the federal piece will come. Right now it's really in our larger partners as we have a diverse supply chain. But yes, it's early on those, but I'm saying we're going to take advantage of the federal side of that as well, but it still can be state and local. It's with our customer base and our vendors that are looking for a diversity partner.

Great. And then relative to your line card, I know in this type of a business, you've experienced it before and -- as have other firms, you just end up with a vendor or a few vendors that take off in the marketplace and you end up being a big beneficiary of their success. The question is how many vendors on your line card today do you see that you think could explode and in a good way, revenues just jumping in the next year or 2?

Yes. If I open it up to my management team, we would argue over those top 5 or 6. And here's what we do. Just like when we pick a vendor, we bet on the jockeys that are running that vendor with their go-to-market as for the channel, the same thing as far as them expanding because we've seen what they've done in the past. But then there's a lot of outside factors. If you look, the majority of our vendors are not probably cash flow-positive, right? They're out of the start-up phase, they're still thinking in dollars to grow out their channel teams. So it depends on where we get them in their life cycle. I would say right now, if it was Dale Foster, I'm going to put money on 3 vendors, I would pick 3 of our vendors, it would take off on that side and one of my sales leaders would pick 3 other ones probably. So we do have a pretty good robust pipeline where we think, hey, we're going to see some real expansion. The quickest thing in distribution is, like I said earlier, is like a share shift piece of it and we're seeing that happen. And it's just good when these bigger behemoth distributors just move in a little different direction or gets messy, all the advantages come to us where they need somebody that's much more of a targeted team.

Our next question comes from Vincent Colicchio from Barrington Research.

Yes. One more for me. The share gains you're seeing with certain software vendors from distributors -- large distributors, are they largely quite small emerging companies? Or are they -- some of them decent size?

There -- I guess, it depends on what you mean by that, Vince, I mean, decent size. We look at a vendor. If they can get to $100 million, that would be a mid-to-large vendor for us. If you look at -- Sophos is $800 million, SolarWinds, $400 million, $500 million, so some sizable vendors on that side. But that's what I would consider as some of the larger ones. And we're seeing more of those. And here's what happens in our market typically. And that is, as these customers -- I'm sorry, vendors get larger, they look for more efficient ways to get to the market and then the keyword is how do they scale it, right, how do they scale their business. We're talking to one right now that says, hey, we need a scale and we can't do it by adding another 80 sales reps. The channel already exists. So you have these thousands of resellers. You've got a handful of distributors. If we use the channel and leverage the channel, we can scale and we don't have to keep dumping the dollars into it so we're just getting a one-for-one. We actually are getting a 3x on the investment we put into the channel. So that's where we want to be. That's where the inflection point is for these vendors. And we try to get early on with them, have a deeper relationship with them so when they go that way, we're ready to go. And some of them, there were just still prospects for us, we haven't even signed yet, but we see where they're going and we're saying, hey, we're a good fit for you guys. If you look at the gap between where we sit as adjusted gross billing distributor of $1 billion and the next one at $20 billion, it's a big gap for us to grow in there without really being seen as in that much of a competitor to the larger teams.

This concludes our question-and-answer session. I would like to turn the floor back over to Dale Foster for closing comments.

Thank you, operator. I'd like to say thank you all the stakeholders that we continue to work with and help us build an exceptional company and really focus on the channel. We have a great team and we're going to continue to execute our strategic plan for the benefit of all our shareholders. With that, I appreciate everybody joining us today.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.