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, 2024. Joining us today are Climb’s CEO, Mr. Dale Foster; the company’s CFO, Mr. Drew Clark; and the company’s Investor Relation Adviser, Mr. Sean Mansouri with Elevate IR. By now, everyone should have access to the third 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.climbglobalsolutions.com. This call will also be made available for webcast replay on the company’s website. For management remarks – following management remarks, we will open the floor for 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. Q3 marked another exceptional period of growth and profitability for Climb as we generated record levels across all of our key financial metrics, while delivering on our acquisition objectives. Our strong performance was driven by the continued execution of our core initiatives and the integration of Douglas Stewart Software, or DSS, and DataSolutions Ireland onto our operating platforms. Also in Q3, we rebranded DataSolutions Ireland to Climb Channel Solutions with a great evening on September 5 in Dublin sharing our launch to – with Climb team and the vendors and customers. Additionally, we generated double-digit organic growth in both the U.S. and Europe as we strengthened relationships with existing partners, while signing new disruptive vendors to our Line Card. As a brief reminder of our recent acquisition, DSS, a Wisconsin-based IT distributor that brings 20 new vendor partners to Climb, including Adobe, Go Guardian and Incident IQ, to name a few. DSS is a proven leader in the education technology channel and provides products and services to more than 500 value-added retailer and over 250 campus stores across North America in both K-12 and higher education markets. We are actively identifying cross-selling opportunities and cost synergies to look forward – and look forward to exploring additional benefits as we further integrate DSS into our sales and operating workflows. Throughout the quarter, we worked through a robust pipeline of emerging vendors. We continue to identify and partner with the most innovative technologies in the market that align with our vendor ecosystems that solve today’s most difficult IT challenges. For example, in Q3, we evaluated 29 vendors, but signed only agreements – signed agreements with only 4 of them. I’d like to quickly highlight one of these wins. In September, we announced a partnership with…

Thank you, Dale. Good morning, everyone. A quick reminder as we review the financial results of our third quarter. All comparisons and variance commentary refer to the prior year quarter, unless otherwise specified. Furthermore, as Sean mentioned at the start of the call, we discuss various non-GAAP operating and financial metrics as supplemental measures of the performance of our business. As reported in our earnings press release, adjusted gross billings, or AGB, increased 65% to $465.2 million compared to $281.9 million in the year-ago quarter. Net sales in the third quarter of 2024 increased 52% to $119.3 million compared to $78.5 million, which grew at a lower rate than AGB due to a greater percentage of sales recognized on a net basis in the quarter. Growth in AGB was attributed to organic growth from new and existing vendors as well as the contribution from our acquisitions of DSS on July 31 and DataSolutions on October 6 of last year. DataSolutions and DSS combined for $81.3 million or 44% of the growth in AGB, while our core business grew by $102 million, representing 50% – 56% of the increase and year-over-year growth of 36%, which was positively impacted by several VAST orders in the quarter. Gross profit, or GP, in the third quarter increased 70% to $24.3 million compared to $14.3 million. Again, the increase was driven by organic growth from new and existing vendors in both North America and Europe, representing $6 million or 60% of the increase, as well as the contributions from DSS and DataSolutions, which represented $40 million – $4 million or 40% of the growth. Gross profit as a percentage of adjusted gross billings increased to 5.2% compared to 5.1%. SG&A expenses in the third quarter were $13.9 million compared to $10.1 million for the same…

[Operator Instructions] Our first question will come from Vincent Colicchio with Barrington Research. Your line is open.

Yes. Good morning, Dale. Nice quarter. Curious if your top 20 vendors grew in line with the overall business.

Yes. I wouldn’t say all 20 of them, but the core of them, that’s what’s really driving the growth on organic side, Vince. So it is – we still have some new entrants into the top 20. If you look at the 14 through 20, they – there’s more of them as you go down the Line Card. So they’ll jump up. And it depends. If you look at Q3, historically heavily into the public sector space, so we’ll see the vendors that are focused on that increase in that area, but nothing out of the ordinary.

And I’m curious. I assume security continues to drive lead growth amongst your technology segments. I’m curious if there’s any technology segments that performed better or worse than expected outside of that.

Yes. As Drew mentioned, VAST Data, we talked about it. It’s a vendor that we signed on the UK side with the acquisition of Spinnakar, and that brought us to the U.S. So had our first order come in with sizable out of North America and Canada. We’re starting to see a pickup in the States. So that’s going to be lumpy. So you’ll see that, and we’ll talk about that as the orders come in. But outside of that, security is still driving a lot of it. And security is now such a big swath of everybody having security in their name, whether it’s backup, whether it’s retention of data, they’re going to do some kind of security play. But it’s still that cybersecurity is the – and also the amount of vendors that come toward us with security flair to us is – out of those ‘29 we evaluated, probably two-thirds of them were some type of security platform or product. And the ones that we just have too much in overlap, we just pass on and – because we’ve already spent the time in onboarding and launching the ones we have in our portfolio.

And Drew, your adjusted SG&A levels relative to AGB were relatively efficient. Is that a sustainable level? Or do you plan to make investments that will bring that to more normal levels?

Well, our goal, Vince, as we’ve stated here from time to time is that we really would like that SG&A expense level as a percentage of AGB to be in that 3% range. Part of that comes with scale and leverage, which we benefited from, from both DataSolutions and from Douglas Stewart Software. So we’ll continue to invest in teams, whether its renewal teams, its additional salespeople supporting a particular vendor, markets. But again, that growth in dollars should continue to be flatter than the growth in the AGB rate. So there’ll be incremental dollar growth over time, but as a percentage, it should hopefully continue to be in that 3% range.

And Dale, will the DACH region become a priority for an acquisition?

Yes. I’ve talked about it probably for the last 3 or 4 quarters. It is. And it’s based on looking – a couple of things, where vendors are asking us to go from our Europe operations. Gerard Brophy runs that team based on just the market analysis of GDP and where some of our competitors are not. So we’re going to fill that void with an emerging tech that we actually sell to. So the big GDP market in the DACH region, we’ve got a great guy on the ground with Martin Bichler on the ground in Munich, and we’ll just keep expanding there. And he will also help us vet through some of the potential acquisitions we’re looking at and have been looking at.

And should we expect somewhat of a pause before you do another acquisition here?

Yes. No, 2025, we’ve always said that it’s 1 to 2 per year. We’ve used cash on all of our acquisitions. It really depends on the size. But if you look at what we’re planning on doing, it’s pretty much the same we’ve been doing over the last 3 or 4 years.

Okay, I will go back into queue. Nice show. Thanks.

Thanks, Vince.

[Operator Instructions] Our next question will come from Bill Dezellem with Tieton Capital. Your line is open.

Thank you. Let me start with just a super small question. You had $609,000 of acquisition-related costs. In this quarter, did that happen to be lease termination, severance, kind of what were those activities, please?

In terms of the M&A costs?

Yes, the $609,000, what were those costs actually for?

Predominantly, Bill, professional services associated with the transaction. So, we had some expense associated with DataSolutions as we wrap up their earn-out. We had some carryover expenses related to Douglas Stewart Software & Services, which we closed on the 31st of July, and then some ongoing investments as we continue to explore opportunities.

Great. That’s helpful. And as you think about future acquisitions, is there – generally, would you anticipate that there would be much in terms of severance or closing facilities, etcetera, or are you really just bringing them under your umbrella and letting them run and be as efficient as they choose to be?

Yes, and that’s a good question, Bill. The – if we look at it every – of course, every acquisition is a little different. Sometimes, you have the sellers staying on Board, like a focus on culture first and then you take a look at their strategic fit within Climb, where they are going to go, what their vendors look like and then the geographic reach to maybe a territory that we are not into. So, if we – if I look at our last five acquisitions, we have some of the operators that have stayed on Board, but we have never had gone in and saying, okay, it’s the top tier of execs that we are going to deal with a big severance play. The one with the DataSolutions in Ireland, Michael stayed on for six months and then moved on as he retired. But they are all going to be different, but I don’t see a big severance play because that wouldn’t be a good fit for us, right. It wouldn’t be a cultural if we are going to go in and just take, I guess the core part of the business and not have the people that are running it, because we don’t want to run a company in Germany. We want to have a culture that fits with ours that we can just continue to expand on what we are doing. And they can see from our original plan of acquiring and expanding as we think technology starts in North America and moves through the rest of the globe. So, we want to be able to launch it very quickly there and just use the resources of the company we acquired.

Dale, that’s very helpful. Do you find in your acquisition process that, that mindset ends up being an advantage and that you end up closing more deals because the seller likes that approach as opposed to a fear or a knowledge that there will just be a gutting of the people part of the organization?

Yes. Here is my – and I am just – I am super open with the potential target. And some of the team members that are still with us from our first acquisition, Carlos runs our North American vendor management team and we acquired them in 2020 part of Interwork acquisition. I said, listen, just reach out to my three or four people that are still with us of acquired companies, and let them tell you. I don’t want to be on the call. Can you explain what your experience was when Climb acquired you, what’s the experience for your team members, what actually happened. But the ones that we are targeting, and I will take DSS out of it because of North America, that was a little different because we wanted to get into the K-12 and higher Ed market and really start a state and local practice. But the rest of them in Europe, if you look and you ask, okay, what is your number one challenge, and the number one challenge is getting to sign vendors because you have to pretty much come to the states, build relationships with wherever these vendors are located. Of course, most of them – a lot of them are in the Silicon Valley and the Northeast. You have to build them and then convince them that you can actually sell into your region in Europe and beyond. So, that’s the number one challenge. If that’s the number one challenge, we already have like a business fit because we launched in the North America with a global contract, and we can take it into their sales teams. What does salespeople want, they want more things to sell. So, that’s pretty much across the board of the companies that we have acquired in Europe.

Great. That’s very helpful. And then historically, the fourth quarter has been meaningfully stronger than any other quarter of the year. Is there anything about this year that you think will make that different, or would it be reasonable to assume the fourth quarter will be meaningfully larger than – I guess it would be this quarter since this is your largest quarter of the year so far?

Yes. It will – fourth quarter is because just history, right. In the company, people are extinguishing budgets, people are renewing their licenses going into the New Year. You will see – Douglas Stewart, if you look at, their Q1 is usually one of their lighter quarters as they are building up to the education market, which is 48 of the states and their fiscal year June 30th. So, you see that they are building up what people are going to buy, and then that will pick up their best four months, June – July through November or October. So, yes, Q4, it’s going to be strong as well. We get to see the renewals that are coming up or that are not going to be renewed. And like we say, most of our renewals is annuity stream for us, whether it’s a SaaS model or it’s reoccurring on the licensing. So, we don’t see anything different than that. We just have a lot of momentum going into Q4. I will be honest with you. We are still struggling with our ERP. Our efficiencies are not where we want them to be, and everybody probably rolls their eyes and say, yes, we have been there and done that. Our team has done a great job. We think we will get to our operational efficiency by the end of this quarter to go into 2025 almost on the same page. The good thing is all of our companies are on ERP outside of Douglas Stewart, and they will be on by the end of the year.

Great. Thank you. And then one additional question, please. For quite some time now, several quarters, there continues to be just general macro question whether the market is softening, improving, holding steady, etcetera, etcetera. So, would you characterize what you were seeing here in the third quarter and through October, please?

So, I will take it from the beginning of us onboarding vendors. That pipeline has been as strong as ever when vendors come to us. And we kind of look at the vendors coming, are they coming because they are stagnant and they just need another route to market to try something different, right. And that’s not as attractive to us as a vendor that says, hey, I am just getting ready to build on my channel practice. You guys are the emerging go-to distributor, let’s do that. So, we are still seeing that part of it. The other side of it is we are in software, Bill, so we are not – we don’t have logistic issues. We don’t have this – the market has been talking about this refresh of endpoint tablets and laptops and all the other stuff that goes with it. It’s supposed to happen in Q2 2024, it didn’t happen, picked up a little bit in Q3. I was at the Canalys event last week and they are talking that, hey, that’s going to have some recovery in Q4. It will help us, but it hasn’t hurt us because Drew famously loves to say, people can’t go without their securities. They can’t go without protecting their systems. They can’t go without protecting their endpoints. And even in the cloud, they have to be able to protect all the stuff that they have as their workflows, whether it’s a hybrid workflow or it’s an on-prem workflow.

And so would you characterize the macro environment as being reasonably strong then just from your perspective alone?

From where we sit in, it’s still very strong as you saw some of it in our Q3 results, and that we just don’t see a [Technical Difficulty] refresh that is supposedly coming comes, it will only help with us because everybody will say, okay, you know what, I have got all my new laptops deployed. I should really take a look and say do I have the right product to [Technical Difficulty] protection on them.

Great. Thank you for taking all the questions.

Thanks Bill.

Thank you. It appears we have no further questions at this time. I will now turn the program back over to Dale Foster for any additional or closing remarks.

Thank you, operator. And I just want to thank all of our stakeholders as we continue to drive Climb forward, continued focus on our core, which is really the premier company to launch new emerging technologies, and that’s ever expanding as we are in North America and Europe and still looking beyond that as well. So, thank you all. Appreciate it.

Thank you. Ladies and gentlemen, this concludes today’s event. You may now disconnect.