Climb Global Solutions 2026 Q3 Earnings Call

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

Thanks, Sean, and good morning, everyone. Our team delivered an exceptional third quarter, achieving record results across our key financial metrics, demonstrating the strength and scalability of our global platform. Our strong performance was driven by growing momentum across our vendor portfolio and deepening our relationships with our partners. Within our line card, we generated sequential growth with 19 of our top 20 vendors during the quarter. We are seeing meaningful traction with several of our newer relationships that have added or expanded over the past year, underscoring our ability to identify innovative technology partners and develop into meaningful contributors over time. During the quarter, we evaluated 32 new net brands but signed an agreement with only one, Harmonic Security, reflecting on our disciplined approach to our vendor selections. Harmonic is an innovative cybersecurity company focused on helping organizations securely adopt and scale AI technologies.

As AI adoption accelerates, we believe solutions like Harmonic's will become increasingly important in helping business capture the productivity benefits of AI while mitigating the associated security risks. This partnership further strengthens our security portfolio and positions our resellers partners to address a growing area of customer demand. As these partnerships scale, we are also seeing a growing opportunity to work with larger, more established technology companies that may not fit in the traditional definition of emerging technology. While these vendors have already built meaningful scale and market presence, many are still looking for a more focused distribution partner that can help them expand their channel, reach, strengthen reseller engagement, and accelerate growth. We refer to this segment of the market as challenger vendors, which aligns with the challenger category within Gartner's Magic Quadrant framework.

We believe this represents an attractive and underserved opportunity for Climb, as these companies can benefit from the same high-touch sales, marketing, and technical expertise that have helped us successfully scale our emerging vendor relationships. Importantly, this is a natural extension of our existing strategy rather than a shift away from our core focus. By leveraging our specialized teams, established reseller network, and proven go-to-market capabilities, we believe that we are well-positioned to attract a broader range of technology partners and further expand our growth opportunities. As we continue to expand our vendor portfolio and scale our global operations, we are equally focused on strengthening the infrastructure needed to support that growth. A key part of this effort is improving operational efficiency and leveraging technology to streamline processes across the business.

Our ERP systems serve as critical components of our global operating infrastructure, and we continue to focus on leveraging its capabilities to automate workflows and drive greater efficiencies across the organization. We are applying this approach to areas such as quoting various accounting functions along with digital connectivity to our vendors and partners, where we see opportunities to reduce manual processes, improve productivity, and support continued growth as we scale. Separately, we are investing in the developing of our own cloud marketplace, which will provide a centralized platform for MSP and reseller partners to purchase, provision, and manage cloud subscriptions. The platform is designed to simplify transactions, consolidate billing, and provide greater visibility across the customer lifecycle.

Over time, we see an opportunity to leverage this infrastructure across all of our global territories, enabling us to scale recurring cloud transactions, strengthen our partner relationships, and expand on new markets more efficiently. Subsequent to quarter end, we expanded our European presence through the acquisition of NeoVAD, bolstering our position in France with a highly complementary team, reseller network, and vendor portfolio. The transaction builds on the investments we've made in Europe and creates additional opportunities to deepen vendor relationships while broadening the solutions available to our channel partners. Similar to our approach with InterWorks, which continues to perform on plan since closing the acquisition earlier this year, we believe Climb's infrastructure can support NeoVAD's growth while maintaining their local market expertise and customer relationships that have contributed to its success.

We believe NeoVAD is a strategic and cultural fit and an important part of increasing our scale across European operations. Looking ahead, we will continue to identify cutting-edge technologies that can strengthen our line card and support organic growth. We will also selectively pursue acquisitions that fit our culture and operating model, with Europe remaining as an important focus area. With the growing momentum we are seeing across our business, we believe we are well positioned to close out the year on a strong note and deliver another year of record performance for Climb shareholders. With that, I will turn the call over to Matthew Sullivan for financial results.

Matt? Thank you, Dale, and good morning, everyone.

A quick reminder as we review the financial results for our third 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 the third quarter of 2026 increased 40% to a quarterly record of $706.4 million, compared to $504.6 million in the year-ago quarter. Distribution segment gross billings increased 41% to $680.5 million, while Solutions segment gross billings increased 14% to $25.9 million. Net sales in the third quarter of 2026 increased 37% to a quarterly record of $220.3 million, compared to $161.3 million in the prior year period. This increase reflects strong double-digit organic growth from new and existing vendors. Gross profit in the third quarter of 2026 increased 28% to a quarterly record of $33 million, compared to $25.7 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 third quarter of 2026 were $20.9 million, compared to $16.2 million in the prior year period. The increase primarily reflects SG&A associated with InterWorks and variable sales compensation attributed to the growth in organic gross profit. SG&A in Q3 of 2026 was also impacted by our investments in IT infrastructure and automation initiatives designed to improve operating efficiencies. SG&A as a percentage of gross billings decreased to 3% for the third quarter of 2026, compared to 3.2% for the prior year period.

SG&A as a percentage of gross profit for the third quarter of 2026 was 63.2% and represents a decline from the first two quarters of 2026, which were 68.5% for the second quarter of 2026 and 76.7% for the first quarter of 2026. Net income in the third quarter of 2026 increased 69% to a quarterly record of $7.9 million, or $0.43 per diluted share, compared to $4.7 million or $0.25 per diluted share for the prior year period. Adjusted net income increased 34% to $8 million or $0.43 per diluted share, compared to $6 million or $0.33 per diluted share for the year-ago period. Adjusted EBITDA in the third quarter of 2026 increased 35% to $14.7 million, compared to $10.9 million in the same period of 2025.

Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit, increased 230 basis points to 44.6%, compared to 42.3% for the same period of 2025. Turning to our balance sheet, cash and cash equivalents were $66.9 million as of September 30, 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 September 30, 2026, we had no debt outstanding or outstanding borrowings under our $50 million revolving credit facility. We ended the quarter with a strong balance sheet, giving us the flexibility to support organic growth, invest in our operating infrastructure, and pursue strategic acquisition opportunities. We remain disciplined in our approach to capital allocation, focusing on investments that align with our long-term strategy, drive earnings growth, and create sustainable value for our shareholders. This concludes our prepared remarks.