Climb Global Solutions, Inc. (CLMB) on Q1 2022 Results - Earnings Call Transcript
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Wayside Technology Group financial results for the First Quarter ended March 31st, 2022. Joining us today are Wayside'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 2022 earnings press release, which was issued yesterday afternoon at approximately 4:05 PM Eastern Time. The release is available in the Investor Relations section of Wayside Technology Group's website at waysidetechnology.com. This call will also be available for webcast replay on the company's website. Following the management's remarks, we will open the call for questions. I would now like to turn the call over to Mr. Mansouri for introductory comments.
Sean Mansouri: 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 and adjusted EBITDA 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 will find reconciliation charts and other important information in the earnings press release and Form 8-K we furnished to the SEC yesterday. I will now like to turn the call over to Wayside’s CEO, Dale Foster.
Dale Foster: Thank you, Sean, and good morning, everyone. During the first quarter, we continued to build up our strong momentum from the end of last year. We grew our top-line double-digits in Q1, with our net income increasing to 79% and our Adjusted EBITDA was up over 60%, reflecting the inherent operating leverage in our business. These significant improvements are a testament to the execution of our core initiatives. More specifically, we're continuing to generate organic growth with our existing vendors and customers while adding new and disruptive vendors to our line card. This organic growth was most evident in our top 20 vendors, as we grew gross selling with this group by nearly 20% during the quarter to $171 million. This reflects the strength of our relationships with our most meaningful partners and it showcases both the value we are offering as well as the ability to evaluate and partner with the right companies that are bringing innovative products to the market. We've seen a significant increase in the sheer number of brands looking to partner with Climb this past quarter. While we remain committed to a purposefully limited line card, we did enter into a relatively high number of new partnership agreements in Q1. Climb evaluated over 50 new perspective brands and signed eight new agreements. One of the most notable partnerships we saw in Q1 was a partnership with Cato Networks. Cato Networks is a network security company that develops Secure Access Service Edge technology, which combines enterprise communication and security capabilities into a single cloud-based platform. While KDLE networks is a relatively new company established in 2015, they pioneered the convergence of networking and security into the cloud and created a highly differentiated offering that we know will be well-received by our bar and LSP partners. On the topic of the right partner, I'd like to highlight our sponsorship of the world record-breaking mountainair Nims Purja to our clients subsidiary. Not only has Nims climbed all 14 of the world's best zone peaks over 8,000 meters in just six months and six days, he was part of the first winter sense of this average mountain in K2, his film 14 Peaks: Nothing Is Impossible is now out on Netflix and he is the founder of the charitable Nimsdai Foundation. Nims embodies the characteristics that we hold true here at Wayside, that our employees, our partners, and our customers cannot only achieve their goals, but they can push themselves to the next level of success. We thank Nims for leading by example, for reminding us to perform at our very highest level, ensuring the success in elevation of our partners. We can't wait for Nims to carry our flag to the top of Denali’s peak. Subsequent to the quarter end, we kicked off a collaboration project with Seagate Technology, who is a world leader in mass data storage infrastructure solutions. To expand it's data protection and storage portfolio to the channel community through Seagate Lyve Mobile application. With simple deployment, next to limitless data capture and low cost infrastructure investment, this combination will provide the channel community with the service ready solution to enable the next-generation of data movement, mobility, and migration practices to the market. Basing on our M&A initiatives, we are continuing to evaluate opportunities in both the U.S. and abroad that will be accretive to our business and aligned with our strategic goals. We are in discussions with multiple targets that can enhance specific categories of our business, including the geographic reach, vendor expansion and service and solution offerings. Each potential target fits into one or more of these predefined buckets. With our strong and growing balance sheet, we have abundant room and financing capacity to execute on various forms and sizes of acquisitions in 2022. With that, I will turn the call over to Drew Clark, our CFO. Drew.
Drew Clark: Thank you, Dale, and good morning, everyone. As we review our financial results, I want to remind everyone that all of our comparisons and variance commentary refer to the prior year quarter, unless otherwise specified. Well, some might consider our first quarter of 2022 as a bit boring because it was a continuation of our team successfully executing on our business strategy. As reported in our earnings press release, adjusted gross billings, which we all realize is a non-GAAP measure, increased 13% to $238.7 million compared to $210.9 million in the year-ago quarter. This increase reflects continued organic growth from new and existing vendors. In addition, net sales in the first quarter of 2022 increased 13% to $71.3 million compared to $62.8 million in the prior year quarter. Gross profit in the first quarter of 2022 increased 11% to $12 million compared to $10.8 million for the three months ended March 31, 2021. Again, as Dale mentioned earlier, the increase in GP was driven primarily by organic growth from our top 20 vendors in both the U.S. and Canada, In addition to the on-boarding of new vendors. Our gross profit as a percentage of adjusted gross billings was 5% versus 5.1%, which represented 16.8% of net sales compared to 17.3% in the prior year quarter. Q1 of 2021 included a large sale in our solutions business that had a significant impact on our GP and was unusual on nature. Excluding that transaction, GP as a percentage of both AGB and net sales increased quarter-over-quarter. SG&A expenses in the first quarter were $8.6 million compared to $8.8 million. SG&A, as a percentage of adjusted gross billings, improved to 3.6% compared to 4.2% as we continue to emphasize lean operations and scale our infrastructure. Net income in the first quarter of 2022 increased 79% to $2.7 million or $0.61 per diluted share compared to $1.5 million or $0.35 per diluted share for the comparable period in 2021. Adjusted EBITDA in the first quarter increased 61% to $4.2 million compared to $2.6 million. Once again, this significant increase was entirely driven by organic growth from both new and existing vendors demonstrating our ability to leverage, scale, and deliver a higher percentage of our incremental gross profit to net income and adjusted EBITDA. Quickly turning to our balance sheet, cash and cash equivalents increased to $37 million as of March 31st 2022, compared to 29.3 million as of December 31st, 2021. While working capital increased by $2.2 million during this first quarter period. The growth was primarily attributable to the timing of our collection and payment activities and not indicative of any type of business trend at this point. we continue to reign debt-free as of March 31, 2022, with no borrowings outstanding under either our $20 million or $8 million sterling credit facilities. On May, 3rd, 2022, our Board of Directors declared a quarterly dividend of $0.17 per share of common stock, the dividend is payable on May 20th to shareholders of record as of May 16th. As we look ahead to the remainder of the year, our strong foundation continues to allow us to drive organic growth and meaningful operating leverage all while expanding our relationships with new vendor networks and customers across the globe. As Dale mentioned previously, we also remain diligent in our M&A strategy as we constantly evaluate targets that can enhance our geographic footprint in addition to our service and solution offerings. We look forward to delivering yet another year of strong organic and inorganic growth to our customers, partners, and shareholders alike. This now concludes our prepared remarks, and we'll open it up for questions from those participating in the call. Operator, I will turn the meeting back over to you. Thank you.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. [Operator Instructions] We will pause for a moment as callers join the queue. Our first question comes from Bob Sales of LMK Capital Management. Please go ahead.
Operator: Our next question comes from Howard Root, a private investor. Please go ahead.
Unidentified: Thanks, guys, and congratulations on another great quarter. I've got two questions, one for Drew and then one for Dale. For Drew, I do everything based on adjusted gross billings which I think you guys do too, because the determination whether it's a sale or not it just in the accounting division. And then based on that I look at the gross profit and then the SG&A and your gross profit, thanks for the comment on what happened there from last year being a little aberration at the high, but Q4 to Q1 I think went from around 4.8% to 5% sequentially. Do you see that being, that 5% gross profit based on adjusted gross billings, as being your new normal, is it going to creep up from that? And then on the SG&A side too, the decrease of 200 grand from last year to this year surprised me. Great job on that on you're always have a great on cost management, but do you see that, $8.6 million, do you see that going up? What do you see on trends on the SG&A line and on the gross profit line?
Unidentified: Okay, and Drew, when you say improved SG&A, I mean you're not going to drive SG&A down on an absolute number. I assume that's going to tick up. It's just on a percentage number. It's not going to increase as high as your adjusted gross is going zero, is that what you're saying?
Unidentified: Okay, great. And then my question for Dale, just looking back I think you've been running the company for three-plus years maybe four years now, and from when you started you just had this focus on getting to your top 20 accounts, not taking every business that walked in the door and focusing and you've done a great job doing that, the results speak for themselves, and now you're doing a billion dollars in adjusted gross billings and growing double-digit to 13% increase. And as your CFO said, it's just another boring quarter, which begs the question for the next level of your visibility and everything is giving guidance. I think you're, when I look at it, you're company is now at a point where you can start talking more about the plan to get to two billion, three billion and adjusted gross billings or what the trend is for next four quarters. And it will give us investors and ability to really model this out and see what's happening. And I'll encourage you to do it in the next call, I'm not going to ask about specific numbers here, but maybe you could give some perspective now that you've gotten this thing really focused on your top 20 accounts and geographic expansion. Without accounting for acquisitions, do you see this double-digit revenue or AGB growth continuing? Its 15% your target, is 20% your target, is this a billion-dollar adjusted gross billing year getting to 1.2, but where do you see it and then when can you start giving guidance looking forward now that the business really is -- it seems to be in a really solid position?
Unidentified: So just to follow, what do you see as transformative growth size-wise, is this -- this market is huge, but your segment is the smaller end of that. Is this potentially a $5 billion adjusted gross billings company excluding acquisitions, do you see that in a five-year plan or is this getting up to a maximum where you've got to acquire to get the business to continue to grow at this rate.
Unidentified: Yeah. You cut out there. Sorry about that but I think I caught most of it and I always listen to replays if there's anything I missed. Congratulations on a great quarter, and I just encourage you next call, spend a couple of minutes talking about the long-term, you know, the company and the guidance kind of going forward as much as you can.
Unidentified: Thanks, guys. Great quarter.
Operator: Our next question comes from Bruce Lindermann, a private investor. Please go ahead.
Unidentified: Hi, me and my wife are shareholders for over 20 years. We want to thank you for the great job you've done with this company over -- since you've taken over. Our question is, there's very, very -- the liquidity is very problematic. Sometimes it could be $2 or $3 during the trading day. And even though it's not fashionable to split a stock at these levels, maybe it's possible that some stock split to at least get more shares into the market and make it more -- because to attract investors, especially institutions, they've got to be able to get a descent number of shares and they also have to be able to get liquidity, so that might give us some liquidity. What are your thoughts?
Unidentified: That's -- listen, thank you, guys, for everything. You've done a very nice job. Thank you.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over Mr. Foster for any closing remarks.
Dale Foster: Thank you, Operator. I'd like to close this call thanking all of our stakeholders and especially thank you to our growing global employee book count. We just got a great team. Wherever we go, we are making a difference. You'll see more and more of our company's names out there. Climb is very prevalent and our new GrayMatter transformation in the U.S. is getting more and more attraction, so you'll see that. Thank you to all and all of our stakeholders.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
