Climb Global Solutions, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY2021. This is an annual filing, not a standalone fourth-quarter report. The company distributes IT products to resellers through Distribution and sells cloud and IT solutions to end users through Solutions. It changed its name from Wayside Technology Group, Inc. on October 31, 2022.
Financial results
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $304.3 million | $282.6 million | Up 8% |
| Adjusted gross billings (non-GAAP) | $1,064.7 million | $935.0 million | Up 14% |
| Gross profit | $54.1 million | $45.7 million | Up 18% |
| Income from operations | $17.3 million | $12.1 million | Up 44% |
| Net income | $12.5 million | $9.2 million | Up 36% |
| Diluted EPS | $2.81 | $2.09 | Up 34% |
| Adjusted EBITDA (non-GAAP) | $21.1 million | $15.5 million | Up 36% |
- Gross margin on GAAP net sales was 17.8%, versus 16.2%. Gross profit as a percentage of adjusted gross billings was 5.1%, versus 4.9%; adjusted EBITDA as a percentage of gross profit (“effective margin”) was 39.1%, versus 33.9%.
- Distribution generated $282.5 million in net sales and $45.0 million in gross profit; Solutions generated $21.8 million in net sales and $9.1 million in gross profit. Distribution sales rose 9%; Solutions sales fell 6%.
- Operating cash flow was $4.6 million, compared with $4.7 million. Investing used $11.0 million, including $8.5 million net cash paid for Spinnakar and $2.5 million for equipment and leasehold improvements. Financing used $1.8 million. Cash declined $9.0 million to $20.2 million.
- At year-end, current assets were $184.6 million and current liabilities $161.7 million. The balance sheet included a $1.8 million term loan ($0.5 million current) and $1.8 million of lease liabilities. The $20 million revolving facility and £8 million UK facility had no borrowings outstanding. Stockholders’ equity was $60.6 million.
- The company paid dividends of $0.68 per share, or approximately $3.0 million in total. Future dividends remain at the board’s discretion.
Material changes and notable items
- On August 18, 2022, the company acquired UK distributor Spinnakar. Consideration was approximately $13.6 million, including a $1.8 million contingent earn-out; net cash paid was $8.5 million. Spinnakar contributed approximately $6.0 million in net revenue and $0.4 million in net income after acquisition. Purchase-price allocation remained preliminary, including valuation of vendor relationships and goodwill.
- Distribution growth reflected organic growth, Spinnakar, lower customer discounts as a share of billings, and increased vendor rebates. Vendor rebates and discounts rose to $6.1 million from $4.5 million; customer rebates and discounts were $8.8 million versus $8.7 million.
- Foreign-currency transaction loss increased to $0.9 million from $0.1 million. Foreign-currency translation adjustments reduced comprehensive income by $2.6 million; the corresponding 2021 adjustment was a $0.5 million gain.
- Accounts receivable increased to $154.6 million from $122.5 million, while operating cash flow remained modest relative to net income. Management attributed the cash movements primarily to working-capital changes.
Outlook, risks and controls
- No numeric sales or earnings guidance is provided. Management expects working-capital needs to rise with growth and stated that cash and unused revolving capacity should be sufficient for the next 12 months. It plans continued investment in IT and to evaluate further acquisitions.
- The revolving credit facility was scheduled to mature June 30, 2023; the uncommitted UK facility was scheduled to mature April 13, 2023. The filing describes these facilities as undrawn at year-end. The revolving facility’s rate referenced LIBOR, with a replacement benchmark provision.
- Key risks include dependence on major customers and vendors, aggressive pricing and margin pressure, vendors selling directly or changing channel arrangements, customer credit and collection risk, supply-chain disruption, foreign exchange, cybersecurity and IT-system disruption, and acquisition integration and valuation. The two largest customers represented 37% of FY2022 net sales; the top five represented 52%. The two largest vendors accounted for 26% of purchases.
- The filing cites continued COVID-related supply-chain shortages and unpredictability, as well as geopolitical and economic uncertainty. No material legal proceedings or material cybersecurity breaches in 2022 were reported.
- Management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2022. The auditor issued unqualified opinions on the financial statements and internal controls. The acquisition valuation was identified as a critical audit matter; it did not modify the audit opinion.
Important facts for investors to verify
- Whether the credit facilities were renewed, replaced, or repaid after their stated 2023 maturity dates.
- Subsequent operating cash flow and receivables collection, given the receivables increase and working-capital use.
- Final Spinnakar purchase-price allocation, earn-out exposure, and realized contribution to results.
- Ongoing customer and vendor concentration, rebate programs, and the sustainability of reported margin improvement.
- Any changes to the dividend, capital allocation, or acquisition strategy after the filing date.