Climb Global Solutions, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. The company distributes third-party technology products and provides software, cloud and technical solutions through its Distribution and Solutions segments. Dollar amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $85.0 | $71.3 | +19% |
| Gross profit | $15.2 | $12.0 | +27% |
| Gross margin | 17.9% | 16.8% | +1.1 percentage points |
| Operating income | $4.2 | $3.4 | +25% |
| Net income | $3.3 | $2.7 | +23% |
| Diluted EPS | $0.74 | $0.61 | +21% |
| Operating cash flow | $43.6 | $9.2 | Increased |
Net margin was 3.9%, compared with 3.8%; operating margin was 5.0%, versus 4.7%. Adjusted gross billings, a non-GAAP measure, rose 28% to $306.7 million. Adjusted EBITDA, also non-GAAP, increased to $5.7 million from $4.2 million; effective margin was 37.2%, versus 35.5%.
Distribution sales grew 19% to $78.6 million and gross profit rose 33% to $12.7 million. Solutions sales grew 17% to $6.5 million, while gross profit increased 4% to $2.5 million. Foreign-operation sales were $24.6 million, compared with $15.7 million.
Cash, liquidity and debt
- Cash and cash equivalents were $61.7 million at March 31, 2023, up from $20.2 million at year-end. Operating cash flow was $43.6 million, principally reflecting working-capital changes, including collections of receivables.
- Investing cash outflow was $1.3 million, primarily equipment and leasehold-improvement purchases. Financing cash outflow was $1.1 million, including $0.7 million of dividends, $0.2 million of treasury-stock purchases and term-loan repayments.
- Term-loan principal outstanding was approximately $1.7 million. The company had no borrowings under its $20 million revolving facility or its UK uncommitted facility. The revolving facility matures June 30, 2023.
- Current assets were $200.0 million and current liabilities were $174.1 million. Accounts payable and accrued expenses totaled $173.1 million. Management said cash and available facility capacity should meet working-capital and cash needs for the next 12 months.
Changes, outlook and risks
- Management attributed Distribution gross-profit growth to organic growth in existing vendor partnerships and lower early-payment discounts and fewer other customer rebates and discounts as a percentage of adjusted gross billings. Customer rebates and discounts nevertheless increased to $3.9 million from $1.9 million; vendor rebates and discounts rose to $1.7 million from $1.0 million.
- SG&A increased 24% to $10.3 million, mainly from higher commissions and personnel costs. Amortization and depreciation rose to $0.7 million, primarily due to intangible assets from the 2022 Spinnakar acquisition.
- Adjusted gross billings grew faster than GAAP sales partly because the quarter included a higher mix of security, maintenance and cloud products recorded net as agent transactions. Management also cited an unfavorable foreign-exchange impact on adjusted gross billings.
- The company provided no specific numerical revenue or earnings guidance. It expects working-capital needs to increase as it invests in growth and says available resources are sufficient for the next 12 months.
- Risks highlighted include competitive pricing, product mix and availability, dependence on vendor relationships and rebates, customer demand and IT spending, foreign-exchange fluctuations, and successful integration of acquisitions. Two customers represented 19% and 14% of quarterly sales; two vendors represented 21% and 10% of purchases.
- The Spinnakar acquisition included approximately $1.8 million of estimated potential earn-out consideration. The company reported no off-balance-sheet arrangements, said it complied with credit-facility covenants, and concluded disclosure controls were effective with no material change in internal control reported.
Important facts for investors to verify
- Whether the June 30, 2023 revolving-credit maturity was renewed, refinanced or otherwise addressed after quarter-end.
- How much of the strong operating cash flow reflects sustainable earnings versus temporary working-capital movements.
- Whether customer and vendor concentration, rebate programs and changing agent-versus-principal sales mix affect future margins.
- Spinnakar’s contribution to growth, the earn-out’s eventual amount, and the effects of foreign exchange and the acquired intangibles’ amortization.