Climb's Q3 2025 Earnings Call: Contradictions Emerge on Tariffs, Currency Fluctuations, Margins, and DSS Seasonality

Date of Call: October 30, 2025

Financials Results

• Revenue: $161.3M net sales, up 35% YOY (vs $119.3M prior year); gross billings $504.6M, up 8% YOY (vs $465.2M prior year)
• EPS: GAAP: $1.02 per diluted share, down from $1.19 prior year; Adjusted: $1.31 per diluted share, down from $1.55 prior year
• Gross Margin: Gross profit 5.1% of gross billings, compared to 5.2% in the prior year (gross profit $25.7M vs $24.3M prior year)
• Operating Margin: Adjusted EBITDA as % of gross profit (effective margin) 42.3%, down from 45.7% prior year; SG&A 3.2% of gross billings vs 3.0% prior year

Guidance:

• Close out 2025 strong and position for another year of record results.
• Actively evaluating strategic, accretive acquisitions to enhance capabilities and expand presence, particularly in Western Europe.
• Expect continued organic growth driven by new and existing vendors and AI initiatives.
• Plan to roll out Climb AI Academy beyond DACH into other regions.
• Maintain operational discipline, balance-sheet strength and targeted M&A to drive growth.

Business Commentary:

* Organic Growth and Strategic Acquisitions: - Climb Global Solutions reported double-digit organic growth in Q3, with gross billings rising 8% to $504.6 million. - This growth was driven by the integration of Douglas Stewart Software, acquired in July 2024, and strong partnerships with existing and new vendors.

• Vendor Selection and Partnerships:
• The company added four new vendor partners to its Line Card after evaluating over seventy potential candidates.

• These partnerships, including Liongard and Halcyon, enhance Climb's offerings in attack surface management, intelligent automation, and cyber resilience, aligning with market demands.

• AI Academy and European Expansion:

• Climb AI Academy in the DACH region has enrolled over 700 participants since its launch, impacting international recognition and market penetration in AI solutions.

• This initiative is central to Climb's strategy for expanding its AI capabilities and enhancing its reputation as a high-touch distribution partner in Europe.

• Financial Performance and Cash Position:

• Climb's net sales increased 35% to $161.3 million, despite a slight decline in adjusted EBITDA.
• The company's strong cash position, with $49.8 million in cash and equivalents, reflects effective working capital management and supports its acquisition strategy.

Sentiment Analysis:

Overall Tone: Positive

• Management: "we generated double-digit organic growth" and expects to "close out 2025 strong." CFO: net sales +35% YOY to $161.3M and gross billings +8% to $504.6M. Company highlighted expanding vendor partnerships, AI Academy adoption (700+ participants), and an active pipeline of accretive M&A—supporting a constructive outlook despite modest margin compression.

Q&A:

• Question from Vincent Colicchio (Barrington Research Associates, Inc., Research Division): Yes, Dale, congrats on another strong double-digit organic growth quarter. Curious, how would you characterize the quarter? Was the growth broad-based across your top 20? Also, were there any large lumpy deals in the quarter?
  Response: No lumpy deals this quarter; growth was broad-based and organic across most vendors; comparables affected by a large order pulled into Q2 and a large Q3 last year; Sophos flat, SolarWinds improving.

• Question from Vincent Colicchio (Barrington Research Associates, Inc., Research Division): And then in terms of industries, security, I assume, still leads growth. Is that right?
  Response: Yes — cybersecurity represents over 60% of revenue and remains the primary growth driver.

• Question from Vincent Colicchio (Barrington Research Associates, Inc., Research Division): And then maybe one for Matt. Were there any early pay price discounts of any magnitude that impacted margin?
  Response: No material change — early-pay usage remained consistent period-over-period and did not meaningfully impact margins.

• Question from Vincent Colicchio (Barrington Research Associates, Inc., Research Division): And then, Dale, the training program you had highlighted in Europe, did you -- have you had a similar program in the U.S.?
  Response: Not yet — Climb AI Academy launched in DACH and will be rolled out to the U.S.; vendor AI capabilities are being integrated into existing products.

• Question from Howard Root (Private Investor): Kind of first, no mention of tariffs, and I think nothing's changed there. But remind me, is there any impact on tariffs on your business?
  Response: Tariffs were a nonissue this quarter; FX/currency exposure is managed via shorter quote windows and is the primary related consideration.

• Question from Howard Root (Private Investor): Accounts receivable, accounts payable, you made some notable declines in that drop in AR by $65 million sequentially and AP down by $50 million. Is that -- kind of give me a rundown of how that's happening? And is that where it should be now going forward? Or what would you expect going forward on AR and AP?
  Response: These swings reflect timing and seasonality — collections and vendor payments around large transactions and year-end; expect levels to revert to typical year-end patterns.

• Question from Howard Root (Private Investor): Okay. So do you see this -- I mean, $50 million swings quarter-to-quarter is kind of part of your business? Is that an aberration?
  Response: Not an aberration — large, lumpy transactions drive spikes in receivables and payables and explain quarter-to-quarter swings.

• Question from Howard Root (Private Investor): On the gross billings side, nice to see it continue to go up. With DSS, is that -- is there more seasonality to it? Is the third quarter more soft with that business? Or what do you see as seasonality of your orders now with DSS making a part of it?
  Response: DSS is seasonal (education market) with strong buying May–October tied to school budgets; Adobe (a major DSS vendor) drives much of that seasonality and affects gross profit timing.

• Question from Howard Root (Private Investor): And then the Solutions segment was kind of the one negative with the gross billings down by 5%. What was the cause of that? And what do you see going forward for that segment?
  Response: Solutions decline was a short-term blip driven by renewals and variability among a small U.S. customer base; not expected to persist.

• Question from Howard Root (Private Investor): The bigger area is M&A. I guess a little thing there. I saw $600,000 of acquisition-related costs in the quarter. But no deal and the deal -- last deal was the DSS a year ago. What was the $600,000, what was that related to?
  Response: Those costs are prospecting and evaluation expenses tied to the active acquisition pipeline (largely forward-looking, including overseas diligence).

• Question from Howard Root (Private Investor): But safe to say that's all forward-looking on deals, not related to past deals done?
  Response: Correct — costs reflect ongoing evaluation of strategic acquisition opportunities, not past closed deals.

• Question from Howard Root (Private Investor): If you look at M&A and I think 2 different places you said a healthy appetite and actively evaluating... are we looking at $50 million deals, $100 million deals, cash deals, debt deals, equity deals, all of the above? What's your vision kind of as to how much the M&A is going to affect the company? And how much do you see your organic continuing to drive the growth of this company?
  Response: Targeting deals up to ~$40M and smaller sub-$10M tuck-ins; organic growth remains primary; M&A will add technical capabilities, vendors and territories (notably Europe) to accelerate growth.

• Question from Howard Root (Private Investor): So then on multiples, I mean, it's $10 million to $40 million, that's your acquisition price. What type of gross billings? Or what type of multiples would you be looking at in those type of deals?
  Response: Valuations depend on margin profile, vendor concentration, team and cultural fit — higher-margin European assets command higher multiples; vendor-concentrated targets get lower multiples.

• Question from Vincent Colicchio (Barrington Research Associates, Inc., Research Division): Yes. Dale, just trying to assess if there's any signs of any kind of slowdown in sales cycles change, anything like that? Or based on your numbers, it looks like a pretty healthy environment.
  Response: No sign of market softness; sales cycles healthy and Q4 expected to be strong due to license renewals and seasonality, though lumpy large transactions will continue to create variability.

Contradiction Point 1

Impact of Tariffs and Currency Fluctuations

It involves the company's response to the impact of tariffs and currency fluctuations, which could affect operational costs and financial performance.

Are tariffs impacting your business? - Unknown Shareholder

2025Q3: No significant impact from tariffs. The FX with currencies is more of an issue. We're managing it by reducing quote times to deal with these fluctuations. - Dale Foster(CEO)

Do tariffs or currency fluctuations have a material impact? - Unknown Investor

2025Q2: We haven't had impact from tariffs. We're focused on FX strategies, trying to come up with better schemes to deal with currency fluctuations. - Matthew Sullivan(CFO)

Contradiction Point 2

Gross Margin Projections

It involves projections and expectations regarding gross margins, which are critical metrics for investors.

Were there any early payment discounts that impacted margins? - Vincent Colicchio (Barrington Research Associates, Inc., Research Division)

2025Q3: Our gross margin was 5%. This was higher than our Q2 level, primarily due to the favorable timing of lumpy transactions. - Matthew Sullivan(CFO)

Is the increase in gross margin a trend or short-term fluctuations? - Unknown Investor

2025Q2: We continue to project it to be in that 5%, 5.1%. The real driver of that higher percentage was the timing of lumpy transactions that contributed to a slightly higher percentage this quarter. - Matthew Sullivan(CFO)

Contradiction Point 3

Acquisition Strategy and Market Valuation

It involves the company's strategy regarding acquisitions, including the size and type of deals they are looking at, and their approach to market valuation.

Are you targeting deal sizes and types for M&A? - Unknown Shareholder

2025Q3: Looking at deals from $10 million to $40 million. Evaluating more strategic technical acquisitions and larger overseas ones. Confident in closing some deals. - Dale Foster(CEO)

Can you clarify your acquisition strategy and how it aligns with current market valuation? - Unknown Investor

2025Q2: We're looking at services companies for margin profile and stickiness with vendors. For 2026 or beyond, we're considering larger acquisitions. Valuation multiples start at 7 to 9, and it depends on the specific company, vendors, and market reach. - Dale Foster(CEO)

Contradiction Point 4

Seasonality of DSS Orders

It involves the company's description of the seasonality of orders for its Data Storage Solutions (DSS) segment, which can affect revenue forecasting.

Does DSS show weaker performance in Q3, or is there a seasonal trend in your orders now? - Unknown Shareholder

2025Q3: Yes, more soft due to the seasonality of education sales, typically strong from May to October. May is the key month for education spending. - Dale Foster(CEO)

Were there any notable large deals in the quarter? Or was demand broad-based? - Vincent Colicchio (Barrington Research)

2025Q1: Q1 is not the strongest quarter for DSS. - Dale Foster(CEO)

Contradiction Point 5

Impact of Tariffs on Business

It involves the company's stance on the impact of tariffs on its business, which can affect financial forecasts and operational strategies.

Are tariffs affecting your business? - Unknown Shareholder

2025Q3: No significant impact from tariffs. The FX with currencies is more of an issue. We're managing it by reducing quote times to deal with these fluctuations. - Dale Foster(CEO)

Has sentiment changed due to the uncertain economic environment? How might tariffs impact your business? - Vincent Colicchio (Barrington Research)

2025Q1: Climb doesn't feel the impact of tariffs directly as over 80% of its business is in the U.S., with vendors being U.S.-based. The lion's share of business is in the U.S., minimizing the impact of tariffs. Quoting processes account for tariffs, ensuring close quotes in Canada. - Dale Foster(CEO)