UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No.
Climb Global Solutions, Inc.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer Identification No.) |
| incorporation or organization) | |
(Address of principal executive offices)
(
(Registrant’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol | Name of each exchange on which registered: | ||
| | | | | The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | |
| | Smaller Reporting Company |
| Non-Accelerated Filer ☐ | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
CLIMB GLOBAL SOLUTIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED September 30, 2024
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Quarterly Report”) includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and are intended to come within the safe harbor protection provided by those sections. The statements, other than statements of historical fact, included in this Quarterly Report are forward-looking statements. Many of the forward-looking statements contained in this Quarterly Report may be identified by the use of forward-looking words such as “believes,” “expects,” “intends,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,” “should,” “could,” “would,” “will,” “confident,” “may,” “can,” “potential,” “possible,” “proposed,” “in process,” “in development,” “opportunity,” “target,” “outlook,” “maintain,” “continue,” “goal,” “aim,” “commit,” or similar expressions or when we discuss our future operating results, priorities, strategy, goals, vision, mission, opportunities, projections, intentions or expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Because these forward-looking statements are subject to risks and uncertainties, actual results could differ materially from those indicated by such forward-looking statements. These risks and uncertainties include, but are not limited to, the continued acceptance of the Company’s distribution channel by vendors and customers, the timely availability and acceptance of new products, product mix, market conditions, competitive pricing pressures, the successful integration of acquisitions, contribution of key vendor relationships and support programs, including vendor rebates and discounts, as well as factors that affect the software industry in general and other factors generally. We strongly urge current and prospective investors to carefully consider the cautionary statements and risk factors contained in this report and our annual report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2024.
The Company operates in a rapidly changing business, and new risk factors emerge from time to time. Management cannot predict every risk factor, nor can it assess the impact, if any, of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Except as may be required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The statements concerning future sales, future gross profit margin and future selling and administrative expenses are forward looking statements involving certain risks and uncertainties such as availability of products, product mix, pricing pressures, market conditions and other factors, which could result in a fluctuation of sales below recent experience.
Unless otherwise specified, the “Company,” “we,” “us” or “our” refers to Climb Global Solutions, Inc., a Delaware corporation, and its consolidated subsidiaries.
PART I — FINANCIAL INFORMATION
Climb Global Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands, except share and per share amounts)
| | September 30, | December 31, | ||||||
| | 2024 | 2023 | ||||||
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| ASSETS | | | ||||||
| Current assets: | | | ||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ and $, respectively | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
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| Equipment and leasehold improvements, net | ||||||||
| Goodwill | ||||||||
| Other intangibles, net | ||||||||
| Right-of-use assets, net | ||||||||
| Accounts receivable, net of current portion | ||||||||
| Other assets | ||||||||
| Deferred income tax assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | ||||||
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| Current liabilities: | | | ||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Lease liability, current portion | ||||||||
| Term loan, current portion | ||||||||
| Total current liabilities | ||||||||
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| Lease liability, net of current portion | ||||||||
| Deferred income tax liabilities | ||||||||
| Term loan, net of current portion | ||||||||
| Other non-current liabilities | ||||||||
| Total liabilities | ||||||||
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| Commitments and contingencies | | | ||||||
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| Stockholders’ equity: | | | ||||||
| Common stock, $ par value; shares authorized; shares issued: and shares outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost, and shares, respectively | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Climb Global Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
(Amounts in thousands, except per share data)
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| Net sales |
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| Cost of sales, excluding depreciation and amortization expense |
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| Gross profit |
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| Selling, general, and administrative expenses |
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| Acquisition related costs |
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| Depreciation and amortization expense |
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| Income from operations |
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| Other income: |
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| Interest, net |
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| Foreign currency transaction loss |
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| Change in fair value of acquisition contingent consideration |
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| Income before provision for income taxes |
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| Provision for income taxes |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Income per common share-Basic |
$ | $ | $ | $ | ||||||||||||
| Income per common share-Diluted |
$ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding — Basic |
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| Weighted average common shares outstanding — Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Climb Global Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Amounts in thousands)
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Three months ended |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss): |
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| Foreign currency translation adjustments, net of taxes |
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| Other comprehensive income (loss) |
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| Comprehensive income |
$ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Climb Global Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(Amounts in thousands, except share amounts)
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Treasury | Retained | Comprehensive | ||||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Earnings | Income (Loss) | Total | |||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends paid (per common share $) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | |||||||||||||||||||||||||||||
| Restricted stock grants (net of forfeitures) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Treasury shares repurchased | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends paid (per common share $) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | |||||||||||||||||||||||||||||
| Restricted stock grants (net of forfeitures) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Treasury shares repurchased | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Translation adjustment | — | — | ||||||||||||||||||||||||||||||
| Dividends paid (per common share $) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Restricted stock grants (net of forfeitures) | — | — | ||||||||||||||||||||||||||||||
| Treasury shares repurchased | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Treasury | Retained | Comprehensive | ||||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Earnings | Income (Loss) | Total | |||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Translation adjustment | — | — | ||||||||||||||||||||||||||||||
| Dividends paid (per common share $) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | |||||||||||||||||||||||||||||
| Restricted stock grants (net of forfeitures) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Treasury shares repurchased | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Translation adjustment | — | — | ||||||||||||||||||||||||||||||
| Dividends paid (per common share $) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | |||||||||||||||||||||||||||||
| Restricted stock grants (net of forfeitures) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Treasury shares repurchased | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends paid (per common share $) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Restricted stock grants (net of forfeitures) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Treasury shares repurchased | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Climb Global Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
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Nine months ended |
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| Cash flows from operating activities |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: |
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| Depreciation and amortization expense |
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| Provision for doubtful accounts |
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| Deferred income tax benefit |
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| Share-based compensation expense |
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| Amortization of discount on accounts receivable |
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| Amortization of right-of-use assets |
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| Change in fair value of contingent earn-out consideration |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
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| Inventory |
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| Prepaid expenses and other current assets |
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| Vendor prepayments |
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| Accounts payable and accrued expenses |
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| Lease liability, net |
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| Other assets and liabilities |
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| Net cash and cash equivalents provided by operating activities |
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| Cash flows from investing activities |
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| Purchase of equipment and leasehold improvements |
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| Payment for acquisition |
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| Net cash and cash equivalents used in investing activities |
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| Cash flows from financing activities |
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| Purchase of treasury stock |
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| Borrowings under credit facilities |
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| Repayments of borrowings under credit facilities |
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| Repayments of borrowings under term loan |
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| Dividends paid |
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| Contingent consideration paid |
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| Payments of deferred financing costs |
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| Net cash and cash equivalents used in financing activities |
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| Effect of foreign exchange rate on cash and cash equivalents |
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| Net increase in cash and cash equivalents |
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period |
$ | $ | ||||||
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| Supplementary disclosure of cash flow information: |
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| Income taxes paid |
$ | $ | ||||||
| Interest paid |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Climb Global Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(Unaudited)
(Amounts in tables in thousands, except share and per share amounts)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of Climb Global Solutions, Inc. and its subsidiaries (collectively, the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, as permitted by the rules and regulation of the Securities and Exchange Commission, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete audited financial statements.
The preparation of these condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, stock-based compensation, evaluation of performance obligations and allocation of revenue to distinct items, contingencies and litigation. The Company bases its estimates on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the opinion of the Company’s management, all adjustments that are of a normal recurring nature, considered necessary for fair presentation of the results for the periods presented, have been included in the accompanying condensed consolidated financial statements. The Company’s actual results may differ from these estimates under different assumptions or conditions. The unaudited condensed consolidated statements of earnings for the interim periods are not necessarily indicative of results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K filed with the Securities Exchange Commission for the year ended December 31, 2023.
The consolidated financial statements include the accounts of Climb Global Solutions, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
Reclassifications
Certain reclassifications and immaterial revisions have been made to the prior period financial statements to conform to the current-year presentation.
2. Recently Issued Accounting Standards:
In November 2023, the FASB issued Accounting Standards Update 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The Company adopted the update in the first quarter of 2024 and it did not have a material effect on our consolidated financial statements.
3. Foreign Currency Translation:
Assets and liabilities of the Company’s foreign subsidiaries have been translated using the end of the reporting period exchange rates, and related revenues and expenses have been translated at average rates of exchange in effect during the period. Transactions denominated in currencies other than the applicable functional currency are converted to the functional currency at the exchange rate on the transaction date. Foreign currency transaction gains and losses are recorded as income or expenses as amounts are settled. The net sales from our foreign operations for the three months ended September 30, 2024 and 2023 were $
The Company’s foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase the product. In cases where the Company is not able to create a natural hedge by maintaining offsetting asset and liability amounts in the same currency, it may enter into foreign exchange contracts, typically in the form of forward purchase agreements, to facilitate the hedging of foreign currency exposures to mitigate the impact of changes in foreign currency exchange rates. These contracts generally have terms of no more than three months. The Company does not apply hedge accounting to these contracts and therefore the changes in fair value are recorded in earnings. The Company does not enter into foreign exchange contracts for trading purposes and the risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which the Company minimizes by limiting its counterparties to major financial institutions. The Company recognized an unrealized loss of approximately $
4. Comprehensive Income:
Cumulative translation adjustments have been classified within accumulated other comprehensive loss, which is a separate component of stockholders’ equity in accordance with FASB ASC Topic 220, “Comprehensive Income.”
5. Revenue Recognition:
The Company’s revenues primarily result from the sale of various technology products and services, including third-party products, third-party software and third-party maintenance, software support and services. The Company recognizes revenue as control of the third-party products and third-party software is transferred to customers, which generally happens at the point of shipment or fulfilment and at the point that our customers and vendors accept the terms and conditions of the arrangement for third-party maintenance, software support and services.
The Company has contracts with certain customers where the Company’s performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as the Company assumes an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent. These arrangements primarily relate to third party maintenance, cloud services and certain security software whose intended functionality is dependent on third party maintenance.
The Company allows its customers to return product for exchange or credit subject to certain limitations. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return. The Company also provides rebates and other discounts to certain customers which are considered variable consideration. A provision for customer rebates and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.
The Company considers shipping and handling activities as costs to fulfill the sales of products. Shipping revenue is included in net sales when control of the product is transferred to the customer, and the related shipping and handling costs are included in the cost of products sold. Taxes imposed by governmental authorities on the Company’s revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.
The Company disaggregates its operating revenue by segment, geography and timing of revenue recognition, which the Company believes provides a meaningful depiction of the nature of its revenue. See Note 16 – Segment Information.
Hardware and software products sold by the Company are generally delivered via shipment from the Company’s facilities, drop shipment directly from the vendor, or by electronic delivery of keys for software products. The majority of the Company’s business involves shipments directly from its vendors to its customers. In these transactions, the Company is generally responsible for negotiating price both with the vendor and customer, payment to the vendor, establishing payment terms with the customer, product returns, and has risk of loss if the customer does not make payment. As the principal with the customer, the Company recognizes revenue upon receiving notification from the vendor that the product was shipped. Control of software products is deemed to have passed to the customer when they acquire the right to use or copy the software under license as substantially all product functionality is available to the customer at the time of sale.
The Company performs an analysis of the number of days of sales in-transit to customers at the end of each reporting period based on an analysis of commercial delivery terms that include drop-shipment arrangements. This analysis is the basis upon which the Company estimates the amount of net sales in-transit at the end of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment. The Company also performs a weighted average analysis of the estimated number of days between order fulfillment and beginning of the renewal term for term licenses recorded on a gross basis, and a deferral estimate is recorded for term license renewals fulfilled prior to commencement date.
Generally, software products are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect. The Company evaluates whether the software assurance is a separate performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core functionality of the software itself. This involves considering if the software provides its original intended functionality to the customer without the updates, if the customer would ascribe a higher value to the upgrades versus the up-front deliverable, if the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and if the customer chooses to not delay or always install upgrades. If the Company determines that the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software license, the software license and the accompanying third-party delivered software assurance are recognized as a single performance obligation. The value of the product is primarily the accompanying support delivered by a third party and therefore the Company is acting as an agent in these transactions and recognizes them on a net basis at the point the associated software license is delivered to the customer. The Company sells cloud computing solutions that utilize third-party vendors to enable customers to access data center functionality in a cloud-based solution, including storage, computing and networking and access to software in the cloud that enhances office productivity, provides security or assists in collaboration. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue as it invoices the customer for its monthly usage on a net basis. For software licenses where the accompanying third-party delivered software assurance is not critical or essential to the core functionality, the software assurance is recognized as a separate performance obligation, with the associated revenue recognized on a net basis at the point the related software license is delivered to the customer.
The Company also sells some of its products and services as part of bundled contract arrangements containing multiple deliverables, which may include a combination of products and services. For each deliverable that represents a distinct performance obligation, total arrangement consideration is allocated based upon the standalone selling prices (“SSP”) of each performance obligation. SSP is determined based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through established standard prices, we use judgement and estimate the standalone selling price considering available information such as market pricing and pricing related to similar products.
The Company pays commissions and related payroll taxes to sales personnel when customers are invoiced. These costs are recorded as selling, general and administrative expenses in the period earned as all our performance obligations are complete within a short window of processing the order.
6. Acquisition:
Acquisition of Douglas Stewart Software & Services, LLC
On July 31, 2024, Climb Global Solutions DSS, LLC, a wholly-owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) and purchased the entire share capital of Douglas Stewart Software & Services, LLC ("DSS"), a Florida limited liability company, for an aggregate purchase price of approximately $
The financial position and operating results of DSS is included in the Company’s consolidated financial statements from the date of the acquisition. The Company recorded net revenue for DSS of approximately $
The impact of the acquisition’s preliminary purchase price allocations on the Company’s consolidated balance sheet and the acquisition date fair value of the total consideration transferred is depicted in the table below. Due to the timing of the closing of the transaction in the third quarter of 2024, the Company has not yet completed its evaluation and determination of certain assets acquired and liabilities assumed, primarily the final valuation of goodwill and intangible assets; therefore, the final fair value of the assets acquired and liabilities assumed, which will be completed within the measurement period of up to one year from the acquisition date, may vary from the Company’s preliminary estimates:
| (in thousands) | ||||
| Prepaid expenses and other current assets | $ | |||
| Inventory | ||||
| Right-of-use asset | ||||
| Other assets | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| Lease liability, current portion | ( | ) | ||
| Lease liability, non-current portion | ( | ) | ||
| Intangibles - Vendor Relationships | ||||
| Goodwill | ||||
| Net assets | $ |
| (in thousands) | ||||
| Supplementary information: | ||||
| Cash paid to sellers | $ | |||
| Contingent earn-out | ||||
| Total purchase consideration | $ | |||
Intangible assets are comprised of approximately $
The Company used the income approach to value the intangible assets, representing acquired vendor relationships. The fair value measurements were primarily based on significant inputs that are not observable, which are categorized as a Level 3 measurement in the fair value hierarchy (See Note 18 – Fair Value Measurements). Inputs used to value these intangible assets include the discount rate, projection of all future cash flows, long-term growth rates, vendor attrition rates and applicable income tax rates. The excess purchase price recorded to goodwill primarily represents the future economic benefits the Company expects to achieve as a result of combining operations and expanding vendor relationships.
The purchase consideration included approximately $
Acquisition of Data Solutions Holdings Limited
The purchase consideration included approximately $
In connection with the acquisition of Data Solutions on October 6, 2023, the Company acquired an invoice discounting facility (“IDF”) that is with recourse to the Company (See Note 11 – Credit Facilities). The balance outstanding under the IDF at September 30, 2024 was
During the three months ended September 30, 2024 and 2023, the Company recognized acquisition related costs of $
Pro Forma Results (unaudited)
The following unaudited pro forma financial information summarizes the results of operations for the three and nine months ended September 30, 2024 and 2023 as if the acquisition of DSS and Data Solutions has been completed as of the beginning of the three and nine months ended September 30, 2024 and 2023, respectively. The pro forma results are based upon certain assumptions and estimates, and they give effect to actual operating results prior to the acquisitions and adjustments to reflect income taxes at a rate consistent with the tax rates of the local jurisdictions. As a result, these pro forma results do not necessarily represent results that would have occurred if the acquisitions had taken place on the basis assumed above, nor are they indicative of the results of future combined periods.
| Nine months ended | Three months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
7. Goodwill and Other Intangible Assets:
The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 30, 2024:
| | Distribution | Solutions | Consolidated | |||||||||
| Balance December 31, 2023 | $ | $ | $ | |||||||||
| Goodwill acquired | $ | $ | ||||||||||
| Translation adjustments | ||||||||||||
| Balance September 30, 2024 | $ | $ | $ | |||||||||
Information related to the Company’s other intangibles, net is as follows:
| | As of September 30, 2024 | |||||||||||
| | Gross | Net | ||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Customer and vendor relationships | $ | $ | $ | |||||||||
| Trade name | ||||||||||||
| Total | $ | $ | $ | |||||||||
| | As of December 31, 2023 | |||||||||||
| | Gross | Net | ||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Customer and vendor relationships | $ | $ | $ | |||||||||
| Trade name | ||||||||||||
| Total | $ | $ | $ | |||||||||
Customer relationships are amortized over years. Vendor relationships are amortized between and years. Trade name is amortized over years.
During the three months ended September 30, 2024 and 2023, the Company recognized total amortization expense for other intangibles, net of $
Estimated future amortization expense of the Company’s other intangibles, net as of September 30, 2024 is as follows:
| 2024 (excluding the nine months ended September 30, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ |
8. Right-of-use Asset and Lease Liability:
The Company has entered into operating leases for office and warehouse facilities, which have terms at lease commencement that range from
Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of the lease payments over the lease term. As our leases do not provide a readily determinable implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term and included in selling, general and administrative expenses.
Information related to the Company’s ROU assets and related lease liabilities were as follows:
| | Nine months ended | |||||||
| | September 30, | |||||||
| | 2024 | 2023 | ||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new operating lease obligations | $ | $ | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
Maturities of lease liabilities as of September 30, 2024 were as follows:
| 2024 (excluding the nine months ended September 30, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | $ | |||
| | | |||
| Lease liabilities, current portion | ||||
| Lease liabilities, net of current portion | ||||
| Total lease liabilities | $ | |||
9. Fair Value:
The carrying amounts of financial instruments, including cash and cash equivalents, short-term accounts receivable, accounts payable and term loan approximated fair value at September 30, 2024 and December 31, 2023 because of the relative short maturity of these instruments. The Company’s accounts receivable long-term are discounted to their present value at prevailing market rates at the time of sale.
10. Balance Sheet Detail:
Equipment and leasehold improvements consist of the following:
| | September 30, | December 31, | ||||||
| | 2024 | 2023 | ||||||
| Equipment | $ | $ | ||||||
| Capitalized software | ||||||||
| Buildings | ||||||||
| Leasehold improvements | ||||||||
| | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| | $ | $ | ||||||
During the three months ended September 30, 2024 and 2023, depreciation and amortization expense remained consistent at $
In limited circumstances, the Company offers extended payment terms to customers for periods of
| | September 30, | December 31, | ||||||
| | 2024 | 2023 | ||||||
| Total amount due from customer | $ | $ | ||||||
| Less: unamortized discount | ( | ) | ( | ) | ||||
| Less: current portion included in accounts receivable | ( | ) | ( | ) | ||||
| | $ | $ | ||||||
The undiscounted cash flows to be received by the Company relating to these accounts receivable long-term is expected to be $
Accounts payable and accrued expenses consist of the following:
| | September 30, | December 31, | ||||||
| | 2024 | 2023 | ||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Other accounts payable and accrued expenses | ||||||||
| | $ | $ | ||||||
11. Credit Facility:
On May 18, 2023, the Company entered into a revolving credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPM”), providing for a revolving credit facility of up to $
All outstanding loans issued pursuant to the Credit Agreement become due and payable, on May 18, 2028. There were no amounts outstanding under the Credit Agreement as of September 30, 2024.
Outstanding Loans comprising (i) ABR Borrowings bear interest at the ABR plus the Applicable Rate, (ii) Term Benchmark Borrowings bear interest at the Adjusted Term SOFR Rate or the Adjusted EURIBOR Rate, as applicable, plus the Applicable Rate and (iii) RFR Loans bear interest at a rate per annum equal to the applicable Adjusted Daily Simple RFR plus the Applicable Rate. The Applicable Rate for borrowings varies (i) in the case of ABR Borrowings, from
The Credit Agreement contains customary affirmative covenants, such as financial statement and collateral reporting requirements. The Credit Agreement also contains customary negative covenants that limit the ability of the Company to, among other things, incur indebtedness, create liens or permit encumbrances, or undergo certain fundamental changes. Additionally, under certain circumstances, the Company is required to maintain a minimum fixed charge coverage ratio.
In connection with entering into the Credit Agreement, on May 18, 2023, the Company voluntarily terminated its existing revolving credit agreement, dated November 15, 2017 with Citibank N.A. (“Previous Credit Facility”). As of the date of termination, the Company had no borrowings outstanding under the Previous Credit Facility.
On April 8, 2022, the Company entered into a $
At September 30, 2024 and December 31, 2023, the Company had$
| 2024 (excluding the nine months ended September 30, 2024) | ||||
| 2025 | ||||
| 2026 | ||||
| Total | $ |
In connection with the acquisition of Data Solutions (See Note 6– Acquisition), the Company acquired an IDF that is with recourse to the Company. Data Solutions had previously entered into the IDF with AIB Commercial Finance Limited (“AIB”) pursuant to a Debt Purchase Agreement. The Company subsequently terminated the IDF during the nine months ended September 30, 2024. The proceeds from the IDF were used for working capital needs of Data Solutions. Borrowings under the IDF were based on accounts receivable up to