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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

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. 000-26408

Climb Global Solutions, Inc.

(Exact name of registrant as specified in its charter)

Delaware

13-3136104

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

4 Industrial Way West, Suite 300, Eatontown, New Jersey 07724

(Address of principal executive offices)

(732) 389-8950

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:

Common stock, $.01 par value per share

CLMB

The Nasdaq Global Market

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 and 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.  Yes   No 

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).  Yes   No 

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

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  No   

There were 4,585,131 outstanding shares of common stock, par value $.01 per share (“Common Stock”) as of May 2, 2024.

Table of Contents

CLIMB GLOBAL SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

Table of Contents

 

 

Page

 

 

 

 

PART I FINANCIAL INFORMATION

 

 

 

 

Item 1

Financial Statements (unaudited)

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023

4

 

 

 

 

Condensed Consolidated Statements of Earnings for the three months ended March 31, 2024 and 2023 (unaudited)

5

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2024 and 2023 (unaudited)

6

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (unaudited)

7

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)

8

 

Notes to Condensed Consolidated Financial Statements (unaudited)

9

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

32

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 5.

Other Information

33

 

 

 

Item 6.

Exhibits, Financial Statement Schedules

34

 

 

SIGNATURES

35

 

2

Table of Contents

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,” “under construction,” “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.

3

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Climb Global Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except share and per share amounts)

March 31,

December 31,

    

2024

    

2023

    

ASSETS

Current assets:

Cash and cash equivalents

$

43,572

$

36,295

Accounts receivable, net of allowance for doubtful accounts of $744 and $709, respectively

180,587

 

222,269

Inventory, net

1,865

 

3,741

Prepaid expenses and other current assets

6,619

 

6,755

Total current assets

232,643

 

269,060

Equipment and leasehold improvements, net

9,890

 

8,850

Goodwill

26,906

27,182

Other intangibles, net

25,920

26,930

Right-of-use assets, net

848

878

Accounts receivable, net of current portion

752

 

797

Other assets

974

 

1,077

Deferred income tax assets

389

 

324

Total assets

$

298,322

$

335,098

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

213,221

$

249,648

Lease liability, current portion

495

450

Term loan, current portion

545

540

Total current liabilities

214,261

 

250,638

Lease liability, net of current portion

771

879

Deferred income tax liabilities

5,492

5,554

Term loan, net of current portion

614

752

Other non-current liabilities

735

2,505

Total liabilities

221,873

260,328

Commitments and contingencies

Stockholders’ equity:

Common stock, $.01 par value; 10,000,000 shares authorized; 5,284,500 shares issued: 4,585,131 and 4,573,448 shares outstanding, respectively

53

53

Additional paid-in capital

35,170

34,647

Treasury stock, at cost, 699,369 and 711,052 shares, respectively

(12,724)

(12,623)

Retained earnings

55,190

53,215

Accumulated other comprehensive loss

(1,240)

(522)

Total stockholders’ equity

76,449

 

74,770

Total liabilities and stockholders' equity

$

298,322

$

335,098

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents

Climb Global Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(Unaudited)

(Amounts in thousands, except per share data)

Three months ended

 

March 31,

    

2024

    

2023

    

 

Net sales

$

92,422

$

85,040

Cost of sales, excluding depreciation and amortization expense

75,402

69,831

Gross profit

 

17,020

 

15,209

Selling, general, and administrative expenses

12,523

10,241

Acquisition related costs

123

22

Depreciation and amortization expense

871

713

Income from operations

 

3,503

 

4,233

Other income:

Interest, net

203

112

Foreign currency transaction (loss) gain

(85)

44

Income before provision for income taxes

 

3,621

 

4,389

Provision for income taxes

 

890

 

1,065

Net income

$

2,731

$

3,324

Income per common share-Basic

$

0.60

$

0.74

Income per common share-Diluted

$

0.60

$

0.74

Weighted average common shares outstanding — Basic

4,438

4,366

Weighted average common shares outstanding — Diluted

 

4,438

 

4,366

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

Climb Global Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Amounts in thousands)

Three months ended

March 31,

    

2024

    

2023

    

Net income

$

2,731

$

3,324

Other comprehensive (loss) income:

Foreign currency translation adjustments

 

(718)

 

613

Other comprehensive (loss) income

 

(718)

 

613

Comprehensive income

$

2,013

$

3,937

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

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

   

(Loss) Income

   

Total

Balance at January 1, 2024

 

5,284,500

$

53

$

34,647

 

711,052

$

(12,623)

$

53,215

$

(522)

$

74,770

Net income

2,731

2,731

Translation adjustment

(718)

(718)

Dividends paid (per common share $0.17)

(756)

(756)

Share-based compensation expense

854

854

Restricted stock grants (net of forfeitures)

(331)

(18,938)

331

Treasury shares repurchased

7,255

(432)

(432)

Balance at March 31, 2024

 

5,284,500

$

53

$

35,170

 

699,369

$

(12,724)

$

55,190

$

(1,240)

$

76,449

Accumulated

Additional

Other

Common Stock

Paid-In

Treasury

Retained

Comprehensive

   

Shares

   

Amount

   

Capital

   

Shares

   

Amount

   

Earnings

   

(Loss) Income

   

Total

Balance at January 1, 2023

 

5,284,500

53

32,715

 

806,068

(13,230)

43,904

(2,868)

$

60,574

Net income

3,324

3,324

Translation adjustment

613

613

Dividends paid (per common share $0.17)

(749)

(749)

Share-based compensation expense

545

545

Restricted stock grants (net of forfeitures)

(765)

(43,824)

765

Treasury shares repurchased

5,604

(214)

(214)

Balance at March 31, 2023

 

5,284,500

$

53

$

32,495

767,848

$

(12,679)

$

46,479

$

(2,255)

$

64,093

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Climb Global Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

Three months ended

March 31,

    

2024

    

2023

    

Cash flows from operating activities

Net income

$

2,731

$

3,324

Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:

Depreciation and amortization expense

 

871

716

Provision for doubtful accounts

 

45

9

Deferred income tax benefit

 

(77)

241

Share-based compensation expense

822

529

Amortization of discount on accounts receivable

(6)

(11)

Amortization of right-of-use assets

29

101

Changes in operating assets and liabilities:

Accounts receivable

 

40,435

30,345

Inventory

 

1,824

703

Prepaid expenses and other current assets

 

115

(3,696)

Vendor prepayments

890

Accounts payable and accrued expenses

 

(31,024)

9,994

Lease liability, net

(63)

(133)

Other assets and liabilities

 

(1,655)

598

Net cash and cash equivalents provided by operating activities

 

14,047

 

43,610

Cash flows from investing activities

Purchase of equipment and leasehold improvements

 

(1,180)

(1,270)

Net cash and cash equivalents used in investing activities

 

(1,180)

 

(1,270)

Cash flows from financing activities

Purchase of treasury stock

 

(432)

(214)

Borrowings under credit facilities

10,000

Repayments of borrowings under credit facilities

(4,229)

(10,000)

Repayments of borrowings under term loan

(133)

(128)

Dividends paid

 

(756)

(749)

Net cash and cash equivalents used in financing activities

 

(5,550)

 

(1,091)

Effect of foreign exchange rate on cash and cash equivalents

 

(40)

 

247

Net increase in cash and cash equivalents

 

7,277

41,496

Cash and cash equivalents at beginning of period

 

36,295

20,245

Cash and cash equivalents at end of period

$

43,572

$

61,741

Supplementary disclosure of cash flow information:

Income taxes paid

$

272

$

222

Interest paid

$

68

$

22

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Climb Global Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 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 March 31, 2024 and 2023 were $28.2 million and $24.6 million, respectively.

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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,

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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:

On October 6, 2023, the Company entered into a Share Purchase Agreement and purchased the entire share capital of Data Solutions Holdings Limited (“Data Solutions”) for an aggregate purchase price of approximately €15.0 million (equivalent to $15.9 million USD), subject to certain working capital and other adjustments, paid at closing plus a potential post-closing earn-out. The allocation of the purchase price was based on the estimated fair value of Data Solutions’ net tangible and identifiable intangible assets as of the date of the acquisition. The transaction was accounted for under the purchase method of accounting.

The purchase consideration includes approximately $2.3 million fair value for potential earn-out consideration if certain targets are achieved, payable in cash. The earn-out liability is included in current liabilities as of March 31, 2024 and December 31, 2023. There were no material changes in fair value since the acquisition date. The fair value earn-out measurement was primarily based on inputs that are not observable, which are categorized as a Level 3 measurement in the fair value hierarchy (See Note 18 – Fair Value Measurements), reflecting its assessment of the assumptions market participants would use to value these liabilities. The undiscounted payment of the earn-out can range from zero up to approximately $3.9 million and achievement is based on the post-acquisition results of Data Solutions.

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 March 31, 2024 was zero compared to $4.3 million at December 31, 2023, which is included in accounts payable and accrued expenses on the Consolidated Balance Sheets.

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7.            Goodwill and Other Intangible Assets:

The following table summarizes the changes in the carrying amount of goodwill for the three months ended March 31, 2024:

Distribution

Solutions

Consolidated

Balance January 1, 2023

$

10,682

$

8,281

$

18,963

Goodwill acquired

7,143

7,143

Translation adjustments

833

243

1,076

Balance December 31, 2023

$

18,658

$

8,524

$

27,182

Translation adjustments

(207)

(69)

(276)

Balance March 31, 2024

$

18,451

$

8,455

$

26,906

Information related to the Company’s other intangibles, net is as follows:

As of March 31, 2024

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Customer and vendor relationships

$

30,638

5,093

$

25,545

Trade name

485

110

375

Total

$

31,123

$

5,203

$

25,920

As of December 31, 2023

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Customer and vendor relationships

$

30,968

$

4,424

$

26,544

Trade name

489

103

386

Total

$

31,457

$

4,527

$

26,930

Customer relationships are amortized over thirteen years. Vendor relationships are amortized between eight and fifteen years. Trade name is amortized over fifteen years.

During the three months ended March 31, 2024 and 2023, the Company recognized total amortization expense for other intangibles, net of $0.7 million and $0.5 million, respectively.

Estimated future amortization expense of the Company’s other intangibles, net as of March 31, 2024 is as follows:

2024 (excluding the three months ended March 31, 2024)

    

$

2,096

2025

 

2,795

2026

 

2,795

2027

 

2,795

2028

 

2,795

Thereafter

 

12,644

Total

$

25,920

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 2 years to 11 years. The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets and lease expense for these leases is recognized on a straight-line basis over the lease term.

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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:

Three months ended

March 31,

2024

2023

Cash paid for operating lease liabilities

$

160

$

156

Right-of-use assets obtained in exchange for new operating lease obligations

$

69

$

Weighted-average remaining lease term

2.9 years

3.9 years

Weighted-average discount rate

3.7%

3.5%

Maturities of lease liabilities as of March 31, 2024 were as follows:

2024 (excluding the three months ended March 31, 2024)

    

$

483

2025

 

553

2026

 

548

2027

 

111

1,695

Less: imputed interest

(429)

Total lease liabilities

$

1,266

Lease liabilities, current portion

495

Lease liabilities, net of current portion

771

Total lease liabilities

$

1,266

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 March 31, 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.

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10.           Balance Sheet Detail:

Equipment and leasehold improvements consist of the following:

    

March 31,

December 31,

2024

    

2023

Equipment

$

3,277

$

3,195

Capitalized software

7,987

6,890

Buildings

694

709

Leasehold improvements

 

2,377

 

2,385

 

14,335

 

13,179

Less accumulated depreciation and amortization

 

(4,445)

 

(4,329)

$

9,890

$

8,850

During the three months ended March 31, 2024 and 2023, the Company recorded depreciation and amortization expense of $0.9 million and $0.7 million, respectively.

In limited circumstances, the Company offers extended payment terms to customers for periods of 12 to 36 months. The related customer receivables are classified as accounts receivable long-term and discounted to their present value at prevailing market rates at the time of sale. In subsequent periods, the accounts receivable is increased to the amounts due and payable by the customers through the accretion of interest income on the unpaid accounts receivable due in future years. The amounts under these long-term accounts receivable due within one year are reclassified to the current portion of accounts receivable. Accounts receivable long term, net consists of the following:

March 31,

December 31,

2024

    

2023

Total amount due from customer

$

1,623

$

1,637

Less: unamortized discount

 

(6)

 

(12)

Less: current portion included in accounts receivable

 

(865)

 

(828)

$

752

$

797

The undiscounted cash flows to be received by the Company relating to these accounts receivable long-term is expected to be $0.8 million, $0.4 million, $0.4 million during each of the 12-month periods ending March 31, 2025, 2026, and 2027, respectively.

Accounts payable and accrued expenses consist of the following:

    

March 31,

December 31,

2024

    

2023

    

Trade accounts payable

$

189,732

$

218,717

Accrued expenses

17,823

22,903

Other accounts payable and accrued expenses

 

5,666

 

8,028

$

213,221

$

249,648

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 $50.0 million, including the issuance of letters of credit and swingline loans not to exceed $2.5 million and $5.0 million, respectively, at any time outstanding. In addition, subject to certain conditions enumerated in the Credit Agreement, the Company has the right to increase the revolving credit facility by a total amount not to exceed $20.0 million. The proceeds of the revolving loans, letters of credit and swingline loans under the Credit Agreement may be used for working capital needs, general corporate purposes and for acquisitions permitted by the terms of the Credit Agreement.

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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 March 31, 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 0.50% to 0.75% and (ii) in the case of Term Benchmark Borrowings and RFR Loans, from 1.50% to 1.75%.

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 $2.1 million term loan (the “Term Loan”) with First American Commercial Bancorp, Inc. (“First American”) pursuant to a Master Loan and Security Agreement. The proceeds from the Term Loan was used to fund certain capital expenditures. The borrowing under the Term Loan bears interest at a rate of 3.73% per annum and is being repaid over forty-eight monthly installments of principal and interest through April 2026.

At March 31, 2024 and December 31, 2023, the Company had $1.2 million and $1.3 million outstanding under the Term Loan, respectively. At March 31, 2024, future principal payments under the Term Loan are as follows:

2024 (excluding the three months ended March 31, 2024)

453

2025

562

2026

144

Total

$

1,159

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 proceeds from the IDF will be used for working capital needs of Data Solutions. Borrowings under the IDF are based on accounts receivable up to 80% of the outstanding accounts receivable balance. The discount rate under the IDF is equal to 2.5% above AIB’s applicable lending rates that vary based on the currency of the accounts receivable. At March 31, 2024 and December 31, 2023, the outstanding balance under the IDF at was zero and $4.3 million, respectively, which is included in accounts payable and accrued expenses on the Consolidated Balance Sheet.

12.          Earnings Per Share:

Our basic and diluted earnings per share are computed using the two-class method in accordance with ASC 260. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Non-vested restricted stock awards that include non-forfeitable rights to dividends are considered participating securities. Per share amounts are computed by dividing net income available to common shareholders by the weighted average shares outstanding during each period. Diluted and basic earnings per share are the same because the restricted shares are the only potentially dilutive security.

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A reconciliation of the numerators and denominators of the basic and diluted per share computations follows:

Three months ended

March 31,

    

2024

    

2023

    

Numerator:

Net income

$

2,731

$

3,324

Less distributed and undistributed income allocated to participating securities

63

83

Net income attributable to common shareholders

2,668

3,241

Denominator:

 

Weighted average common shares (Basic)

 

4,438

 

4,366

 

Weighted average common shares including assumed conversions (Diluted)

 

4,438

 

4,366

Basic net income per share

$

0.60

$

0.74

Diluted net income per share

$

0.60

$

0.74

13.        Major Customers and Vendors:

The Company had two major vendors that accounted for 16% and 10% of total purchases during the three months ended March 31, 2024, and 21% and 10%, respectively, of total purchases during the three months ended March 31, 2023.

The Company had two major customers that accounted for 20% and 15%, respectively, of its net sales during the three months ended March 31, 2024, and 19% and 14%, respectively, of its net sales during the three months ended March 31, 2023. These same customers accounted for 16% and 6%, respectively, of total net accounts receivable as of March 31, 2024, and 15% and 6%, respectively, of total net accounts receivable as of December 31, 2023.

14.          Income Taxes:

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has appropriate support for the income tax positions it takes and expects to take on its tax returns, and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

15.          Stockholders’ Equity and Stock Based Compensation:

The 2021 Omnibus Incentive Plan (the “2021 Plan”) authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses and other equity-based awards. The 2021 Plan was approved by the Company’s stockholders at the 2021 Annual Meeting in June 2021. The total number of shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) initially available for award under the 2021 Plan was 500,000 shares. As of March 31, 2024, the number of shares of Common Stock available for future award grants to employees, officers and directors under the 2021 Plan is 222,130.

The 2012 Stock-Based Compensation Plan (the “2012 Plan”) authorized the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses and other equity-based awards. The total number of shares of the Company’s Common Stock initially available for award under the 2012 Plan was 600,000, which was increased to 1,000,000 shares by stockholder approval at the Company’s 2018 Annual Meeting in June 2018. Immediately prior to the replacement of the 2012 Plan by the 2021 Plan, there were 352,158 shares of Common Stock available under the 2012 Plan. The 2012 Plan has been replaced by the 2021 Plan and none of the remaining shares of

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Common Stock authorized under the 2012 Plan will be transferred to or used under the 2021 Plan nor will any awards under the 2012 Plan that are forfeited increase the shares available for awards under the 2021 Plan. As of March 31, 2024, the number of shares of Common Stock available under the 2012 Plan was zero.

During the three months ended March 31, 2024, the Company granted a total of 18,938 shares of Restricted Stock to officers and employees. These shares of Restricted Stock vest immediately, over time in three equal installments or over time in sixteen equal quarterly installments.

During the three months ended March 31, 2023, the Company granted a total of 43,824 shares of Restricted Stock to officers. These shares of Restricted Stock vest over time in sixteen equal quarterly installments.

A summary of nonvested shares of Restricted Stock awards outstanding under the 2012 and 2021 Plans as of March 31, 2024, and changes during the three months then ended is as follows:

Weighted

 

Average Grant

Date

 

Shares

Fair Value

 

Nonvested shares at January 1, 2024

 

143,294

$

36.48

Granted in 2024

 

18,938

 

60.19

Vested in 2024

 

(20,559)

 

34.16

Forfeited in 2024

 

 

Nonvested shares at March 31, 2024

 

141,673

$

39.98

As of March 31, 2024, there is approximately $4.9 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.7 years.

During the three months ended March 31, 2024 and 2023, the Company recognized share-based compensation expense of $0.8 million and $0.5 million, respectively.

16.          Segment Information:

The Company distributes software developed by others through resellers indirectly to customers worldwide.  We also resell computer software and hardware developed by others and provide technical services directly to customers worldwide.

FASB ASC Topic 280, “Segment Reporting,” requires that public companies report profits and losses and certain other information on their “reportable operating segments” in their annual and interim financial statements. The internal organization used by the public company’s Chief Operating Decision Maker (“CODM”) to assess performance and allocate resources determines the basis for reportable operating segments. The Company’s Chief Executive Officer, who has been identified as the Company’s CODM, primarily uses operating income as the measure of profit or loss to assess segment performance and allocate resources. Operating income represents net sales less costs of sales, excluding depreciation and amortization expense and operating expenses. Net sales and cost of sales, excluding depreciation and amortization expense are directly attributed to each segment. The majority of operating expenses are also directly attributed to each segment, while certain other operating expenses are allocated to the segments in a reasonable manner considering the specific facts and circumstances of the expenses being allocated.

The Company is organized into two reportable operating segments. The “Distribution” segment distributes technical software to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide. The “Solutions” segment is a provider of cloud solutions and value-added reseller of software, hardware and services to customers worldwide.

As permitted by FASB ASC Topic 280, the Company has utilized the aggregation criteria in combining its operations in Canada, Europe and the United Kingdom with the domestic segments as the international operations provide

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the same products and services to similar clients and are considered together when the Company’s CODM decides how to allocate resources.

Segment income is based on segment revenue less the respective segment’s cost of revenues as well as segment direct costs (including such items as payroll costs and payroll related costs, such as profit sharing, incentive awards and insurance) and excluding general and administrative expenses not attributed to an individual segment business unit. The Company only identifies accounts receivable, vendor prepayments, inventory, goodwill and intangible assets by segment as shown below as “Selected Assets” by segment; it does not allocate its other assets, including capital expenditures by segment. The following segment reporting information of the Company is provided:

Three months ended

March 31,

2024

  

2023

  

Net Sales:

Distribution

$

86,822

$

78,550

Solutions

 

5,600

 

6,490

 

92,422

 

85,040

Gross Profit:

Distribution

$

14,215

$

12,728

Solutions

 

2,805

 

2,481

 

17,020

 

15,209

Direct Costs:

Distribution

$

7,376

$

4,777

Solutions

 

1,381

 

1,301

 

8,757