Good morning, everybody. Up next, we have Climb Global Solutions. They're trading on NASDAQ under symbol CLMB. On behalf of the company, we have Dale Foster, CEO, and Matthew Sullivan, CFO.
Thank you. Thank you. We have a small crowd, we'll make this real informal. We'll give a little bit of background on each one of us and then take you into the Climb story and take it two pieces as far as where we've come from and where we're taking the company. My background, 30+ years in the IT distribution market. I was running a company called Promark Technology out of Annapolis Junction, Maryland, and we were heavily in the data center space, and we were selling IT data center storage compute into what we consider a 2-tier market. As a distributor, we're selling into resellers, and you'll be familiar with some of these names, like CDW, SHI, Insight, a couple of those are public companies, and then the 30,000+ identified resellers in North America.
In 2012, there was a roll-up of distributors in North America, and in 2012, we sold it to Ingram Micro. Ingram Micro, and we'll talk about this in the future, three big distributors in North America, Ingram Micro, a public company on the NASDAQ, TD SYNNEX, another $60 billion plus company, and then Arrow Electronics. Those three make up $150 billion of IT spend. They're the largest three in the world. The next size down to that is about a $6 billion company that's out there. Sold it to Ingram. It was a strategic sale. They looked at us for government contracts, and also the reason we were popular is the emerging products that were out there, and we were good at identifying emerging products.
If you're familiar with companies that we signed that were earlier in their stages, and this flows all the way through to where Climb is today, and that is companies like Nutanix, Rubrik, Data Domain, they were all bought up either by EMC or Dell over the years. We were acquired by Ingram Micro, like I said, $130 million-$140 million company. Spent five years at Ingram Micro and looked for the next thing. We couldn't really move the needle, of course. Ingram was being acquired, went private, public, private, and now public, and looked for the next thing. I came to this company called Lifeboat. If you look through the decks as far as where we came from, public company in 1995 under the shell of WSTG called Wayside, and the operating distributor was called Lifeboat. I've been here eight years.
Matt will be about the same tenure. We changed the name to Climb four years ago, I think, something like that, and it's all underneath CLMB on the NASDAQ, as the presenter mentioned. Couple things when I came to Climb, and I realized what they needed. They weren't good. We were about a $500 million company. What they needed was vendor recruiting, and in distribution in North America, vendor recruiting is the lifeblood. It's the "Field of Dreams" movie. If you build it, they will come. If you have the vendors, you can get the customers by service and by selling. That's the biggest thing we did. The next thing we did was add a field sales force, and that field sales force sits in-region. We have 16 regions in North America, and then we have some dedicated teams for the bigger resellers.
Our go-to-market is technology in the software space as a distributor. I'll let Matt introduce himself, then I'll jump into the slides.
I'm Matt Sullivan. I'm the company's CFO. I joined what was back then Wayside in 2019, about a year after Dale did. I joined the company as the Corporate Controller, then eventually was promoted into the Chief Accounting Officer, more recently, about a year and a half ago, the CFO. My background before Climb was, I started my career for a number of years here in Manhattan in the public accounting world, then previous, spent two years in a privately held company before joining Climb.
Good. I'm going to jump around a little bit. We'll make this really interactive because it's a small group. As I mentioned, these are some of the distributors that exist in the world. Arrow, Ingram, Synnex, Tech Data, all $150 billion plus companies. Ingram Micro, Synnex, Tech Data, all $150 billion companies. Infinigate in Europe, Esprnet in Europe. Those guys just had some events. Then Climb sits as more of an emerging distributor that's out there. We're looking for emerging technology and taking it to a reseller base. We do not touch the end user market. That's for our resellers to do. Here's the two different strategies. You've seen the book out there, "Red Ocean, Blue Ocean." We turned it into a red mountain, blue mountain. We compete where we want to compete in the market space.
We work with resellers that we want to work with, MSPs, dealers, whatever they want to call themselves, as long as they're a two-tier base and going to the customer. If you look at our line card, our line card, we have some Tier 1s, and we have Microsoft in Europe, we have Adobe in the U.S., but we aren't selling Dell, HP, Cisco that's out there. We're selling the challengers to those companies or the challengers to those companies in their software segment. We're about 90% in the software space, and that's where we'll continue to stay. This is the markets that we see and have identified that we sell into. Here's how we stack up with the big three. We have vendors in line or in common with them, and we still garner the lion's share of the market with competing with them.
Why is that? Is we out-service our competitors. A lot of share shift happens toward Climb, and it's all based on service. If you look at the IT market, you're saying, "Hey." You're selling software. Why doesn't it just go to a hyperscaler like an AWS, you go and download your software, and an end user use it? Why do you need all this channel stuff? The number one answer to that is, it's a more efficient route to market to get a product to an end user as far as the selling and marketeering to that. The channel itself is very well-established. You have distributors, not there are very many of them now, and then you have a consolidation of resellers, like I said, in our space, probably 10,000- 15,000 that actually sell the actual products.
It's a quick way for startups and emerging vendors to get their products to market. If you think about it, you come up with a great idea. You're an ex-Cisco engineer that you can say, "Hey, I do SD-WAN, and I think I can do it better than Cisco." You start a company called CloudGenix. CloudGenix starts SD-WAN. It's got this whiz-bang product. Okay, I've got to go hire a bunch of people. First, I start with four or five sales reps. Wow, somebody wants to buy my product. Chipotle was one of the big ones. Now I'm like, "How can I expand this?" I'm going to have to hire more and more direct sellers, super expensive, and if you look at it, the channel already exists for the margin profile of 25%-30%, I can get in front of probably 5,000 end users in six months.
I can't do that with a direct sales force without spending a lot of dollars. That's how it typically goes to market, and that is what we've seen as a maturity of the channel and it coming back and swinging back this way to the channel marketing side of things. We're looking for those emerging vendors. We're looking now as we've grown from $500 million to over $2 billion in gross billings, we're looking for vendors that are moving the needle bigger for us instead of an emerging startup. What happened to CloudGenix, it was one of our vendors at the time, they got bought by Palo Alto, and Palo Alto sucked them back in after they got to a critical mass of $100 and some million in ARR. That's the market. Any questions on that or where we fit?
Like I said before, this is Gartner's Magic Quadrant slide. If you see in the technology space, we're looking at challenger products. We do have some that sit in the leader space, but most of the time we're looking at challengers. We're not looking for niche players or visionaries. Yes, we talk to them, but they need to get to critical mass to move the needle for Climb and for us to bring them on board. The most amount of time that we spend is onboarding a vendor in the emerging space. We sign probably 10-15 new vendors each year, and we try to shed 10-15 new vendors each year to try to stay in that 70-50 range of vendors that we can actually focus on because I say focus and it's a lot to focus on for technology.
If a company's in its early stages, we'll talk to them. If they don't have the right channel leaders, if they don't have the right go-to-market, the channel mechanics mean more to us than the product itself. You could have the most amazing product, but if you don't have the right channel mechanics or haven't got the channel leaders, we know that this is going to be a long, drawn-out process and we don't want to burn our man-hours. As soon as Charles Bass, and he's our Chief Alliances Officer, says, "Hey, you know where we're going to sign these guys?" That's when all the man-hours kick in. We have to onboard them, SKUs, get connected with all of our customer bases, trainings, all those things happen. We're very selective. We didn't use to be selective. Now, that's a big thing for us.
Can we get to $50 million? Can we get to $100 million with that product as a run rate? This is the global IT spend or total addressable market that we see out there. 70% of our products are in the cybersecurity space, and that goes all the way from a firewall all the way to an endpoint and everything in between on that. This is where we look as we're onboarding vendors. We do play in the data center and the cloud space, but it could be in the backup, or we actually are doing some in the data center on the hardware side. Here's why we win. Just like the big Tier 1 vendors go to the Tier 1 distributors, they are a logistics company first. I spent my five years at Ingram. It's logistics.
If I compete against Ingram today, I'm competing against a fifth-line manager that has no control over the field sellers that are at Ingram Micro, and there's about 1,400 of them in North America. When a vendor comes into Climb, they can get access to my field sellers the next day to take them into their top five resellers to get to their top five end users in each one of those resellers. In front of my top customers, my top vendors, and of course, my sales team, what I sell every day is speed. How fast can I get eyeballs on your product? How fast can I deliver that? How easily can we transact, and how quickly can we collect the dollars that go through?
Climb, if you look at us in any way, we actually sell speed to market, and that's when our success really took off, is how fast and efficiently we can do things inside of Climb. What we're seeing with that, as we get more exposure to the vendor market, we're getting bigger players. We signed Fortinet last year. We didn't prospect to them. They came to us. I was nervous at first because I didn't want them to change the culture. They are a $60 billion market cap company, $3 billion in the U.S. It was a good fit because it was a personal person-to-person relationship with their teams, and we know we're going to take share shift away from our competitors. We didn't have a big crossover their products, what was in our current portfolio.
I can tell you Q1 we did okay with Fortinet as we kicked it off. Q2, we're up probably 10x over Q1, and we'll continue to see that grow as we take market share from our competitors and take their new products to market. This is the NASCAR slide with all the different logos on here with the different components. Our top 20 vendors make up about 86% of our overall. Some of them are good vendors because they cross-sell, and they're never going to get to be that size, but it's like you're going to get the burger and you're going to get the fries to go with it. We have cross-level products.
One of the things we hear from our customers every day, that is, "We just wish you'd carry more products." Well, I'm not going to carry Tier 1 products, but that's what they're looking for us because they have that customer experience. When I say customer experience, yes, I believe the best marketing is a handshake. I say it all the time. We're out there in the field, meeting with the resellers, meeting with the business owners. They want to buy more from us. Once they decide to buy from us, that's when the efficiency needs to kick in, and we need to be much more efficient is how we go to market. Hence, new ERP system, new CIO that we are now connecting with our technology partners in a big way.
I would love to get it where we have a back-office finance that actually collects the dollars, then on the front end, I just have sales and marketing, and the rest of it's taken care of by our internal systems, whether they're AI-generated systems or whether they're EDI, APIs, whatever that is. We want to get more efficient so we can just focus on the selling and marketing side. Here's my team. The team's been with me a long time. I say a long time in this business, eight years, a long time. Charles Bass came over with me from Ingram. Tim Popovich is our longest standard employee that's been at Lifeboat back in the day, so he tells us all the old stories. Like I said, Matt's been with us, Carlos came from an acquisition we did in Canada.
I'll talk about acquisitions in a second, and I'll let Matt kick over here.
Here on this slide, we talk about the kind of shift in the company vision. When the current management team that Dale just highlighted, came on board, the company before that had really been mostly a lifestyle company, and it had continued along at a consistent gross billing and gross profit. I think the year before this one that's shown here, in 2019, it was about a $500 million gross billing company, before we started our shift in the company vision. That shift in the company vision really focused on becoming a sales-focused organization, incentivizing our sales folks based on the gross profit dollars that they're generating and producing to the company, then implementing the vendor recruitment plan, which Dale touched on a little bit. 2020 was when we started our M&A journey. The company had never done any acquisitions prior to 2020.
Since 2020, we've done six acquisitions. We did two of them over in the U.K., one Canada-U.S. focused back in 2020. We did another one in 2023 in Ireland. In 2024, we completed the Douglas Stewart acquisition. They focused on Adobe in the education space. The most recent one was a distributor in Greece that gave us a greater presence in that region of Europe. That's why here on this slide, we start with 2020 and show the trajectory up to 2025. Really, the gross billings and gross profit growth have been driven by a combination of these M&A activities in most of the given years, as well as the organic growth that we're experiencing.
We track or project towards each year, or strive for each year, a gross billing and gross profit growth in the low double digits, which is consistent with the security space overall, which is where we're most heavily focused. As far as gross profit goes, same as the gross billings, that's a combination of the M&A activity and the organic growth we experienced. Here in North America, the gross profit percentage is slightly less than over in Europe. There's less competition in each of the geographies over in Europe. It's a blended, on average, 5.1%, 5.2% of gross billings, and that's really where we focus on is what that gross profit percentage is as a percentage of gross billings. Here's just a couple of highlights from our Q1 2026. A couple of things to highlight here.
We did complete a four-for-one stock split back in Q1. This $18.89 was the stock price at that time. I think we closed yesterday at about $24 a share. That is all adjusted after our four-for-one stock split that we completed earlier in the year. We have a significant volume of cash on hand at the end of Q1 2026. That's really timing of receivables, timing of payables. We have some customers that have early pay arrangements where they pay earlier than their 30-day terms, and they receive additional discounts, whereas most of our vendor terms are in the 30- 45-day range. The other thing to highlight here is no debt outstanding. We do have a $50 million revolver with JP Morgan. We've had that for about three years now. Before that, we had a slightly lesser line with Citigroup for a number of years.
We very rarely utilize that at this point in time. For the most part, our adjusted EBITDA converts right to free cash flow that we're able to not need to tap into that revolver at any point in time. Some other highlights, I think the biggest pieces to think about here for Q1, our gross billings and our gross profit continued to grow at a healthy, that low double-digit growth rate that we talked about. Adjusted EBITDA, while it increased, it did not increase at the same level as the gross billings and gross profit, and that's because of those investments that we did to foster the beginning of the Fortinet relationship that we signed on at the end of Q4 2025.
Normally, when we sign on a new vendor relationship, typically we won't build out a dedicated sales team or invest heavy dollars at the beginning of the relationship. This Fortinet relationship was different than all the other ones. Usually, it's once the gross profit and gross billings dollars warrant a heavily dedicated team, as part of bringing on Fortinet into the Climb portfolio, we committed to those heavy investments at the beginning of the relationship that we're confident will pay off here in the latter part of Q2 and beyond. Here's just showing the net sales and gross billings growth. Not to bore everyone with accounting fun here, the one thing to think about is the true economics of the transaction are our gross billings metrics.
Everything we talk about, gross profit as a percentage, gross billings, those are truly the economics that we're looking at in the transaction. That's the receivable amount that we're responsible for collecting from the customer. That less 5% on average is the payable amount that we're responsible for paying to our vendor, and therefore, those are the receivable amounts and payable amounts that remain on our balance sheet at any point in time. Whereas for US GAAP requires us to do a net sales adjustment, we look at a number of things. We look at every single SKU that we sell and every product that we sell and consider what the type of product is, whether it should be gross, meaning if I'm billing 100, I recognize net sales of 100, or if it should be net.
If it's a security product that's requiring continued enhancements, continued updates from the vendor for that product to maintain its core functionality, then in those situations, the $5 that I'm essentially recognizing as my margin would flow through in my net sales. We try to avoid talking too much about net sales as it can fluctuate in a given quarter depending on what the product mix of our gross billings are for that period. Coming here to gross profit and adjusted EBITDA. Again, I kind of talked about the 5% is on average what our gross profit percentage is as a percentage of gross billings. We strive to increase that. Ways that we can increase that are continue to expand our business over in Europe. The gross profit margin profile over in Europe is higher than here in North America.
On average, it's a little less than 5% here in North America, where it could be up to double that in Europe. Continuing to look at the M&A strategy, especially over in Europe, is a way we can continue to grow that. The other piece is adjusted EBITDA. Our adjusted EBITDA, some add backs we include there are acquisition-related costs that we incur as we go and do diligence, legal diligence, financial diligence, tax diligence, whatever it might be, on these potential acquisitions. Some other add backs are in these transaction-related as well, are fair value adjustments related to contingent earn-outs. As those fair values increase, meaning those earn-out targets are achieved, which the earn-out targets in all of our acquisitions that we've done have been achieved, then there is incremental P&L component that gets recognized.
We include that as an add back to adjusted EBITDA. The way to kind of really think about, if anybody's ever listened to any of our investor calls, we talk about it a bit, where gross profit on average is 5% of the gross billings. Our SG&A costs typically, if you look at it over an annual period as an example, run at about 30% or 3%, what flows through to adjusted EBITDA is 2%. That's typically how we ran. As we continue to gain more efficiencies, we've just rolled out a, well, just, it seems like it was just, but about two years ago now, we rolled out a new ERP system, and we continue to push our teams, especially over in Europe, to be more efficient. We strive to increase that drop through to adjusted EBITDA to a greater percentage than 2%.
Talking about capital allocation, we've historically funded all of our acquisitions that we've done to date. The six that we've done to date have all been funded utilizing cash on the balance sheet. For the most part, our adjusted EBITDA flows through to free cash flow. There is not much additional capital requirements of the company. We did incur a bit of cost associated with the ERP implementation, which the bulk of is behind us from the prior years, but there are not really any other significant capital requirements of the business. Investment highlights, kind of just reiterating the things we've talked about. We have 7,000+ transacting customer and vendors, so we have a big mix there.
We do focus on our 100+ vendor relationships, but our core line card is really our 50- 70 main vendors that our field sales managers know inside and out, are out there selling to the resellers in their market day in and day out. Once a vendor no longer fits into that 50- 70 profile, which those 50, 70 profile not only are the field sales managers knowing those products inside and out, but they're also getting dedicated marketing resources. Once a vendor might fall out of that doesn't mean we completely no longer transact with them. We do have a piece of our business called Climb Elevate, which is just purely transactional. It's grown. It started as one person running that, and in the past year, the trailing 12 months, it's a $100 million-plus gross billings business.
We'll continue to transact those vendor lines. It's ultimately really fulfilling. If there's a vendor or a customer that needs a one-off product fulfillment that might not be on our core line card, we'll go out there and source that from a vendor relationship to help satisfy whatever those customers' needs or ultimately their end user needs are. That's really it. I'll kind of pause here for any questions.
Just real quick, a couple of things I just want to leave you with as far as why Climb. As you get to know us and you can take a look at our background and some of the stuff we put out there in the marketing side of things. Like Matt said, strong balance sheet, right? No debt in the company. One of the things, and Bill's sitting here, and we'll talk to him, but he's got to know the team's just strong culture inside the company. When we look at acquisitions, we look at the culture there. We're not buying IP. We don't have IP in the company, so it's all based on relationships and the culture that that company has. We walk away from companies that we're like, "Hey, their go-to-market doesn't fit ours.
Their vendor interaction doesn't market with ours or work with ours." We spend a lot of time. I mean, the great company that we just acquired took three years, right, to acquire. We just had to make sure there was a good fit for us. It was opportunistic. Other ones we look at and say, "Hey, this is such a good fit right off the bat," and then we've got to make the numbers work. As far as multiples, when we're acquiring, we're acquiring companies at a less multiple than we're trading at. Even though our stock has been up and down, we acquire in that 4.5%-8% range or eight times range that's out there, and we look at that very closely. Like we said, no debt. Here's why we're still bullish on where we're going as a company. We have two things that are important.
We're extremely small. We can double in size without being disruptive to any of the market. Number two, we have that many vendors coming at us, right? 400 vendors that we looked at last year, we only signed relationships with 13 of them. It is the number 1 thing that we do as far as looking at vendors. Can we get to $50 million-$100 million with them in a couple of years? We vet those vendors. The last thing is acquisition targets. If you've been in this business, or any business that you're acquiring companies, it takes a lot of energy. Matt and I are the M&A team because we want to be that close to who we're going to be working with and who we're going to acquire. We want to look at the targets and say, "Who's going to stay? Who's going to go?
Is the owner of the company going to be moving on? Are the first lieutenants capable of running that company? I don't want to run it. I want it to be in that region with a sales and marketing and go to market similar to what we are, and just give them more products." The number one thing that we hear from potential targets is that it takes so long to get vendor relationships. It's easy for us because they start in North America and move to the rest of the world. We believe, and this is our strategic acquisition plan, is that we sign in North America, we sign a global contract, and we can take it to the rest of our regions very quickly when our competitors cannot. That has worked, and in many cases, it hasn't worked as fast as I want it to.
It's starting to speed up as we're getting larger vendors that want to get into other regions that they feel they're either underrepresented, poorly executing, and they think that Climb can do that for us. With that, questions?
Go ahead, Bill.
Dale, I'll just tail off your last comment that many of your acquisitions targets say it's very hard for them to get new vendors. You just said that you evaluated 400 last year and selected 13. Why?
Yeah.
What's the difference? Why aren't those 400 going to you and also going to these other firms wanting to get on their line card?
Yeah. The firms are not in North America, the distribution consolidation happens. There's three big ones that are typically, Ingram Micro, I spent five years. They'll tell a vendor that's not a certain size, "We want you exclusive, and you run all these things, and you have to pay half a million dollars into our marketing fund or you don't get signed." They're like, "We're just trying to get out of startup phase, right? We're only doing $10 million. I'm not going to spend half a million bucks." That's number one. Number two is 60% of all IT in the world is still in North America. Any company that's sizable needs to get real in the U.S. because it's easy. It's a quicker route to market. Once they get there, they start expanding. Here's what they typically do.
They typically hire, in region, a manager to start that region, it took Ingram 18 months to launch a product that we launched in North America, any other region, and it takes these vendors to launch We can launch in two weeks. When we sign a global contract and we sign Canonical, we launch Canonical two weeks later because my European team wanted it. Well, a lot of these vendor teams don't even have representation in the countries, or the distributor, without representation, won't take their products to market, when my team will. We still believe people buy from people. We're just seeing that it's moving. What we're finding is vendors that we do take to the European market now and now to Southern Europe, is that they're much quicker to accept because they're already buying other products from them.
It just gives them a wider portfolio. I think we're almost out of time. Anything else? I appreciate all of our contact stuff is in the ideas notes.