Executive Summary / Key Takeaways

• Climb Global Solutions (NASDAQ:CLMB) is strategically positioned as a high-touch, value-added IT distributor, capitalizing on robust demand in cybersecurity, cloud computing, and AI-driven data center solutions.
• The company delivered strong financial performance in the first nine months of 2025, with net sales increasing 51% year-over-year to $458.6 million and gross profit rising 26% to $75.4 million, driven by organic growth and strategic acquisitions like Douglas Stewart Software (DSS).
• CLMB's core investment thesis rests on its disciplined vendor selection, continuous technological differentiation through partnerships with innovative firms like Darktrace , Liongard, and Halcyon, and a proactive M&A strategy targeting both geographic expansion and enhanced service capabilities.
• Operational efficiency gains from a fully integrated ERP system and initiatives like the European "Climb AI Academy" are expected to drive stronger operating leverage and solidify its competitive moat against larger, more generalized distributors.
• While facing inherent lumpiness from large transactions and foreign exchange risks, CLMB's strong balance sheet, minimal debt, and consistent dividend payments underscore its financial health and commitment to shareholder returns, with management anticipating another year of record results in 2025.

The Ascent of a Specialized IT Powerhouse

Climb Global Solutions, Inc., formerly Wayside Technology Group, Inc., has strategically evolved since its 1982 inception into a specialized, value-added IT distribution and solutions provider. Operating through its Distribution and Solutions segments, the company serves a global market spanning the United States, Canada, Europe, and the United Kingdom. Its overarching strategy centers on identifying and distributing cutting-edge technologies in high-growth sectors such as cloud computing, data centers, and cybersecurity, differentiating itself from larger, more generalized competitors by offering a "high-touch, fast to market channel partner" approach.

The company's journey has been marked by deliberate expansion and adaptation. A significant rebranding in October 2022 to Climb Global Solutions, Inc. signaled its renewed focus. This was followed by a series of strategic acquisitions, including Spinnakar Limited in August 2022, which brought the valuable VAST vendor relationship into its portfolio, contributing to substantial, albeit "lumpy," deals. The acquisition of Douglas Stewart Software Services, LLC (DSS) in July 2024 further expanded Climb's reach into the North American K-12 and higher education markets, leveraging DSS's seasonal strengths.

Technological Edge: Fueling Growth in a Dynamic Landscape

Climb Global Solutions' core differentiation lies in its ability to curate and deliver innovative, technically sophisticated solutions that address complex IT challenges. The company is not merely a reseller; it acts as a critical bridge between emerging technology vendors and a vast network of resellers, VARs, consultants, and end-user customers. This is evident in its rigorous vendor selection process, where it evaluated over 70 potential partners in Q3 2025 but entered agreements with only four, prioritizing innovation, market differentiation, and strategic alignment.

The company's technology portfolio is heavily weighted towards cybersecurity, which comprises over 60% of its business and is projected to be one of the fastest-growing IT market segments over the next three years. Recent partnerships highlight this focus:

• Darktrace (DARK): A cybersecurity company utilizing artificial intelligence to detect and respond to cyber threats, signed in Q1 2025, quickly generated a pipeline exceeding $30 million in potential gross billings. Management anticipates Darktrace will become a "strong #3 or 4" vendor by Q1 2026.
• Liongard: Partnered in Q3 2025, provides advanced attack surface management and intelligent automation for Managed Service Providers (MSPs), offering deep visibility and continuous change detection to proactively identify risk and maintain compliance.
• Halcyon: Also partnered in Q3 2025, specializes in anti-ransomware and cyber resilience, designed to prevent, detect, and neutralize ransomware threats. Halcyon's strategic fit is enhanced by its ability to co-sell with existing major partners like Sophos.
• Scality: Launched in Q4 2024, a global leader in cyber-resilient storage software for AI environments, expanding its reach across North America. The launch of this brand alone contributed an estimated $2 million to $3 million in billings.

Beyond cybersecurity, Climb is actively engaging with the burgeoning Artificial Intelligence (AI) market. Recognizing AI as a top priority for customers and partners, its European team launched the "Climb AI Academy" in the DACH region in Q3 2025. This academy provides manufacturer-neutral training, clear AI readiness guidelines, and structured curriculum, equipping infrastructure partners and consultants with the expertise to navigate the rapidly evolving AI market. With over 700 participants to date, this initiative is proving a powerful differentiator. The company also notes that many of its existing vendors, including Adobe (ADBE), are building AI capabilities directly into their products.

The "so what" for investors is clear: Climb's selective approach to vendor partnerships and its proactive engagement with transformative technologies like AI and advanced cybersecurity tools directly contribute to its competitive moat. This strategy allows Climb to capture higher-margin opportunities, foster deeper customer and vendor stickiness, and drive sustained organic growth in critical IT domains.

Operational Prowess and Segment Dynamics

Climb's operational effectiveness is underpinned by its two distinct, yet complementary, segments: Distribution and Solutions. The company's recent financial performance reflects the success of its strategic initiatives and operational discipline.

Distribution Segment: The Growth Engine

The Distribution segment, operating as Climb Channel Solutions, is the primary revenue driver, focusing on technical software for corporate resellers, VARs, consultants, and systems integrators globally. This segment's performance is significantly influenced by the number of product lines distributed and their penetration into the reseller channel.

For the three months ended September 30, 2025, Distribution segment net sales surged 38% to $154.4 million, compared to $111.9 million in the prior year. For the nine months ended September 30, 2025, net sales increased 53% to $439.6 million, up from $286.5 million in the same period of 2024. Gross billings for the Distribution segment also saw healthy growth, rising 9% to $481.9 million in Q3 2025 and 27% to $1,412.5 million for the nine months ended September 30, 2025. This growth was fueled by organic expansion from existing vendor partnerships and the impactful acquisition of DSS. The DSS acquisition, completed in July 2024, particularly benefits from seasonal strength in the education market, with peak buying occurring from May through October as states finalize their budgets.

Gross profit for the Distribution segment increased 4% to $22.4 million in Q3 2025 and 28% to $65.8 million for the nine months ended September 30, 2025. This was driven by organic growth and DSS's contribution, though partially offset by increased early pay discounts and customer incentives. The company's focus on cybersecurity continues to be a major growth driver within this segment, making up over 60% of its cybersecurity-related business.

Solutions Segment: Value-Added and Expanding Margins

The Solutions segment, operating as Grey Matter, acts as a cloud solutions provider and value-added reseller, directly serving end-user customers with software, hardware, and technical services. While smaller, this segment is crucial for higher gross profit margins and increasing "stickiness" with vendors and customers.

In the three months ended September 30, 2025, Solutions segment net sales decreased 7% to $6.9 million, compared to $7.5 million in the prior year, primarily due to product mix differences. However, for the nine months ended September 30, 2025, net sales increased 10% to $19.1 million, up from $17.3 million. Gross profit for the Solutions segment increased 23% to $3.3 million in Q3 2025 and 14% to $9.6 million for the nine months ended September 30, 2025. This increase was driven by higher gross profit margins generated in both North America and Europe. Management notes that while the U.S. Solutions business can experience fluctuations due to a small team serving large customers, these are often "blips" not indicative of a long-term trend. The core Solutions business remains strong, particularly in the U.K.

Consolidated Financial Performance and Operational Efficiencies

Overall, Climb Global Solutions reported robust consolidated financial results. Net sales for the three months ended September 30, 2025, increased 35% to $161.3 million, and for the nine months, they surged 51% to $458.7 million. Gross profit grew 6% to $25.7 million in Q3 2025 and 26% to $75.4 million for the nine months ended September 30, 2025. Gross profit as a percentage of gross billings remained relatively stable at 5.1% for the nine months ended September 30, 2025, consistent with the prior year. Management expects this metric to remain in the 5% to 5.1% range, with potential expansion driven by adding more services.

Selling, General, and Administrative (SG&A) expenses increased 16% to $16.2 million in Q3 2025 and 25% to $49.3 million for the nine months ended September 30, 2025. This rise was primarily due to the DSS acquisition and increased employee-related expenses supporting gross profit growth. However, SG&A as a percentage of gross billings remained stable at 3.3% for the nine months ended September 30, 2025, indicating effective cost management amidst growth. Depreciation and amortization expense increased significantly, up 65% in Q3 2025 to $2 million and 94% to $5.7 million for the nine months ended September 30, 2025. This was primarily due to the amortization of intangible assets from the DSS acquisition and previously capitalized ERP costs, which commenced amortization in Q4 2024.

Net income for Q3 2025 was $4.7 million, or $1.02 per diluted share, compared to $5.5 million, or $1.19 per diluted share, in Q3 2024. For the nine months ended September 30, 2025, net income increased 23% to $14.3 million, or $3.13 per diluted share, from $11.6 million, or $2.54 per diluted share, in the prior year. Adjusted EBITDA for Q3 2025 was $10.9 million, a slight decrease from $11.1 million in Q3 2024, primarily due to a large vendor transaction in the prior year that had a higher flow-through to adjusted EBITDA. However, for the nine months ended September 30, 2025, Adjusted EBITDA increased 27% to $29.9 million, up from $23.5 million.

A critical operational achievement was the full implementation of Climb's new ERP system, with DSS integrated in April 2025. This system is already yielding improved operational efficiency, transactional speed, and process accuracy, positioning the company to drive stronger operating leverage as it scales.

Financial Health and Liquidity

Climb Global Solutions maintains a robust financial position, characterized by strong liquidity and a conservative debt profile. As of September 30, 2025, cash and cash equivalents stood at $49.8 million, a significant increase from $29.8 million at December 31, 2024. This increase was primarily attributed to the timing of receivable collections and vendor payments. The company had only $0.3 million in outstanding debt under its term loan, which is being repaid through April 2026. Crucially, Climb had no outstanding borrowings under its $50 million revolving credit facility with JPMorgan Chase (JPM), which also has the potential to be increased by an additional $20 million.

The company's current ratio of 1.07 and quick ratio of 1.06 indicate healthy short-term liquidity, while a low debt-to-equity ratio of 0.02 underscores its conservative capital structure. Climb has a consistent history of returning value to shareholders through quarterly dividends, declaring $0.17 per share payable in November 2025. Management anticipates that working capital needs will increase with business growth, but believes current cash and unused credit facilities will be sufficient to fund requirements for at least the next 12 months.

Competitive Landscape and Strategic Positioning

Climb Global Solutions operates in a highly competitive IT distribution and solutions market, where it strategically differentiates itself from larger, more generalized players. Major global distributors like TD Synnex Corporation , Arrow Electronics, Inc. (ARW), and CDW Corporation (CDW) represent the primary competition. These larger entities benefit from immense scale, broad market reach, and extensive supply chain management capabilities, often translating to strong revenue growth, solid profitability margins, and consistent cash flow generation.

In comparison, Climb, with annual revenue of $465.61 million (TTM), is a significantly smaller player. Its strategy is not to compete head-on with these giants across all segments but to excel as an "emerging high-touch fast to market channel partner" in specialized IT domains. While larger competitors might have higher revenue growth and profitability due to economies of scale, Climb focuses on agility, deep expertise, and personalized service in niche markets like cybersecurity, cloud, and data center tools. For instance, Climb's gross profit margin (TTM) of 17.20% and EBITDA margin (TTM) of 6.36% demonstrate healthy profitability within its specialized focus.

Climb's competitive advantages, or "moats," include its unique distribution channels, which leverage targeted marketing through webinars and social media, and its deep expertise in technically sophisticated domains. This allows for stronger customer loyalty and potentially higher margins in its niche markets. For example, its focus on virtualization tools and AI-driven solutions can lead to faster innovation cycles and better market positioning. This approach helps counter the scale advantages of competitors like TD Synnex (SNX) by enabling more targeted market penetration and improved pricing power in specific segments.

However, Climb also faces vulnerabilities due to its smaller scale, which could lead to higher operational costs in certain areas, and dependencies on specific software vendors. These factors could potentially impact profitability and market share. For instance, the public exit of Citrix from the channel created a "hole" in Climb's Ireland Group, which the company is actively working to fill with new vendors, demonstrating its adaptability.

The broader industry trends, such as the AI-driven data center boom, present both opportunities and challenges. While increasing demand for cloud solutions could boost Climb's revenue, potential power constraints and infrastructure demands could favor competitors with stronger infrastructure ties. Climb's strategic response involves expanding its solutions team and adding more services, aiming to become more "sticky" with vendors and customers by offering capabilities that vendors might not prioritize internally due to lower margins.

Outlook and Growth Catalysts

Climb Global Solutions is poised for continued growth, with management expressing confidence in closing out 2025 on a strong note and delivering another year of record performance. This optimistic outlook is underpinned by several key assumptions and strategic initiatives.

The company anticipates sustained organic growth driven by its existing vendor partnerships and the continuous addition of innovative technologies to its line card. The cybersecurity market, a core strength, is expected to remain a significant growth catalyst. Management's goal is to expand its roster of "large vendors" from three to ten, which is projected to significantly enhance effective margins. The full integration of the ERP system is expected to yield ongoing benefits in operational efficiency and scalability, contributing to stronger operating leverage.

Mergers and acquisitions remain a central pillar of Climb's growth strategy. The company is actively evaluating a "healthy pipeline" of opportunities, with a dual focus:

• Strategic, Smaller Acquisitions: Sub-$10 million deals aimed at building technical capabilities and adding services. This strategy is designed to increase vendor stickiness and capture higher-margin service revenue, as vendors often prefer to offload lower-margin service offerings to channel partners.
• Sizable Distribution Acquisitions: Opportunities up to $40 million, primarily overseas, to expand geographic footprint and acquire new vendors and territories. Management notes that acquisition multiples in Europe have become more favorable.

The company expects Q4 to be a strong quarter, driven by the cyclical nature of license renewals and year-end budget extinguishments. While acknowledging the "lumpy" nature of large transactions like those from the VAST Data vendor, these are considered organic contributions that will continue to impact quarterly results. Climb's robust balance sheet, with $49.8 million in cash and minimal debt, provides ample flexibility to pursue these organic and inorganic growth initiatives.

Conclusion

Climb Global Solutions stands as a compelling investment proposition, strategically positioned to capitalize on the relentless demand for specialized IT solutions in an ever-evolving technological landscape. The company's consistent double-digit organic growth, fueled by a disciplined approach to vendor partnerships in high-growth areas like cybersecurity and AI, demonstrates its operational effectiveness and market relevance. The successful integration of acquisitions like DSS and the full deployment of its ERP system underscore a commitment to efficiency and scalability, promising enhanced operating leverage.

With a clear M&A roadmap targeting both strategic capability enhancements and geographic expansion, particularly in Western Europe, Climb is actively building out its competitive advantages. Its "high-touch" model and focus on emerging technologies differentiate it from larger, more generalized distributors, allowing it to capture valuable niche markets. While the inherent lumpiness of large transactions and foreign exchange fluctuations present ongoing considerations, Climb's strong liquidity, conservative debt profile, and consistent shareholder returns paint a picture of a financially sound company with significant headroom for continued growth. Investors looking for exposure to a dynamic IT distribution player with a proven track record and a clear vision for leveraging technological innovation and strategic expansion should take a closer look at Climb Global Solutions.