CLMB — Q2 2026 Financial Report Analysis

More volume, thinner profit: Climb grew sales 9% but earned less

Climb Global Solutions is a middleman for software and IT products: it buys licences, subscriptions and hardware from vendors (many of them security and cloud companies, which management describes as "emerging technologies") and sells them on to resellers, who in turn sell to businesses. In the quarter to June 30, 2026, the dollar value of everything flowing through Climb rose 17% to $587.3 million and the profit it kept on those sales (gross profit) rose 15% to $30.2 million. But selling, general and administrative costs (SG&A, essentially salaries, commissions and overhead) climbed 26%, so operating income fell 7% and net income fell 7.5% to $5.5 million, or $0.30 per share against $0.33 a year earlier.

At a glance

• Gross billings +17% to $587.3 million. Customer demand through Climb's platform is growing fast, about 16% even after stripping out the newly bought Interworks business.
• SG&A +26% to $20.7 million. Costs grew almost twice as fast as gross profit, which is why higher sales turned into lower earnings.
• Operating cash flow $32.2 million in the first half vs $8.9 million of net income. Cash came in well ahead of profit, but mostly because customers paid down year-end bills, not because the business got more profitable.

Two ways of counting sales

Distributors like Climb report two "sales" figures, and they can point in different directions:

• Net sales ($174.2 million, +9%) is the accounting revenue figure. For hardware and traditional software, Climb books the full sale price as revenue. For security, maintenance and cloud subscriptions, where Climb is treated as an agent rather than the seller, it books only its own margin as revenue.
• Gross billings ($587.3 million, +17%) is the full dollar value customers were invoiced, whichever way the sale is booked. It is a better gauge of how much business is going through Climb.

The 10-Q says gross billings grew faster than net sales this quarter because more of the mix was security, maintenance and cloud products, which are booked net. That mix shift makes net sales understate the quarter's real volume growth, so gross profit is the cleaner number to follow, and that rose 15%.

Operating margin here means the share of net sales left after running the business, before interest and tax. Because net sales leave out much of the volume, a 4.2% operating margin is normal for this kind of distributor and not a sign of distress; the trend is what matters, and it went down.

Takeaway: Climb's volume engine is working (billings +17%, gross profit +15%, or about 11% excluding the Interworks acquisition), but this quarter every extra dollar of gross profit was more than eaten by spending on people and systems. Whether that spending is a one-time build-out or the new cost of running the business is the key question for the next few quarters.

Where the growth came from

• Distribution (the core business, selling vendors' products to resellers): net sales +10% to $167.8 million, gross billings +18% to $562.9 million, gross profit +13% to $26.0 million. Interworks (interworks.cloud), a European business Climb bought on February 24, 2026 for a final consideration of $13.0 million, contributed $1.0 million of that gross profit, $1.5 million of net sales and $8.2 million of gross billings. Excluding Interworks, net sales grew about $13.4 million, or roughly 8%.
• Solutions (the much smaller second segment): net sales +3% to $6.4 million, but gross profit +27% to $4.2 million, which the 10-Q attributes to "higher gross profit margins generated in both North American and Europe."
• In the earnings release, CEO Dale Foster pointed to "double-digit organic growth with our top 20 vendors" and named security vendor Darktrace as one that became a top-20 vendor within about 12 months of joining.

What the headline numbers hide

• Costs are the whole story of the earnings decline. SG&A rose $4.3 million while gross profit rose $3.9 million. The 10-Q attributes the increase to salaries, commissions and employee costs "in support of the increased gross profit," "targeted investments to drive organic growth from new vendors and in the Company's infrastructure," and $0.7 million from Interworks. Measured against gross billings, SG&A went from 3.3% to 3.5%. For the first half, the filing describes some of this as "one-time investments," but it doesn't quantify how much, so we can't say how much of the cost increase will fall away.
• A higher tax rate cut net income further. Pre-tax income fell only 2.5% (to $7.5 million from $7.7 million), but the effective tax rate rose to 26.8% from 22.9%. A year ago, a $0.2 million tax benefit from employee share awards lowered the rate by 2.6 points; there was none this quarter. At last year's tax rate, net income would have been about $5.8 million, still about 2.5% lower, so the tax change made the decline worse but didn't cause it.
• Below the operating line, last year had a one-off charge this year didn't. Q2 2025 included a $0.4 million charge for a change in the value of an earn-out on a past acquisition (an extra payment owed to sellers if targets are hit); Q2 2026 had none. Net interest income was also higher ($0.3 million vs $0.2 million). These helped pre-tax income fall less than operating income.
• Share count rose, not fell. Diluted shares were 18.3 million vs 18.1 million, up about 1.2%, mostly from stock awards. Buybacks ($1.6 million in the first half) didn't offset that, so EPS fell slightly faster than net income.
• Cash flow is strong but seasonal. First-half operating cash flow was $32.2 million against $8.9 million of net income (vs $6.3 million of operating cash flow in the first half of 2025). The gap is mostly working capital: receivables fell $31.6 million as customers paid down year-end invoices, partly offset by $14.4 million lower payables and accruals. Receivables of $295.3 million at June 30 were down from $324.3 million at December 31. Cash rose to $56.6 million, and Climb has no borrowings outstanding: it briefly drew $9.0 million on its credit line in the half and repaid it.
• Dividend suspended. The board stopped the quarterly cash dividend from Q1 2026 "to preserve financial flexibility and prioritize capital allocation objectives." Dividends paid in the first half were zero vs $1.5 million a year earlier. Cash that used to go to shareholders is now available for acquisitions like Interworks or for investment.
• Heavy customer concentration. Three customers accounted for 21%, 14% and 13% of net sales in the quarter, nearly half the total. Losing any one of them would hurt.
• Adjusted EBITDA vs GAAP. Adjusted EBITDA was flat at $11.3 million. It adds back $1.6 million of share-based compensation (up from $1.2 million), which is a real cost to shareholders through dilution, so the flat adjusted figure looks better than GAAP net income's 7.5% decline.

A stronger first quarter, a slower second

Subtracting Q2 from the six-month figures, Q1 2026 net sales were about $182.4 million, up 32% from about $138.0 million, while Q2 grew 9%. The 10-Q says the first half included more hardware and software (booked at full price) than a year earlier, whereas the second quarter tilted toward security, maintenance and cloud (booked net). So much of the swing between the two quarters is about how sales are booked, not a sharp drop in demand: gross billings grew 16% in the half and 17% in Q2.

Outlook

Climb gives no quarterly or annual guidance. In the earnings release, management repeated a long-term goal from its first Investor Day in July 2026: to "more than double FY 2025 adjusted EBITDA by 2030," driven by organic growth across its vendors, adding selected new vendors, and expanding its platform, with "Europe remaining a key area of focus."

Our read: the top line is doing what that plan needs. Gross profit grew 15% and gross billings 17%, with most of it organic. The weak spot is cost discipline: effective margin (adjusted EBITDA as a share of gross profit, the measure management itself tracks) fell to 37.5% from 43.3%. Doubling EBITDA by 2030 requires that ratio to stabilise or recover, not keep slipping. In the Q3 2026 report, watch three things: whether SG&A growth slows back toward gross profit growth, whether Interworks keeps adding about $1 million of quarterly gross profit, and whether the share of net sales from the three largest customers keeps creeping up.