Q4 2023 Climb Global Solutions Inc Earnings Call

Participants

Sean Mansouri; Investor Relations; Climb Global Solutions Inc

Dale Foster; CEO & Director; Climb Global Solutions, Inc

Andrew Clark; VP & CFO; Climb Global Solutions, Inc

Vincent Colicchio; Analyst; Barrington Research Associate, Inc

Will Dezellem; Analyst; Tieton Capital Management

Harward Route

Presentation

Operator

Good morning, everyone, and thank you for participating in today's conference to discuss climate Global Solutions' financial results for the fourth quarter and full year ended December 31st, 2023. Joining us today are climb CEO., Mr. Dale Foster, the Company's CFO, Mr. Drew Clark, and the Company's Investor Relations Advisor, Mr. Sean Mansouri, with elevate IR.
By now everyone should have access to the fourth quarter and full year 2023 earnings press release, which was issued yesterday afternoon at approximately 4.05 P.M. Eastern time. The release is available in the Investor Relations section of the client Global Solutions website at w. w. w. dot <unk> climate Global Solutions.com. This call will also be available for webcast replay on the company's website.
Following management's remarks before opening the call for your questions. I'd now like to turn the call over to Mr. Mansouri for introductory introductory comments.

Sean Mansouri

Thank you. Before I introduce Dayle, I'd like to remind listeners that certain comments made on this conference call and webcast, our considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the Company's filings with the SEC do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the Company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements or presentation also includes certain non-GAAP financial measures, including adjusted gross billings, adjusted EBITDA, adjusted net income and EPS and effective margin as supplemental measures of performance of our business, All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules, you'll find reconciliation charts and other important information in the earnings press release and Form eight K we furnished to the SEC yesterday. I'd now like to turn the call over to client CYO. BILL FOSTER.

Dale Foster

Thank you, Sean, and good morning, everyone. Our fourth quarter performance capped off another exceptional year for Klein as we generated record results in all of our key financial metrics and delivered on our acquisition objectives. These results were driven by continued focus on our core initiatives and the integration of data solutions, which was acquired in October of 2023 and immediately benefited our top and bottom line. We also continue to generate organic growth in both the US and Europe as we deepened our relationships with customers along with adding strategic vendors to our line card.
As a brief reminder, on our acquisition of Data Solutions, a leading distributor of cloud and security solutions in Ireland and the UK 13 brings a long-standing network of relationships to clients such as checkpoint, Citrix, HP, Aruba, just a few Business Solutions also carries a robust recurring revenue base with more than 90% of its fiscal 2023 revenues coming from existing reseller partners. We are actively identifying cross-selling opportunities and cost synergies and look forward to unlocking additional benefits as we further integrate data solutions into our financial and operating workflows.
Throughout 2023, we evaluated a rather robust pipeline of emerging vendors as we were very thoughtful in selecting the right partners to add to our line card. We are focused on targeting and finding vendors that fit into our ecosystem and bring disruptive technology to the marketplace for perspective. In Q4, we evaluated 13 vendors that signed agreements with only four of them quickly touching on a few of these wins. First, we launched a partnership with DNS filter, a leading threat detection and content filtering application that redefines how organizations secure their largest threat vector, which is the Internet itself in U.S. Filter, utilizes machine learning to protect over $26 million monthly users from fishing mower, advanced security threats.
Next, we partner with tight works a compliance and security application that enables organizations to identify track control and secure sensitive sensitive content communications under a single platform, sci-worx protects over $35 million end users for almost for most 4,000 global enterprises and government agencies. We are thrilled to kick off our partnership with each of these innovative technologies, and we look forward to building prosperous relationships with each of these vendors as we expand their reach throughout the channel.
As we have often stated in the past, our goal is to build deep and meaningful relationships with our partners and vendors is a differentiator between us and our large competitors as a testament to our commitment. In November, we named one U.S. We were named one of CDW's 2023 distributors of the year. We're providing a customer first relationship as well as a number of new products, services and solutions to support the CDW partnership and our and our customers. We have grown side-by-side with CDW for more than 20 years as partners as we look forward to building on our mutual success in the years to come.
In addition to CDW's Partner of the Year, climb was awarded with Savvis technology Distributor of the Year Award in both North America and demand. We are honored to be recognized as one of the distributor of choice and are excited to capitalize on the momentum for 2023 into the year ahead.
Turning to personal development, in November, we announced the appointment of Kim Stevens to worldwide VP of Marketing and assumed the global marketing responsibility for clients, including the creation and execution of comprehensive marketing strategy, strategy, branding and also partner marketing teams, deployment as part of a long-term growth strategy to expand our reseller coverage, operations and marketing presence we are thrilled to have Kim to lead our global marketing efforts to align our branding as we further scale our footprint in the US and overseas.
Looking ahead, our strategy remains unchanged, leverage our global footprint of drug and drive organic growth, expanding our line card with the most innovative companies in the market. We will also continue to pursue M&A opportunities in both the US and overseas that can broaden our geographic footprint, expand our vendor reach and also bolster our service and solution offerings between a robust balance sheet, a growing pipeline of prospective vendors and a proven track record of accretive acquisitions, we are well positioned to continue driving shareholder value.
With that, I will turn the call over to our CFO, Drew Clark, to take you through the financial results.

Andrew Clark

Thank you, Dale, and good morning, everyone. As I've noted before, Dale gets to share all the fun, exciting aspects of our business and I'm stuck with discussing another boring record quarter in terms of our operating and financial results. A quick reminder as we review the financial results for our fourth quarter, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified.
Okay. Let's jump into the results. As reported in our earnings press release suggested gross billings or AGP, which we all know is a non-GAAP measure, increased 24% to $397 million compared to $319.8 million in the year-ago quarter. Net sales in the fourth quarter of 2023 increased 20% to $106.8 million compared to $88.9 million, which primarily reflects organic growth from new and existing vendors, as well as contributions from our acquisition of Data Solutions in October of 2023. As we've often stated, we focus on AGV is the true metric of our top line growth as the calculation of net sales was influenced by product mix and respective adjust adjustments to convert AGV to net sales for financial reporting purposes under GAAP, in the fourth quarter, net sales grew at a lower rate because of the impact of data solutions, which sells HP Aruba appliances in connection with Citrix and the aforementioned product mix quarter to quarter. Gross profit in the fourth quarter increased 31% to $21.1 million compared to $16.1 million. Again, the increase was primarily driven by organic growth, new vendors in our existing top 20 vendors in North America and Europe, as well as the contribution from data solutions. Gross profit as a percentage of B increased to 5.3% compared to 5% in the prior period and was positively impacted by data solutions and our vendor mix in the quarter.
Sg&a expenses in the fourth quarter were $12.4 million compared to $9.1 million in the same period in 2022. Sg&a as a percentage of G. was 3.1% compared to 2.9% in the year ago period. The dollar growth included $1.8 million from data solutions and expenses associated with sales performance in terms of increased commissions and our human capital base, salaries, benefits, bonuses and stock compensation, all of which were in line with our budget and expectations.
Net income in the fourth quarter of 2023 increased 10% to $5.2 million or $1.15 per diluted share compared to $4.8 million or $1.06 per diluted share for the comparable period in 2022. As mentioned in our press release, earnings per diluted share in the fourth quarter of 2023 was negatively impacted by $0.09 in foreign exchange currency and $0.06 in fees associated with the acquisition of Data Solutions. Adjusted EBITDA in the fourth quarter increased 24% to $9.2 million compared to $7.4 million in the prior period. The increase, as previously noted, was primarily driven by organic growth as well as the contribution from data solutions.
Adjusted EBITDA as a percentage of gross profit or effective margin was 43.7% compared to 45.9% in the year-ago period. Our fourth quarter was impacted by the continued early pay discount taken by our TDMR.s, which we expect to be the norm as we head into 2024. So future comparisons to the prior year will be comparable. Early Pay in the quarter was 900,000 or 230 basis points, which would have generated a 46% effective margin on an apples to apples comparison. Again, as we move forward into 2024, we believe that the 2024 comparisons to 2023 will be comparable. So we will no longer have to discuss early pay discounts that were taken in excess of prior periods.
Turning to our balance sheet, cash and cash equivalents were 300 or $36.3 million on December 31, 2023 compared to $20.2 million on December 31, 2022, while working capital decreased by $4.5 million during this period. The increase in cash was primarily attributed to the timing of receivable collections and vendor payments, partially offset by the cash paid for the acquisition of Data Solutions, net of cash acquired of $12.7 million as of December 31, 2023, we had $1.3 million of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility. Subsequent to quarter end and consistent with prior quarters, our Board of Directors declared on February 27, 2024 a quarterly dividend of $0.17 per share of our common stock payable on March 15, 2024, to shareholders of record as of March 11, 2024.
As Dale mentioned earlier, our strong liquidity position continues to provide us with the flexibility to execute our organic and inorganic growth strategies while expanding our relationships with vendor networks and customers across the globe. We will remain active in the M&A front as we evaluate accretive targets in both domestic and international markets. We look forward to executing on our goals and delivering another year of record results in 2024.
This concludes our prepared remarks. We will now open it up for questions from those participating in the call.

Question and Answer Session

Operator

Operator, back to you, Caio, we will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your call is in the question queue. You may press star two. If you would like to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please while we poll for questions.
Our first question comes from Vincent Colicchio from Barrington Research. Please proceed.

Vincent Colicchio

Dale, you just big picture. How are you feeling about the tech environment and the economic environment now versus a quarter ago? And also, maybe you could talk about sales cycles and pricing, how that may have changed and things have joined.

Dale Foster

We often talk to the exec team as far as the macro environment, we get it from our vendors and some of our customers. And we don't we still don't see, you know, the headroom that we have as far as the size of our company compared to some of our competitors and the other advantage we have is we're a 90% software. So we don't have the logistical issues that a lot of the different companies have in our market. But we just haven't really seen the softening. We talk about the European market, you know, potentially going into a cause a recession. I haven't really seen it with our teams over there because I think we have a diversified portfolio and like I felt like my so my sales teams have with phone and sometimes not so and we have a lot of tools in our in our sales bag to sell that security is always going to be their data center is really behind that. And that's our two leading categories. And then we have to go for other folks declared on technology sectors that we sell into. So we just haven't seen it. I can tell you it will, as I mentioned, robust pipeline of vendors still coming out of way past the start-up phase where they're getting their second and third rounds of funding and the funding levels. And I look at are a lot more than we've seen in the past. So on you, we haven't seen it will. We will be open and upfront if we see some real softening. But we have not seen that our team and we have seen a true consolidation of some of the distribution partners to source vendors, taking different distribution partners, either consolidating that, which is good for us because we're seeing is the specialty. And a lot of these vendors want to see a broadline distributor and then a specialty, which there's not a lot of choices in North America. There's quite a few choices overseas that will capitalize on on both of those.

Vincent Colicchio

The the organic growth appears to have been solid in the quarter. Was it was it broad based across vendors or there's one or were there one or two large deals driving the quarter?

Dale Foster

There's always a couple of large deals and then pop in there. And we've had in oh eight, as you look at quarter by quarter when something goes down events and can be lumpy. We had some nice stuff going on. But then in Q4, Q4 is always our largest quarter because companies are extinguished their budgets. So it kind of blurs the channel. It really depends on what happens in Q3 and falls over a federal buying season. And then, of course, you know what we can capture in Q4 before it goes into Q1. But the yes, there's some lumpiness in that. But overall, if I look at my territories and we tracked by territories, in the US and we track by customers in the UK and Ireland. We haven't seen any weakness in any event in that business.

Vincent Colicchio

And the top 20 vendors was there any notable weakness among them or was it a fairly strong across the metrics that a group of vendors when we talk about or talk to which really make up a couple of hundred million dollars of solar winds and self U.S. solar wind or sofoles went through an ERP change.

Dale Foster

There was some delays and some of that they finish up their quarter. I'm sorry, the finished up their fiscal year at the end of March. So we'll see some of that picked up. But I think there were some hiccups in the December time frame but other than that, we haven't seen any of that. We've seen growth. I looked at my top 20 vendors. We are of scale that we've been in 18 of them grew in 2020 of the top20 vendors, which make up 78% of our business.

Vincent Colicchio

And Dale, one question for you. How sustainable are there really a nice level of adjusted gross margin relative to AGV and just this year, SG&A relative to ATB?

Dale Foster

Yes. So a couple of things on the solutions piece of the business overseas really helps out and maintain more of a stable on margin profile. And that's the key and the rest of it's all on us as far as what the actual drop-through is and also the European market, the pressures or the competitiveness and what they do, things that competitiveness is not nearly what we have in the States with some of the big three. And then the other side of that, the there's just a higher margin profile because of the servicers delivery or delivering over there. So that's why, you know, we have still targeting some acquisitions in the US, but really it's overseas. We like the margin profile. We think that we can maintain that even as we scale the business.

Vincent Colicchio

Okay.
I'll go in the queue.
Thanks.

Dale Foster

Thank you.

Operator

Our next question comes from Dell Devlin from Titan Capital. Please proceed.

Will Dezellem

Thank you. I appreciate that. Would you please discuss the vendors that you believe have the opportunity to have some real legs and potentially drive the business essentially the whole that potential home run vendors?

Dale Foster

Yes, I'll pick up the three of them, Bill. We talk about that data quite a bit and then we acquired Spinnaker in August of 2022. We talk about it a lot because the deal sizes are very large, right? So we see them in Q1 of 2023. We saw some large deals in Q4 of 2023 as well. So that's one of them. And there's continue to grow. We're now officially onboard with them in the US and we have got some good opportunities as they're rolling out. Three of our execs are in Vancouver with that and their sales kickoff on Canada this week, the next one, I'll pick it Susie, which is in the you know, the Linux operating system system space. We are just doubling with those guys and they're taking advantage and we're taking advantage of with them of, you know, IBM buying Red Hat there was only two competitors in that space, Red Hat, and that's to say and to say it was about 20% of market share of IBM. We're only going after their top customers. So there's a lot of greenfield that they're picking up and we're right in that mix.
And then the last one that I'll talk about is the group of security vendors that are just getting larger and larger in our portfolio. We we used to say, hey, what if we can do $1 million, $2 million in the first year. And now we have five that are down the card security vendors that we starting at the $5 million range. So we see a lot of upside from what we're signing. We're being more selective, like I mentioned on who we sign, and we had our SKO last week, and we talk about the three pillars of the company, right, first to the employees. As far as the team that we have, what they're doing every day that really matters. Second is the vendors who don't have the vendors and we don't have anything to sell. So that is one of the things we've transformed the Company as far as really focusing at the vendors we bring in focus and the vendors we keep and then pushing the vendors to our climb elevate team. So it doesn't clutter our line card. And then lastly, our customers and you say I have kind of strange me, you're talking about your customers last. If we have the vendors, we will get the customers just buy our service and support to them.

Will Dezellem

Great. That's very helpful. Thank you. And then the there were a question about to kind of one-off or one-time revenue and that the fourth quarter is typically the largest quarter that way. What is it of Q1 through Q3? What is a typical level of one-time or nonrecurring revenue?

Dale Foster

And then how does that and a number generally look in the fourth quarter or this quarter specifically, however, you would like to answer and if it could pop up tomorrow, I mean, we if I looked at my pipeline, we've got a couple of large opportunities with some newer vendors in the $10 million to $20 million to $30 million range for order. But I mean those we can't predict those the Q4 we can predict just because we have a history of the cyclical nature of that. And we also know our Data Solutions team in Ireland, what strong quarters they have, but some other than that, we're diverse enough that we don't have this big uptick up and downs, and I don't know if you want to add to that, Drew, I don't there's nothing that we see. There are a couple that we have in the pipe.

Andrew Clark

And I think in addition to Dale's comments, and it's not necessarily a lot of nonrecurring transactions we've talked about and Dale referenced vast, which is a up-and-coming super-strong vendor and partner of ours, very large transaction sizes. They tend to have longer sales cycles to Vince's question earlier because you're talking about significant seven digit investments by their customers at the end of day into the data center space. And so we did have a very nice transaction with vast in Q4 and this year, we also had a similar transaction in Q4 of last year, and we have vast activity that goes on throughout the year. We think as they continue to grow and refine their market and channel strategy that will have a little more consistency with that bill. But again, those transactions can take 18 months, six months, somewhere in between. We think we'll get to a more steady-state run rate with that as we continue to grow with them over the next several quarters. But that's up. That's a significant variance to our average sales price of our normal vendors. So that's just one that does have a meaningful impact. And it's just not consistent right now until we get more and traction with them in the marketplace around globe in Italy and so on and also, Bill, real quick, let me to answer that.

Dale Foster

As far as the, um, we have, you know, three four big DMR customers, the contract resellers, like I mentioned, CDW SHI in the past. But when they have bid cycles that come up, we typically start the beginning of the year. We start bidding in October, November timeframe. There was anything significant. We would let the shareholders know on that. But we've won pretty much all the bids that we've had in the past. We've picked up some smaller ones, but nothing that they're receiving both in the positive or the negative side. So we'll have those for six months. They typically put them on a cycle for every six months and they come up with a new group of them are vendors for us to bid out.

Will Dezellem

Thank you both. I'm going to ask one follow-up to that and then I'll step back in the queue. In this day and age where many companies prefer to go down the SaaS route. So they don't have a large and large cap, the capital outlay and instead paid by the quarter. What are the dynamics or reasons that that these larger orders take place as opposed to the software simply being purchased in the SaaS model?

Dale Foster

We'll give you when we're talking about data. They have a hardware component to do to go with that. And if you look at that, they're talking about pay out every day. So it's going into data centers these are these are large Shell on appliances that go in and they run their software on that. They announced their relationship with Super Micro, which is a good thing, Supermicro's and taking off lately, is there anybody watch that because they're going to use that as the underlying platform?
That's really they work every day on their teams as software. But it's we're in the middle, the middle ground where you know, there's vendors that they're trying to sell yearly licenses and act like it's a as a service and then you're buying a three-year license. Of course, they want to get to more of a recurring monthly or quarterly revenue piece and some of them are getting there. It's going to take a while because they don't have the platforms and the marketplaces in place to really service that still on part of that is we're seeing that transformation with some of our software vendors, but not not that's really going to affect a lot of what we're doing on a monthly or quarterly basis.

Will Dezellem

Great.
Thank you both for your time and congratulations on a great quarter.

Dale Foster

Thanks.

Andrew Clark

Thank you.

Operator

Our next question is from [Howard route, private investor]. Please proceed.

Harward Route

Thanks, guys, and congratulations on the outstanding quarter. Drew, I do have to correct you on one thing you call this a boring quarter, and I always say I love your boring quarters. This is not a boring quarter when you increase sales by 20% and it's not just you. It's the whole client team. And so I have like two questions. One is on this growth in adjusted gross billings at $387 million in Q4, up $78 million, 24% up from the year ago fourth quarter.
If you can kind of Dale talk a little bit about the breakdown of it, maybe on a percentage basis. I don't want to get into talking about vendors specifically, but what part of that was acquisitions that would be data solutions. I guess what part would be new products, what part would be growth of existing products in new markets. And then the fourth bucket would be growth of existing products in the existing markets. If you look at it on a year over year over year basis?

Dale Foster

Yes. So if you look at we call, we closed the deal solutions October sixth, and we got the advantage of their sales. They had a good quarter. They were down a little bit year over year because they had some lumpiness that fell in fell out, whether it's coming into the quarter out of the quarter from the year before. But Andrew can correct me, but I think it's the if we're talking say never of $80 million, I think about half of that was data solutions. So we're still had organically for the quarter on our teams on the vendor side, there's it's hard on the hold back some of the positives we have from the vendors coming at us either reducing their go to market and climb being one of the leftover channel plays that they have. So we're seeing a lot of that. We had that happened at the end of Q3 started seeing helping in Q4, and we'll see in 2024 pretty heavily. And we're talking about four vendors that I can just think of right off the bat that are and you know what we're going to do the broadliner and especially the distributor or in the case of solar winds. And we haven't made it totally public and we were the sole distributor of Solar Winds, which is our number-two brand solar winds. You know, it's had the difficulties in the past, but has recovered from that. They've got a great team. We have them globally now with our you know, our both our UK and Ireland teams. So I'm just there's a lot of energy coming into that for 2024.

Andrew Clark

Yes. And Howard, I would just to add on to Dale's comments, just in terms of and these are fairly accurate percentages at the data solutions cost accounted for about 40%, 45% of that gross growth in the quarter. And then obviously the rest of it was organic growth with existing vendors, not a big movement in terms of and geography in revenue growth or in the vendor mix?
It was fairly consistent with the prior quarter, fairly consistent. Obviously, our line card does adjust from quarter to quarter, but pretty consistent vendor representation in the growth, as Vince was asking earlier on. So no real shifts in meaningful shifts in either the vendor mix or the geography mix, but data solutions, about 40% plus and the balance of that growth was all organic.

Harward Route

Great. That's real helpful. Comments on the second thing, kind of the again about leading on from that, I always like to ask about future guidance, and I'd love for you guys to talk more about it in Europe, your prepared remarks and I give guidance going forward. But if we look at where we are today and go forward. Can you talk about what stage of market penetration you are in kind of general terms and then and then more in specific terms 2022, you did have we crossed $1 billion market and adjusted gross billings 2023 to $1.3 billion. Is it are you on an on a linear ramp Yes, taking out all the bumps, you go up and down within the quarters, but [$1.0, $1.3, $1.6] this quarter, [$1.7], I don't want to tie you to a number, but I just want to get a feel for where you are in the market penetration of the overall markets and how how how long you can continue to have these 20% growth year over year or if it's going to accelerate or tapers off?

Dale Foster

So Howard, and we talk about it and take a look at some of the distributors that I would we don't compete with them, and I'm going to I'm going to jump around a little bit. We had our SKO last week and we barely mentioned on stage, and this is me all the way through any by the end of my phone, our competitors. And in the past we talked about them a lot. So when we talk about, you know, we've mentioned on some calls, red ocean, green, blue ocean, where we really are we're going to have blue ocean where we are creating our own market. We don't see as many, many competition as much competition. We're not fighting it out every day over margin. So just the fact that our sales kick off 188 employees in the U. S 60 vendor reps that showed up to support us making up 25 vendors. It was just a lot of energy of what we're actually doing at the company and where we're going to go. So we'll take the gross gross billings of $1.26 billion and you look at a lot of the disties now saying in their earnings release, the public ones, at least just telling you what their gross billings or tech data came out and said, hey, there $80 billion of gross billings before the netting, you know how much headroom we have, we can double triple the size of the business and not really run into them and not being seen because we're competing inside such a small fraction division inside of some of these big cities. As you know, Charles, our CFO, was saying to our team last week saying there could be two or three competitors like climb in our marketplace, and we still would have so much opportunity. So so I'll leave that there. And Andrew can can can you tell me down a little bit, but here's what our goal is, and that is our goal is to double the business in 2026.
And can we do that? Yes, we can do that through some acquisitions and organic growth like we're doing currently, it's going to be that combination. But if you wanted to we're doing just look what we've done in the last two years we're going to do this much of the same thing. There's still a lot of targets. There's still a lot of vendors in there. Still the vendors that are really buying vendors like they look like they're part of client when you come to our meetings and stuff like they just act like they're strategizing with my team. So it's a very different look and feel that it was three years ago?

Andrew Clark

Yes, I think, Dale, as we've said, Howard, we believe that between the organic growth and our acquisition strategy, we can double the size of this business and in theory, continue to be more effective with leverage and then have increased drop-through of that gross profit that we grow ourselves or we acquire and then continue to augment and grow Ireland and the Data Solutions acquisition will be really great case study for us to be able to share with the investors as we move forward throughout 2024 about how well we've integrated the sales teams, the vendor cross-selling vendors of Citrix and Microsoft pair up really nicely. So we think that organically we again, you're correct. We're not providing guidance, and we're not really even providing guardrails on sort of trends. But we think if you look at our historical results, we think we can continue to perform at those historical levels in terms of organic growth on an annual basis, we are going to have some cyclicality in quarters. Data Solutions. Typically Q2 the calendar year is their weakest quarter so we'll expect that we'll see some pullback on a consolidated basis in Q2, but growth over the prior year, Q2, most likely that there is a little bit of cyclicality in the business based on geographies and vendors and partners. But as we look forward, as Joe said, lots of activity in the pipeline for us to continue to grow through the acquisition strategy and also organically. And at some point, we may provide a little bit more detail as we move into it the quarters ahead. But hopefully that gives you a little bit of perspective and some level of indication of where we think the business will go.

Dale Foster

And then just real quick is it at the end of our growth we've talked about in the past. We have embarked on this call yet, and it's probably been overused inside the company. But our DRP is going to go live in Q2. We've talked about it for a couple of years now, we are ready to do that. Our teams have been working double time because they've had to do their regular jobs every day and then do all the testing. So if you're a sales rep or you're sitting and find that during that you're going to do all your stuff on our existing European, then you spend the hours doing in the new system. We're comfortable that we know we can platform companies a lot faster data solutions team when we acquired them October sixth, we restructured all sales and marketing together, as I mentioned, came on board and she does it on the marketing side on the sales, Tom educate the sales team. I just came back from Europe two weeks ago, we've got all the sales structures fully integrated with each other. And then Phase two is when we go ERP live, all the insight teams will be integrated together as well. So you look at us in the end of June, we'll have everybody on the European same ERP systems. We can same language, no matter where you live.

Harward Route

Great.
That's very helpful. And congrats again on the very exciting quarter that you had and then to your.

Dale Foster

Thanks you.

Operator

Our next question comes from Vincent Tokyo from Barrington Research. Please proceed.

Vincent Colicchio

Yes, just one last one for me, Dale, I'm curious, security is obviously the key driver here for your business for some time and then the other segments in the quarter.

Dale Foster

And the reason I'm going to have the security. Of course, it's very strong, very diverse. If you look at the top vendors, and this is something I can mention, Vince, that kind of triggered me and that is sort of what I'm going to put out there, you know. So when we look back three years, we've if you look at our top 70 vendors, they make of 96% of our overall sales. Those of those top 70 vendors, 36 of them have been brought on since 2020. So you can see we have a very robust way to bring vendors, then they get into our top group 70 vendor with us transact about $4 million. So that's kind of our limit and threshold because we'd love to be able I'd love to have 50 vendors doing it or 90% and really have more of a focus on our team and have our climb elevate team do the rest of it as far as the clutter piece of it goes. But then that's the one segment.
The other segment that we're seeing more, of course, everybody saying the word AI. But what our team, what are what our vendors are doing is they're building AI into their products. So on there's two or three that we're looking at, but I think we'll probably start in a division if they're if they're true application is going to be more than 50% of what they do, right, that can't just be a backup that uses AI to do some kind of hierarchical storage management software or your backup. So that will be another pillar that we probably add around. We had to our group outside of that it's really the it's really the Linux, the CC business, the data movement and data management with Adobe, things like that. But it's always around security data center. And then it's everybody that supports that.

Harward Route

Thanks, guys.

Operator

This concludes our question and answer session. I would like to turn the floor back over to Dale Foster for closing comments.

Dale Foster

Thank you, Robert, and thank you for everybody for joining today and just want to have a big thank you for 2023, all the stakeholders that are watching clients supporting climb and all the teams that we have internally just a lot of energy going into 2024. Like I said, we're coming off our sales kickoff. It's one of the best ones as we do our surveys with our teams that are vendors that we think time has ever had. And like I said, the opportunity go into that and we appreciate and keep up. We're going to keep an eye on what we're doing in Q1, Q2.
Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.