Climb Global Solutions (ticker not provided) has reported its financial results for the first quarter of 2024, revealing a mix of positive developments and challenges. The company saw double-digit organic growth in North America and benefits from its recent acquisition of DataSolutions in Europe. However, softer volumes with key vendors were noted due to timing issues within sales cycles. Despite this, Climb Global Solutions expects to see a return to growth with these vendors in the latter half of the year.
Key Takeaways
- Climb Global Solutions reported increased adjusted gross billings, net sales, and gross profit for Q1 2024.
- Adjusted EBITDA and net income saw a decrease in this quarter.
- The company has a strong balance sheet with significant cash reserves and no debt.
- Cross-selling initiatives and new global agreements aim to drive future growth.
- The company is investing in an ERP system and looking at potential acquisitions to enhance offerings.
Company Outlook
- Climb Global Solutions remains optimistic about its outlook for the remainder of 2024 and beyond.
- They expect to continue driving organic growth with existing vendors and signing new market-leading technologies.
Bearish Highlights
- Softer volumes with key vendors due to sales cycle timing issues.
- A decrease in adjusted EBITDA to $5.5 million and net income to $2.7 million.
Bullish Highlights
- Double-digit organic growth in North America and successful integration of DataSolutions in Europe.
- Strong growth from the top 20 vendors and customers in Q1.
- Security and data center space identified as key drivers of success.
- Positive shift in market share from competitors to Climb Global Solutions.
Misses
- The company had a significant deal in the previous year that did not reoccur, impacting Q1 results.
- Lower margin profiles from some larger vendors in Q1, though a rebound is expected later in the year.
Q&A Highlights
- Dale Foster discussed the impact of vendors' fiscal year ends and a large non-recurring deal on Q1 results.
- Foster highlighted the company's strength in the security and data center segments.
- The company's targeted approach is seen as a key differentiator from larger competitors.
- Climb Global Solutions is not significantly impacted by macroeconomic factors due to its smaller size and targeted strategy.
Climb Global Solutions has begun to leverage cross-selling opportunities between their US and EMEA teams and has signed global agreements with Delinea, Solar Winds, and Suzette. The company also expanded its partnership with Jamf (NASDAQ:JAMF) and received several notable recognitions from key vendor partners. With a strong focus on driving organic growth and signing new technologies, the company is also implementing an ERP system to boost operating efficiencies. They are exploring new acquisitions to enhance their offerings and expand their global presence.
Despite a decrease in adjusted EBITDA and net income, Climb Global Solutions maintains a robust financial position, with $43.6 million in cash and cash equivalents and no outstanding debt. The company is strategically positioned to compete with larger distributors by focusing on software and targeted services, as evidenced by its smaller yet focused target audience of 7,000 global resellers. Their partnership with Global Technologies aims to meet the growing need for a diverse and secure supply chain.
Dale Foster also highlighted the company's robust pipeline and potential for expansion. With larger distributors shifting focus, Climb Global Solutions finds opportunities to offer targeted services and gain market share. The company's strategy of establishing early relationships with vendors aims to leverage the channel for significant returns on investment.
Climb Global Solutions is confident in its ability to execute its strategic plan and capitalize on opportunities, as it continues to navigate the market with a targeted and quality-driven approach.
InvestingPro Insights
Climb Global Solutions' first-quarter performance in 2024 showcases a company navigating through a mix of opportunities and challenges. With an eye on their financial health and market performance, let's delve into some key insights from InvestingPro.
InvestingPro Data reveals a market capitalization of $262.43 million, indicating a mid-sized player within its sector. The company's Price-to-Earnings (P/E) ratio stands at 22.48, while the adjusted P/E ratio for the last twelve months as of Q1 2024 is slightly lower at 22.09, suggesting a stable earnings outlook. The revenue growth for the same period is positive at 12.99%, reflecting the company's successful expansion efforts, particularly in North America and through its acquisition in Europe.
An InvestingPro Tip highlights that Climb Global Solutions holds more cash than debt, reinforcing the strong balance sheet mentioned in the article. This financial stability is crucial for the company as it invests in new technologies and explores potential acquisitions. Another InvestingPro Tip points out that the stock has experienced a significant drop over the past week, which could be an area of concern for investors, especially considering the recent softer volumes with key vendors. However, with analysts predicting profitability this year and the company being profitable over the last twelve months, there may be potential for recovery.
For those interested in a deeper analysis, InvestingPro offers additional tips, such as insights into the company's free cash flow yield and its ability to cover interest payments. Currently, there are 11 more InvestingPro Tips available, which could provide valuable information for investors considering Climb Global Solutions as part of their portfolio. To access these tips, visit https://www.investing.com/pro/CLMB and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
With these insights, investors can better understand Climb Global Solutions' financial footing and market performance, aiding in making informed investment decisions.
Full transcript - Wayside Tech (CLMB) Q1 2024:
Operator: Good morning, everyone, and thank you for participating in today's Conference Call to discuss Climb Global Solutions Financial Results for the First Quarter ended March 31, 2024. Joining us today are Climb's CEO, Mr. Dale Foster; the Company's CFO, Mr. Andrew Clark; and the Company's Investor Relations Advisor, Mr. Sean Mansouri with Elevate IR. By now everyone should have access to the first quarter 2024 earnings press release, which was issued yesterday afternoon at approximately 4:05 PM Eastern time. The release is available in the Investor Relations section of Climb Global Solutions website at www.climbglobalsolutions.com. This call will also be available for webcast replay on the company's website. Following management remarks, we will open the call for your questions. I'd now like to turn the call over to Mr. Mansouri for introductory comments.
Sean Mansouri: Thank you. Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are 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. Our 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 8-K we furnished to the SEC yesterday. With that, I'll turn the call over to Climb CEO. Dale Foster.
Dale Foster: Thanks, Sean, and good morning, everyone. We continue to make progress in growing climate, strengthening our customer and vendor relationships in the first quarter as we produced double-digit organic growth in North America, and we benefited from our recent acquisition of DataSolutions in Europe. Although we generated top solid top line growth, we experienced softer volumes across the key few vendors, primarily related to our timing - with the timing with respect to their sales cycles. This include the key vendor from our acquisition of DataSolutions in October 2023. While this adversely affected our bottom line in Q1, we expect to return to growth with these vendors over the back half of the year. As many of you are aware, our acquisition of DataSolutions, broad deep network of relationships decline as well as a robust recurring revenue base with more than 90% of its fiscal 2022 revenue coming from existing reseller partners. We've already begun to take advantage of cross-selling opportunities between Climb US and Climb EMEA teams. For example, we signed global agreements with Delinea, Solar Winds, and Suzette, to name a few. Although these synergies are still in the early stages, we expect to uncover additional cross-selling opportunities as well as drive further operating efficiencies as we continue to integrate DataSolutions into our global operations. During the quarter, we deepened current partnerships with both signing new marquee vendors to our Line Card. We evaluated 32 vendors and signed agreements with only four of them demonstrating our commitment to participating and partnering with the most innovative cutting-edge technologies in the market. For example, in Q1, we expanded our partnership with Jamf. They are a leading provider of Apple (NASDAQ:AAPL) device management and security software that enables businesses to efficiently manage and secure their Apple devices, insurance, seamless integration, enhance productivity and streamline workflows. Initially, we partnered with Jamf to launch their products in Canada, but based off the strong initial results, we re-evaluated the scope to expand distribution in the United States, demonstrating our ability to successfully launch products and offer additional geographic exposure through our network of resellers. As we've often said in the past, we strive to build long-standing meaningful relationships with our partners. As a result, we are seeing increased exposure from targeted media coverage and industry interviews with our global teams. In addition to receiving several notable recognitions from key vendor partners. In the first quarter, Climb was awarded Distributor or Partner of the Year by numerous vendors, including Delinea, Wasabi, Trend Micro (OTC:TMICY), LogicGate to name a few. These awards are an affirmation of our strategic direction and speak to our approach to a limited Line Card. So that we can focus in going deeper with our vendor partners and truly add value to their sales efforts. We are excited to build upon the strong growth we have achieved together. Looking to the remainder of 2024, we have a solid foundation to place - in place to continue driving organic growth with existing vendors while signing new market-leading technologies to our Line Card. We expect to uncover additional synergies and cross-selling opportunities as we further integrate DataSolutions onto our operating platforms. Our ERP implementation is also on track to go live this summer. This will enable us to drive further operating efficiencies through our global operations. We will continue to leverage our strong liquidity position to explore new acquisitions that will enhance our offerings and expand our presence in both domestic and international markets. We believe the combination of these initiatives will lead to another - to yet another year of record growth and profitability. With that I will turn the call over to our CFO, Drew Clark. I hope he will take you through the financial results. Thank you, Drew.
Andrew Clark: Thank you, Dale. Good morning, everyone. Quick reminder as we review the financial results for our first quarter, all comparisons and the variance commentary referred to the prior year quarter unless otherwise specified. Before we jump into the results, let me reiterate Dale's comments that our positive outlook for the balance of 2024 and beyond, despite the low expectation operating results for the first quarter. As reported in our earnings press release, adjusted gross billings, or AGB, which is a non-GAAP measure, increased to 16%, which is $355.3 million for the quarter compared to $306.7 million in the year ago quarter. Net sales in the first quarter of 2024 increased 9% to $92.4 million compared to $85 million, which primarily reflects organic growth from new and existing vendors, as well as the contribution for our acquisition of DataSolutions in October of last year. Again, as we've previously stated, we focus on AGB as the true metric of our top line growth, as the calculation of net sales is influenced by product mix and the respective adjustments to convert AGB to net sales for financial reporting purposes under GAAP. In the first quarter, we had an increase in the sale of security, maintenance and cloud products, which are recorded net of related cost of sales and therefore leads to a larger adjustment from AGB to net sales. DataSolutions also has a higher adjustment of AGB to net sales and their net sales were 31% for the quarter compared to our consolidated 26%. Gross profit in the first quarter increased 12% to $17 million compared to $15.2 million. Again, the increase was primarily driven by organic growth from new and existing vendors in both North America and Europe, as well as contributions from DataSolutions. Gross profit as a percentage of adjusted gross billings was 4.8% compared to 5.0%, driven by decline in our solutions business, GP and related margin percentage and early pay in North America. SG&A expenses in the first quarter were $12.5 million compared to $10.2 million for the same period in 2023. SG&A was in line with our internal budget and sequentially from the fourth quarter. SG&A as a percentage of adjusted gross billings was 3.5% compared to 3.3% in the year ago period. The increase was primarily driven by expenses from DataSolutions, which we expect to reduce as we further integrate their business into our financial operating systems and their sales rebound in the second half of the year. Net income in the first quarter of 2024 was $2.7 million, or $0.60 per diluted share compared to $3.3 million or $0.74 per diluted share for the comparable period in 2023. As mentioned in our earnings press release, earnings per diluted share in the first quarter of 2024 was negatively impacted by $0.01 in FX and $0.04 in acquisition fees, a portion of which related to carryover of the DataSolutions transaction as well as prospective opportunities. Adjusted EBITDA in the first quarter was $5.5 million compared to $5.7 million. The decrease was primarily driven by increased SG&A expenses related to data solutions and lower gross profit generated in the quarter relative to expectations that we expect to return in the back half of the year. Adjusted EBITDA as a percentage of gross profit or effective margin was 32.5% compared to 37.4% in the year-ago period. Clearly an unacceptable achievement, we were confident to return to target levels in the future quarters. Turning to our balance sheet, cash and cash equivalents were $43.6 million as of March 31, 2024, compared to $36.3 million at December 31, 2023. While working capital remained flat during this period. The increase in cash was primarily attributed to the timing of receivable collections and vendor payments. As of March 31, 2024, we had $1.2 million of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility. On April 29, consistent with prior quarters, our Board of Directors declared a quarterly dividend of $0.17 per share of our common stock to shareholders of record as of May 13, 2024, and payable on the 17 of May 2024. To echo Dale's earlier comments. Our strong balance sheet provides us with great flexibility to evaluate M&A opportunities, both domestically and abroad to enhance our service and solution offerings across existing and future geographies. We will continue to maintain a limited and very focused Line Card to ensure we are partnering with most innovative vendors in the market while also taking advantage of some scale opportunities. Our ERP implementation, coupled with further integration DataSolutions and our UK operations, will enable us to drive operating efficiencies throughout our global footprint. We believe these initiatives will enable us to grow adjusted EBITDA at a rate that exceeds our increase in adjusted gross billings. So we will keep on climbing [ph]. This concludes our prepared remarks. We'll now open it up for questions from those participating in the call. Operator, back to you.
Operator: Thank you. [Operator Instructions] Thank you. Our first question comes from Vincent Colicchio from Barrington Research. Please proceed.
Vincent Colicchio: Yeah, Dale, so to be clear, was the light volume with certain key vendors, was that a timing issue or is it a lengthening of their sales cycles?
Dale Foster: A couple of things, Vince, and that is, if we look at the quarter, we have vendors that finish up their fiscal years in different sections. We have some of the bigger ones that actually ended in March. Sometimes they leak over, and it's funny, we have two or three of them that are going through different ERP implementations as well, so they get kind of stuck up in that. But we had some vendor stuff that pulled into Q4, some that are pushing into Q2. So if we look at it, and then we had a large deal with our Spinnakar acquisition a year ago that didn't reoccur in Q1. So just, if you look at the puts and takes on it, it was just back and forth, but nothing underlying. And we were talking about, as a team, of our top 20 vendors, 16 of them grew in Q1. Of our top 20 customers, 17 of them grew in Q1. The underlying piece is still very strong. It's just the timing of quite a few of them.
Vincent Colicchio: So the - where you saw the volume softness, do you expect for the year to be on budget with those clients?
Dale Foster: We do. And as Drew mentioned in his comments, I mean, we think we're in a strong back half of the year. Some of it's already coming in, into our Q2 stuff that we didn't see in Q1. And we don't, you know, just to be, you know, open to you. We don't push to bring things into a certain queue [ph] to make an exact number. Our vendors do, and we do. We do, you know, favors for them as far as, hey, when they need to do, as far as timing goes. So, hey, the numbers are what they are. And, you know, some of them drift into the next queue [ph] Some of them, you know, get pulled forward on that side.
Vincent Colicchio: Okay. And then the - outside of the aforementioned vendors, where there was volume, within your top 20 are you growing in line with the rest of the business better. What does that look like?
Dale Foster: Yeah, we are. I mean, of course, the newer the vendor and depending on their life cycle, you know, they're growing at a faster rate. That's when we talk about, you know, hey, we want to really try to get double digit growth because growth, because that's where the emerging vendors are. As a vendor becomes more mature, there's growth slows down in just almost every industry. So we have some larger vendors that they're in the single digit growth, and we make it up - make up for it with the emerging ones. So that combination is what we talked about as a management team to focus and get to that over 10% rate. But if you looked at the numbers, our top line grew overall to the revenues, and it just depends on the vendor mix and then the margin profile per vendor. So it's a lot of little, little moving parts, but that's how we deal with quarter-by-quarter.
Vincent Colicchio: And has there been any change in areas of segment strength, technology and data center? Those continue to be the key drivers.
Dale Foster: Yeah, our two main ones our pillars are security and the data center space. So we mentioned it in previous call that, hey, we won the contract with CDW (NASDAQ:CDW) for the vast business. It's the first time we've had a real big vendor move to the US that started with Spinnakar in the UK or Climb UK [ph] teams. So we'll see that pick up in the second half of the year. We're just getting going. We're just getting our first orders with that. But that's in the data center space. And then we'll build just like we do in security. When you have somebody like Sophos in the monitoring space, SolarWinds (NYSE:SWI), we'll build a cottage [ph] industry of vendors around them that support them and that are cross sellable.
Vincent Colicchio: Okay, I'll go back in the queue. Thank you.
Dale Foster: Thanks, Vince.
Operator: Our next question comes from Howard Root [ph] from Climb Global Solutions. Please proceed.
Howard Root: I'm not from Climb Global Solutions, Individual Investor, but thanks for taking my question. Two small ones and then a more general one for Dale. First, the adjusted gross billings, I think, went up $48 million, Q1 versus Q1 a year ago, 16%. Can you give us a breakdown of how much of that is organic and versus how much of that is from DataSolutions or any other acquisitions?
Dale Foster: Yeah, I'll let Drew jump in. I mean, he's got the exact numbers, but I think it's out there. It's probably split 50-50 or close to that.
Andrew Clark: Yeah, that's correct. A little more. DataSolutions generated approximately $29 million in the quarter for us. Again, as Dale mentioned in his response to Vince, that was lower than our expectation. Ahead of their prior year quarter, about flat, really, with 2023. But one of our - their large vendors had some significant pull through in Q4, which obviously gave us a very strong fourth quarter result and exceeded our expectations. But unfortunately, that detracted from Q1. But DataSolutions is performing on par, so we're excited about that. And, you know, their contribution was very meaningful in Q4 and not as impactful in Q1.
Howard Root: Okay. So, and then why do you say second half rebound rather than a Q2 rebound? And I assume that applies to the DataSolutions key vendor, mainly.
Andrew Clark: DataSolutions tend - their quarter is - second quarter is their weakest quarter historically. And then, as you know, if you look at our historical trends, Q2 tends to be one of our lower quarters as well, in terms of both top line as well as gross profit. So Q2 will be solid, but we'll see a bigger rebound with some of those vendors, especially DataSolutions portfolio, and then the Spinnakar vendors that we acquired in Q3 and Q4. Dale, do you have other thoughts?
Dale Foster: No. Yeah, we're not on track with the DataSolutions team. And just to add to that, Howard, we integrated the sales teams early January for DataSolutions, and some of their, you know, managers are running now our Climb UK teams. So that team is pretty integrated. That's step one. The next part of the integration is upcoming. It'll be in line with our ERP that's going to roll out in July, August timeframe. And we believe by the end of this year, we'll have - every company, we have a lot of them on our systems right now, but everything we've acquired in the last two years will all be under one. And Drew is running the project, but the focus is by the end of Q3 so that we have a true Q4 on one ERP for reporting. And you can imagine from three different disparate systems trying to pull those all together. It's not like we're special. Every company goes through it, but we want to get through it in Q3.
Howard Root: Well, good luck with that one. We all know how hard that is to pull off, but it has to be done. Second question. I've always modeled it, keeping it simple, like 5%, gross profit 5% of adjusted gross billings, then SG&A below 3%, so net income is above 2%. And this quarter I think somewhat because of the acquisition and cost there. You're 4.8% on gross profit, 3.5% on SG&A, so net income is down at 0.8%. Are those realistic targets for the business, the 5%, 3%, 2% [ph] Or how do you look at that? Or am I off on my assessment of what the numbers should be?
Dale Foster: Yeah, I think your first modeling is more accurate. Like we said, we had low soft in Q1 on some of the margin profile, some of our bigger vendors, but we don't see that. We don't see the trend. And we know as these vendors get bigger, it's the larger the vendor. There's two parts that happen. They expect there's less work to be done in the channel, so they try to reduce the margin profile not only to us, but also our reseller partners. But on the other flip side of that, as a distributor and reseller partner, as they grow and it gets wider of their business, we're more efficient at actually transacting it. So we save the dollars on that. So it kind of goes for one for one. But that's a pretty good way to look at it. And if you look over the last couple of years, we have enough emerging vendors coming in that have a higher margin profile than that to make up for these larger ones. And I can just tell you it's nonstop. We talked about evaluating 42. There's probably another 10 or 15 that we talked to that we are just - don't even get off to the next phase because they're just not ready even to have a channel talk yet. So if it wasn't for that robust vendors just coming out of the startup phase, I would say, okay, it's going to slow down a little bit. We don't see that at all.
Howard Root: Okay, great. And then just more general. And I always like to do this kind of pulling it up to 30,000 feet. Dale, how do you see the sales environment and trajectory, in particular the economy and interest rates? Does any of the macro effects going on worldwide affect you and your business in any way? And how would you see that going forward the next year, 18 months?
Dale Foster: Yeah, I'm not that smart, Howard. So on the macro side, we look at it and we're like, it has to have some kind of impact on us. But here's what I would say is, we are so small in our market space with our peers, right? If you take a look at the big three distributors, they're all $40 billion plus. They do a lot more hardware than we do. We are software, software. So we compete with divisions inside of each of those big guys. What we're seeing though, is the larger they get in some of their vendors, because if you look at their top 10 vendors are bringing in 90% of their revenues. As soon as you get down the Line Card, those vendors are not getting the care and targeted approach that we provide. So we're seeing share shift from our competitors to us in a pretty big way. If I look at just the ones we talked about that we won awards for, if you take a look at those vendors, the share shift that they're pushing to us because they're just getting a much higher touch white glove service to sell their products out to the market. So on the positive side, our teams are really taking advantage of that, but we don't see the effect because we're looking at a much smaller target audience. We're not selling to 30,000 resellers, we're selling to 7000 globally, where our competitors are doing that. So it's - we just don't see it as much. And we think we can - we have a lot of levers we can pull. We have a great balance sheet. So we will just go and say, hey, this is where we're going to target. Now, we can move very quickly and put a sales team like we have on a specific vendor and capture a bunch of their business and then do the same thing. So it's much more of a tactical approach there.
Howard Root: Okay, great. So the good news is the economy doesn't really affect you. The bad news is it's all on you. So success and failure is on your execution.
Dale Foster: That's right. That's the good news. It's all on us. I mean, we can make those choices. So, yeah, we'll take all the blame of that as well. But we feel that we have enough feelers out there where we can actually know a little better than putting your finger in the wind and saying, hey, we're going to go after this market, or the vendors are approaching us and saying, hey, can you guys help us in this situation because we've had budget cuts and we can actually fund you through the channel via margin. And we're like, yeah, we'll double down on that. We've built a team with Delinea and they've just been a great partner for us. And you'll see those numbers continue to grow with Delinea.
Howard Root: Okay, great. Well, congrats on the quarter. The 16% revenue growth, great overall year-over-year, and challenges come up, but you guys are addressing it. Thanks, again.
Dale Foster: Thanks, Howard.
Operator: Our next question comes from Bill Dezellem from Tieton Capital. Please proceed.
Bill Dezellem: Thank you. A couple of questions. First of all, allow me to circle back to your February 20 press release referencing Global Technologies. That release seemed a little bit different than your typical, typical release. Would you please talk about that relationship and what it means or does not mean?
Dale Foster: Yeah. Thanks, Bill. So Global Technologies, they're diverse supply. And we're getting asked more and more from our customer base and some of our vendors that we will have a partnership or a division that does for a diverse and secure supply chain. So we've done this. We've known the founders of Global Technology. They're actually also - vendors. So it's early stages, but we have big customers that need that. We're looking at a government side of that as well, if you're familiar with the 8(a) [ph] program. So my background is the fed space, so it's the government contracts are key to that. So nothing that I can report right now that, hey, we've had all these big wins, but it's definitely another component of Climb that we need to have as a diverse supplier. And that's why we built - we put that relationship together.
Bill Dezellem: And so you broke up in part of that answer. But essentially this isn't a joint venture, it's not an acquisition. But you're working together specifically for the federal face space. Is that the essence?
Dale Foster: No, the federal peace will come. Right now, it's really in our larger partners as we have a diverse supply chain. But yeah, it's early on those, but I'm saying we're going to take advantage of the federal side of that as well. But it still can be state and local. It's with our customer base and our vendors that are looking for a diversity partner.
Bill Dezellem: Great. Thank you. And then relative to your Line Card, I know in this type of a business you've experienced it before, and as have other firms. You just end up with a vendor or a few vendors that take off in the marketplace and you end up being a big beneficiary of their success. So the question is, how many vendors on your Line Card today do you see that you think could explode in a good way, revenues just jumping in the next year or two?
Dale Foster: Yeah. If I opened it up to my management team, we would argue over those top five or six. And here's what we do. Just like when we pick a vendor, we bet on the jockeys that are running that vendor with what their go to market is for the channel. The same thing as far as them expanding, because we've seen what they've done in the past. But then there's a lot of outside factors. If you look at the majority of our vendors are not probably cash flow positive, right. They're out of the start of phase. They're still taking in dollars to grow out their channel teams. So it depends on where we get them in their life cycle. I would say right now, if it was Dale Foster, I'm going to put my money on three vendors. I would pick three of our vendors. It would take off on that side and one of my sales leaders would pick three other ones, probably. So we do have a pretty good robust pipeline where we think, hey, we're going to see some real expansion. The quickest thing in distribution is, like I said earlier, is like a share shift piece of it. And we're seeing that happen and it's just good when these bigger behemoth distributors just move in a little different direction or it gets messy, all the advantages come to us where they need somebody that's much more of a targeted team.
Bill Dezellem: Great. Thank you. Appreciate the help.
Dale Foster: Thanks, Bill.
Operator: Our next question comes from Vincent Colicchio from Barrington Research. Please proceed.
Vincent Colicchio: Yeah, one more for me. The share gain you're seeing with certain software vendors from distributors, large distributors, are they largely quite small emerging companies, or are they, some of them decent size?
Dale Foster: I guess it depends on what you mean by that, Vince. I mean decent size. You know, we look at a vendor, if they can get to $100 million, that would be a mid to large vendor for us. If you look at Sophos, $800 million, SolarWinds, $400 mil or $500 million. So some sizable vendors on that side. But that's what I would consider is some of the larger ones. And we're seeing more of those. Here's what happens in our market typically, and that is as these customers, or, I'm sorry, vendors get larger, they look for more efficient ways to get to the market. And then the key word is how do they scale it? Right? How do they scale their business? We're talking to one right now that says, hey, we need to scale and we can't do it by adding another 80 sales reps. The channel already exists, so you have these thousands of resellers, you've got a handful of distributors. If we use the channel and leverage the channel, we can scale and we don't have to keep dumping the dollars into it. So we're just getting a one for one. We actually are getting a 3x on the investment we put into the channel. So that's where we want to be. That's where the inflection point is for these vendors and we try to get early on with them, have a deeper relationship. So when they go that way, we're ready to go. And some of them, there were just still prospects for us that we haven't even signed yet. But we see where they're going and we're saying, hey, we're a good fit for you guys. If you look at the gap between where we sit as adjust gross billing, distributor of $1 billion and the next one at $20 billion, it's a big gap for us to grow in there without really being seen as of that much of a competitor to the larger teams.
Vincent Colicchio: Thank you for responding.
Dale Foster: Thanks, Vince.
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, operator. I'd like to say thank you to all the stakeholders that we continue to work with and help us build an exceptional company and really focus on the channel. We have a great team and we're going to continue to execute our strategic plan for the benefit of all our shareholders. With that, I appreciate everybody joining us today.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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