Climb Global Solutions Inc (CLMB) 2007 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Wayside Technology Group conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session and instructions will follow at that time.

(OPERATOR INSTRUCTIONS).

As a reminder of ladies and gentlemen, this conference call is being recorded.

This conference call is being recorded.

I would now like to introduce your host for today's conference, Ms.

Natalie Turner.

Ms.

Turner, you may begin your conference at this time.

Welcome to Wayside Technology's fourth-quarter 2007 earnings call.

Before turning the call over to Simon Nynens, the Company's Chairman and CEO, I will dispense with the customary cautionary language and comments about the webcast for this earnings call.

We released earnings for the fourth quarter at approximately 5:00 PM Eastern time yesterday, January 31, 2008.

The earnings release is available at the Company's investor relations web site at waysidetechnology.com.

Today's call including all questions and answers is being webcast live and can be accessed via the website earnings.com.

A rebroadcast of this call will be available at waysidetechnology.com.

This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, February 1, 2008.

A detailed discussion of risks and uncertainties are discussed in our Forms 10-Q and also in greater detail in our Forms 10-K.

Wayside Technology Group Inc.

Wayside Technology group Inc.

sees no obligation to update and does not intend to update any forward-looking statements.

Now I would like to turn the call over to Simon.

Thank you, Natalie, and good the morning to everyone.

Net income for 2007 was $3.7 million versus $3.3 million for 2006, an increase of 13%.

Cash and cash equivalents now amount to $24 million versus $21 million at the end of '06, an increase of $3 million or 14%.

Cash and cash equivalents now amount to 98% of our equity, this despite the fact we paid $2.7 million in dividends in 2007.

The means to do so were provided by $5.2 million of cash generated by our operating activities.

Net income per share diluted amounted to $0.80 per share versus $0.72 per share for 2006.

We have achieved this growth in net income by diligently focusing on our financial goal to increase income from operations by increasing our gross margin dollars while improving employee productivity.

In fact, through improvements in employee productivity, we were able to add every dollar that we earned in additional gross margin dollars in 2007 directly to income from operations.

Net sales for the fourth quarter decreased $9.7 million to $47.1 million.

During the fourth quarter, new VMware distributors continued with ultra-low pricing strategies.

As a result, our VMware sales [levels] declined $15.2 million versus the fourth quarter of '06.

As stated before, we continue to focus our efforts on growing mutually beneficial partnerships instead of chasing revenue at no or near 0% margins.

Our strategies to add new publishers as well as expanding our current relationships with software publishers is working very well.

Excluding VMware, sales increased by $5.4 million, or 20%.

Sales for our Lifeboat segment were $34.5 million compared to $45.1 million in the fourth quarter of '06.

Sales for the fourth quarter of '07 for our Programmer's Paradise segment were $12.6 million compared to $11.8 million.

On a sequential basis, sales for our Lifeboat segment increased by 12%.

Sales for our Programmer's Paradise increased by 14%.

Gross profit margin increased this quarter to 9.2% as compared to 8.2% in the fourth quarter of '06.

Total gross profit for the quarter was $4.3 million compared to $4.7 million, an 8% decrease.

Gross profit for our Programmer's Paradise segment was $1.5 million compared to $1.6 million.

Gross profit for our Lifeboat segment was $2.8 million compared to $3.1 million.

On a sequential basis, our VMware sales were up again as well.

Marketing our [World Feel] virtualization, including many virtualization vendors, outstanding customer service and a new incentive program, Lifeboat Point designed to leverage Lifeboat's technical consulting and other services, were the many drivers of this increase.

I would also like to mention that we continue to aggressively to grow our reseller base in Europe, Latin America and Asia.

In April, we will be at conferences with Intel Software in Europe and India.

Later this year, we will have our first Latin America Lifeboat conference.

Revenue derived from international partners is still below 10% of our total revenue.

However, t is growing aggressively.

As a distributor, we are now offering a full-service offering to our software vendors.

A vendor can simply have us handle their complete indirect channel, including marketing, rebate programs, training, certification of resellers, et cetera.

Software vendors have indicated a clear interest in these new programs.

This is where we can add value and this is where we see the future of our distribution business.

Kevin Scull will now report on the financial numbers.

Kevin?

Thank you, Simon, and good morning, everyone.

I will discuss our fourth quarter financial highlights.

Net sales were $47.1 million compared to $56.8 million last year.

On a sequential basis, our sales increased 13% over the preceding quarter.

As stated, our VMware sales declined by $15.2 million in the quarter.

Excluding VMware, sales of our other publishers increased by $5.4 million, or 20%.

Canadian sales were $6.7 million for the quarter versus $6.9 million last year.

Canadian sales represented 14% of our total sales in the quarter and 13% for the year.

Gross profit for the quarter was $4.3 million compared to $4.7 million last year.

Gross profit as a percentage of net sales was 9.2% compared to 8.2% last year.

Total selling, general and administrative, SG&A expenses, were $3.1 million, down slightly compared to $3.2 million last year.

Net income in the quarter amounted to $0.9 million or 2% of net sales compared to $1 million last year or 1.8% of net sales.

For the full year, our net income amounted to $3.7 million compared to $3.3 million in the prior year, or an increase of 13%.

Our primary earnings per share were $0.21 in the quarter compared to $0.24 last year.

On a fully diluted basis, our earnings per share were $0.20 in the quarter compared with $0.22 last year.

For the year, basic earnings per share were $0.84 compared to $0.78 last year.

On a fully diluted basis they were $0.80 compared to $0.72 last year.

Moving onto the balance sheet, cash and marketable securities increased by $3 million to $24 million.

Accounts receivables decreased by $3.3 million and accounts payable decreased by $3.8 million from the prior year, mainly the result of the lower sales volume in the fourth quarter of this year since these accounts closely correspond to our sales patterns.

Working capital at the end of the year was $19.5 million compared to $16.5 million last year.

Our current ratio this year is 1.61 compared to 1.46 last year.

Equity now stands at $24.5 million, a $3.2 million increase.

Our book value per share is $5.56.

Without a penny of debt and nearly $20 million in working capital, we are well positioned to grow our existing operations as well as fund opportunities to expand our business.

This concludes my remarks.

Simon, back to you.

Thank you.

Before we start the Q&A session, let me share with you three points.

As stated before, we are a key player in the virtualization space, now and in the future.

We remain a close partner of VMware and are excited about that partnership.

We expect VMware as well as products complementary to VMware to be a major driver of growth and profitability into the future.

We are a committed VMware partner.

We declared a quarterly dividend of $0.15 per share, a sign of our strong financials.

As I mentioned before, cash and marketable securities amount to 98% of our equity.

That leads me to the final point -- we support our stock.

We have the authorization to buy back 220,000 shares, and starting next week we will start our buyback program again.

I would like to close with stating that I am excited about our Company and we will continue to work hard here.

With net income of 13% year-to-date rate, great service offerings, a great team of dedicated employees and better marketing than ever before, we have a great base to build on.

I want to thank all of my co-workers for their hard work, their feedback and their commitment to our company and I want to thank our vendors and customers for their support and their partnership in 2007.

Operator, we can now start with the Q&A session.

(OPERATOR INSTRUCTIONS).

Peter [Lux], Smith Barney.

Good job.

A couple of things.

What other -- some of the things we discussed, that you're adding vendors and new publishers and how aggressive could we -- do we see that you will be adding some more publishers to increase your product scope?

Well, Peter, like I said before, this business every day starts all over again.

There are no long-term contracts.

We have to get out of the gate strong every single day.

What we have done over the past year and I think very successfully and it's reflected in our numbers is to go out there, be in from of the software publishers and tell the world about our service offerings.

We have a great team, we have the tools to do it.

We now have to go out and tell the world about our service offerings.

We've done so.

Dan Jamieson, General Manager of our Lifeboat division, has gone out on numerous visits, as myself.

We have gone joint trips, we have a team dedicated on finding new partners for us now and we aggressively follow up on those.

I think the numbers speak for themselves when it comes to them.

I cannot look into the future.

It can tell you, there is definitely a clear demand for the service offerings that we have.

When it comes to VMware, Microsoft is putting out a VM product.

Do you anticipate working with them in marketing their product too?

I do not anticipate working with them in terms of a distributorship.

I think they will roll that product right into their mainstream distributors and that will be at margins that we definitely -- that's not our business.

We are not a mini Wal-Mart.

If you talk about our Programmer's Paradise division, they will definitely be working with that product, absolutely, yes.

Once again, good job and keep it up.

(OPERATOR INSTRUCTIONS).

Steve Emerson, Emerson Investments.

Congratulations for a great quarter under some difficult conditions.

I missed your opening statement, but are we starting to see some relief from VMware, or now that they have had bad earnings and possibly recognize that they need more support in the channel?

Two things about that.

The expectations of the market were such that I think they were expecting VMware to grow maybe even higher than 100%.

I think they had very strong earnings, increasing revenue by 80%.

And like I said before, we are a committed VMware partner and excited about virtualization.

I think with the competitive pressures from where I can see it -- and again, I'm not an expert on this -- but from where I can see it, is that the virtualization space remains a wide-open playing field.

So regardless who steps into that market, it signals strong growth in the future.

It might not be as strong as the market wants it to be, but I would say 80% revenue growth is pretty strong.

VMware was -- started the game, actually, right?

It was early in the game, but actually invented this whole field.

So we expect them to be a main driver of that growth in virtualization.

So we're excited about that.

Having that said, Dan and I have gone out in November.

We just came back from a trip to California, visited with VMware again and we are committed and so is VMware to us.

So we look forward to the future.

I think what I'm really asking you is, does it look like there may be incentives of some sort that would make VMware in certain cases less of a nonprofit [sell]?

Yes, but VMware is definitely not happy with the fact that margins are eroding.

VMware understands that channel partners, what they focus on is gross margin.

So I think VMware is trying to become very creative and we're assisting them all the way when it comes to feedback from the channel in terms of how do we make that that street price does not decline, how do we make sure the channel is able to keep some margins.

Not only VMware is struggling with that, I would say most software vendors are struggling with that.

At VMware even more, everybody is so into their revenue growth and so driven to just chase that revenue, that people are just willing to give it away.

It's definitely not VMware's objective.

And maybe Dan, you want to add to that?

Steve, I think it's important to point out that VMware is very cognizant of the pressures on the channel, both from a distributor standpoint and the reseller standpoint.

So they have been very, very aggressively putting out new programs aimed at putting more skin in the game for both resellers and distributors.

Having that said, I do not expect the pressure to go way soon, especially with the economic downturn.

I think the major, major distributors will definitely look at increasing prices at this time.

So I do not expect that competitive pressure to ease soon.

(OPERATOR INSTRUCTIONS) Peter Lux, Smith Barney.

Just one more thing, Simon.

Our cash continues to grow and that is great for stockholders and for our balance sheet and buying some stock back at giveaway prices probably is a good idea.

Any ideas -- we've talked about acquisitions or whatever, especially with interest rates declining, how some more cash might be deployed?

Peter, we're trying to be very creative with that cash.

But having that said, it's like fishing You have to eagerly wait for the right catch, and that's what we're doing.

I feel the pressure, Peter, and I'm looking -- I'm trying to meet with as many prospects as I can.

It has to be the right fit.

I know people want us to go after this acquisition and pay a lot of money within a month after saying that.

I'd rather wait our turn.

It's like buying a house right now.

We have to see where the price is going, and right now it would be hard for us to justify that we jump in, and at a premium price.

I think a lot of people are at the tail end of the M&A market and still expect high prices for their companies, and maybe rightfully so.

But I think now between now and the end of the year, we will have some beautiful opportunities.

(OPERATOR INSTRUCTIONS).

I'm showing no further questions at this time.

You may continue within any closing remarks.

Thanks again for your interest in our Company and we look forward to talking to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes our program for today.

You may all disconnect and have a wonderful day.