Climb Global Solutions Inc (CLMB) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Wayside Technology Group Conference Call.

(OPERATOR INSTRUCTIONS.) 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.

Thank you, Sayid, and good morning.

Welcome to Wayside Technology's First Quarter 2008 Earnings Call.

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

We released earnings for the first quarter at approximately 5:00 p.m.

Eastern time yesterday, April 24, 2008.

The earnings release is available at the Company's investor relations website 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, April 25, 2008.

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

Wayside Technology Group, Incorporated 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 morning, everybody.

Net income for the first quarter of 2008 amounted to 629,000, or 1.6% of net sales, as compared to 990,000, or 2.1%, for the same period in 2007.

Cash and cash equivalents amounted to 22 million, versus 19.7 million at the end of the first quarter of 2007, an increase of 2.3 million or 12%.

Cash and cash equivalents amounted to 91% of our equity and we do not have any debt.

Total net sales for the first quarter of 2008 decreased 6.4 million to 40.5 million.

Two important observations - one, as stated before, we expect the first quarter of 2008 to be a tough quarter comparison-wise.

Sales grew 12 million, or 33%, in the first quarter of 2007 as compared to the first quarter in 2006, which set up a very tough quarter over quarter growth comparison.

I want to clearly state that decreased sales are related to one issue and one issue only.

The decrease in sales is entirely attributable to a continuation of the reduction of sales for our largest vendor because of intense competition and extremely low margins.

VMware labeled sales declined 9.3 million compared to Q1 2007.

In accordance with our strategic plan and as stated before, we are transitioning to become a more diverse software provider.

We are pleased to report that our strategy to add new publishers as well as expanding our current relationships with software publishers is working well.

Excluding VMware, sales increased by 3 million, or 11%.

And we have signed distribution contracts with 11 software publishers since the first of January this year.

Sales for our Lifeboat segment were 29.3 million, compared to 36.1 million.

Sales for our Programmer's Paradise segment were 11.2 million, as compared to 10.8 million, a 3% increase.

Gross profit margin as a percentage of net sales, was 9.3%, compared to 9.5% last year.

At the last month of every quarter and on that last month, the last week, is so important for us, we cannot yet predict results for the second quarter of 2008.

However, based on April's month to date results, we are cautiously optimistic about the second quarter of 2008.

Kevin Scull will now report on the financial numbers.

Kevin?

Thank you, Simon, and good morning, everyone.

I will discuss our first quarter financial results on a company wide basis as well as per division.

Net sales were 45 million compared to 46.9 million last year representing a 14% decrease.

Sales for our Programmer's Paradise division were 11.2 million, compared to 10.8 million last year, representing a 3% increase.

The increase in net sales for our Programmer's Paradise division in the first quarter of 2008 was mainly due to our aggressive pricing and flexible payment option used to win large deals during the quarter.

Sales for our Lifeboat division were 29.3 million, compared to 36.1 million last year, representing a 19% decrease.

The decrease in our net sales for our Lifeboat division was caused by continued competitive pricing on our VMware labeled sales.

VMware, our largest vendor, accounted for 25% of our sales and 10% of our gross profit, compared to 41% of our sales and 21% of our gross profit last year.

Gross profit was 4.5 million--was 3.8 million compared to 4.5 million last year, a 16% decrease.

Gross profit as a percentage of net sales was 9.3%, compared to 9.5% last year.

The decrease in gross profit margin as a percent of net sales was caused by increased competitive pricing pressure as well as several large deals on a lower margin.

Gross profit for our Programmer's Paradise division was 1.4 million, compared to 1.6 million last year, representing a 12% decrease.

Gross profit for our Lifeboat division was 2.4 million, compared to 2.9 million last year, representing an 18% decrease.

Gross profit as a percentage of sales for our Programmer's Paradise division was 12.2%, compared to 14.2% last year.

Gross profit margin as a percent of sales for our Lifeboat division remained unchanged at 8.1%.

Gross profit in 2008 for our Lifeboat division was impacted by our recently introduced point savings program.

We reserved 100,000 for these expenses in the first quarter of 2008.

Actual usage of our point savings program is below our initial estimate.

As a result we expect these costs as a percentage of sales to be lower on a go-forward basis.

Total selling, general, and administrative--SG&A--expenses were 2.9 million, compared to 3 million last year.

As a percentage of sales, SG&A expenses were 7.3% compared to 6.5% last year.

Direct selling costs for the first quarter of 2008 were 1.5 million, compared to 1.4 million in the first quarter of 2007.

Direct selling costs for our Programmer's Paradise division for the first quarter of 2007 were 700,000.

Total direct selling costs for our Lifeboat division for the first quarter of 2008 were 800,000, compared to 700,000 in 2007.

Our net income decreased in the first quarter by 360,000 or 36% to 629,000 from 990,000 last year.

Our [primary] earnings per share were $0.14 compared to $0.23 last year.

On a fully diluted basis our earnings per share were $0.14 compared to $0.21 last year.

Now, moving on to the balance sheet.

Compared to our year-end balance sheet, the following accounts had significant fluctuation.

Cash and marketable securities decreased by 1.8 million to 22 million.

Some of the cash was used to fund stock buybacks during the quarter totaling 330,000, as well as corporate federal tax payments of 800,000 as the company has utilized all of its net operating loss carryovers.

Accounts receivable decreased by 2.9 million and accounts payable decreased by 4.3 million from year-end, since the fourth quarters usually are strongest and these accounts closely corresponded to our sales pattern.

Our balance sheet continues to be strong with 22 million in cash and marketable securities and no debt.

Working capital at the end of the quarter was 19 million and our current ratio was 1.69.

Our book value per share is $5.44.

Equity now stands at 24.1 million and cash and marketable securities make up 91% of this balance.

This concludes my remarks.

Simon, back to you.

Now, before we start the Q&A session, let me share with you the following points.

One, as stated before, we are and will continue to be a key player in the virtualization space, now and in the future.

We've invested in the first quarter in expanding our relationships with VMware and as well as products complementary to VMware and we expect them to be a driver of growth and profitability in the future.

Two, 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 91% of our equity.

Three, we support our stock.

We have the authorization to buy back 190,000 shares and we will start doing so and will continue our buy back program starting next week.

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

Thank you, sir.

Ladies and gentlemen.

(OPERATOR INSTRUCTIONS.) The first question comes from [James Devlin] from [Haley and Company].

Good morning, guys.

Good morning, James.

Yes, I was just wondering, you guys had 22 million in cash at the end of the quarter.

How much stock did you guys buy back during the past 90 days, during the past quarter?

We were limited by the amount of shares traded on a daily basis, but we bought the maximum back.

It was 35,000 shares.

Okay.

Do you guys have a reported average price on that or--?

--$10.14.

Okay, great.

Thank you very much.

Thank you.

Have a good weekend.

Our next question comes from Jim Stone from PSK.

Good morning, gentlemen.

Good morning, Jim.

I'm trying to understand a bit.

Obviously, as we back up in time you changed the strategy to increase the gross margins.

But as I look at the numbers, gross margins really haven't been increasing and I'm wondering if it's time to review that strategy a bit and maybe tweak it, so that at least we can try and keep earnings at a constant level, rather than a declining level.

Absolutely.

The number one objective, as I stated when I became CEO, is to increase net income.

I'm all in favor of increasing net sales and gross margin, et cetera.

But what it ultimately comes down to is net income.

Unfortunately, we were faced by intense competition in last year since it started--since VMware started opening up distributors for their product lines.

We were faced definitely with intense competition in the first quarter as you--I'm sure you've seen the results of the other distributors.

The first quarter was marked by competition.

However, we do not seem to be impacted on an overall basis by the overall economy since we're small and really focused on product lines.

And as you see, without VMware we grew sales by 3 million or 11%.

So it's definitely a continuation of that strategy.

And I think you'll agree with me.

Ultimately, we want to increase net income.

Okay.

Do you see any ways to take more--I mean, 11% growth in--on the non-VM side is pretty decent growth.

Are there any steps that one might consider that would increase that growth?

Well, not that I'm currently aware of because we've been working very hard since actually we joined in 2006 in terms of signing up new distributors.

As I'm sure you've seen the press release with Compuware released yesterday, that has been in the works for about six to nine months.

It takes a long time for a software publisher to make the decision to add a new distributor as it is a vital relationship for that software publisher.

I'm therefore pleased to announce that we've signed new contracts with software publishers amounting to 11 since the first of January of 2008.

And that's our objective - to add on new software publishers and to become a more diverse software publisher distributor.

Do you see many good prospects in that area?

Yes, but they're smaller.

I mean, it's not like there's--we're not planning to add Microsoft at low margins.

We're not that kind of distributor.

But to be honest with you in the reason why we're doing it, and I've said this before, we don't want to become so dependent on one.

And as Kevin Scull mentioned, VMware now amounts to 10% of our gross margin, and that's far less than what it was last year.

Okay.

Keep up the good work on expanding the non-VM side.

Thank you.

Have a good weekend.

Our next question comes from [Pierre Lux] from Smith Barney.

Hi, Simon, Kevin.

How are you guys doing?

Good morning, Pierre.

Just sort of a follow on to what the last gentleman said, is there any--I know you--not only did you sign 11 new publishers this year, but you had worked on a whole bunch for next--last year.

Are there any that really should feel--break out kind of names that you really could leverage.

I think we don't know--Compuware, another company is Telerik.

But there are many more small and agile companies that really expect us to grow well with them.

And I mentioned a company like TechSmith, who we've been working with for years.

Quest is another one that has come back to us.

And those are well known names.

You said you've been working with VMware on some ancillary kinds of things like tools and so forth.

Do you see this significant--or any kind of ability to leverage larger sales based on your confidence selling VMware?

Well, like I said before, we really started to fight back hard in the fourth quarter of last year in terms of VMware.

And it is our hope that it has bottomed out in the first quarter.

The 10 million--10 million a quarter, we hope that's the base level and we can grow from there.

But that's for today and that could change if VMware distributors change or add more distributors.

But right now, that's our current thinking.

And finally, you said you were kind of optimistic, based off of April.

Can you quantify optimistic?

Better than Q1.

Okay.

All right, guys.

Thank you.

Thank you.

Have a good weekend.

Our next question comes from Steve Emerson from Emerson Investments.

Gentlemen.

Good morning, Steve.

Good morning.

And I will not say congratulations.

But your non-VMware certainly grew excellently.

Give us a little further flavor of tone of business.

For instance, was the business sort of frozen up due to headline concerns?

And is now business reflecting a more benign industrial outlook?

Are you seeing--when you talk about optimistic at this point how does this reflect?

Is it inquiries are up 30% or what?

Well, I mean, based on April sales to date, compared to budget, that gives us reason to be cautiously optimistic.

However, as I clearly said as well in my comments, the last month and the last week are extremely important for us.

And the markets are also very volatile right now.

So we cannot yet predict.

But I did want to mention that in the call, as well as in the press release, that April is according to budget and above our expectations.

Meaning budget--?

--Meaning sales, meaning gross margins.

Okay.

Does budget mean what the budget was before the March quarter?

Yes, yes, according to our plan, yes.

Okay, which was obviously not to have this kind of a quarter.

Oh, no, no.

Excellent.

Non-VMware, are you seeing the price competition easing up?

No, no.

A few--I have not reported--ever reported.

They seem very, very tough market conditions in the overall market.

And I think the first--we're not alone in that that we see intense competition in terms of to get the business from the resellers, I'm sure you've seen Inside Reporting yesterday.

It's a tough market out there.

And the reason that we are so focused on providing the value added line is that that's the reason that people stay with us.

So we face that price competition, but they seem to be--it's a little stickier than just price with us.

Okay.

And has some of that price competition eased up since quarter end now that the industry is probably seeing somewhat of an uptick from Q1?

Not necessarily per product line, but I think in terms of the mix that we sell--it's a different mix of products that we sell.

So what we've seen in April is an uptick from that because of the mix of business, not so much because the price per line goes up.

Okay.

And you did mention that part of the disappoint were a few large low margin deals.

Were those in--mostly in the VMware side?

No, they were on the Programmer's side.

Okay, got it.

Thank you.

Thank you.

Have a good weekend.

I'm showing no further questions at this time.

I'd now like to hand the conference back over to you for any closing remarks.

Thank you, Sayid.

Thanks for being on the conference call, and we look forward to reporting progress on our second quarter in July.

Thank you.

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.