Climb Global Solutions Inc (CLMB) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Wayside Technology Group's second-quarter 2008 earnings results 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 be given at that time.

(OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded.

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

Nathalie Turner.

Ms.

Turner, you may begin.

Thank you, Sayid, and good morning everyone.

Welcome to Wayside Technology's second-quarter 2008 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 comment about the webcast for this earnings call.

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

Eastern time yesterday July 31, 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 unavailable at waysidetechnology.com.

The conference call and the associated webcast contain time sensitive information and is accurate only as of today, August 1, 2008.

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

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, Nathalie, and good morning to everybody.

Net income for the second quarter of 2008 amounted to $823,000 or 1.7% of net sales as compared to $959,000 or 2.2% for the same period in 2007.

Our total net sales increased 9% or $4.1 million to $48.1 million.

Sales for our Lifeboat segment were $35 million, up $1.3 million a 4% increase.

Sales for our Programmer's Paradise segment were $13.1 million, up $2.7 million, a 26% increase.

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

Programmer's Paradise and TechXtend continue to attract more and more customers with our service centric approach.

Lifeboat also performed well.

Excluding VMware, Lifeboat sales increased by $4 million or 21% compared to the second quarter of 2007.

During this quarter, we signed new distribution contracts with 14 software publishers.

Cash and cash equivalents now amount to $22.5 million versus $20.4 million at the end of the second quarter of 2007, an increase of $2.1 million or 10%.

Cash and cash equivalents amounted to 94% of our equity.

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

Now let's discuss an important change.

Our agreement with VMware will change as for the first of October 2008.

Lifeboat distribution will cease distributing VMware labeled products as of the first of October 2008 while VMware will expand its relationship with Programmer's Paradise and TechXtend.

Total VMware labeled distribution sales in the first six months amounted to $20.9 million or 24% of our total net sales.

Most important however to us is gross margin.

Product margin for VMware labeled distribution sales for the first six months amounted to $640,000 which is 8% of our total gross margin.

As discussed in our previous conference calls, VMware started to significantly change its distribution model in 2007.

New VMware distributors adopted ultra low pricing strategies.

This resulted in reduced sales and gross margins for our Company.

Now even more volume distributors have been authorized by VMware.

It is therefore that both companies believe that at this point focusing our relationship on Programmer's Paradise and TechXtend is mutually beneficial.

We have the commitment from VMware's management to work much closer together on the reseller side.

We also will continue to sign on new software vendors on the distribution side.

We do not foresee immediate cost savings as a result of this termination.

As a result of these factors, we cannot currently estimate the financial impact this change will have on our Company.

We still have a full quarter ahead of us in terms of VMware distribution and we'll update you next quarter.

Kevin Scull will now report on the financial numbers.

Kevin?

Thank you, Simon, and good morning everyone.

I will discuss our second-quarter financial results on a companywide basis as well as per division.

Net sales were $48.1 million compared to $44 million last year representing a 9% increase.

Sales for our Programmer's Paradise division were $13.1 million compared to $10.4 million last year representing a 26% increase.

The growth in revenue was mainly due to our customer service centric sales approach, aggressive pricing and flexible payment options used to win large orders during the quarter.

Sales for our Lifeboat division were $35.1 million compared to $33.7 million last year representing a 4% increase.

The growth in revenue was mainly the result of the addition of new product lines.

Excluding VMware, Lifeboat sales increased by $4 million or 21% compared to last year.

Gross profit was unchanged at $4.3 million compared to the prior year.

Gross profit as a percentage of sales was 8.9% compared to 9.8% last year.

The decrease in gross margin percentage was primarily caused by increased pricing pressure as well as several large orders and one at lower margin.

Gross profit for our Programmer's Paradise division was $1.5 million compared to $1.3 million last year, representing a 10% increase.

Gross profit for our Lifeboat division was $2.8 million compared to $3 million last year representing a 6% decrease.

Gross profit as a percentage of sales for our Programmer's Paradise division was 11.2% compared to 12.9% last year.

Gross profit as a percentage of sales for our Lifeboat division was 8.1% compared to 8.9% last year.

Total selling, general and administrative, SG&A, expenses were $3.1 million compared to $3 million last year.

As a percentage of sales, SG&A expenses for the second quarter of 2008 were 6.4% compared to 6.8% last year.

Direct selling costs for the second quarter of 2008 were $1.5 million compared to $1.4 million last year.

Selling costs for our Programmer's Paradise division were $700,000 compared to $800,000 last year.

Selling costs for our Lifeboat division were $800,000 compared to 700,000 in 2007.

Our net income decreased by $136,000 or 14% to $823,000 from $950,000 last year.

Earnings per share was $0.19 in the second quarter compared to $0.22 last year.

On a fully diluted basis, earnings per share were $0.18 compared to $0.20 last year.

Now moving onto the balance sheet.

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

Cash and marketable securities decreased by $1.4 million to $22.5 million.

Some of the cash was used to fund stock buybacks totaling $980,000 in 2008 as well as dividend payments totaling $1.4 million offset by cash generated from operations.

Accounts receivable increased by $1.3 million and account payable increased by $1.9 million from the year-end levels due to strong sales volumes in the second quarter.

These accounts closely correspond to our sales pattern.

Our balance sheet continues to be strong with $22.5 million in cash and marketable securities and no debt.

Working capital at the end of the quarter was $17.7 million and our current ratio was 1.52.

Our book value per share is $5.10.

Equity now stands at $22.9 million and cash and marketable securities make up 94% of this equity.

This concludes my remarks.

Simon, back to you.

Thank you, Kevin.

Now before we start the Q&A session, I want to discuss two more issues.

The first one is Shawn Giordano is our new Vice President of Sales for Programmer's Paradise and TechXtend.

Shawn Giordano joined Wayside Technology Group in November 2007 as Senior Director of Sales for Programmer's Paradise and TechXtend.

From 2000 to 2007, Sean worked for CA Incorporated where he held several sales and management positions.

Sean is an energetic and focused sales leader and has proved over the last eight months that he is the right guy for the job.

We are excited to have him on our team and we look forward to the growth of Programmer's Paradise and TechXtend under his leadership.

The second issue is per the end of June, cash and cash equivalents amounted to $4.81 per share.

That is 63% of our stock price per the close of business yesterday.

Needless to say that we feel that we are trading at depressed multiples despite carrying an 8% dividend yield.

Our Company's balance sheet is strong with the ability to pursue acquisitions and the current economic environment could provide a good pipeline of acquisition's opportunities.

However, we feel that at the current stock price level, buying it back our own shares is an excellent investment.

It is therefore that our Board of Directors approved the increase of our stock buyback program by 500,000 shares.

Including these 500,000 shares, the total amount of shares available for repurchase now amounts to 628,000 shares.

In the first six months of 2008, we bought back a total of approximately 64,000 shares.

We support our stock.

And starting next week, we will continue our buyback program.

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

(OPERATOR INSTRUCTIONS) Steve Emerson, Emerson Investment.

Congratulations on an excellent quarter in tough economic times.

Thank you, Steve, appreciate your comments.

Maybe you can give us a flavor of the climate of business.

For instance, has financial industry sales gone way down which has been made up by other areas?

Or can you give us a flavor?

And then the second question would be to give us a little better feel for how this change in VMware policy will affect you?

For instance, what percent of programmers or how much in dollars in Programmer's Paradise was VMware related and perhaps how strong your VMware accessories are?

And to what extent will that be affected by losing the direct VMware sales?

Okay, Steve, let me start with the first question.

On the economic environment, as you correctly stated, it's a very tough environment out there.

I have also stated in previous conference calls is that we cannot use the economic environment as an excuse for our performance nor should we.

We are too small for that.

We are a niche each company and I think the results in the second quarter of that actually prove the kind of company that we are because despite the fact that we faced tremendous price pressure in the Lifeboat segment, our Programmer's Paradise performed very well.

The reason for that is exactly what we stated in the call as well as in the press release, is our customer-centric approach.

We've gotten very aggressive when it comes to working with software publishers.

We've gotten very aggressive in terms of working, being flexible to our customers, listening to our customers and follow up tenaciously in terms of the open orders.

That has worked very well.

Sean has directed that strategy and it has worked very well for us.

So what do I see out there in terms of the economic environment?

I think we will see continued intense pricing pressure in the Lifeboat section.

And the reason for that is that the large volume distributors are definitely not performing as they want to.

Second thing is -- and Lifeboat will face that more I think than Programmer's.

Programmer's Paradise also faces the intense pricing pressure from the large corporate resellers in the US.

However, they are very focused and very close to software publishers.

So our strategy for Lifeboat is getting even more intense, getting closer to software publishers and sign on new software publishers.

[Dan], do you want to comment on that?

Yes, thank you, Simon.

Good morning, Steve.

I just wanted to add one of the things that we are excited about now at Lifeboat is that this really freezes up to go to our strengths you had mentioned earlier with the complementary vendors to the virtualization platforms.

You know since the very beginning, we have worked hard to really develop a really robust ecosystem of complementary and enhancing and augmenting vendor products around the VMware offerings.

And we will continue to do that and what this will really do for us is free us up to really dedicate more time and focus to that effort rather than focusing on really what has become an overwhelmingly tasking and devolving margin area in the VMware part of the business.

So from the very beginning, we have been first distributors for companies like Vizioncore, PlateSpin, DataCore, VEAM, Acronis, VKernel, Blue Lane, ToutVirtual and we will continue to really focus on these companies and really drive and become what really is our true strength becoming a true extension of these vendors out into the virtualization community.

So to answer your second question with VMware.

We do not disclose the amount of business we do on Programmer's Paradise.

And the reason for that is purely because of our competitors.

We do expect as stated in the call the sales to increase significantly over the next couple of quarters with Programmer's Paradise.

To that point, we have the commitment from VMware, Shawn Giordano, as well as [Freddie Riveras], our Director of Sales, will visit VMware in the second week of August and will come up with clear action items and we will start working on them.

Thank you very much.

You are welcome, Steve.

[Peter Lux], Smith Barney.

How are you doing?

Good morning, Peter.

Well I agree that the stock has reached levels that are giveaway.

Given that and I think stockholders [applaud] the buying back of shares at ridiculous low prices and probably a good idea, it comes a delicate balance here though because of the stock has always have a narrow float anyway.

So the (inaudible) kind of hard to balance how much do buy back versus marketability and trading ability.

Yes, having that said, if you look at the -- we discussed that during the Board meeting.

Having that said, this will give liquidity event for the shareholders who want out and this will also if you look at our shares outstanding last year and if you compare it to a year or two or three ago, we were at the 4 million shares level.

Our trading volume has not declined or gone up because of the increase in shares outstanding.

So we decided therefore that 500,000 shares was the right number at this time.

I would agree with you if we are going to buy back 3 million shares but we didn't.

It's a manageable level and we feel that this a, creates an environment where it provides a liquidity event for the shareholders who want to have one.

And b, will still give us the flexibility to look at acquisitions.

Now a word about acquisitions.

I know been really reviewing acquisitions, we signed on an investment banker in August of last year.

I really saw the environment changing.

There were outrageous valuation requests for companies in the last year.

And I'm glad we did not buy.

Some investors have called us in the first quarter and said you should have bought, you should have bought.

Anybody who bought a company in the last 12 months is now sitting on it and going oh, we should have waited.

Valuations for everyone has gone down.

I think we've entered a bear market.

This was the first quarter where we didn't have a venture backed IPO since 1978.

The economic environment out there is tough.

That does not mean that we should sit on -- sit here and go well let's focus on adding distributors, let's focus on getting closer to software publishers and do nothing with our cash.

The cash return, the return on our cash is very low right now.

I am looking at a company that is we feel is very well -- it's trading at depressed multiples, meaning our company, we are going to buy back our own shares.

Good job and continued good work.

One other question, Simon, are you in town?

Yes I am.

Okay, thanks.

[Aaron Lehman], [LSB Partners].

Good morning and congratulations on a strong quarter in difficult times.

You mentioned acquisitions because they are very cheap.

And you admit you yourself are a very cheap stock at the moment and hence the buyback.

Does that not also open the doors for other companies looking at Westside as a potential acquisition target?

And if so, have there been any overtures to date?

And are you open to any such suggestions should they come along in the future?

As a public company, we will always do what is in the best interest of our shareholders.

So if there would be a venture into that, I would be more than willing to look at that if it would provide our shareholders with an excellent return on their investment.

There have been none to this day.

Okay, thank you.

(OPERATOR INSTRUCTIONS) I'm showing no further questions.

I would like to hand the conference back over to the panel for any closing remarks.

We appreciate everyone's support to our Company and we look forward to talking you in the third quarter of this year.

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.