Climb Global Solutions Inc (CLMB) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Wayside Technology Group third-quarter 2008 financial 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, ladies and gentlemen, 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, Sayed and good morning, everyone.

Welcome to Wayside Technology's third-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 third quarter at approximately 5 p.m.

Eastern time Friday, October 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 available at waysidetechnology.com.

This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, November 3, 2008.

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

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 everyone.

The third quarter of 2008 was a great quarter for us, especially for Programmer's Paradise and TechXtend.

Total net sales increased 9% to $45.4 million, and sales for our Lifeboat segment were $30 million, a 2% decrease.

However, excluding VMware, Lifeboat sales increased 13%.

Sales for our Programmer's Paradise segment were $15 million, a 39% increase.

Cash and cash equivalents amount to $23 million, representing 95% of our equity and approximately 85% of our market capitalization as per the close of market October 30, 2008.

We have no debt.

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

A word about financial stability.

We have our bank accounts with JPMorgan Chase and Citi.

Our marketable securities are 100% US government securities.

We have one of the most conservative balance sheets as a public company.

We do not have a need for debt.

Again, over 80% of our market capitalization in these last weeks is cash and cash equivalents and that is very high for a company that is as profitable as we are.

Just three weeks ago, we placed 88th overall on Forbes Magazine's list of the 200 best small companies in America.

We ranked number six out of 200 based on EPS growth over the past five years, number 45 based on sales growth and number 59 based on growth and return on equity.

Okay, back to our third quarter.

Our strategy to add new publishers, as well as expand our current relationships with software publishers continued to work very well.

Programmer's Paradise and TechXtend continued to attract more and more customers with their service-centric approach.

Lifeboat also performed very well.

We signed new distribution contracts with 10 software publishers in the third quarter of 2008.

The third quarter of 2008 also marked the end of distributing VMware-labeled sales for Lifeboat.

Total VMware-labeled distribution sales amounted to $8.2 million or 18% of our overall Q3 2008 revenue.

Product gross margin amounted to $249,000 or 6% of our overall Q3 2008 gross margin.

Compare this to last year, where, in Q3, we did $11.4 million or 27% of our overall Q3 2007 revenue and product gross margin amounted to $527,000 or 13% of our overall Q3 2007 gross margin.

Although VMware will extend its relationship with Programmer's Paradise and TechXtend, and I want to be very clear about this, we do now expect our sales and gross margins to be negatively impacted as a result of this change.

We cannot currently estimate the exact impact of this change.

What I can tell you is that we are working very hard to expand our relationships with software publishers.

It is also very important to stress that Lifeboat continues to focus on the Virtualization World View portfolio that adds software that is complimentary to VMware, as well as other virtualization platforms.

Virtualization World View is generally acknowledged as the broadest portfolio of virtualization solutions available in the industry.

Just last Friday, Lifeboat added to that portfolio by announcing an agreement to distribute Virtual Iron.

Virtual Iron is a key virtualization vendor.

Virtual Iron focuses on providing small and medium enterprises with server virtualization software.

We will distribute Virtual Iron products to our reseller network, not only in North America, but also in Latin America, Europe, the Middle East and Africa.

A word about competition.

Large distributors are starting to implement increased freight charges, fees for order and are also increasing their fees to the software vendors.

All this in a time where many resellers and many software vendors face tough times.

We firmly believe that a distributor should be rewarded for sales.

And we are excited that software vendors are reacting positively to our proposition.

And we believe that there are many more that are eager for a change to a different model, the one that Lifeboat offers.

Kevin Scull will now report on the financial numbers.

Kevin?

Thank you, Simon, and good morning, everyone.

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

Net sales were $45.4 million compared to $41.8 million last year, representing a 9% increase.

Sales for our Paradise division were $15.3 million compared to $11 million in the prior year, representing a 39% increase.

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

Sales for our Lifeboat division were $30.1 million compared to $30.8 million in the prior year, representing a 2% decrease.

This decline was due to the declining VMware-labeled sales.

Excluding VMware, Lifeboat sales increased by $2.5 million or 13% compared to last year.

Gross profit for the quarter was $4.3 million compared to $4.1 million in the prior year.

Gross profit margin as a percentage of sales for the quarter was 9.4% compared to 9.9% in the prior year.

The decrease in gross profit margin as a percentage of sales was primarily caused by increased competitive pricing pressures, as well as several large orders won at lower margin.

Gross profit for our Programmer's Paradise division was $1.6 million compared to $1.4 million in the prior year, representing a 16% increase.

Gross profit for our Lifeboat division was $2.6 million compared to $2.7 million in the prior year.

Gross profit for our Programmer's Paradise division was 10.7% compared to the 12.9% in the same quarter of last year.

Gross profit margin for our Lifeboat segment was 8.7% compared to 8.8% in the third quarter of 2007.

Total selling, general and administrative expenses for the quarter were stable at $3 million compared to last year.

Direct selling costs were $1.4 million compared to $1.5 million in the prior year.

Net income for the quarter amounted to $811,000 or 1.8% of net sales as compared to $822,000 or 2% in the same period last year.

Our primary earnings per share were $0.18 in the quarter compared to $0.19 last year.

On a fully diluted basis, our earnings per share was unchanged from the prior year at $0.18 per share.

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 million to $22.9 million.

Cash was used to fund stock buybacks totaling $1.2 million in 2008, as well as dividend payments of $2.1 million, offset by cash generated from operations.

Accounts receivable increased by $800,000.

Accounts payable increased by $600,000 from year-end levels due to strong sales volume in the quarter.

These accounts closely corresponded to our sales patterns.

Working capital at the end of the quarter was 18.3 and our current ratio was 1.56.

Our book value per share is $5.44.

Equity now stands at $24.1 million and cash from marketable securities make up 95% of this equity balance.

This concludes my remarks.

Simon, back to you.

Thank you, Kevin.

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

I think it is important here to state that we feel that we are trading at the best multiples, despite carrying a 10.4% dividend yield and having a strong balance sheet that we have.

We currently have the ability to pursue acquisitions, and the current economic environment could provide a good pipeline of acquisition opportunities.

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

Year-to-date, we bought back 128,000 shares, and the total amount of shares available for repurchase now amounts to 605,000 shares.

We support our stock and despite the current market conditions, we are excited about our long-term future.

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

(Operator Instructions).

Steve Emerson, Emerson Investment.

Yes, if you could please give us some color since quarter-end on how badly the headlines have impacted your business, where the strength is, where the weaknesses are.

Please go ahead.

Sure.

I think it is important to state that we, as many other business owners that I talked to, are saying it didn't hit us, but then there is always a word added to that -- yet.

I think many of us are waiting for the storm to hit us.

We haven't seen it yet, Steve.

And I think you see it in the large lines, but it is, again, compensated by the growth in our distribution lines, and it is the need of corporate America to be more efficient.

And there is only one really good way to get there and that is to invest in IT and get your staff more productive.

So we haven't seen it yet.

Much of the software that we sell, it's not like it is a large enterprise software like SAP.

What we sell is the middleware and kind of, so to say, band aids to put on the system instead of implementing a new ERP system or a new system.

What you can do with the software that we sell at a much lower price point, you can update your current software, you can update your current hardware and you can keep that running.

So we haven't seen that yet.

So the flavor that I could give you is I have no idea what the future brings.

All I can say is that we try to be as agile and as flexible as we can.

So perhaps as people pull back on major new generation rollouts, they would rather in this environment buy, call it, fill-in middleware.

And in effect, you are really seeing growth instead of pullbacks?

For some vendors, we definitely see growth in this environment.

But I think it is not so much related to the economy as more it's a need of just keeping up with the reality.

That is, for instance, they invest a lot in the virtualization software, and that is in addition to the VMware products.

So we see a lot of demand.

Our newest vendor, Virtual Iron, what they do is basically as a competitor of a VMware, but at a much more aggressive price point, and they are focused on the small and medium-size businesses.

Although we also see there is a lot of growth in the security business both from the Programmer's side and as on the Lifeboat side.

And that is just the reality out there that you need to make sure that your servers are secure.

And a lot of people, they feel there is an additional threat -- because of the economy going down, there is an additional threat of attacks against their company and trying to get money out of their company.

So a lot of people are investing in security right now.

Can you give us a flavor as to ex-VMware how much of your business is now virtualization-related and accessories and how much is security?

Is this a large portion of your business, let's say, compared to a year ago?

Yes, there is definitely -- like we've stated over the last couple of conference calls, it was our desire to become the more diverse distributor and a more diverse company and set up our offerings.

And I think if you look at -- even if you look at the second quarter through the third quarter, like I said, we do expect our sales and gross margins to be negatively impacted.

However, it is 18% of our overall sales.

It is only 6% of our overall gross margin.

And if you look at last year compared to this year, we basically lost $250,000 -- more than $250,000 compared to last year.

And look at our numbers.

That growth did not come -- definitely did not come from VMware.

That growth came from all the other vendors that we signed on.

So that is definitely -- we see that as our strength.

And we definitely look at our competition and the large distributors charging a lot of fees.

If you do that to a software vendor who right now also feels that they are going to face really tough times, status quo is very sticky.

However, there is a certain point at which you start to look at alternatives, and we feel that this is the time where a lot of people -- large software vendors are starting to look for alternatives because they are pressed to by their shareholders and by their management to look at other alternatives.

Let me try to understand your comment about the upcoming environment a little better.

You are now out of VMware for Lifeboat, but if I heard you right, you expect gross margins to keep coming down?

Or did I hear you wrong?

No, I do think that is reality, Steve.

That is reality.

We are going to move into other areas of distribution.

This environment definitely causes people to price shop, so we definitely do expect pricing pressure, not only, by the way, on the Lifeboat side, also on the Programmer's Paradise side.

But as you have seen, if you are aggressive and you can be flexible, there are significant growth opportunities.

As I think Programmer's and TechXtend have shown.

Well, I want to congratulate you and the entire team for an incredible quarter.

And I hope you keep with your current plan and current strategies, and hope you will keep doing as well as you did this last quarter in very challenging times.

Thank you, Steve.

I really appreciate that comment.

And like we said, we are aggressively moving forward, and we are really excited about the long-term future of our business.

James Stone, PSK Advisors.

Good morning, gentlemen.

A few questions.

The new folks that you signed, what was it, 11 or 12, whatever that number was?

10.

We signed 10 software publishers in the third quarter.

What would you expect after a year or so?

What percent of your revenue would they be and I am talking broadly?

Would they be 5%, a 10%, a 20% level of total sales?

Well, I can't really comment to that because, one, it is the economic environment that impacts that, as well as the competitive landscape within the lines that we carry.

I can tell you that the results of our numbers so far, and like I said, without VMware, the growth within VMware -- growth for both current software vendors, as well as new software vendors was 13%.

And I think that is excellent and it is far higher than any other distributor I have seen so far.

Right, but I am trying to get a feel -- are these guys, in essence, rinky-dink, are they moderate sized?

Do they have real blockbuster software?

What sort of feel can you give us on what these folks are?

Absolutely, Dan Jamieson -- (technical difficulty).

Would you like to comment on that, Dan?

Sure.

Thanks, Simon.

Obviously, I would never define anybody as a partner as rinky-dink with us.

We really take a thoughtful approach before we bring someone into a relationship and onto our line card.

What I really love about the companies that we've come to agreement with in the third quarter is -- Steve Emerson had eluded earlier on the call to what is the strategy in the midmarket space.

And one of our greatest strengths is the options we provide to our reseller partners.

Our line card is broad in its context of software, but it is very tactical, it is very concentrated on specialty software.

So we've got companies talking about the virtualization space.

We've got companies like FalconStor.

We've got cloud-computing capabilities with a company like Q-layer.

We've got security things that are being addressed with companies like IDM and Kerio and people like that.

So these are all very tactical, specialized software partners, and we are proud to put them into our portfolio and continue to really provide to our reseller community around the world the most efficient and effective solutions that they will be able to offer to their end-user customers.

Okay.

Could you give us some feel for the flavor of what the end of the VM relationship is?

Does this mean that if somebody calls you, you say we don't carry it and you are not selling it, or does it mean you are still selling it, but you are just not pushing it?

What does the relationship actually mean?

That is a great question and I really want to go on record here by saying that we had a great run at Lifeboat for close to a decade with VMware and I will and we will as a company always consider it one of the most rewarding and satisfying partnerships we've ever had.

So now as the evolution continues within the channel, obviously, in the context of VMware plays and relates towards our Virtualization World View approach, we are going to do everything we can to help our resellers figure out what is the best way to configure a long-term, comprehensive, effective solution for their end-user customers.

So we will always be talking about what is best for our partners and what's best for our customers.

That has always been at the foremost of our efforts.

It always will be.

And again, just reiterating that we are proud of the relationship we have with VMware and we will always look at it and regard it as a rewarding one.

But does that mean you will be selling it or you won't be selling it?

No, no, we are not going to distribute it anymore.

Obviously, we've moved on in an evolutionary sense from that, but we've got other options in the platform area right now that we can look at.

But we are always going to work hard, again, to answer the questions that our resellers have regarding virtualization.

Again, one of the key elements of Lifeboat's value proposition and how we differentiate ourselves from broad-line distributors is the fact that we are true extension of the vendors that we represent in the channel, and we are knowledgeable about the products that we distribute.

We are trained in the products, and we are certified in those products.

So we will continue to go to our strengths.

And I want to just add to that.

It is very important to understand that the VMware-labeled distribution sales amounted to $8.2 million in the third quarter.

Those sales will fall off in Q4.

We will no longer have those sales.

That is why we specified and that is why I've included that in the last couple of conference calls and in our press releases.

Those sales will fall off.

The $8.2 million will no longer be for Q4 or next quarters that are coming up.

Therefore, if you look at it on a comparative basis -- however, that revenue will fall off.

On a comparative basis, you will, therefore, see declining revenue.

However, we signed on a new software publisher, as well as we have a commitment from VMware to work closer with Programmer's Paradise and TechXtend.

Therefore, you should see increased sales on the Programmer's Paradise and TechXtend side.

That is exactly the reason why we cannot currently estimate the impact that it will have on our income statement and financials.

Okay, but that leads to the next question, then, that clearly there was a lot of sales power exerted in selling and supporting VMware, so now that that sales power would be released to sell the other products.

Is that correct?

Absolutely.

And that is why I am thrilled about the third quarter.

I really am.

And I am really proud of our team here because this is a major line.

Many companies have tried to steer away from a major vendor and have tried to do so unsuccessfully.

If you look at our third quarter, what our salesforce did, not only did they steer away from it, we've experienced significant growth with the other vendors, but they've done it in an eloquent and a very professional way that both impressed VMware and impressed our customers and our other software publishers.

Okay, leads to the next question then to Simon.

What are you doing to find more customers?

Are you adding salesmen?

Are you going into a marketing program?

What is happening so you can find more customers?

Okay, on the customer side, there is not a -- what we do is we have a lot of database.

We have a significant database.

Our database is, we think, as large as many of the large distributors in the US.

We are constantly looking for new leads, etc.

and we do a lot of marketing of things.

I will tell you one thing, though, there is not a lot of young people or old people who right now are going to -- let's start a software reseller, let me start a value-added reseller, let me start a consultancy company.

So in terms of new entrants on the market, that is not significant growth for us.

What we do see is that there is growth within the current partners.

There are some partners doing very well, niche players that we have in our database and that is what most software vendors are most excited about, the small and medium-sized consultancies, the small and medium-sized VARs and that we have in our database.

Now what are we doing to add to our product portfolio is we travel extensively as we have done over the last nine months.

We have been traveling extensively to go out to software publishers and present them with our value proposition, which is we only get paid if we sell.

We firmly believe in that model.

We don't believe in charging software vendors, software publishers hidden fees for marketing, support, etc.

So that is our strategy.

Okay.

Can you comment on the folks that have just joined you then?

Are you the exclusive distributor?

Are they using multiple distributors?

No, for some of them, we are exclusive and for some of them, we are in addition to.

Some people are adding us right now as the second or the third distributor and are looking forward in the future to rethink their distribution strategy.

And one of those strategies, obviously, includes cutting down on distributors and replacing broad-line with (inaudible) distribution, specialty VAR.

Dan, if you want to add to that.

Yes, just to add to your question earlier about the vendors and who we are picking up and what's the impact of VMware move and the evolution of that relationship.

What it has really done for us in a real-world sense has really allowed us now to go back to our strengths and go to our strengths, which is focusing on these complementary vendors and being a true extension of them out into the channel.

As the margins became commoditized and evolved and the dials got turned on that, it increasingly became an all-encompassing effort to do this business for VMware at a relatively very low margin.

And being a value-added distributor and specialty distributor really -- it would be -- not -- it would be a dangerous place for a value-added distributor to be going toe to toe with broad-line distributors at little to no margin.

So for us, it is an evolution that really allows us to go back to our strengths, focus at what we are best at and that is becoming a true extension of our complex software vendor partners out into the channel.

Great.

Okay, keep up the good work.

Madhu Kodali, Fertilemind Capital.

Hi, Simon.

Question on the Programmer's Paradise part of it.

It looks like you had a nice growth this quarter.

I was wondering if you can elaborate a little bit and tell us where this trend came from, sustainable or not and what you see there?

And follow-up to that would be TechXtend, how that business is going?

And I believe you have some investments into VMware consulting.

How is that going to pan out going forward?

Thanks for the question.

We have Shawn Giordano here, our Vice President for Programmer's Paradise and TechXtend.

So Shawn, if you would like to comment on that..

Thank you, Simon.

Good morning.

We continue to focus on our consultative and solution sales approach.

As Simon alluded to earlier, one of the key areas of growth for us was around the FTO business.

And we attribute that to our adaptability and flexibility as a small company.

Again, we are looking at our sales reps' performance as well.

We monitor metrics on a daily basis.

We are looking at going after and attracting new customers, as well as taking customers from within our database, not just selling once to those customers, but going wider and deeper in regards to those accounts.

So new customer growth, as well as account penetration wider and deeper to our own existing customer base.

So the Programmer's Paradise business is primarily driven by new customers and penetration of existing customers is what I heard.

Is that right?

That is correct.

Okay.

Could you elaborate a little more on the TechXtend and VMware question I asked about investing in consulting in the past and how that is going to pan out going forward now that you aren't doing as much business with VMware?

Thank you.

I just want to make sure everybody understands that, on the Lifeboat side, we will no longer carry VMware.

On the TechXtend and Programmer's Paradise, we expect our VMware business to increase and we are actually adding in terms of consultancy not only for VMware, but also for other top partners.

So Shawn, if you want to add to that.

That is correct.

We continue to have a consultative approach around Virtualization.

It is still very hot in the marketplace as companies are trying to do more with less funds.

So Virtualization is still very important to us, as is storage availability, as well as security.

How many people do you have in TechXtend today?

We do not disclose that information.

Okay.

Thank you, Simon.

(Operator Instructions).

[George Milas], [MKH Management].

Good morning, gentlemen.

Is there a way to quantify the costs that you've had on the Lifeboat side associated with VMware?

You had $8.2 million in revenue.

Then you probably hit about $8 million cost of sales.

That cost of sales, is there some people associated with that, or is it just all -- is that sort of a pass-through to VMware?

I am just trying to understand what costs are you left with when that $8.2 million goes away?

That is a good question.

In our industry, the cost of sales comprise only of the payments to a software vendor.

That does not include sales, general and administrative expenses.

Okay.

So the cost of sales related to VMware will all fall off.

So what we expect basically is a decline of $250,000 less in terms of contribution towards paying for sales, general and administrative expenses.

That helps a lot.

On your SG&A side, is there some costs that you can directly attributed to VMware, or it is just sort of all blended in, or did you have specific people that were just on the VMware account and just focused on that?

Yes, we actually have a whole team dedicated to Virtualization.

But what we have seen over the last three months is that we made a strategic decision.

Instead of -- a lot of people would say let's go out and panic and let's lay off a lot of people.

What we've done is we've kept that team in place.

We had them focus on complementary products.

They will now also focus on Virtual Iron.

And what we've seen in the third quarter is a tremendous increase in satisfaction of software publishers, tremendous increase in additional revenue opportunity.

So I think we've turned a corner there, and we've done so successfully.

So there is not a whole layer of cost that we look at that we can eliminate, especially now with the number of new publishers that we are signing on and continue to sign on.

Okay, great.

And then just one last question.

Was selling VMware -- was that pulling some of those complementary products, or was it actually taking sales resources away from selling these complementary products?

Was it a combination of the two in a way?

I think it is a combination.

A lot of people first start with a purchase of VMware and think that that is virtualization and then later on realize, oh, I also need to back up my server, I also need to make sure my virtual servers are secure, etc., etc.

So a lot of those sales in the complementary products play around VMware.

They also now are all focused on the Microsoft offering, Citrix offering, Oracle offering and Virtual Iron offerings.

So they become much more broad based instead of focused on a single vendor.

So that has also changed tremendously.

Dan, if you want to add to that.

Yes, just to add, Simon, thanks.

That is a great question.

Again, what I was alluding to earlier, I mentioned this allows us to go to our strengths is that what was happening towards the latter part of our partnership with VMware was that we were really dedicating an exorbitant amount of time to a lot of business at the end of the day that we were losing and getting just [swooped] on at a very, very low, nonexistent margins.

And again, we are an especially value-added distributor.

That is a dangerous place for us to be.

So by alleviating that dedication to that creative business energy and now reapplying it to where it should be and where our strength is to the complementary product, we really are, as Simon said, noticing that not only our vendor partners are more thrilled, but also our reseller partners as well.

So we have a virtual solutions team that is dedicated to the virtualization vision.

It will continue to be so, and we are going to continue to provide the premier virtualization solutions within the distribution space.

Got it.

Just one final question on that.

So then your VAR customers are still going to be reselling VMware.

They will get it from an Ingram Micro or Tech Data or whoever.

And then you will penetrate deeper in these complementary solutions with them.

Is that the way they will operate?

Exactly.

They are going to go (inaudible).

Whenever the smoke clears, whoever has the lowest price, they are going to load it up there, but they are going to come to us for all the complementary, long-term, visionary virtualization solutions moving forward.

Got it.

Okay.

Thank you very much.

And I think if you relate that as well, the same goes for Microsoft products.

We carry most of the Microsoft-focused products.

We do not distribute Microsoft, but we are a software distributor that adds tremendous value in terms of people who add onto Microsoft.

So yes, that is the reality of the current business.

Great.

Thank you.

[Peter Lux], Smith Barney.

A couple questions.

How might -- in the third quarter, how much stock did you buy back?

You said you bought back, what, 120,000 for the year?

Correct, yes.

In the third quarter, we bought back -- Kevin, I think it is about 27,000 shares?

Yes.

And so you have an open plan to buy up to an additional $650,000, is that what you are saying?

$605,000, yes.

Okay, is there a price that -- and obviously, you also said that you thought your stock was very much underpriced and basically it was almost selling at cash.

Where do we stop buying, and where do we think the value continues?

I don't have firm numbers around that, but I can tell you, at the current stock price, it is an excellent investment, and we are looking for a large block of shares.

We are looking to buy at the open market, and we are moving there aggressively.

Okay.

With the value added as you move away from the actual marketing or selling of VMware, how much -- and going to a more consultancy-based kind of approach, how much has the consultancy business ramped up?

I think what we are most excited about is the addition of new vendors on the Lifeboat side.

If you talk about Programmer's Paradise and TechXtend, we are loading up sales reps, we are loading up consultants.

Shawn has really shown that adding new sales reps can be done and can be done in the right way.

And I'm excited about that, and we've given Shawn free range, and Shawn has made a presentation and said, hey, can I add more people if they add more revenue?

Absolutely.

At the end of the day, what we care about is contribution to our Company and that income that we can represent to our stockholders.

So that coming from a blend of consultancy, as well as product sales, you have to lead with a product sale.

There are no consultants out there that can lead with consultancy alone.

Many have tried.

Many have failed.

You have to lead with the product sale.

You have to be aggressive on the product sale in order to get the consultancy.

We are excited about that.

On the Lifeboat side, we are excited about adding new vendors.

As the world goes in next spring from total -- from analog to digital and from 16-bit to 32-bit, is that a market that you work in at all?

Yes, if you look at Intel, for instance, with the dual core processors, they are very excited about that because it is going to require a lot more computing needs and it's going to require people to upgrade.

The tools that we sell are all the complementary products that people need for that chain.

So absolutely, yes.

Having that said, the current economic environment is such that not only don't we know what is coming, but GE and Pepsi Cola and Boeing don't know what is coming.

So in a way, this economy is very good for us because it creates new opportunity because, again, like I stated before, status quo is very sticky.

Might be unsatisfied with your current distributor, but you know what you have.

In order for you to change that, it needs a certain amount of uncertainty about your current distributors and a real dissatisfaction with the current services provider.

That is currently happening, so that is good for us.

However, if this economy really starts to turn lower and lower, it is bad for everyone, including us.

Great job, keep it up, and I will be talking to you, Simon.

Great.

Thank you, Peter.

Steve Emerson, Emerson Investment.

Gentlemen, my apologies.

In the past, you have had to -- you absorbed new software vendor ramp-up costs.

Do you have a number that you absorbed while still earning your great quarter, and is this going to be significantly higher the current quarter?

No, Steve.

A, it is not going to be significantly higher and B, we don't have a number.

And again, it is how aggressively can we move over software vendors business to us.

Some of the software vendors that ramp up costs are significant.

We look at them on a case-by-case basis in terms of what is our investment going to be, how excited are we about their growth future, and like Dan said, we are not signing on people just to sign on people, okay?

Yes, we are going to face the heat probably in Q4.

If you look at revenue compared to Q4 last year, yes, in Q4, we are going to feel it.

Like last quarter, as well.

Having that said, we are excited about these new growth opportunities for the long term.

We add these people, they are excited about working with Lifeboat, so we feel that's an excellent investment.

What is far better than buying a company right now is to build on that business because the additional costs are minuscule compared to the possible opportunities for us.

Okay.

With your competitors adding layers of charges to software publishers, are you seeing the extreme, the people that were competing with you in Lifeboat and their extremely low margins?

Are you seeing any relief, or is it pretty much staying the same, but only for the VMwares of the world?

Steve, the mainstream distribution is brutal right now.

I can refer to the public companies and their statements and the press releases and their conference calls.

They are actually looking towards shedding unprofitable software publishers, amazingly enough to me.

So it is brutal out there right now, and then they are trying to get business with any margins and that is one of the main reasons that we stopped VMware and we are where we are because, like Dan said, if you write a proposal, you write the quotes, you provide the technical support, you get on the phone with the end customer.

At the end of the day, people by for 0.2% at another distributor, that is not the business we want to be in.

And you've proven that you can have great earnings in that terrible an environment.

So congratulations again on that.

Are you going to continue -- did I hear you correctly, you are going to continue to carry VMware in Programmer's Paradise?

Absolutely, yes.

And in fact, we expect that relationship to increase.

VMware is excited about it and so are we.

Okay.

Thank you.

(Operator Instructions).

I am showing no questions at this time.

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

Thank you to shareholders on this call.

We look forward to reporting our Q4 earnings next 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.