Climb Global Solutions Inc (CLMB) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Wayside Technology first-quarter 2009 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 follow 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.

Melanie Caponigro.

Ms.

Caponigro, you may begin your conference at this time.

Thank you and good morning.

Welcome to a Wayside Technology's first-quarter 2009 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 PM Eastern time Thursday, April 30, 2009.

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 Web site earnings.com.

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

The conference call and the associated webcast contain time-sensitive information that is accurate only as of today, May 1, 2009.

A detailed discussion of risks and uncertainties are discussed in our Forms 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 statement.

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

Thank you, Melanie.

Good morning to everybody.

We delivered solid results this quarter, considering we are in a recessionary business climate impacting every segment of the economy.

January and February were tough, yet we had a strong March and as a result, we were able to post good results.

Excluding VMware, our consolidated sales would have actually increased 2%, a strong sign of the strength of the software vendors we represent.

A few words about the current economic environment with regards to distribution -- many of our distribution competitors have adopted ultra-low pricing strategies and continue these ultra-low pricing strategies for any and all lines that they carry in order to grab revenue without really adding value to the distribution of software.

In order to make up for these ultra-low or 0 margins, they continue to increase freight charges, marketing support and all kinds of other charges to their customers as well as vendors.

While we firmly believe this will not work for them as a long-term strategy, their actions could hurt our profitability in the short term.

We continue to monitor this development closely.

It is important to mention that we not only manage our operations closely in terms of revenue and gross margins but also in terms of measuring the superior service we provide to software publishers and our customers.

An example of our extended service in Lifeboat distribution was the fact that Lifeboat was recently named a MySQL Partner of the Year by Sun Microsystems.

Our ability to be a true partner in helping Sun to build out their channel presence and target, recruit and train new resellers for Sun's network were all named as reasons why we received this award.

We firmly believe that this is the time to invest in our future growth by reaching out to and recruiting new software publishers for both Lifeboat distribution as well as Programmer's Paradise and TechXtend.

Many software publishers are looking for channel organizations that can truly act as an extension of their internal sales and marketing organizations.

That's exactly who we are.

Although we cannot influence the larger economic forces that are currently at work, we do move forward towards 2009 with great confidence in our team.

A word about our Programmer's Paradise and TechXtend to segments -- they performed very well.

Revenue grew by 3% and gross profit increased by 8%.

These are great percentages, especially as compared to our competition.

We are dedicated, knowledgeable, and flexible.

We play a key role when it comes to closing sales deals for many of our partners.

We also continue to invest in financing long-term receivables, as these generate a better rate of return versus our investments in government securities.

Talking about cash, cash and cash equivalents amounted to $17 million as per the end of the quarter, representing 71% of our equity at that date.

Cash and marketable securities represented approximately 52% of our market cap as per the close of market April 29, 2009.

We have no debt.

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

We continue to have one of the most conservative balance sheets as a public company and do not have a current need for debt.

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 segment.

Net sales were $31.8 million compared to $40.5 million last year.

Sales for our Programmer's Paradise segment were $11.5 million, compared to $11.2 million last year, representing a 3% increase.

The increase in net sales for our Programmer's Paradise segment in the first quarter of 2009 was due to strong partnerships with our vendors and flexible payment options used to enlarge deals during the quarter.

Sales for our Lifeboat segment were $20.2 million, compared to $29.3 million last year, representing a 31% decrease.

The 31% decrease in net sales for our Lifeboat segment was due to a decrease in VMware sales.

Lifeboat ceased distributing VMware as of October 1, 2008.

Q1 2008 VMware label distribution sales were $9.2 million, compared with no VMware distribution sales in the current quarter.

Gross profit was $3.5 million, compared to $3.7 million last year.

Gross profit as a percentage of sales was 10.9% compared to 9.3% last year.

The increase in gross profit margin as a percentage of sales was permanently caused by the shift in product mix and the fact that we ceased distributing VMware, which carried lower margin.

Gross profit for our Programmer's Paradise segment was $1.5 million, compared to $1.4 million last year, representing an 8% increase.

Gross profit for our Lifeboat segment was $2 million, compared to $2.4 million last year, representing a 16% decrease.

Gross profit as a percentage of sales for our Programmer's Paradise segment was 12.8% compared to 12.2% last year.

Gross profit as a percentage of sales for our Lifeboat segment was 9.9%, compared to 8.1% last year.

Total selling, general and administrative, SG&A, expenses were $2.7 million, compared to $2.9 million last year.

As a percentage of net sales, SG&A expenses were 8.3%, compared to 7.3% last year.

Total selling costs for the first quarter of 2009 were $1.3 million, compared to $1.5 million in the first quarter of 2008.

Total selling costs for our Programmer's Paradise segment for the first quarter of 2009 were $670,000 compared to $740,000 in 2008.

Total selling costs for our Lifeboat segment in the first quarter were $650,000 compared to $720,000 last year.

Our net income amounted to $578,000 compared to $629,000 last year.

Our earnings per share were $0.13 compared to $0.14 last year.

On a fully-diluted basis, our earnings per share were $0.13, compared with $0.14 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 $1.7 million to $17 million.

Some of the large uses of cash during the quarter were corporate tax payments of $600,000, dividends of $700,000, and year-end bonus payouts.

Accounts Receivables increased by $2.5 million from year-end due to the strong sales volume at the end of the quarter and timing of payments from some of our larger customers.

Our book value per share is $5.15, and equity now stands at $23.9 million.

This concludes my remarks.

Simon, back to you.

Thank you.

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

Thank you.

(Operator Instructions) Steve Emerson, Emerson Investments.

Thank you for your excellent management skills in an extremely tough environment.

It sounds like March was substantially stronger than the prior two months.

Perhaps you can give us a flavor for business and the competitive environment since the end of March, or March and April.

In particular, has this, call it the stressed margin from your Lighthouse competitors, has that eased up a little in this better environment?

Thank you.

With regards to the business climate during the quarter, January and February, like I said, were very tough months.

I mean, January was a really, really tough month not also for us but also for our competition as we saw many executives in the industry.

January and February were very tough.

The surprising thing for us was -- and again working so closely with a lot of vendors, we were involved in a lot of deals, especially in the last two weeks of March.

As a result of that, we were able to close strong deals, especially in the Programmer's Paradise segment.

Talking about the pressure on Lifeboat, it continues; the pressure definitely continues.

If you look at the gross margin, gross profit had went from 8.1% to 9.9%, but the price pressure is definitely also outside of VMware.

It's definitely on all of the lines.

The distributors face a lot of this economic pressure as well, and I think their first-line response is to go out with ultra-low pricing strategies.

I think they can continue to do that.

So we continue to have that impact us.

The reason we -- how we have tried to offset that is bringing on new publishers and really showing our value, and in order to qualify for rebates and to qualify for higher margins, is showing we can build out their channel.

One of those partners that came to us was Sun Microsystems.

That's the -- award says we've done very well for them.

That is basically our long-term strategy.

As we know see during tough economic times, it also helps us still generating the income from operations that we achieved.

Are the better revenues you saw in March, better revenue trend continuing?

April is -- you know, you have the end of the quarter.

I hope they continue.

If they do continue, we will know that in June.

So these are end-of-quarter deals.

So it's too early in the second quarter to say we've turned a corner here, but it's definitely -- if they do continue, they will continue in June and we will work them as strongly as we can to also continue this in the second quarter.

Having that said, it's too early to tell.

Okay.

Thank you very much.

(Operator Instructions).

Peter [Lux], Private Investor.

I'm a private investor now because I retired, so -- but I'm still watching.

Listen, would you -- I mean, it's hard to predict and we don't know where we're going, but do you feel that this is the trough of the cycle?

If I knew, I think President Obama would hire me (laughter).

Well, you might put in an application.

(Laughter)

All I can tell is just -- and again, like we've said the last couple of conference calls, I have no idea.

It is hard to put -- say whether when we turned a corner as an economy.

You would think, with all the money being pumped into the economy, that the second quarter somehow -- that the funds start to -- have to start trickling in again and it has to pick up.

Having that said, I think the point that really helps us also through this quarter is being flexible and being as focused as we can on the three issues that we said -- focus on publishers, focus on cost control, and be flexible.

That's basically what we did, and I am very pleased with these results, I really am.

One of the things that you highlighted in the last call was your ability or your desire and to help finance some of the receivables of some of your best customers.

Has that shown effective and is that continuing?

Have you had any experience about payment problems?

No payment problems.

We are very strict when it comes to these financing deals.

They are long-term deals.

We try to get them AAA-rated and really focus on these deals.

We are very conservative with the use of our cash.

Having that said, the interest is definitely better than -- on the huge government securities.

We continue this and it's a very good competitive tool for us to use in the Programmer's Paradise segment.

Obviously, the future of the Company is new publishers.

Is there anything that you're working on that -- obviously Sun was a plus.

Anything new that will really shake the market that you think you could put your foot into?

Well, Peter, as I said before, there's a lot of companies who thrive on this explosive growth within two months, and then it seems to be a dud.

We really focus on adding, and we really hope to add 20 publishers instead of the 1 that's going to bring us multimillion dollar deals.

We continue to add new publishers.

We are focused on adding them.

We have to make sure it is long-term for us and that there's good margins in those deals.

That continues to happen for us.

So we continue to go out and travel every month, continue to sign up new publishers.

Maybe Dan Jamieson can also give you some flavor on that.

Sure.

Thank you, Simon.

Yes, Peter you know I think one of the things that we are really excited about the partnership we've entered into is with SAP Business Objects.

We are really taking a good, strong rip with those folks.

We are excited about the prospects around that line.

We've also signed a recent agreement with Embarcadero.

We are looking forward to expanding that is partnership with those folks.

ImageDoc comes to mind.

So we are working on some new partnerships but also we are expanding the relationships with long-term partnerships, for instance a company like Acresso which is the old InstallShield product line.

They have recently ended their relationship with their broadline distributor and have chosen Lifeboat as their exclusive distributor because of the business value and we can bring to our reseller partners and because of the way we can be a true extension of them within the channel.

So, to Simon's point, we've really focused on customizing each one of our partnerships, not only with our vendor partners but with our reseller partners.

We keep going to our strengths.

You know, our great differentiator is that we are knowledgeable about the products we distribute, and we really work hard to offer extraordinary customer service on a worldwide basis.

Finally, as a topic that Simon and I, you and I have talked about for years, just trying to raise the profile of the Company.

I mean, maybe in tough times it is good to have a low profile, but having no profile in the investment community also can hurt.

That's true.

I don't think we have no profile.

You might say we have a low profile.

That's 99.9% for small or medium-sized public companies.

Having that said, I think we are doing the right thing, as we have done for years.

We have a high profile for software vendors, and we are getting more and more known within the community for delivering superior services.

If we deliver superior financial results, the investment community will definitely take notice of them.

I think the continuation of the payment of dividends is definitely putting us on a couple of radar screens, and the fact that we have no debt and look at our balance sheet.

So I think that's the best way to continue to garner interest.

Hey, good job, guys.

(Operator Instructions).

Steve Emerson, Emerson Investments.

Yes.

Where do you see the strength in software?

Which categories seem to be getting traction in the field?

Steve, I thinks, in terms of the software, I think the productivity tools -- the smaller priced tools, and those are the tools that we sell, are definitely in some segments are still going strong.

Looking at security (technical difficulty) but also in the (technical difficulty).

Steve?

There seems to be a problem on the line.

So those are the tools that we see that are still garnering strong interest.

Okay.

A lot of people are not upgrading their mainframes right now.

In terms of large software deals, especially in the financial sector, there are people who not only are not allowed to buy any new software or hardware or pencils or any office supplies, they are also -- we've seen them canceling software maintenance contracts at some of the larger software deals.

Now, the tools that we supply are basically the tools to patch the product and to increase productivity without the need to upgrade your complete legacy systems internally.

So that's one of the reasons that I think we were still able to have these sales.

Dan?

Yes, I would just also add to that, Steve.

One of the things that we really try to bring to our reseller partners is, especially in these times, really effective cost alternatives with lines.

For instance, we have an agreement with a company called SolarWinds.

This is network management, software.

It is outstanding technology.

Really, when you're working with, say, SolarWinds, for the price of which you would get for [HBO] (inaudible) maintenance, you can implement the entire SolarWinds solution.

So it's that type of value we again try to bring to our resellers, especially in these challenging times.

Okay, thank you very much.

(Operator Instructions).

I'm showing no further questions at this time, sir.

Great, thank you, Steve.

Thank you, everybody, for your interest in our company, and we look forward to reporting our results in July.

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.