Climb Global Solutions Inc (CLMB) 2010 Q2 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 be given at that time.

(Operator Instructions).

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

I would now like to turn the conference over to your host, Ms.

Natalie Turner.

Ms.

Turner, you may begin.

Thank you and good morning.

Welcome to Wayside Technology's second-quarter 2010 earnings call.

Joining us today on our call is Daniel Jamieson, VP and General Manager of Lifeboat Distribution; Shawn Giordano, VP of Sales of Programmer's Paradise and TechXtend; along with Kevin Scull, VP and Chief Accounting Officer.

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 second quarter at approximately 5 p.m.

Eastern time Thursday, July 29, 2010.

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 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, July 30, 2010.

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.

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, good morning to everybody.

I would like to start this call by thanking everyone here at Wayside Technology Group for delivering such great results.

Revenue was up 31%, and income from operations was up 30%.

We declared a quarterly dividend of $0.15 per share on July 27, 2010, and cash and marketable securities amounted to $17.4 million, or 7% of our equity as of the end of June 2010.

We are very well-financed and ready to invest in our future growth.

In order to give you some more insight and to the story behind the numbers, I've asked Dan Jamieson and Shawn Giordano to join us today.

Dan Jamieson, our VP and General Manager of our Lifeboat division, will discuss Q2 for our Lifeboat division.

Dan?

Thank you, Simon.

Lifeboat's June performance capped off a strong sustained effort throughout the quarter, which resulted in significant quarterly year-over-year increases in revenue, margin and income from operations.

During Q2 at Lifeboat, our team continued to concentrate our creative business energy on our most mutually profitable vendor and reseller partnerships.

As a value-added specialty distributor with an international scope, we worked intently on delivering the hallmarks of our value proposition to the channel.

These hallmarks include a focus on software, supported by extraordinary customer service and relationship building worldwide.

Key growth factors for Lifeboat in Q2 were the successful penetration and expansion of pivotal software lines within a variety of Lifeboat's premium reseller accounts, the large account resellers and direct market resellers, along with penetration of these lines within targeted solution provider accounts, the value-added resellers, systems integrators and consultancy type companies.

Lifeboat also signed new distribution agreements with eight new software vendor partners in Q2, bringing our year-to-date total of newly signed vendors to 16.

Last year, we signed 23 new vendors so we were tracking well ahead of that total in 2010.

Most importantly, the newly signed vendors are strong additions to each of Lifeboat's go-to-market concentration areas.

These areas, we call them our Lifeboat worldviews, include product ecosystems for virtualization, security, application lifecycle management and application and network infrastructure.

We are also excited with our recently launched Lifeboat Europe office in the Netherlands.

This physical presence in Europe is enhancing our pan-European distribution capabilities and increasing the value that we are able to bring to both our vendor and reseller partnerships.

Thank you, Dan.

Now onto Programmer's Paradise and TechXtend.

Shawn?

Thank you, Simon.

The sales teams in both the Programmer's Paradise and TechXtend divisions performed well throughout the quarter, consistently meeting the demand of our customers in a very competitive marketplace.

Strong sales in June compensated for a slow start to the quarter in April and May, and as a result revenues for the quarter were up 4% year over year.

We saw an increase in our year-over-year June order volume among some of our transitional -- transactional software lines within the Programmer's Paradise segment.

Several of our key strategic vendors played a role in this increase.

Additionally, a few emerging partners that we have added in late 2009 and early 2010 also contributed to this trend.

Software development and database modeling continues to be a focus area for us.

Larger transactions, defined as deals over $50,000, also showed an increase year over year as well.

These deals are extremely price competitive, and, as a result, impacted our overall gross margins.

Our sales teams tirelessly focus on adding value to our clients on every sale by being responsive and understanding what we sell.

Our goal is to make the procurement of IT software and hardware products easier for our clients.

Pricing, however, still continues to be paramount to customers' purchasing decisions.

In addition to our transactional business, our TechXtend solutions division continues to deliver strategic value to our clients.

Focusing on the infrastructure, we have helped several clients in the area of server and desktop virtualization, storage virtualization, business continuity and disaster recovery.

Our ability to deliver the entire solution from concept to implementation is an area we continue to put a great deal of focus on.

Thank you, Shawn.

Kevin Scull will now report on the financial numbers.

Thank you, Simon, and good morning, everyone.

I will discuss our second-quarter financial results on a Company-wide basis, as well as per segment.

Net sales were $48.4 million compared to $37 million last year, representing a 31% increase.

Sales for our Lifeboat segment were $35.8 million compared to $25 million last year, representing a 43% increase.

Sales for our Programmer's Paradise segment were $12.6 million compared to $12 million last year, representing a 5% increase.

Gross profit was $4.7 million compared to $4.1 million last year.

Gross profit as a percentage of net sales was 9.7% compared to 11% last year.

Gross profit margin as a percentage of sales for our Programmer's Paradise segment was 10.6% compared to 12.9% last year.

Gross profit margin as a percent of sales for our Lifeboat segment was 9.4% compared to 10.1% last year.

Total selling, general and administrative, SG&A expenses, were $3.2 million compared to $2.9 million last year.

As a percentage of sales, SG&A expenses were 6.5% compared to 7.9% last year.

Selling costs increased by $300,000, the result of increased volume and the companies investing in and rewarding employees for sales growth.

General and administrative expenses slightly decreased during the quarter.

Our net income amounted to $1.1 million compared to $800,000 last year.

As a percentage of sales our net income was 2.2% compared to 2.1% last year.

On a fully diluted basis our earnings per share were $0.23 compared to the prior year at $0.18 per share.

Accounts receivable increased by $2.3 million and Accounts Payable increased by $3.5 million due to the increased sales volume in the current quarter compared to the year-end quarter.

Our book value per share is $5.10, and equity now stands at $24.9 million.

And cash remarkable securities make up 70% of our equity.

This concludes my remarks.

Simon, back to you.

Thank you, Kevin.

Before we start the Q&A session, let me make one more comment.

We thank our vendors, the software publishers, for their trust and partnership.

We are a flexible, proactive and knowledgeable partner, who acts like an extension of a vendor sales and marketing team.

We do not act like an accounting clearinghouse or a bank and a warehouse, like many other distributors.

We look forward with great confidence in the people who make these results possible, our team here at Wayside Technology Group.

And to them, I say thank you for your hard work during this past quarter, and thank you for your continued passion to win.

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

(Operator Instructions).

[Aaron Lehman], [LSD Partners].

Good morning.

Congratulations on a really super quarter.

Just quick -- one, important question.

With Obama-care now in place, and obviously there are going to be many changes before we implement the parts of Obama-care, how much exposure do you currently have and how do you see expanding that exposure to the healthcare industry in general with your software suites?

I think we've talked about this in a previous call, and our impact is mostly secondary.

I would say the same with the financial regulations that are coming through.

There's a lot of -- the only way that our companies are going to be able to meet these new requirements is with technology.

And that technology translates into software, not only hardware, but mostly software solutions to handle these requirements.

In order to write that software, there's an enormous amount of development going on right now.

For the development of that software you need all the software that we sell.

If you look at our great growth sectors now, though, I would say it's the core competencies that we have carried on for a couple of years now, and that's -- as Dan Jamieson and Shawn Giordano related to, that's the mostly virtualization -- what companies are still heavily investing in, along with the other related ecosystems surrounding that.

So that's mostly what we see.

In terms of these sectors, there's a whole lot of companies starting up now with healthcare solutions.

The big companies like Siemens and GE seem to be coming out with their solutions.

There is an enormous amount of vendors, some of whom we have met and have asked us to encompass these solutions as well.

Shawn Giordano, I know, is working with distributors to handle some of the implications for doctor offices.

So we do carry some of that.

I wouldn't say it's our core business.

I didn't think it was your core business, but it's a wonderful value-added business.

Oh, absolutely.

But most importantly I think for us is to -- and the overall economy can grow or can shrink.

And I think what we've shown in the past year is that although the overall economy took a big hit, and the big distributors took a hit, we are focused on supplying and adding value to our relationships and growing within those opportunities.

So not only do we take market share, but we also represent that that type of software publishers that was still growing significantly despite the recession.

There was all new software, and there's a lot of great growth going on for a lot of new guys.

So it wasn't just only grabbing market share for us, it was really opening up the doors to the large resellers, to VARs, to the specialty homes for new software publishers who have written some great software that can really help every single company in the US.

One follow-on question, with your stock currently selling at roughly half of book and with a cash position of over $4.00 a share, doesn't that make you a supreme -- a really tremendous target for some of the other players in this industry?

Yes, but we have been for years.

Like I've said before, we are going to do this on our own.

We are very, very excited about our future.

Now you always have to do what's best for your shareholders and we will entertain it; of course, we will discuss with the Board any opportunities.

But to be honest with you, and just as we've shown with the opening of our European office, we did that.

And year-to-date we only have a $15,000 loss so far, Kevin.

So basically for $15,000 we got up, we have an office, we are selling there, and we are successful.

That is what I firmly believe we can do in other parts of the world.

And we are looking forward to other parts -- opening offices in other parts of the world where it makes sense.

I think with our great growth -- we've got a long ways to go.

I'm excited about this, and we all are.

We are ready to take this to a whole new level.

Okay.

Thank you.

Steve Emerson, Emerson Investment.

Congratulations on a great quarter.

Can you give us some color, is the positive trend revenue and margin, et cetera, trend you saw in the quarter continuing into this quarter?

Typically -- and I'll share with you -- and again, we don't give out forward-looking information.

But typically what you see is that our second and our fourth quarter are the strongest quarters.

Typically, the first quarter, the slowest and the Q3 I would say number two and -- sorry, number three.

And Q2 number two and then Q4 is typically our strongest quarter.

So that's what has happened typically.

Having that said, like I said, we are excited about our future.

I think we have some really good things going on, and we are excited about Q3 as well.

Okay.

Can you give us any percentage, concentration or -- in either industry served or for instance what percent are virtualization accessories, et cetera?

Like I said, we have the world views, but we typically don't want to share too much information in terms of what percentage of our old business is in these ecosystems.

And again, because these products and the world views are out there on our website, and competition is definitely looking at it.

But again, I think if you look at the underlying growth, it's definitely in those -- within those ecosystems.

And we are just expanding our relationships with new vendors, but also going back to our current partners.

And since we have done so well for not only the specialized VARs but also for the large account resellers, they are looking at us to provide them with the value that they need, basically, to grow.

So they've actually asked us to expand our services to them, and that's what we continue to do.

So it's really a blend of adding new vendors, but also showing what we can do.

And that, as I said before, we can say whatever we want.

We can try to doubt the stock and we can do all that stuff.

In the end, it's execution that counts.

What we've really focused on and will continue to focus on is not following the share price on a day-to-day basis, but trying to expand our business.

Because I fully believe that the share price will follow execution.

So I am most proud of our hard work and really going out there, adding new vendors.

I think Dan Jamieson and Nicole Petriello, Patrick Castenie; the team is out there.

Don Gries is doing a great job.

Tim is doing a great job; all these guys out there are all doing a great job.

Tim on the programs; Fiona has done a great job; [Tony Ireland], Melanie in Europe; all these people have done a great job.

And the same on the programmer side.

I mean we have a lot of great people.

And that's basically what it is.

That is who make this happen every single quarter.

Jim Devlin, Henley & Company.

Good morning, guys.

And I would echo the comments from the two previous callers, just tremendous quarter, great execution in a pretty horrible backdrop for the macro economy.

A couple of quick ones, did you guys buy back any stock during the quarter?

Were you guys windowed to do so?

Kevin actually has those numbers.

We bought back about 15 -- a little over 15,000 shares, and we still have Board authorization to buy back about another 140 -- 483,000 shares.

And we are actively looking for large blocks and our --

Yes.

Needham & Co.

is our stockbroker.

And they are actually actively looking for larger blocks.

Right.

So 483,000 -- that would be about 10% of the outstanding now; I guess you guys have the share count down to about 4.3 million at quarter end?

Correct.

(multiple speakers)

So you can buy back 10% of what's out there; okay, that's good.

Yes, yes.

And then a couple other real quick ones.

What percent of the 30% sales growth that you exhibited during the quarter came out of Europe?

Do you guys have any numbers there?

Not a significant portion yet.

And again, like I said before, we've always sold to Europe, and we've always had that as part of our revenue.

The way we tracked Europe was to have all the orders that were invoiced and paid in euros, attributed to the European office.

But like I said before, we just started in February, and we were able to basically recoup -- in the first quarter I would say February and March we definitely had some issues with the costs and ramping up.

And like I said, that's going to cost us money.

But it was really good to see that in Q2, we were able to ready turn into a profit.

So I'm very excited about the opportunities there.

Okay, so I mean in your opinion, you still don't even think it necessarily has most of its growth legs underneath it yet?

I mean how long do you think it takes for that to kind of mature a bit?

Like I said, the same thing as announced here in the US.

I think it will take a year -- 18 months, 24 months before it really starts going.

There's great growth opportunities in Europe.

But we also look forward to expanding into Latin America; Carlos had a great trip out to Latin America, visiting a lot of different Latin America companies, and that's something that we look forward to as well, as well as Asia.

India and China are very strong markets, and Singapore might be an option for us to expand into next year.

(Operator Instructions).

Simon [Beruke].

My question has been answered.

Thank you.

Jim Devlin, Henley & Company.

Yes, sorry.

Just, I mean, considering the stock is very tightly held, I mean there's 4 million shares outstanding, and apparently through the first couple quarters of the year you guys are clearly earning more than the $0.15 dividend.

Has the Board looked at potentially increasing the dividend, and/or perhaps explored looking at paying a stock dividend?

We kind of discuss it almost -- I would say every other Board meeting, just to expand and to see what the future brings.

For us, shareholder value is very important.

And that's why we held steady to that $0.15 dividend, because we were convinced we were able to turn it around and basically start earning that dividend again.

So we are very conservative, as you can see from our balance sheet, but we are also very convinced that we are on the right path here.

So, I mean, if things continue on the trajectory that they have, if the Company continues to execute, would we expect a dividend increase, perhaps?

That's one of the options.

Okay, great.

Thank you.

All right.

You are welcome.

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

All right.

Thank you, Said.

I look forward to reporting our results for the third 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.