Climb Global Solutions Inc (CLMB) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Wayside Technology Group conference call.

At this time all participants are in listen-only in it.

Later we will conduct a question-and-answer session.

Please note that callers are limited to one question each.

(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.

Natalie Turner.

Ms.

Turner, you may begin.

Thank you, Sayid, and good morning.

Welcome to Wayside Technology's third-quarter 2011 earnings call.

Before turning the call over to Simon Nynens, the Company's Chairman and CEO, I'll 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 Thursday, October 27, 2011.

The earnings release is available at the company's investor relations website at Wayside Technology.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, October 28, 2011.

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, Incorporated, sees no obligation to update and does not intend to update any forward-looking statements.

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

Thank you, Natalie, and good morning to everybody.

We delivered solid results this quarter.

We strengthened our position in the software distribution market and continued to sign on new vendors.

We also maintained our focus on costs, which allowed us to drive a solid earnings performance.

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

I would like to state again that we grew our sales this quarter on top of a 50 -- five-zero -- 50% increase in sales during last year's quarter, a great performance.

Now during these challenging economic times, many software publishers are looking for alternatives when it comes to distribution of their products.

Mainstream distribution sees software as an add-on sale to hardware, and continues to treat software lines as such.

These distributors lead with an ultra-low pricing strategy for software and make their money by charging software publishers marketing, licensing, and a whole menu of other fees.

Many software publishers were and are looking for a distributor that can truly act as an extension of their internal sales and marketing organization.

That is exactly who we are.

We know the products we sell, and we make money when we sell products, not by charging a whole menu of fees.

Our interest and the software publishers' interest are therefore perfectly aligned.

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.

We have the tools in place to add more publishers, including a great team and a great IT infrastructure.

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

Now I would like to hand it over to Dan Jamieson, our Vice President and General Manager of our Lifeboat division.

Dan?

Thank you, Simon.

Lifeboat's Q3 results reflect solid year-over-year growth across all key segments of the business, including increases in revenue, margin, and income from operations.

The crucial growth factors in Lifeboat's Q3 results were the successful penetration and expansion of pivotal software lines within a variety of Lifeboat's premier reseller accounts, the LARs, the large account resellers; and DMRs, the direct market resellers; along with the successful expansion of business within targeted solution providers including VARs, the value-added resellers; SIs, the systems integrators; and other consultancy-type companies.

Lifeboat signed six new distribution agreements in Q3.

These new agreements are will strengthen Lifeboat's portfolio and enhance our focus in our go-to-market concentration areas including virtualization, security, application lifecycle management, database infrastructure, and application and network infrastructure.

I am also excited and proud to mention Lifeboat's annual partner summit event recently held in Atlantic City, New Jersey, in mid-October.

We had 38 vendor sponsor participants and 185 reseller attendees from around the world, including partners from the USA, Peru, Argentina, Brazil, Mexico, England, Serbia, Poland, The Netherlands, Haiti, Spain, and Canada.

The event was a fantastic success.

Thank you, Dan.

Now on to our TechXtend division.

Shawn?

Thank you, Simon.

We experienced strong sales in the TechXtend business unit in September and year-over-year improvement in August, which made up for a weak start to the quarter in July.

Revenues in September increased 26% from $5.5 million to $7.2 million, and as a result our quarterly revenue was up slightly.

Order volumes also increased in September as did larger transactions, which are defined as deals over $50,000.

These transactions, however, are extremely competitive, which impacted our overall year-over-year gross margin.

Gross margin as a percentage of net sales decreased slightly from 11.7% to 11.3%, and net income was also impacted slightly.

Our customers continue to rely on our responsiveness and technical expertise in helping them meet their IT needs.

Pricing, however, still continues to be a main driver in most all purchasing decisions.

As TechXtend, we continue to drive our brand through a consultative selling approach focusing on the infrastructure, business intelligence and data management, and license cost containment.

Thank you, Shawn.

Now, Kevin will discuss the financial results in more detail, but let me make one more comment.

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

We thank our customers also for their trust and partnership.

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

We remain focused on adding new publishers, providing our customers with excellent customer service, and providing our employees with a great and rewarding working environment.

As I said before 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.

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-segment.

Net sales were $63.7 million compared to $53 million last year, representing a 20% increase.

Sales for our Lifeboat segment were $49.1 million compared to $38.4 million last year, representing a 28% increase.

Sales for our TechXtend segment remained unchanged at $14.6 million.

Gross profit was $5.8 million compared to $5.1 million last year.

Gross profit as a percentage of sales was 9% compared to 9.7% last year.

Gross profit as a percentage of sales for our TechXtend segment was 11.3% compared to 11.7% last year.

Gross profit as a percentage of sales for our Lifeboat segment was 8.4% compared to 8.9% last year.

Total selling, general, and administrative, SG&A, expenses were $3.5 million compared to $3.2 million last year.

As a percentage of sales, SG&A expenses were 5.4% compared to 6% last year.

Selling costs increased by $210,000, the result of increased volume and the Company's investing in and rewarding employees for sales growth.

Our net income amounted to $1.5 million compared to $1.3 million last year.

On a fully diluted basis our earnings per share were $0.33 per share compared to the prior year at $0.28 per share.

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

Accounts receivable decreased by $3 million and accounts payable decreased by $5.9 million, both due to the lower sales volume compared to the year-end quarter.

Accounts payable also decreased because the Company maximized its early pay discounts.

During the quarter the Company repurchased 24,642 shares and still has the authority to purchase another 398,257 shares as market conditions warrant.

Our book value per share is $5.91, and equity now stand at $27.5 million.

Cash and marketable securities make up 48% of equity.

This concludes my remarks.

Simon, back to you.

Thank you, Kevin.

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

(Operator Instructions) Jim Devlin, Henley & Company.

Hey, Simon.

How are you?

Congratulations.

Again, more blocking and tackling and just delivering on the bottom line.

Great.

Thank you, Jim.

That's a record quarter for the season?

Absolutely, yes.

For a Q3, yes.

You want to hear something crazy?

I think that is a record quarter for Q3, and you guys are doing a great job; but the market is what it is.

I think the stock on a price-to-sales basis is now (technical difficulty) I think $230 million trailing 12-month revenue at a $40 million enterprise value with a $13 million of cash on the balance sheet now.

Right?

Yes.

So we --

I think the stock is selling at 0.17 times sales right now.

Right.

So I guess eventually the market will catch on.

I applaud you guys for buying back stock.

I don't think you can make acquisitions anywhere near these prices.

So if it is around that, I (technical difficulty) for buying back stock.

Secondly, the world's migrating to mobile.

PC businesses are now getting written off.

The iPad, the iPhone, the Android, that is where the world is migrating to.

You did put out a nice contract or I guess a new vendor in the cloud as well.

Can you speak to the future of where technology is heading, and where you see potential business coming down the road?

Yes, absolutely.

I think -- and I will hand it over to Dan Jamieson to discuss the cloud efforts, specifically on the Lifeboat distribution end of that.

Two things are important to mention here -- the distinction between the consumer business and the corporate environment.

I think in terms of cloud there is a lot of corporations are looking at the cloud.

They are looking; they are definitely moving towards the cloud.

A, the good thing for us is they definitely need the software that we sell to build clouds.

So that is the phase that we are in right now.

The largest portion of our business is still our virtualization part of our business.

That has grown exponentially.

But we are definitely making the next investment in terms of cloud.

We are ready for it.

We have the partners to facilitate that.

But one thing that is important to mention also here on the call -- there is a lot of confusion about what the cloud really is.

We hear people renting data centers and saying that is the cloud because now I access that over the Internet.

There are people saying I use Salesforce.com, so that is why I am now in the cloud, and everything is going to go there.

There are still tremendous problems and hurdles to take in terms of making sure that that is an efficient process, switching on and off the user.

Because you have to understand -- when you use your iPad or your iPhone, those are a couple of applications that you decide which one -- what application are you going to stop or continue to use.

On a corporate level, if somebody moves from accounting to purchasing, maybe 15 applications need to be switched off and another 10 need to be switched on.

That is not an easy process yet, and corporations are unwilling to go from Company A, switch it on; Company B, switch it on; Company C.

So there is a lot of development going on right now in terms of trying to make that happen.

So we are following the cloud.

We are ready for the investment in the cloud, which means to facilitate people renting software and accessing that software via the Internet.

We have the tools ready to facilitate that, and we are excited to, as you said, sign on the contract.

I think Doyenz is a good example of that.

And with that, I would like to hand it over to Dan Jamieson.

Yes, thanks, Simon.

Yes, just to add to that, Jim, historically our Company has always taken a thoughtful approach to where we engage our creative business energy and our efforts.

So with the cloud especially, most especially, it is key that we continue to do that.

For us, and I will be forthright with it, I think there is -- we make the strong effort to separate the signal from the noise in the cloud, and that is -- we are judicious about that.

Our main mission really is to make sure that we take our inherent value that we add in on the ground traditional distribution, and transition that into the cloud, and be able to afford that key value proposition and trusted advisor capability that we have in traditional distribution to the cloud.

Towards that end we are signing with partners like Doyenz.

We are always looking tactically to work in the cloud, but with the caveat that we want to make it a real-world ROI situation where we can really benefit our partners and really turn around a long-term, long- view success story for us and not just score a marketing coup by talking about something here or there.

Perfect.

Thank you, Dan.

[Lewis Moser], [Maytex] Investors.

Great job, team.

I was wondering.

The previous speaker had said something about the price of the stock versus the various financials, and no one is covering the stock as far as I can see.

Is the Company interested in having Wall Street cover the stock and tell the story?

If so, what are you doing in terms of that direction?

Yes, we are interested; but what we have found in previous years, and we have had several requests for this, is that paid research does not pay off.

A lot of investors can find us.

More and more investors are looking at the financial indicators of our stock, as well as our sales and gross margins, income from operations, equity, etc.

So more people find our performance that way.

So we would like to get coverage.

Absolutely, people have written about us, taken us -- have done research on us.

But we are unwilling to pay for it exactly because it doesn't pay off, neither for us nor for the investors.

So that is where we stand with that.

Thank you.

Joe Munda, Sidoti.

Good afternoon, guys -- good morning, guys.

Real quick, I had a few quick questions here.

How many software vendors are you guys up to now?

What is the count?

In terms of Lifeboat?

Sure, Joe, you know, that is a great question and I'm going to elaborate a little bit on it.

We work with about over 250 vendors currently worldwide, but there's really about 30 core vendors -- both gold and silver partners -- that we focus on.

The reason why we have so many vendors in our portfolio is that traditionally and in a legacy sense we have been a sourcing agent and a consolidator for our key partners over the years.

That is to source what may be considered difficult to find, software, arcane software, what some folks would call weird-ware.

So in addition to having our core vendors we also bring on lines to help our key partners really be able to fulfill what they need to do for their customers.

Okay.

I'm just looking at my model here.

Fourth quarter tends to be your strongest quarter as far as revenue is concerned.

Should we expect that going forward as well?

Well, we don't make any forward-looking forecast.

Again, because it is a challenging economic times.

However, typically that is the case.

I do want to mention, again, as I mentioned in our press release and in the remarks as well, the vendor rebates are tremendously important for us.

And with the growth that we have seen in the past, those of course are going to be aggressive targets set by our software publishers.

So that is definitely one thing that we are watching very closely in terms of the vendor rebates and how that could possibly impact us.

But traditionally, Q4 has been our strongest quarter, absolutely.

Steve Emerson, Emerson Investment,

First of all, congratulations.

This is a fabulous quarter.

Thank you, Steve.

In your preamble, you discussed the industry trend to go to rebates, fees, etc., away from pure gross margin.

What proportion of your revenue are rebate fees, etc., versus traditional gross margin?

So, Steve, first of all, we don't charge our software publishers licensing fees.

All kinds of -- that Chinese menu of fees that basically are taken right down to the bottom line for which no services are performed.

What you, for instance, as a software publisher can do with us, as you can with the mainstream distributors -- the difference is that we actually have a real person doing it for you -- is to have what is called a product champion.

That person will basically 24/7, or the time they are here and working, will reach out to our reseller and VAR base and try to build business for you.

That is a proactive approach, and people pay us for that.

What happens with the mainstream distributors, these people are typically also paid; but the question is -- what reseller is ever contacted?

So the software publishers are kind of hesitant to order those kinds of services from us.

And quite honestly we like to roll it into our gross margin.

As I said before, I want my sales team to be focused on the same thing as our software publishers are focused on; and that is to generate more sales, generate new partners, attract new people to the software, and basically get the software in more hands of the people who really need it.

So that is what we are doing.

Having said that, in the third quarter, our vendor rebates and discounts for the quarter amounted to $0.7 million compared to $0.6 million for the third quarter of 2010.

Now, those rebates are earned.

People give us a very aggressive goal, and we feel comfortable with that goal that we not only achieve those but exceed those.

And hence we earn those rebates.

Those are not the rebates that typical mainstream distributors would charge.

They are typically charging what is called an MDF, marketing development fund, rebate, which is a set percentage no matter whether I sell $5 or $5 million.

That is 4% or 5% of whatever I sell.

Those we don't typically have.

So in terms of overall impact on that, vendor rebate $0.7 million in Q3 compared to $0.6 million for the third quarter of 2010.

Joe Munda, Sidoti.

Hey, Simon.

Sorry, I just had a few other quick questions for you.

What was CapEx spend in the quarter?

Our CapEx spend I believe was less than $100,000.

Okay.

Our CapEx spend for the year so far I believe was $220,000, if I am correct.

I mean that's minimal.

Okay.

Yes, yes.

And what -- maintenance for you guys is what, roughly 250 a year?

If that.

Okay, and --

The majority of our costs, again, is we rent this building which is not the most expensive building, a good professional building.

The majority of our cost, 75% to 80% is related to employees.

Okay.

And follow-up with another caller who had mentioned it.

$13 million in cash.

What are your plans as you guys continue to build that cash balance, what are your plans to do with that?

A, definitely facilitate this financial purchasing option lead that we have.

We have a tremendous competitive advantage on the TechXtend side to go to our strongest customers and tell them -- you can buy the software for the next two or three years with us, and finance that through us, and charge them healthy interest rates.

Now we are unwilling to take a lot of credit risk, so that is one option.

And other than that, I continue to buy back shares.

I think it is a great investment.

Looking at the last quarter when the stock price went down, I personally couldn't believe it and I said -- you know, unfortunately there were no large blocks for sale.

But if there is anybody on the phone who would like to sell a large block, we are interested because we are being held back by the total shares that we can buy in the open market.

We are trying to buy back as much as we can.

Thank you.

I am showing no further questions at this time.

Great.

Thank you.

We look forward to talking to everybody again at the end -- it will be the first week of February because we take a week extra so we can have our 10-K ready for our auditors to review.

So we look forward to speaking to everybody at the end of the first week of February in 2012.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes the program.

You may all disconnect and have a wonderful day.