Climb Global Solutions Inc (CLMB) 2011 Q4 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 a listen-only mode.

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

Please note that all 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 your conference at this time.

Thank you and good morning.

Welcome to Wayside Technology's fourth-quarter 2011 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 fourth quarter at approximately 5 PM Eastern time Thursday, February 2, 2012.

The earnings release is available at the company's Investor Relations website at waysideechnology.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 conference 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, February 3, 2012.

A detailed discussion of risks and uncertainties are discussed in our Forms 10-Q and also in greater detail on 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'd like to turn the call over to Simon.

Thank you, Natalie, and good morning to everybody.

We delivered strong results this quarter.

We strengthened our position in the software distribution market and we continue 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 54% increase in sales during last year's quarter, a great performance.

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 to an ultra low pricing strategy for software and make their money by charging software publishers marketing, license and a whole menu of other fees.

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

And that's 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 interests and the software publishers' interests 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 Q4 results, along with our overall results for the year, 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 Q4 results and overall results for the year were the successful penetration and expansion of pivotal software lines within a variety of Lifeboat's premier reseller accounts, the LARs, large account resellers, the DMRs, the direct market resellers, along with the successful expansion of business within targeted solution provider accounts, including VARs, the value-added resellers, SI's, the systems integrators, and other consultancy-type companies.

Lifeboat signed three new distribution agreements in Q4.

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

Thank you, Dan.

Now on to our TechXtend division.

Shawn?

Thank you, Simon.

The TechXtend sales team performed well in the fourth quarter as we continue our focus on delivering value to our customers through a consultative sales approach.

While revenue for the quarter remained flat at $19.1 million compared to 2010, we saw a 2% increase in gross margin from $6.3 million to $6.4 million.

We continue to see an increase in larger transactions, which are defined as deals over $50,000.

These transactions are extremely competitive and pricing continues to be the main driver in many of these purchasing decisions.

As a result gross margin as a percentage of net sales declined slightly in Q4 from 9.7% in 2010 to 9.3% in 2011.

Our customers continue to look to TechXtend to help them solve IT challenges in the areas of virtualization, backup and disaster recovery, information management and software development tools.

We continue to see more and more customers looking to us to be a trusted advisor as they rely on our dedicated sales teams' responsiveness and technical expertise in helping them meet their IT needs.

Thank you, Shawn.

Kevin Scull will now report on the financial numbers.

Kevin?

Thank you, Simon, and good morning, everyone.

I will discuss our fourth-quarter financial results on a company-wide basis as well as per segment.

Net sales were $74.2 million compared to $64.9 million last year, representing a 14% increase.

Sales for our Lifeboat segment were $55.1 million compared to $45.8 million last year, representing a 20% increase.

Sales for our TechXtend segment remained unchanged at $19.1 million compared to the prior year.

Gross profit was $7.1 million compared to $6.2 million last year.

Gross profit as a percentage of net sales was 9.6% compared to 9.5% last year.

Gross profit margin as a percentage of sales for our Lifeboat segment was 9% compared to 9.3% last year.

Gross profit margin as a percentages sales for our TechXtend segment was 10.8% compared to 10.2% last year.

Total selling, general and administrative, SG&A, expenses were $4 million compared to $3.8 million last year.

As a percentage of sales, SG&A expenses were 5.4% compared to 5.9% last year.

Selling costs increased $200,000, the result of increased volume and the company's investing in and rewarding employees for sales growth.

Net income amounted to $2 million compared to $1.5 million last year.

As a percentage of sales our net income was 2.7% compared to 2.3% last year.

On a fully diluted basis our earnings per share was $0.43 compared to the prior year at $0.33.

Now moving onto the balance sheet, compared to our year-end balance sheet, the following (technical difficulty) had significant fluctuations.

Accounts Receivable short and long-term portion increased $6.6 million and accounts payable increased by $4 million, both due to the increased sales volume compared to the prior year.

Book value per share is $6.19 and equity now stands at $28.9 million.

Our cash and marketable securities make up 50% of equity.

This concludes my remarks.

Simon, back to you.

Thank you, Kevin.

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

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.

Thank you.

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

(Operator Instructions).

[Lewis Moser], [Mayfacts Investor].

Good morning.

Great job.

How are you doing, Kevin?

A couple of things -- the conferences that you attend or attended during this past year, what do you feel was the feedback that you got from the various people that attended?

Conference in what terms?

You mean software conferences or --?

Presentations.

Oh, you mean our presentations about our company?

Yes.

And that is investor conferences or presenting our company to software publishers?

Are you talking with regards to like a Needham conference?

Yes, exactly, investor conferences.

Okay, yes.

Like -- what we have heard back from a lot of companies is that a lot of people seem to be -- the ship seems to be turning a little bit in terms of like the small-cap companies, so people are interested in the companies again.

Mostly what drives the result and I think ultimately the share price of our company are the results.

And that's why we are so focused on driving that business.

And I think that's a good investment of our time.

So most importantly, we have to grow this business, and that is exactly what we are trying to do.

So that's what we work hard for every day.

Joe Munda, Sidoti.

Good morning, guys.

I know you guys have a limit on one question, but real quick, it's a two-part question.

What was --?

You can have more questions, it's just one session.

You can go right ahead.

Okay.

It seems like, yes, you guys are growing (technical difficulty) at a pretty good clip here, but at the expense of gross margin.

What are we looking at going forward?

Are we going to see some type of gross margin expansion?

Are going to see a flat gross margin in 2012 and 2013?

And are you experiencing pricing pressure as a result of this decline in gross margin?

Yes, and this actually -- so what we drive is income from operations, and ultimately, what we drive is net income.

If it adds our net income we are going to expand into that business.

Gross margin percentages -- yes we continue to try to drive those -- of course we try to drive -- get the largest amount of what we see by the way as a reward for our services that we provide.

But pricing pressure has been in this business and will continue to stay in this business.

And one of the worst things that you can do is to say we will not take business at a certain level.

Because what you do is you become a very small software distributor or a very small software reseller.

And ultimately you become a non-extinct company.

Pricing pressure is a part of the game in this industry, will continue to play it.

Looking forward as I said in the press release and in the 10-K we foresee pricing pressure on the margins, absolutely, as we continue to expand large aggressive deals.

Ultimately, we drive the income from operations and net income.

That's what we look forward to driving.

So whether that be at larger or higher margins, that to us is secondary.

Okay.

So you really -- all you are really saying is you're sacrificing margin, but then you're going to cut back on SG&A as it slows down?

Well, SG&A is mostly comprised of salary and commission for our sales representatives, and they are a function of the gross margin dollars that they generate.

So that's what we ultimately drive.

And again it's a play of return on equity and an increase in income from operations.

That's what we all strive for.

That's bringing those results to the shareholders.

To look at -- area sales went up but gross margins slightly declined.

Listen, ultimately, like I said before it's the gross margin dollars that we bring in and that has to go up and we have to provide more services.

And the way to do this ultimately is to drive more sales.

So aggressively growing through those lines and not give up when a vendor starts to price fight, but continue to match those prices, and after two or three years hopefully they'll see that it's useless to price fight on that.

And they start another line but that's -- that has been the case for 15 years or will be the case for 15 years.

But looking forward, like I said in the press release, we expect continued pricing pressure.

Chris Parker.

Good morning.

First I want to thank you all for your efforts on behalf of shareholders and other constituents.

I'm a longtime very happy individual shareholder.

Question this morning is regarding the quarterly dividend.

Wondering if you've considered increasing it $0.01 from $0.16 to $0.17.

By my calculations that would cost you about $200,000 a year.

And it would keep your payout ratio hopefully this year below 50%.

And I think it would not impact your -- our financial position, and it would signal to investors and potential investors your intent to support a rising dividend going forward.

Right.

Well, first of all I want to thank you for your kind words, because ultimately that's what we work for here at our company to drive those results.

So I appreciate that.

Secondly, with regards to the quarterly dividend, that is definitely something that we will discuss at the next board meeting and it is always on the table.

And as you have seen in the past -- our company -- we really drive to increase that quarterly dividend, try to maintain that if not increase that.

So that's definitely on the schedule for our board meeting.

Lewis Moser, Mayfacts Investor?

What would you say is your largest potential growth area for the company?

So what we have is those world views.

The largest growth area right now, if you look at the divisions -- TechXtend I think has a real chance of breaking out this year in terms of the services, hardware offerings.

We are really set up well to really expand into those areas on the TechXtend side.

But I think our largest opportunity remains with LIFO distribution.

And that is signing up new software publishers.

The overall market is not growing as strong as we are growing, so we continue to take market share.

Software publishers continue to express their dissatisfaction with mainstream distributors, so the hardware focus distributors.

So that I would see as the largest growth area.

Within that we continue to focus on virtualization, data management cloud offerings, software as a service, but also security.

So those are areas that we definitely see are hot.

Mobility, data management, that's what we see.

But it's adding those software publishers; that's what we work hard for.

Joe Munda, Sidoti.

Yes, a follow-up, Simon, what was the operating cash flow, and CapEx for the year?

Oh, I don't think I have those.

Do we have that here, Kevin?

I think it was roughly $4 million cash flow from oprations.

The cash flow was about $4 million, right?

CapEx was $200,000 maybe?

Yes, CapEx was about $200,000 and cash flow was about $4 million.

Okay.

And you guys talked just now about -- Simon, we talk about it on every call, the cloud and I just want to know how that's progressing.

And also any foray into enterprise software as far as -- you know, you had just mentioned security.

I'm guessing -- I'm looking at enterprise software, cloud and mobility.

Can you give us a little bit more color on that?

Absolutely.

So we continue to talk and prepare software publishers to get ready for the cloud.

And that's an enormous amount of work for software publishers to get their systems ready, to get the invoicing ready, to get the sales representatives ready, the commission structures.

So a lot of the software publishers that we talk to are in that exploratory phase.

They continue to explore how are they going to attack the cloud.

Some of them are further along than others.

But what is real important for us is that we are really strive to day-to-day improve our services for our customers.

Now we're talking about the cloud with them.

Our systems continue to be ready; monthly invoicing, monthly billing.

Any which way of invoicing you would like to have for your customers, we can facilitate.

But what's important right now is to see what's right in front of us.

A lot of our customers are struggling with renewals for instance, with lead registrations, with deal registrations.

Those are the things that are right in front of us.

Our inventory electronic inventory system is something that has grown exponentially.

So those are things that are really helping us drive that performance.

So again it's important to see what is ahead of you in three years.

We feel it's even more important to see what's ahead of you next week or next month.

Thank you.

I'm showing no further questions at this time.

Perfect.

Then I would like to thank all on the call for your interest and your support of our company.

And we look forward to reporting our first-quarter results at the end of April in 2012.

Thank you.

Ladies and gentlemen, this concludes our conference call.

You may disconnect at this time and thank you for your participation and have a wonderful day.