Climb Global Solutions Inc (CLMB) 2012 Q4 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.

Please note that all callers are limited to one question each.

(Operator Instructions).

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

I would now like to introduce your host for today's conference, Nathalie Turner.

Ms. Turner, you may begin your conference at this time.

Thank you and good morning.

Welcome to Wayside Technology's fourth-quarter 2012 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 comments about the webcast for this earnings call.

We released earnings for the fourth quarter at approximately 5 p.m.

Eastern Time, Thursday, January 31, 2013.

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, February 1, 2013.

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 Nynens.

Thank you, Nathalie, and good morning to everybody.

The fourth quarter was our best quarter in 2012.

Revenues, gross profit, income from operations and net income all contributed to deliver our best quarter in 2012.

Our TechXtend division performed exceptionally well in Q4 with Lifeboat Distribution delivering solid results.

October and November were both okay, yet December turned out to be very strong, especially for our TechXtend division.

If you add up our cash, marketable securities and long-term receivables, which is basically cash that we invest in financing our customers and is earning interest, you arrive at a balance of $26 million.

That is 81% of our equity.

Looking at our market cap right now this amounts to 44% of our market cap.

Now if you deduct the cash, marketable securities and long-term receivables, and remember we have no outstanding debt, from our market cap you end up around $33 million of market cap and that's for a company that generates income from operations of $8.5 million and pays out a dividend of $0.64 a year.

I would say that is a pretty good investment opportunity.

Now regarding our Company, because we really focus on building the operational capabilities of our Company.

We are working hard to start providing our vendors, the software publishers, to deliver their licenses instantaneously via instant download on the reseller's website.

In addition to our electronic license delivery systems, our outstanding customer service levels and our dedicated sales staff, we believe that this truly will set us apart.

As we continue to explore, define and build our competitive advantages we continue to investment our Company.

We are still building this Company.

Compare us to any of our competitors and you realize how much room for revenue growth there really is.

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

And 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 2012 results reflect positive year-over-year growth in revenue, but also reflect negative year-over-year results in margin.

The key factors in Lifeboat's Q4 revenue growth were the successful penetration and expansion of pivotal software lines within a variety of the Lifeboat's premier reseller accounts -- the LARs, the 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; SIs, the systems integrators; and other consultancy type companies.

The decline in margin is primarily attributable to the non-attainment of rebates along with continuing margin pressure.

Lifeboat signed seven new distribution agreements in Q4 2012.

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.

Thank you, Simon.

Now I would like to hand it off to Shawn Giordano, our Vice President of our TechXtend division.

Shawn.

Thank you, Simon.

The TechXtend sales team performed exceptionally well in the fourth quarter of 2012 resulting in increases across all segments of the business including revenue, gross margin and income from operations.

Every member of our team played an integral role in our overall success in Q4 and in 2012 as a whole.

Our continued focus on account penetration and acquisition of new clients remains our core objective as we look to provide customers with solutions that solve today's most pressing IT and business challenges.

These efforts have resulted in increases in large transactions, those defined over $50,000, as well as an increase in customers who rely on us regularly for their technology needs.

While we continue to operate in a very competitive landscape, our ability to be flexible as we help clients in the areas of virtualization and cloud, storage and infrastructure management, business intelligence and information management, continues to help us build on our reputation of being a trusted advisor.

In conclusion, I would like to thank all of our back office and support teams; without their hard work our success would not be possible.

We take great pride in the efforts and accomplishments of the entire team in 2012.

Simon, back to you.

Thank you, Shawn.

Tom Flaherty, our CFO, will now report on the financial numbers.

Tom.

Thank you, Simon, and good morning, everyone.

I will discuss our fourth-quarter financial results on a consolidated basis as well as by business segment.

Net sales for the fourth quarter of 2012 were $85.5 million compared to $74.2 million last year, representing a 15% increase on a consolidated basis.

Sales for our Lifeboat Distribution segment were $58.5 million compared to $55.1 million last year representing a 6% increase.

This increase was mainly a result of strengthening our account penetrations, our continued focus on expanding virtual infrastructure centric business and the addition of several key product lines during the quarter.

Sales for our TechXtend segment were $26.9 million compared to $19.1 million last year representing a 41% increase.

The 41% increase was primarily due to an increase in larger extended payment term transactions, continued solution focused selling and higher average order sizes in the fourth quarter of 2012.

On a consolidated basis our gross profit was $7 million, the same as compared to last year.

Our gross profit margin was 8.2% compared to 9.5% last year.

Lifeboat Distribution's gross margin decreased by 10% despite the 6% increase in revenues.

This was a result of Lifeboat's gross margin dropping from 9.0% last year to 7.7% in Q4 of this year.

Gross profit was impacted by lower vendor rebate payment and continued pricing pressures within the segment.

Our TechXtend segment's gross profit increased by 23%.

Gross profit margin was 9.5% compared to 10.8% last year.

The increase in gross profit dollars and the decrease in gross profit margin was primarily due to having won several large extended payment term deals based on aggressive pricing as well as lower vendor rebates.

Vendor rebates and discounts for the quarter ended December 31, 2012 amounted to $600,000 or 0.7% of net sales compared to $800,000 or 1.1% of net sales for the fourth quarter of 2011.

Vendor rebates are dependent on reaching certain targets set by our vendors.

Vendors have been periodically substantially increasing their target revenue for rebate eligibility, therefore, despite our increasing revenue, vendor rebates have declined.

The Company monitors gross profits and gross profit margins carefully.

Price competition in our market intensified in 2012 with competitors lowering their prices significantly.

The Company responded immediately.

And although our sales volume increased substantially as a result, gross margins, as well as the rebates and discounts that are material elements of the Company's overall profitability, were negatively impacted.

We anticipate that margins, as well as discounts and rebates, will continue to be affected by this current trend.

Total selling, general and administrative expenses were $4.2 million compared to $4 million last year.

The increase in SG&A is primarily the result of an increase in sales commissions for our TechXtend segment and the addition of employees in sales and finance and operations to support business growth.

Our net income for the quarter was $1.8 million compared to $2 million last year, which is a 10% decrease.

Again, this was impacted by the decrease in gross margins and increase in SG&A expense.

Earnings per share on a fully diluted basis was $0.39 per share compared to $0.43 per share in the same quarter last year representing a 9% decrease.

This was impacted by the decrease in net income plus higher weighted average common shares outstanding.

Moving on to the balance sheet, compared to our balance sheet at December 31, 2011 the following key accounts had fluctuations.

Cash and marketable securities are $14.2 million, a decrease of $330,000.

This decrease is primarily due to $3.4 million cash flow from operations offset by $3 million of dividend payouts and $1.1 million repurchases of treasury stock for the year ended December 31, 2012.

Accounts Receivable current and long-term increased by 31% due to sales growth and an increase in volume of sales on extended payment terms during Q4 and during the year.

Accounts payable and accrued expenses increased by 29% due to the increase in our operating expenses from the growth of the business, plus an increase in large extended payment term deals in Q4 whereby the cost is included in accounts payable at December 31, 2012.

During the quarter we repurchased approximately 41,000 shares of our common stock and still have authorization to buy back approximately 342,000 shares.

Our stockholder's equity now stands at $32.1 million and cash and marketable securities make up 44% of equity.

Working capital at the end of the quarter amounted to $19.6 million.

At our January 30, 2013 Board meeting the Board of Directors declared a $0.16 dividend per share for its common stock payable February 22 to shareholders of record on February 12, 2013.

This concludes my remarks on our Q4 operating results.

Simon, back to you.

Thank you, Tom.

Now before we start with the Q&A session, a couple more comments.

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'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.

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

And to them, again, I say thank you for your hard work during this past quarter, thank you for your hard work during 2012 and thank you for your continued passion to win.

Thank you, operator, we can now start with the Q&A session.

(Operator Instructions).

[Lou Moser].

Good quarter.

I was wondering if there is any consideration of acquisitions to extend your growth.

Yes, and we have been looking over the past year towards acquisitions; a very challenging economic environment.

We are and we have been looking at possible acquisitions to grow our Company.

But again, it has to be the right fit for our Company.

We are currently exploring the options of looking towards smaller companies that we can integrate into our divisions.

So, yes, acquisitions have been and will remain to be on our path to profitability and growth, it's just it has to fit in with our Company.

Is there any effort to try to extend the recognition of the Company through talking to additional analysts to see if you could get some more coverage?

Yes, we do.

In fact, I was just at the Needham conference and Tom Flaherty and myself, we continue to reach out to analysts.

It is very important though in the feedback that we got at Needham as well, we're one of the 17,000 smaller public companies.

And the thing that really got us noticed in the past and we firmly believe the issue that will get us noticed in the future is the operational performance of our Company.

Paid for research does not seem to do the trick and we are exploring options of course to get in front of analysts.

But it has to be done -- first and foremost we have to continue to build our Company, that is how we will definitely be noticed.

Is there any software in particular that is profitable to you outstanding and can be scaled to produce additional revenues for the Company?

Well, sure.

I mean if you look at our virtualization space, we carry more virtualization vendors than anybody else.

And before a lot of companies can even grow to software as a service or PaaS or whatever acronym they are using, that is when they have to invest in virtualization.

And the growth there is still very strong for those vendors that we have signed up.

There are a couple of great new companies that are up and coming and we see significant growth in that sector, absolutely.

And that is reflected, by the way, into our growth.

Remember Q4 of 2012 was an extremely strong quarter and it was a record year for our Company.

And I think to -- again, if you look at 2013, despite the fact that we got $1 million less in rebates, we again got very close to our financial performance of last year.

To generate $8.5 million on the equity that we currently have is I think an outstanding feat.

And like we said before, we continue to build our Company.

We are going to continue to invest in the employees, continue to invest in the IT infrastructure.

And that is our way forward, absolutely.

Yes, and there are a lot of current vendors that we grow with, also in the TechXtend division, a lot of great names out there that we do very well with.

Are you also considering additional vendors in that space?

Oh, absolutely.

We are aggressively -- like Dan Jamieson was referring to and then Shawn and myself as well in our previous remarks, that continues to be a top focus for our Company, adding new publishers is the way forward.

Okay, great.

You did a good job and keep up the good work.

Thank you, sir.

Nick Peters.

Congratulations on another good operating quarter in a tough environment.

Could you comment on what you see as far as capital spending goes for large to mid-sized businesses for software?

And the change over the past three months and what it looks like going forward?

Yes.

We talked about that at the Needham conference as well as at our Board meeting.

Overall the economic outlook remains depressed.

For hardware spending definitely that is a very -- continues to be a depressed outlook.

However, the software that we sell more and more of the lines, especially virtualization, is used in fact to drive costs down.

So those projects continue -- people continue to invest in.

And if they need anything more it is not more hardware it is more services and it is more consultative advice in terms of what the software is that they need to implement.

So I would say for our overall Company, we are not a bellwether of the overall IT spending.

And just because of our size, if you look at our competitors in distribution, you're only talking about $20 billion to $30 billion a year and that includes mostly hardware, by the way.

But I think if you look at our revenue growth, those are sectors that are growing aggressively in the overall software space as well.

So, yes, that is what we see going forward as well.

Okay.

Based on the comments you made at the beginning of the call and what you just said, I would assume you believe you have undervalued stock and you have ample liquidity and including your -- now the $10 million revolver, do you assume that to be correct?

Yes, absolutely.

I definitely think we are undervalued.

If you look at the payout of the dividends, again, we talked about it on previous calls too.

People said, we have to (inaudible) the stock and we got to go out there.

And I firmly believe in our stock as we all are here.

I mean we are large shareholders here as well.

I just don't want to jigsaw the up and down that is there.

Look as an Amazon or an Apple, even a VMware went up and down significantly.

And those are market forces at work, high expectations.

I firmly believe that the expectations are currently low in the market apparently because I believe our stock is undervalued.

If you look at -- purely look at the financials and the underlying fundamentals, I definitely think we are undervalued, yes.

Right, I agree with you.

I mean if you look at say some companies, they are overvalued, Amazon because expectations are really high.

Wayside, now we look at it, it's -- or excuse me, Amazon was overvalued, Wayside is undervalued and we have ample liquidity.

So ahead is -- senior management, along with the Board, have you discussed repurchasing more of our Company as more than just what is to offset stock-based compensation?

Yes.

We are bound to it by the average daily maximum that we can buy back.

We have a 10b5-1 plan in place.

And we continue to look for large block of shares that people are interested in selling.

We continue to be on the lookout for those.

Absolutely, yes.

Okay.

All right, that's all of my questions.

Thank you.

And again, congratulations on a good quarter.

(Operator Instructions).

Lou Moser.

I'm sorry; I missed the number of shares that are still available for your purchase to the Company?

342,000 shares at December 31.

What has been the average of the price that you bought previous stock at?

In the fourth quarter it was right around $11.71 a share.

Okay, that's basically what (inaudible).

Thanks very much.

[Chris Parker].

And again, congratulations on another great quarter and another great year.

A question is regarding the new loan.

Can you speak a little bit about the thought process of why you did that?

It would seem to me that there is plenty of liquidity and cash available even for the financing of the long-term receivables on the balance sheet.

And the second part of the question is that -- how do you think this might affect future dividend increases?

Do you have any -- do you think you have any flexibility to increase dividends in the future -- which might really increase the value of the stock?

Right.

As in the past we look at the dividend -- the amount of the dividend, we look at our current earnings and also -- in a conservative light to make sure we can at least continue to pay out dividends at the level it's currently set at.

That continues to be explored at every single Board meeting as Tom Flaherty referred to, to be $3.4 million and $3 million of dividend paid out.

So, yes, that continues to be discussed at every single Board meeting, can we increase the dividend, definitely on the agenda.

In terms of the loan, we really set ourselves apart with our ability to finance the larger deals.

And we do face competition from Dell Financial Services, HP, the larger leasing companies.

But our process is pretty seamless and pretty flexible.

So it's really -- we see that as a real competitive advantage.

Larger opportunities have been presented to us.

And we really internally discussed this and said, okay, is this something that we want to play in?

And as we said before, we are really trying to deal only with -- and [knock on wood], we have not had a write off yet, a significant write off yet in the finance deals.

But we really want to work with A+ companies.

But if there is a larger opportunity presented to us, we want to be able to grab that opportunity and close that deal.

And that is the reason behind the credit facility.

It is not there, we don't pay a standby fee; we are very conservative in terms of what it is that we have to pay.

I wanted to make sure we didn't get into any sort of fees if we would not use the loan facility.

But it was very easy to obtain that, very competitive and aggressive rate structure and that is the reason that we did that.

But we do expect -- if you look at the cash balance I do expect the cash balance to go down over the next couple of quarters because of these large finance deals.

But also if you look at the economic environment out there right now, our vendors are very nervous about the reseller channel, there is a lot of resellers where solvency is being questioned and do to have the ability to pay.

If you look at the average rate that I could get -- I could invest our excess cash right now in used government securities it is miniscule, it's 0.6% I believe right now or 0.5%, so it is miniscule.

And so, what we have done is -- vendors are very nervous, even if you paid them one or two days too late so we have pulled back our payment terms and you see that effect also at the end of the fourth quarter.

We want to make sure we pay these people on time and especially in an environment where cash is actually 0.5% a year, that is close to 0% interest.

So I want to make sure that we build that trust and a partnership with the vendors.

So we are shortening our payment cycles to the vendors and on the same time and the same time frame our largest customers are saying, can I pay you in 40 days, can I pay you in 45 days.

And instead of giving them a discount we try to work them and say, okay, pay me a little later instead of giving up additional margin.

So that is what we are trying to do in a low interest environment.

Okay, great.

Thank you very much for that good answer and keep up the good work.

Thank you.

Lou Moser.

In terms of other companies' interest in perhaps purchasing Wayside, do you fellas have any interest in being bought and have you been approached in the past?

And if you were what do you think a reasonable value for the Company would be?

To your question, have we been approached in the past?

Yes.

Do we have an interest in being bought?

We will do what is good for our shareholders.

And if the price is right, even though the fact that we are all thoroughly convinced we can -- we have a great future ahead of us with this Company we will be fine on our own, we will explore that opportunity if it comes to us and we will definitely do what is right for the shareholders.

If the price is right we will definitely sell this Company to another company.

But again, we are thoroughly convinced that we can do this on our own.

And therefore, in terms of valuation, that is not something I could discuss right now.

But it is significantly higher than our share price today.

Is there any current interest in the Company from another vendor?

I'm sorry?

Is there any current interest in anyone and Wayside -- as you mentioned previously, there had been some interest.

Is there anything going on now?

No, no, no and otherwise we would disclose that to the shareholders.

But there is nothing, no, there is no current interest going on.

Thank you.

(Operator Instructions).

[Jane Linden].

Good morning.

Simon, you've mentioned several times that you believe your Company is way undervalued.

I was wondering if you and any of the other insiders are going to be purchasing any stock now.

I am trying to be either the largest shareholder in our Company or the second largest.

I have a lot of my personal wealth invested in this Company.

We are looking at opportunities to buy back.

And the question though, what we discussed with the Board in terms of what I hear from investors that is a great story, and as other smaller public companies, they want to see your float increase in terms of daily shares traded.

Now the real growth, the real path to that we believe is to grow our Company.

You can do stock splits and you can do all kinds of like stock dividends, et cetera.

But we believe the right way forward is to grow our Company.

So that is what we are interested in and in terms of your question, we are all heavily invested in this Company, yes.

Okay, thank you.

(Operator Instructions).

At this time there are no further questions.

Please continue with any closing remarks.

Thank you, Howard.

We appreciate your interest in our Company and we look forward to reporting our first-quarter results at the end of April.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect at this time and thank you for your participation.