Climb Global Solutions Inc (CLMB) 2017 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Wayside Technology Group Conference Call.

(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, Melanie Caponigro.

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

Thank you, and good morning.

Welcome to Wayside Technology's Second Quarter 2017 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 comments about the webcast for this earnings call.

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

Eastern Time, Thursday, July 27, 2017.

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 a rebroadcast will be available at www.waysidetechnology.com/site/content/webcast.

This conference call and associated webcast contain time-sensitive information that is accurate only as of today, July 28, 2017.

A detailed discussion of risks and uncertainties are discussed in our Form 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 statements.

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

Thank you, Melanie, and good morning to everyone.

We are pleased to report solid financial results.

Our Lifeboat Distribution segment continued to deliver year-over-year sales growth, while our TechXtend division was down as compared to an exceptionally strong quarter last year.

On a year-to-date basis, our earnings per share are up $0.04 or 7%.

Our Lifeboat Division represented 93% of our revenue and 86% of segment income in the third -- in the second quarter.

Our international sales were 13% of our overall revenue, equal to the second quarter of 2016.

Now I would like to hand it over to Bill Botti, our Executive Vice President.

Thank you, Simon.

As stated earlier by Simon, we had a solid quarter when compared with Q2 2016.

In Q2 2017, Lifeboat grew year-over-year, however, TechXtend was down year-over-year due to a strong quarter last year based upon a very large extended payment transaction.

Net sales decreased 2% to $103 million compared to $105 million in Q2 2016.

Lifeboat's net sales increased 7% to $96 million compared to $90 million in Q2 of 2016.

TechXtend sales for the quarter decreased 53% to $7 million compared to $16 million in Q2 of 2016.

This decrease was primarily due to a single $7.3 million enterprise sale in Q2 of 2016.

Gross profit for the quarter decreased 6% to $6.6 million compared to $7 million for the same period in 2016.

Lifeboat's gross profit increased 1% to $5.6 million compared to $5.5 million in the same period in 2016.

TechXtend's quarterly gross profit decreased 34% to $1 million compared to $1.5 million in Q2 of 2016.

Gross profit margin, which is gross profit as a percentage of net sales, for the quarter decreased by 0.3 percentage points to 6.4% compared to 6.7% for the same period in 2016.

Lifeboat's gross margin percentage decreased by 0.3 percentage points to 5.9% compared to 6.2% for the same period last year.

TechXtend's gross profit margin increased 3.8 percentage points to 13.1% compared to 9.3% for the same period in 2016.

We introduced 3 new vendors into the channel through Lifeboat, including the return of a key partner that left us at the end of 2015 to go to an exclusive distribution arrangement with a large-volume distributor.

While that went well for them, they recognized they were missing a key part of the market that they had through Lifeboat and elected to return to our portfolio.

We continue to be excited about our future as we manage our expenses and build our product portfolio to help achieve our growth targets.

Thank you.

Simon, back to you.

Thank you, Bill.

Now I hand it over to Mike Vesey.

Mike?

Thank, Simon.

I will now review our operating expenses and balance sheet highlights.

Total SG&A expenses for the quarter increased slightly from the same period last year to $4.8 million.

The increase was mainly due to salary commission and incentive payments to support our growth.

SG&A expenses, as a percent of net sales, increased to 4.7% compared to 4.5% for the same period last year, reflecting relatively flat expenses in relation to a lower sales number.

As Bill noted, net income for the second quarter decreased 16% to $1.3 million compared to $1.5 million last year, primarily due to a large enterprise sale we had in the 2016 results.

Diluted net income per share decreased 12% to $0.30 per share compared to 34% -- $0.34 in the same period last year.

Weighted average diluted shares outstanding decreased about 5% from the prior year, reflecting share repurchases we've made over the past year.

On a year-to-date basis, our net income is relatively flat year-over-year at $2.6 million.

And our diluted earnings per share is up 7%, reflecting the lower weighted average shares outstanding resulting from the share repurchases.

Moving on to the balance sheet.

Cash and cash equivalents was $9.7 million at the end of the quarter compared to $13.5 million at the end of 2016.

Our cash balance reflects an increased investment in working capital and $3.9 million of cash utilized to pay dividends and repurchase our stock.

The increase in working capital was mainly driven by higher receivables related to increased payment terms for one of our major resellers and the impact of extended payment term sales.

We've had strong sales under extended payment terms over the past several quarters, particularly in the fourth quarter of 2016 in our TechXtend segment.

Therefore, we incurred the use of cash to purchase the goods sold during the first part of 2017, and we'll collect the proceeds from the customer over time.

During the quarter, we paid $800,000 in dividends and utilized $700,000 of our cash balance to purchase about 34,000 shares of our common stock.

As of June 30, 2017, we had no outstanding balances under our credit facility.

Stockholders' equity was about $37.4 million compared to $37.6 million at the end of the year.

And total working capital, including cash, was $22.8 million compared to $24 million at the end of last year.

Additionally, we have about $12 million in extended term receivables due after 1 year compared to about $11.1 million last year.

We plan to continue to utilize our cash and available liquidity to invest in the growth of our business.

On July 25, 2017, the Board of Directors declared a dividend of $0.17 per share, payable on August 18 to the shareholders of record on August 11, 2017.

In conclusion, our quarter was impacted by variability in sales in our TechXtend business, but our core Lifeboat Distribution business continued its top line growth.

Despite the challenging comparison with the prior year's second quarter, our net income is even with last year on a year-to-date basis, and earnings per share reflects the positive impact of our share repurchases.

Simon, I turn it back to you.

Thank you, Mike.

We're excited about the prospects of more software publishers joining us, and we look forward to growing our business.

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

(Operator Instructions) Our first question comes from Bert Boksen.

Lifeboat, over the years, has been growing nicely steadily in a pretty difficult business, and I commend you on that.

But this tech -- as a shareholder, this TechXtend drives me nuts.

One quarter, I think they're doing better.

And clearly, they use the company's balance sheet, but in the next quarter, it's not there.

Is this fixable?

What's the long-term prognosis for TechXtend?

Other than occasionally getting a big order, I'm not...

So here's the deal on TechXtend.

And to just explain it to you, the TechXtend business, there's 2 parts to that.

One is we have the flexible payment option deals.

Those are our multi-year or multi-quarter kind of arrangements with clients.

And they come to us for the software, but they also come to us for spreading their payments to aligning them with their budgets.

That is a very fluctual business.

The core business of TechXtend is that true value-added reseller part to our clients moving from a catalog company in the '90s to now, we're installing security cameras on courthouses here locally in New Jersey.

So that's really -- that business has transformed nicely.

And you can see that there's an increase in terms of gross margin.

And that business in and of itself, we expect to grow.

It is impacted, however, you see these flexible payment option deals, by these large deals, enterprise deals that we try to get and we fuse with our excess cash.

We're working on with a capital firm to use third-party cash to do this business.

But I'm not going to say no to a $6 million or $7 million deal.

If it adds money into our pocket and it fluctuates, therefore, I think it's good for the bottom line.

We ultimately managed down to the earnings per share.

And like we said before, we're stewards of this company, and I'm in the same boat as you.

I'm a large shareholder.

Our long-term plan is for Lifeboat to start growing even more aggressively than it has been.

We believe we're in a great position.

The large mainstream distributors, either now in private hands or in restructuring or merging, we are -- we stay true to that core.

We distribute software and the hardware appliances if they tie into the software.

And we -- like I said, we're right on track.

Our customer service is really appreciated.

They -- we know where we go there.

In terms of the TechXtend business, I really think that the core business found its niche, and I'm actually pretty excited about that core business.

So that's where we are long term.

And how -- clearly, these bigger deals are not that predictable, there's no way to manage them.

Is that right?

They just kind of come along at the whim of the customer?

Yes.

Well, if we win them, there's also competitive forces at work where the other companies, large companies, some may have an incentive to -- for their sales reps to have these deals done in these 2 quarters to take any business that they can, and they come-and-go kind of mentality.

So we see this as add-on business.

We try to emphasize that in the calls we did last year as well in saying "Hey, this was influenced by a large FPO." It's more like on a year-to-date, you can make or break that quarter.

And Lifeboat just continue to grow.

And as that grows, the impact of these kind of deals will lessen.

Give me -- over the years, you've never had an issue with the receivables on these deals.

Give me some comfort that you won't have any issue going forward on these larger deals.

How do you (inaudible) balance sheet on that?

Yes.

Thank you, and I appreciate that you asked.

So our write-off history...

Over the front, yes.

Yes, over the 16 years that we've done it, I think it's less than, Kevin Scull is with me, I think it's less than $100,000, $150,000?

Yes.

Yes.

So as a percentage, it's 0.001% of all the deals.

Now I got to tell you, we would have done the deal with Lehman Brothers.

I would have done that.

So we try to restrict ourselves to high-quality credit, but that's another reason that we're walking into, in terms of growing Lifeboat now, we're using more and more capital to finance the growth in Lifeboat.

So we're looking -- listen, we had a lot of excess cash in our balance sheet, and we were and we still are looking for that right acquisition.

And that has heated up.

Like I said, we fired an investment banker.

We're definitely reviewing more deals than we have in the past.

But we have that excess cash.

And years ago, we said we're going to start paying some of that excess cash back to our shareholders, which we started doing with a dividend yield.

The excess cash that we had on our balance sheet was invested in very low-interest deals.

And then we found out that there are -- that we can do a multiyear deal with a client, a very, very high-respected client, and we can enhance our sales that way.

So we review the credit in much detail.

We haven't had any major writeoffs to speak of.

So that's where we are.

Okay.

All right.

Continued good success.

Yes.

But trust me, we fight as hard as we can to produce the numbers that we have in the first quarter.

That is our goal.

Trust me.

Our next question comes from [Peter Lux].

A couple of things.

You and I go back a long time.

Maybe I'm one of your stockholders of a long, long standing.

And as far as I know, we've been looking for an acquisition since the year 1. So although that sounds good, it never has happened.

And hopefully, at some point, it will be an accretive deal, but I don't have any hopes.

But some of the excess cash we've been thinking about, perhaps in addition to buying shares, are bumping the dividend.

Now you talked about that item for an item, quarter-after-quarter, and we tend to hoard our cash, and have used it to buy shares, which is a way to give money back to the shareholders.

But is it right now time to sort of bump the dividend in your feel and the board's feeling?

Peter, we have a lot of confidence in the future of our company.

The dividend declared was definitely discussed at our board meeting and something we will discuss again in the future.

We keep a very close eye on the level of dividend.

You and I talked, we were looking at acquisitions.

I think our stock price was at $3 when we talked.

And I also think that over the 14 years that, as you've said, you've been waiting, I think we have paid out more than $50 million in dividends.

We have a market cap of $90 million.

And if you look at our extended receivables, which is basically excess cash that we've used, including our cash, we're still at very healthy levels.

So we've returned an enormous amount of cash to the shareholders.

In addition, we've bought back shares.

We are a growth company that is also a cash cow, and that's rare, and especially considering our stellar balance sheet.

We are going to use our balance sheet to leap forward, but we have to build on a good basis.

And it's nice to do things very rapidly.

As I said before, and you met me day 1, this is a multi-decade plan.

This is not a 2-year plan to ramp up sales and then dump the stock and leave.

That was never our plan.

We're building a real company here and, unfortunately, that takes time.

I had spoken, I guess, to Bill Botti.

One of the things you had talked about adding new publishers, and I had given him a significant lead, and he never followed up.

If he wants to give me a call, I can refresh that with him.

But this is a company that I know pretty well out here in Ohio that he should be talking to, you guys should be talking to.

So perhaps you should have him call me.

Absolutely.

And just so you know, that's -- adding publishers is our #1 priority, and we manage that very closely.

But definitely, I think we could take it offline, and Bill can explain to you why or what progress or why there was no progress made.

I'm sure there is an explanation, but I appreciate your support and passion, Peter.

Okay.

And then just one other thing and I'll just -- I'll let you go.

Good luck.

But I noticed -- there is an issue over the time, the liquidity factor, the way the stock trades, the gaps in trading and so forth.

And I did notice that, Kevin, who I know for a while, did liquidate some shares, and that's his prerogative, during the year.

I think it was 3,400 or something like that.

Did the company buy back his shares or did he sell them in the market, which would be more difficult than selling 3,400 shares in one time?

No, he sold them in the market, and I've sold shares over the years and as have most people.

I mean, there's not a lot of shares that we all sold.

Those are minor amount of shares, what I feel, but I've talked to shareholders.

The movement of those shares is pretty liquid, if you have a large position, it's pretty liquid.

It's just that there's not a lot of buying and selling.

And we're not the only company in that predicament, there's a lot of our companies, and hence, our desire for a more aggressive growth.

Okay.

And listen, I'll keep watching.

Have Bill call me and we'll talk again.

Good luck.

At this time, there are no further questions.

Please continue with any closing remarks.

Thank you.

We appreciate everyone's support and attention to our -- interest in our company.

We look forward to reporting our Q3 numbers at the end of October this year.

Thank you so much.

Thank you.

This concludes today's conference.

You may disconnect at this time.

Thank you for your participation.