Business context and reporting period
Wayside Technology Group, Inc. (Nasdaq: WSTG) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The filing describes a value-added IT distributor and solutions provider, operating through Distribution and Solutions segments. The request identifies Climb Global Solutions, Inc.; the filing itself names Wayside Technology Group, Inc., so the issuer identity should be verified.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures are in millions except per-share data.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $67.9 | $75.4 | $139.2 | $138.2 |
| Gross profit | $12.5 | $11.0 | $24.5 | $21.8 |
| Gross margin | 18.4% | 14.6% | 17.6% | 15.8% |
| Operating income | $4.1 | $2.4 | $7.5 | $4.5 |
| Net income | $2.8 | $1.8 | $5.5 | $3.3 |
| Diluted EPS | $0.63 | $0.41 | $1.24 | $0.76 |
| Adjusted EBITDA (non-GAAP) | $4.5 | $3.5 | $8.7 | $6.2 |
- Q2 operating margin was 6.1% versus 3.2%; six-month operating margin was 5.4% versus 3.2%. Q2 net margin was 4.1% versus 2.4%; six-month net margin was 4.0% versus 2.4%.
- Adjusted gross billings, a non-GAAP measure that adds cost of sales for agency transactions to net sales, were $241.8 million in Q2, up 3%, and $480.5 million for six months, up 8%. The filing cautions that this measure is supplemental and not a substitute for GAAP results.
- Q2 operating cash flow was $1.3 million, versus cash used of $0.9 million in the first half of 2021. Investing used $0.7 million; financing provided $0.2 million. Cash was $29.3 million, essentially unchanged from year-end 2021.
- At June 30, current assets were $149.9 million and current liabilities $119.9 million. The company had $2.1 million outstanding on a new term loan; no borrowings were outstanding on its $20 million revolving facility or UK uncommitted facility. Lease liabilities totaled $2.0 million.
- Dividends paid were $0.17 per share in Q2 and $0.34 per share for six months. The company also repurchased $0.4 million of treasury stock in the first half.
Material changes versus the prior comparable period
- Q2 net sales fell 10%, while gross profit rose 14% and net income increased from $1.8 million to $2.8 million. For the first half, sales grew 1%, gross profit rose 12%, and net income increased from $3.3 million to $5.5 million.
- Management attributed the gap between net sales and adjusted gross billings growth mainly to product mix: more security, maintenance, and cloud transactions recorded net as agent in 2022, versus more hardware and software transactions recorded gross in 2021; unfavorable foreign exchange also affected reported sales.
- Distribution Q2 sales declined 10%, but segment gross profit increased 16%, attributed to existing vendor partnerships and lower customer discounts/rebates as a share of billings. Solutions Q2 sales declined 11%, with gross profit roughly flat. For six months, Distribution sales rose 3% and gross profit 19%; Solutions sales fell 23% and gross profit 10%.
- Foreign currency translation reduced first-half comprehensive income by $2.3 million, and goodwill declined $1.4 million from translation. The first-half foreign currency transaction loss was $0.3 million, compared with a $0.1 million loss a year earlier.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management expects working-capital needs to increase with business growth, but believes cash and available credit facilities will cover working-capital and cash needs for the next 12 months.
- The new $2.148 million term loan, entered into in April 2022 to fund capital expenditures, bears 3.73% interest and is repayable in 48 monthly installments through April 2026. The revolving facility matures June 30, 2023; the filing reports compliance with its covenants.
- Management reported no significant Q2 operational disruption from COVID-19 but could not predict future effects. It also cited competitive pricing, product mix, vendor and customer relationships, vendor rebates, IT spending, foreign exchange, and possible inflation-related pricing or demand effects as risks.
- Customer concentration is notable: two customers represented 41% of Q2 sales and 41% of first-half sales. Two vendors represented 25% of first-half purchases. Two customers represented 37% of net receivables at June 30.
- The filing reports no off-balance-sheet arrangements and no material change in internal control over financial reporting; management concluded disclosure controls were effective. Adoption of the expected-credit-loss standard was planned for Q1 2023, with its impact still under evaluation.
- The filing’s adjusted EBITDA table reports effective margin of 35.8% for Q2 and 35.6% for six months; the narrative gives 36.4% and 36.0%, respectively. The reported table values are consistent with adjusted EBITDA divided by gross profit, so the narrative discrepancy merits review.
Important facts for investors to verify
- Confirm issuer identity and continuity: the filing is for Wayside Technology Group, Inc., while the request names Climb Global Solutions, Inc.
- Review the source filing’s segment results and the accounting presentation of agency revenue; reported net sales can move differently from adjusted gross billings because of transaction mix.
- Reconcile the differing effective-margin figures in the MD&A narrative and non-GAAP table.
- Assess major-customer and vendor concentration, foreign-exchange exposure, and the availability and terms of credit facilities, including the revolving facility’s June 2023 maturity.
- Evaluate operating cash conversion: first-half operating cash flow was $1.3 million despite $5.5 million of net income, with working-capital movements materially affecting cash flow.