Business context and reporting period
Filing: Wayside Technology Group, Inc. (Nasdaq: WSTG), fiscal year ended December 31, 2021; filed March 9, 2022. The filing identifies Climb Channel Solutions as its Distribution business, not as the registrant’s legal name. The supplied metadata names Climb Global Solutions, Inc.; investors should verify the issuer identity and any subsequent name change.
The company distributes third-party IT software and related products to resellers and also sells cloud, software, hardware, and services directly to end users. Distribution represented about 92% of 2021 net sales; Solutions represented about 8%. Results include the 2020 acquisitions of Interwork and CDF, which contributed for a full year in 2021.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data and ratios.
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $282.6 | $251.6 | +12% |
| Adjusted gross billings (non-GAAP) | $935.0 | $729.2 | +28% |
| Gross profit | $45.7 | $33.0 | +38% |
| Gross profit / net sales | 16.2% | 13.1% | +3.1 percentage points |
| Gross profit / adjusted gross billings (non-GAAP) | 4.9% | 4.5% | +0.4 percentage points |
| SG&A | $32.1 | $23.9 | +34% |
| Operating income | $12.1 | $5.3 | More than doubled |
| Net income | $9.2 | $4.5 | More than doubled |
| Diluted EPS | $2.09 | $1.01 | +107% |
| Adjusted EBITDA (non-GAAP) | $15.5 | $11.4 | +36% |
| Operating cash flow | $4.7 | $38.0 | Down $33.3 |
Adjusted EBITDA as a percentage of gross profit (“effective margin”) was 33.9%, down from 34.6%. The 2021 tax provision was $3.2 million, or 25.6% of pretax income, versus $1.7 million, or 28.1%, in 2020.
Fourth-quarter 2021 net sales were $75.5 million, gross profit $12.6 million, net income $3.4 million, and diluted EPS $0.78, versus $71.4 million, $10.5 million, $2.5 million, and $0.58, respectively, in fourth-quarter 2020.
Cash and cash equivalents were $29.3 million at year-end, essentially unchanged. Current assets were $159.3 million and current liabilities $134.7 million. Accounts receivable rose to $122.5 million from $93.8 million; the company attributed the lower operating cash flow chiefly to working-capital movements, including a $28.6 million increase in receivables, partly offset by higher accounts payable. Investing cash use was $0.3 million; financing cash use was $4.4 million, including $3.0 million of dividends, $0.9 million of contingent acquisition consideration, and $0.5 million of treasury-stock purchases.
No borrowings were outstanding on the $20 million revolving facility at year-end. A separate £8 million UK facility was also undrawn. The revolving facility matures June 30, 2023 and is LIBOR-linked; lease liabilities totaled $2.3 million. Management said cash and available revolver capacity should cover working-capital and cash needs for the next 12 months. No off-balance-sheet arrangements were reported.
Material changes versus the prior comparable period
- Growth reflected organic Distribution expansion and the first full year of contribution from Interwork and CDF. Solutions sales rose 30% to $23.2 million and segment gross profit rose to $9.2 million from $3.9 million, primarily reflecting CDF.
- Distribution sales increased 11% to $259.4 million; segment gross profit increased 25% to $36.5 million. Management cited acquisitions and lower early-payment discounts and other customer rebates as a percentage of adjusted gross billings.
- SG&A increased $8.2 million, largely due to the acquisitions’ full-year impact. Acquisition-related costs and legal/advisory expenses tied to the prior unsolicited-bid matter were nil in 2021, versus $1.5 million and $1.6 million, respectively, in 2020.
- Operating cash flow fell sharply from $38.0 million to $4.7 million as working-capital changes reversed, particularly receivables. Cash remained near $29.3 million.
- International sales rose to approximately 22% of total sales from 12%; Europe and the UK contributed $36.7 million in 2021 versus $16.8 million in 2020.
Outlook, risks, and unusual items
The filing provides no specific numerical sales, earnings, or margin guidance. Management plans to continue investing in IT systems and growth initiatives, pursue acquisition opportunities, and extend cloud-support capabilities across markets. It noted ongoing price competition and said SG&A as a percentage of adjusted gross billings may vary with sales volume and investment levels.
- COVID-19-related uncertainty and component supply constraints continued, but the company reported no significant operational disruption in 2021. It said future effects remained uncertain.
- Customer and vendor concentration is material: the two largest customers accounted for 35% of sales, and the top five for 51%. The two largest vendors represented 30% of purchases; the top five represented about 46%. Vendor arrangements are generally terminable on short notice.
- Other disclosed risks include intense price competition, vendors selling directly or shifting to digital distribution, customer credit and collection exposure, foreign-exchange and international-market risks, cybersecurity and systems disruption, and acquisition integration and goodwill impairment. The auditor identified goodwill impairment valuation as a critical audit matter; goodwill was $17.2 million.
- The company cited Russia’s February 2022 invasion of Ukraine as a source of geopolitical and economic uncertainty. This event occurred after the 2021 reporting year.
- The company reported no material legal proceedings and no material cybersecurity breach in 2021. Management and the auditor concluded internal control over financial reporting was effective; the auditor issued unqualified opinions on the financial statements and internal controls.
- Annual dividends were $0.68 per share in both 2021 and 2020. Future dividends remain at the board’s discretion. A 2021 foreign-jurisdiction tax-rate change affected the tax provision; foreign-currency results shifted from a $0.8 million gain in 2020 to a $0.05 million loss in 2021.
Important facts for investors to verify
- Confirm the issuer/legal-name relationship between the filing’s Wayside Technology Group, Inc. and the requested Climb Global Solutions, Inc.; Climb Channel Solutions is described as a business name in this filing.
- Assess whether 2021 growth is sustainable organically or substantially reflects acquisitions and the comparison against partial-year 2020 contributions.
- Review receivables, customer payment terms, concentration, and cash conversion: operating cash flow fell despite higher net income, and year-end receivables increased materially.
- Track gross profit and effective margin alongside adjusted gross billings; adjusted gross billings is a non-GAAP measure and is substantially larger than GAAP net sales.
- Evaluate dependence on major customers and vendors, the short termination notice on relationships, and the potential effects of pricing pressure or direct-to-customer distribution.
- Review goodwill valuation assumptions, acquisition integration, the LIBOR transition and revolving-facility maturity, and the board’s discretion over future dividends.