Business context and reporting period
This is Wayside Technology Group, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021—not a filing identified as Climb Global Solutions, Inc. Wayside distributes third-party technology products and provides cloud and IT solutions through its Distribution and Solutions segments. Unless noted otherwise, dollar amounts below are in millions.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $68.9 | $60.9 | $207.1 | $180.1 |
| Gross profit | $11.3 | $7.2 | $33.1 | $22.5 |
| Income from operations | $3.2 | $0.8 | $7.7 | $2.5 |
| Net income | $2.4 | $0.5 | $5.8 | $1.9 |
| Diluted EPS | $0.55 | $0.13 | $1.31 | $0.44 |
| Gross margin | 16.4% | 11.9% | 16.0% | 12.5% |
| Adjusted gross billings (non-GAAP) | $226.9 | $171.0 | $672.9 | $502.9 |
| Adjusted EBITDA (non-GAAP) | $4.2 | $1.9 | $10.4 | $7.1 |
Q3 sales rose 13%, gross profit 56%, and net income to $2.4 million from $0.5 million. Nine-month sales rose 15%, gross profit 47%, and net income to $5.8 million from $1.9 million. Adjusted gross billings grew faster than GAAP sales primarily because product mix shifted toward security, maintenance, and cloud products recorded net when the company acts as agent. Effective margin, defined by Wayside as adjusted EBITDA divided by gross profit, was 37.4% in Q3 versus 25.6%; for nine months it was 31.3% versus 31.4%.
Distribution generated $64.1 million of Q3 sales and $188.8 million for nine months; Solutions generated $4.8 million and $18.3 million, respectively. Management attributed growth in both segments substantially to the CDF acquisition, with organic growth also contributing in Distribution. Solutions sales rose 25% in Q3 and 58% year to date.
Cash, liquidity, and debt
- Cash and equivalents were $29.9 million at September 30, 2021, versus $29.3 million at December 31, 2020. Current assets were $140.2 million and current liabilities $118.7 million.
- Nine-month operating cash flow was $7.5 million, compared with $32.5 million in 2020. The prior-year figure benefited substantially from a $36.6 million accounts-receivable cash inflow; receivables used $4.5 million in 2021.
- Investing activities used $3.2 million, including $3.0 million of vendor advances. Financing activities used $3.5 million, including $2.2 million of dividends, $0.9 million of contingent acquisition consideration, and $0.4 million of treasury-stock purchases.
- No borrowings were outstanding under either the $20 million revolving facility or the UK subsidiary’s £8 million uncommitted facility. Lease liabilities totaled $2.3 million. The revolving facility matures June 30, 2023; the UK facility matures April 13, 2022 and may be cancelled at the lender’s discretion.
Changes, outlook, and risks
- Acquisitions contributed to year-over-year growth and increased expenses, amortization, goodwill, and intangibles. CDF was acquired in November 2020; Interwork was acquired in April 2020. Nine-month SG&A rose 44% to $24.3 million, reflecting acquisitions and $0.5 million of employee separation costs. Nine-month depreciation and amortization increased to $1.2 million.
- Customer rebates and discounts were $6.4 million for nine months versus $4.0 million; vendor rebates and discounts were $2.9 million versus $2.5 million. Management noted ongoing price competition and said rebates depend on program terms and volume targets.
- Management said cash, cash equivalents, and unused UK facility capacity should fund working-capital and cash needs for the next 12 months. It expects working-capital needs to increase with business growth and plans continued investment in business development, sales, and marketing. The filing gives no specific revenue or earnings guidance.
- Customer and supplier concentration is material: two customers represented 36% of Q3 sales and 34% of nine-month sales; two vendors each accounted for 29% of purchases in both periods. Customer concentration and vendor incentives, pricing pressure, product mix, and foreign-exchange movements are cited risks.
- Wayside reported no significant COVID-related operating disruption during the quarter or nine-month period but said future effects on business, liquidity, and results cannot be predicted. Results may fluctuate with IT spending, demand, product availability, returns, and sales timing.
- The filing describes an immaterial revision of a prior-period UK tax estimate: a $353,000 tax provision increase reduced Q2 and first-half 2021 net income by that amount and EPS by $0.08. Management said the nine-month statements presented incorporate the correction.
- Disclosure controls were assessed as effective, but management excluded CDF controls from its evaluation while integrating the acquired business. The company reported compliance with credit-facility covenants and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Wayside Technology Group, Inc. (NASDAQ: WSTG), not Climb Global Solutions, Inc.
- Assess how much of sales and earnings growth reflects acquired businesses versus organic growth, and whether acquisition-related costs and amortization continue.
- Review cash conversion and working-capital movements, especially receivables, vendor advances, and the difference between GAAP sales and non-GAAP adjusted gross billings.
- Monitor customer/vendor concentration, rebate programs, competitive pricing, and exposure to foreign currencies.
- Review the Q2 UK tax revision, the continuing CDF control-integration work, and the terms and availability of the uncommitted UK credit facility.