Climb Global Solutions, Inc. — Q2 2021 Form 10-Q summary
Reporting period: Quarter and six months ended June 30, 2021; unaudited. The filing names the registrant as Wayside Technology Group, Inc. (NASDAQ: WSTG), not Climb Global Solutions, Inc. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context and results
The company distributes third-party technology products and provides software, cloud and technical solutions through its Distribution and Solutions segments. Results include CDF, acquired in November 2020, and Interwork, acquired in April 2020.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $75.4 | $56.6 | $138.2 | $119.2 |
| Gross profit | $11.0 | $7.1 | $21.8 | $15.3 |
| Gross margin | 14.6% | 12.6% | 15.8% | 12.8% |
| Operating income | $2.4 | $0.8 | $4.5 | $1.7 |
| Net income | $2.1 | $0.6 | $3.7 | $1.4 |
| Diluted EPS | $0.49 | $0.13 | $0.84 | $0.31 |
| Adjusted EBITDA (non-GAAP) | $3.5 | $2.1 | $6.2 | $5.2 |
Q2 net sales rose 33%, gross profit 54%, and net income to $2.1 million. First-half net sales rose 16% and gross profit 43%. Management attributed much of the growth to the CDF and Interwork acquisitions, particularly in Solutions. Adjusted gross billings, a non-GAAP measure that adds agent-related cost of sales to net sales, increased 48% in Q2 and 34% in the first half. Management said this measure grew faster than net sales partly because of a mix shift toward security, maintenance and cloud offerings recorded net as agent.
Distribution generated Q2 sales of $69.9 million and gross profit of $8.8 million; Solutions generated $5.5 million and $2.2 million, respectively. Q2 effective margin (adjusted EBITDA as a percentage of gross profit) was 32.0%, versus 29.3%; first-half effective margin fell to 28.2% from 34.1%.
Cash, liquidity and debt
- Cash was $23.8 million at June 30, 2021, down from $29.3 million at year-end 2020. Current assets were $137.1 million and current liabilities $117.9 million.
- First-half operating cash flow was negative $0.9 million, versus positive $36.4 million a year earlier. The filing cites changes in operating assets and liabilities, including a $7.4 million increase in accounts receivable, among the drivers.
- Investing cash outflow was $3.2 million, including $3.0 million in vendor advances. Financing cash outflow was $1.7 million, including $1.5 million in dividends and $0.2 million in treasury-stock purchases.
- No borrowings were outstanding on either the $20 million revolving credit facility or the U.K. uncommitted facility at June 30. The revolving facility matures June 30, 2023; the U.K. facility is £8 million, uncommitted, and matures April 13, 2022. Lease liabilities totaled $2.4 million.
- Management said cash and unused U.K. facility capacity should be sufficient for working capital and cash requirements for the next 12 months, while noting working-capital needs are expected to rise with business growth.
Changes, outlook and risks
- Q2 SG&A increased 49% to $8.1 million; first-half SG&A rose 52% to $16.6 million. The increases reflected acquisitions and employee separation expenses of $0.2 million in Q2 and $0.5 million for the first half. Management also plans further investment in business development, sales and marketing.
- Customer rebates and discounts increased to $2.5 million in Q2 and $4.5 million in the first half. Management cited a large-customer payment-terms program and increased discounts to national resellers. It expects ongoing price competition.
- No legal/advisory costs related to the prior unsolicited bid or acquisition costs were recorded in 2021 periods; comparable 2020 costs were $0.5 million and $0.2 million in Q2, and $1.8 million and $0.6 million for the first half.
- The CDF purchase-price allocation remained provisional, including valuations for goodwill, intangibles and certain tax accounts. The company recorded a roughly $0.9 million Interwork earn-out liability, payable in Q3 2021.
- Customer concentration remains material: two customers accounted for 34% of Q2 and first-half net sales combined (17% each). Two vendors represented 30% of Q2 purchases. COVID-19 effects remained uncertain, although management reported no significant operational disruption during the periods.
- Other risks discussed include competition and pricing pressure, reliance on vendor relationships and rebates, customer credit and collection risk, foreign-exchange exposure, and quarterly variability. No specific earnings or revenue guidance was provided.
Investor verification priorities
- Confirm the registrant and corporate-name relationship: this 10-Q is filed under Wayside Technology Group, Inc. and ticker WSTG, although the request identifies Climb Global Solutions, Inc.
- Assess how much of reported growth and segment performance reflects acquisitions versus underlying organic performance; the filing does not provide a complete organic-growth comparison.
- Review the drivers of negative first-half operating cash flow, rising receivables and vendor advances, and whether those working-capital uses reverse.
- Monitor customer and vendor concentration, rebate/discount trends, and the effect of agent-versus-principal accounting on reported net sales and adjusted gross billings.
- Check final CDF purchase accounting, the Interwork earn-out payment, credit-facility availability and covenants, and the progress of CDF control integration. Management excluded CDF controls from its quarter-end disclosure-control assessment.