Business context and reporting period
This is Wayside Technology Group, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2018. The filing identifies the registrant as Wayside Technology Group, Inc., not Climb Global Solutions, Inc.; verify the issuer and filing match the requested company.
Wayside distributes third-party software and hardware through its Lifeboat Distribution segment and resells technology products and services through TechXtend.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net sales | $40.6 million | $38.1 million |
| Gross profit | $6.9 million | $6.8 million |
| Operating income | $1.85 million | $1.79 million |
| Net income | $1.60 million | $1.32 million |
| Diluted EPS | $0.36 | $0.29 |
| Operating cash flow | $2.48 million | $0.17 million |
Gross margin on reported net sales was 17.0%, down from 17.7%; net margin was 4.0%, up from 3.5%. Adjusted gross billings, a company-defined non-GAAP measure, rose 11% to $125.1 million. Cash and cash equivalents were $7.0 million at quarter-end, versus $5.5 million at year-end 2017. Current assets were $97.2 million and current liabilities $67.9 million. The company had no borrowings on its $20 million revolving credit facility. It paid $0.765 million in dividends and used $0.127 million for treasury-stock purchases.
Material changes and accounting
- Lifeboat sales increased 9% to $36.8 million; TechXtend sales fell 13% to $3.7 million, primarily because of fewer extended-payment-term sales. Lifeboat gross profit increased, while TechXtend gross profit declined 23%.
- SG&A rose 2% to $5.0 million, mainly from higher professional fees and public-company costs.
- The company adopted ASC 606 retrospectively. It now reports certain security software, maintenance, support, and services as agent on a net basis. For Q1 2017, this reduced reported sales and cost of sales by $74.7 million each, with no gross-profit or equity adjustment.
- The effective tax rate fell to 23.4% from 32.0%, primarily reflecting the U.S. tax-law rate reduction. Tax accounting remained provisional and could be adjusted.
Outlook, risks, and unusual items
No specific financial forecast was provided. Management expected cash and unused credit availability to cover working-capital and cash needs for at least 12 months, while anticipating higher working-capital needs as the business grows. The company plans continued investment in information technology and marketing.
Risks cited include competitive pricing and margin pressure, product mix, vendor and customer turnover, dependence on key customer and vendor relationships, fluctuations in IT spending and extended-payment sales, and foreign-exchange exposure. Two customers represented 44.1% of Q1 net sales; two vendors represented 46.4% of purchases. The filing reports a $0.4 million accrual for potential state income-tax liabilities related to economic-nexus statutes. Management disclosed a material weakness in disclosure controls and concluded those controls were not effective at quarter-end; remediation efforts were underway. Management said identified errors were immaterial to current and previously issued financial statements.
Facts investors should verify
- Confirm that the Wayside Technology Group filing is the intended filing for Climb Global Solutions.
- Review the material weakness, remediation progress, and whether controls have since been deemed effective.
- Check the customer-concentration figures: the filing gives slightly different receivables concentration percentages in its footnote and MD&A.
- Assess the sustainability of margin performance, customer and vendor concentration, and extended-payment receivables.
- Monitor finalization of provisional tax amounts and the potential state-tax exposure.