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, 2011. The filing identifies the registrant as Wayside Technology Group, not Climb Global Solutions; the supplied company metadata differs from the filing. Wayside operated TechXtend, which sold technology products and services directly to end users, and Lifeboat, which distributed technical software through resellers and other channel partners.
Financial performance
Amounts are in millions of dollars except per-share data. Comparisons are with the corresponding 2010 periods.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net sales | $63.741 | $52.994 | $175.951 | $141.794 |
| Gross profit | $5.757 | $5.134 | $16.183 | $13.787 |
| Operating income | $2.292 | $1.953 | $5.548 | $4.416 |
| Net income | $1.494 | $1.257 | $3.565 | $2.935 |
| Diluted EPS | $0.33 | $0.28 | $0.77 | $0.66 |
| Gross margin | 9.0% | 9.7% | 9.2% | 9.7% |
- Q3 sales increased about 20%; nine-month sales increased about 24%. Lifeboat drove the growth: its sales rose 28% in Q3 and 33% for the nine months. TechXtend sales were essentially flat in Q3 and slightly lower for the nine months.
- Gross profit dollars grew, but gross margin contracted. Management attributed the decline to Lifeboat’s sales mix and growth, competitive pricing, and aggressive bids for large contracts. SG&A increased in dollars but declined as a share of sales: 5.4% versus 6.0% in Q3 and 6.0% versus 6.6% for the nine months.
- Operating cash flow was $1.544 million, versus $0.806 million in the prior-year period. The filing attributes the 2011 result principally to lower accounts receivable, partly offset by a $5.779 million reduction in accounts payable and accrued expenses.
- Cash and cash equivalents were $8.857 million at September 30, 2011, down from $10.955 million at December 31, 2010. Marketable securities were $4.396 million; cash plus marketable securities totaled approximately $13.253 million.
- Current assets were $55.110 million and current liabilities $36.023 million. Total liabilities were $36.099 million. The company reported no long-term debt; capital lease obligations totaled $0.159 million, including $0.083 million current. It said it had no credit facility and did not plan to obtain a line of credit in the foreseeable future.
- Nine-month financing outflows included $2.247 million in dividends and $1.437 million in share repurchases. Dividends paid were $0.48 per share for the nine months, compared with $0.45 in 2010.
Changes, outlook and risks
Management linked Lifeboat’s growth to its focus on virtual-infrastructure-related business, additional product lines, and deeper customer-account penetration. It said cash resources were expected to be sufficient for working capital and cash needs for at least 12 months, while noting that cash would support operations, working capital, repurchases, and dividends if declared. The filing provides no specific revenue or earnings forecast.
Risks highlighted include dependence on major vendors and vendor rebates, customer payment capacity and concentration, competitive pricing and gross-margin pressure, product and industry demand, and Canadian-dollar fluctuations. One vendor represented 11.9% of purchases for the nine months; three customers represented 14.5%, 11.2%, and 10.7% of nine-month sales. Results may fluctuate with sales mix, product availability, market conditions, and operating costs. The company reported no off-balance-sheet arrangements and no material change in internal control over financial reporting; management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the registrant’s identity: this supplied filing is for Wayside Technology Group, Inc., despite the Climb Global Solutions metadata.
- Assess whether Lifeboat’s rapid sales growth can continue without further gross-margin erosion, particularly given competitive pricing and large, aggressively priced bids.
- Monitor customer and vendor concentration, vendor rebate targets, receivable quality, and the effect of payment timing on operating cash flow.
- Review the company’s capacity to sustain dividends and repurchases while funding working capital without a credit facility.
- Consider foreign-exchange exposure, tax estimates, and other estimation risks identified in the filing; the interim results are not necessarily indicative of full-year results.