Business context and reporting period
Wayside Technology Group, Inc. (the registrant named in this filing; the request metadata names Climb Global Solutions, Inc.) reported unaudited results for the three months ended March 31, 2014, compared with the first quarter of 2013. Its Lifeboat Distribution segment distributes technical software; TechXtend resells software, hardware and services.
Financial performance
Amounts below are in millions except per-share data; the filing presents most financial statements in thousands.
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Net sales | $71.730 | $65.980 | +8.7% |
| Gross profit / margin | $5.538 / 7.7% | $5.313 / 8.1% | +4.2%; margin down 0.4 pp |
| Operating income / margin | $1.493 / 2.1% | $1.396 / 2.1% | +7.0% |
| Net income | $1.059 | $1.020 | +3.8% |
| Diluted EPS | $0.23 | $0.22 | +4.5% |
| Operating cash flow | $(7.835) | $0.780 | Decreased $8.615 |
SG&A was $4.045 million, up 3.3%, but declined to 5.6% of sales from 6.0%. The effective tax rate was 34.0%, compared with 33.4%. Dividends paid were $0.17 per share, versus $0.16.
Segments
Lifeboat sales rose 10% to $59.259 million and segment income increased to $2.885 million from $2.667 million. TechXtend sales rose 3% to $12.471 million, while gross profit fell 8% to $1.422 million and segment income declined to $0.628 million from $0.652 million.
Financial position, liquidity and debt
At March 31, 2014, cash and cash equivalents were $11.718 million, down from $19.609 million at year-end 2013. Current assets were $71.503 million and current liabilities $45.808 million (approximately 1.56x current ratio). Total assets were $81.768 million and stockholders’ equity $35.960 million. The company had no borrowings under its $10 million revolving credit facility, which matures January 4, 2016, and reported compliance with its covenants. The facility is secured by company assets.
Cash from operations was negative $7.835 million, principally reflecting a $14.155 million reduction in accounts payable and accrued expenses, partly offset by lower receivables and prepaid expenses and net income. Investing cash outflow was $0.069 million, mainly capital spending. Financing provided $0.135 million: option-exercise proceeds and a share-based compensation tax benefit were offset mainly by dividends and treasury-stock purchases. Operating lease commitments totaled $0.511 million, including $0.272 million due within one year. Management said cash and unused facility capacity should cover working-capital and cash needs for at least 12 months.
Material changes, outlook and risks
Management attributed Lifeboat’s sales growth to stronger account penetration, virtual-infrastructure business and added product lines. TechXtend growth was primarily associated with more extended-payment-term transactions. Gross margin declined amid competitive pricing at Lifeboat and product mix and lower rebates at TechXtend; management expected competitive pressure, discounts and rebates to continue affecting margins, with extended payment-term sales also potentially weighing on margins. It provided no numerical earnings or revenue guidance.
The company identified quarterly fluctuations in demand, product mix, pricing, vendor relationships and rebates, product availability, returns, and operating costs as risks. Canada generated 7.7% of sales; foreign-exchange movements affected comprehensive income, including a $0.282 million translation loss in Q1 2014. Three customers represented 41.8% of quarterly sales in aggregate, and one vendor represented 10.3% of purchases. Federal and Canadian tax returns for 2010–2013 and New Jersey returns for 2009–2013 remained open to examination. The filing reported no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for Wayside Technology Group, Inc., although the request metadata identifies Climb Global Solutions, Inc.
- Assess whether the sharp operating cash outflow was principally a quarter-end working-capital timing effect, especially the decline in payables.
- Track gross-margin pressure, vendor rebates and extended-payment-term sales, including their effect on receivables and cash conversion.
- Monitor major-customer and vendor concentration, foreign-currency exposure, and compliance with credit-facility covenants.
- Review the open tax examination periods and the effect of dividends, repurchases and share-based compensation on capital and per-share results.