Business context and period
Unaudited Form 10-Q for the quarter ended March 31, 2020, filed May 8, 2020. The registrant is identified in this filing as Wayside Technology Group, Inc. (NASDAQ: WSTG); the request identifies Climb Global Solutions, Inc. The company distributes third-party software and hardware through its Lifeboat Distribution and TechXtend segments.
Key financial results
Amounts below are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net sales | $62.6 | $44.9 |
| Gross profit | $8.2 | $7.2 |
| Gross margin | 13.0% | 16.1% |
| Operating income | $0.9 | $1.7 |
| Net income | $0.8 | $1.5 |
| Diluted EPS | $0.18 | $0.32 |
| Operating cash flow | $(2.4) | $0.0 |
| Adjusted EBITDA (non-GAAP) | $3.1 | $2.3 |
Cash and cash equivalents were $11.6 million at March 31, 2020, versus $15.0 million at December 31, 2019. Current assets were $125.8 million and current liabilities $82.7 million. The company had no revolving-credit borrowings outstanding; its credit facility provides up to $20 million and matures August 31, 2020. Lease liabilities totaled $2.5 million. Dividends paid were $0.17 per share.
Changes versus prior-year quarter
- Sales rose 40%, while gross profit increased 13%; the gross margin fell to 13.0% from 16.1%, reflecting sales mix and the gross-versus-net presentation of transactions.
- Lifeboat Distribution sales increased 43% to $57.3 million, primarily from newer vendor partnerships and higher volume with existing partners. TechXtend sales rose 11% to $5.4 million, although its gross profit edged down to $1.0 million.
- SG&A remained approximately $5.5 million and declined as a share of sales. However, $1.3 million of legal and financial advisory costs related to an unsolicited bid and shareholder matters, plus $0.4 million of acquisition costs, contributed to lower GAAP operating income and net income.
- Adjusted gross billings, a company-defined non-GAAP measure, increased 22% to $173.1 million. Adjusted EBITDA rose to $3.1 million from $2.3 million; these measures are not substitutes for GAAP results.
- Operating cash flow was negative, principally because accounts receivable grew; the company cited payment timing and an extended $3.4 million customer receivable as factors. Cash declined by $3.4 million during the quarter.
Outlook, risks and unusual items
- Management said it could not reliably predict the duration or financial effects of COVID-19. It reported no significant operational disruption during Q1 and said employees shifted to remote work, but identified potential demand, collections, supply-chain and workforce impacts.
- Management expected a change in payment terms with a large customer during Q2 to reduce accounts receivable and increase cash by about $25 million, while reducing quarterly sales and gross profit by about $0.4 million. It expected the $3.4 million extended-term receivable to be paid in full during Q2.
- Management stated cash and unused credit capacity should meet working-capital and cash requirements for at least 12 months. The facility maturity in August 2020 is a key financing date.
- After quarter-end, the company settled litigation and shareholder matters and repurchased 261,631 shares (about 5.8% of outstanding shares) for $3.5 million. It also completed the acquisition of Interwork Technologies on April 30 for C$5 million, with a potential C$1.1 million earn-out, funded from existing capital resources.
- Two customers accounted for 41% of Q1 sales; two vendors represented 36% of purchases. The filing also cites ongoing competitive pricing and dependence on vendor rebates and discounts. An estimated $0.5 million contingent advisory fee may be payable if no change of control occurs by December 31, 2020; no accrual was recorded at quarter-end.
- The board had rejected an expired acquisition proposal as undervaluing the company. The related dispute was settled after quarter-end; the filing states the lawsuit was dismissed with prejudice.
Investor verification points
- Confirm the registrant’s identity and corporate-name relationship to Climb Global Solutions, Inc., since this filing names Wayside Technology Group, Inc.
- Track collections on the $3.4 million extended-term receivable and whether the anticipated $25 million cash benefit from revised customer payment terms occurred, including the associated quarterly margin impact.
- Review renewal, refinancing or repayment plans for the $20 million credit facility before its August 31, 2020 maturity.
- Assess the full cash and earnings effects of the Interwork acquisition, share repurchase, and any earn-out or contingent advisory fee.
- Monitor COVID-19 effects, customer and vendor concentration, receivable quality, and gross-margin trends; Q1 GAAP operating cash flow was negative despite higher sales.