Filing summary
Entity and period: The supplied Form 10-Q is for Wayside Technology Group, Inc. (NASDAQ: WSTG), for the quarter ended September 30, 2019. It does not identify the registrant as Climb Global Solutions, Inc.
The company distributes third-party technology software and hardware through its Lifeboat Distribution segment and resells software, hardware, and services through TechXtend.
Financial performance
Amounts below are in millions, except per-share data and percentages. Comparisons are with the corresponding 2018 period.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $52.4 | $47.9 | $147.9 | $132.4 |
| Gross profit | $7.1 | $6.3 | $22.1 | $19.7 |
| Gross margin on net sales | 13.5% | 13.2% | 14.9% | 14.9% |
| Operating income | $2.0 | $1.4 | $5.9 | $2.0 |
| Net income | $1.4 | $1.3 | $4.8 | $1.8 |
| Diluted EPS | $0.32 | $0.29 | $1.06 | $0.40 |
| Operating cash flow | Not provided separately | Not provided separately | $(2.4) | $4.6 |
Q3 net sales rose 9% and gross profit rose 12%; nine-month net sales and gross profit each rose 12%. Nine-month net income increased substantially, in part because separation expense fell to $0.1 million from $2.4 million. Excluding separation expense, the company reported nine-month net income of $4.8 million versus $3.8 million, a non-GAAP comparison.
Adjusted gross billings, a company-defined non-GAAP volume measure, increased 11% in Q3 to $149.1 million and 15% year to date to $433.5 million. It grew faster than GAAP net sales mainly because a higher share comprised services and certain security products reported net of related costs.
Liquidity, cash flow, and debt
- Cash was $10.2 million at September 30, 2019, down from $14.9 million at December 31, 2018. Current assets were $101.4 million and current liabilities $60.8 million.
- Nine-month operating cash flow was negative $2.4 million, primarily reflecting working-capital movements, including increased receivables and reduced accounts payable. Investing cash outflow was $0.1 million; financing cash outflow was $2.4 million, principally dividends.
- The company had no borrowings under its $20 million revolving credit facility. The facility matures August 31, 2020; the company reported compliance with its covenants. Management said cash and available facility capacity should cover working-capital and cash needs for at least the next 12 months.
- Operating lease liabilities totaled $2.6 million at quarter-end. Adoption of lease accounting in January 2019 resulted in recognition of lease assets and liabilities, with no impact to equity.
Changes, outlook, and risks
- Lifeboat Distribution drove growth: Q3 sales increased 11% to $48.8 million, and nine-month sales increased 14% to $136.2 million. TechXtend sales declined 6% in Q3 and 11% year to date.
- Q3 gross margin improved to 13.5%, partly from a greater mix of products reported on a net basis; nine-month margin remained 14.9%. SG&A increased 4% in Q3 and 5% year to date, while SG&A as a percentage of sales declined. Management said it planned to continue investing in business development, sales, and marketing; it gave no quantified earnings or revenue guidance.
- Management described quarterly results as variable and sensitive to IT spending, product mix, pricing, competition, vendor support and incentives, and timing of customer decisions. It also cited foreign-exchange exposure and the risk that sales may not meet forecasts.
- Customer and vendor concentration is material: two customers represented 36% of Q3 sales and 44% of nine-month sales; two vendors represented 40% and 40% of purchases, respectively, in those periods. A large customer with longer-than-average payment terms contributed to receivables growth.
- The company recorded $0.1 million of 2019 separation expense relating to its former CEO’s departure. The comparable 2018 period included $2.4 million of separation expense, including accelerated stock compensation. State economic-nexus tax exposure was also noted; the filing describes a previously accrued $0.5 million potential state-tax liability.
- Disclosure controls were reported effective, and no material change in internal control over financial reporting was identified during the quarter.
Investor facts to verify
- Confirm the issuer identity: this filing names Wayside Technology Group, Inc., not Climb Global Solutions, Inc.
- Assess whether Lifeboat’s growth can offset continued weakness in TechXtend and whether customer and vendor concentration is changing.
- Track receivables, collection timing, and operating cash conversion, given the year-to-date cash outflow and extended payment terms.
- Review the August 2020 facility maturity, covenant compliance, and liquidity needs alongside planned growth investment and dividend payments.
- Monitor product mix and reported margins, state-tax exposure, and foreign-currency sensitivity; the filing provides no quantified forward guidance.