Business context and reporting period
This filing is Wayside Technology Group, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2014; despite the request metadata, the filing does not identify Climb Global Solutions, Inc. as the registrant. Wayside operated Lifeboat Distribution, a technical-software distributor, and TechXtend, a value-added reseller of software, hardware and services.
Financial results
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | Three months ended June 30, 2014 | Three months ended June 30, 2013 | Six months ended June 30, 2014 | Six months ended June 30, 2013 |
|---|---|---|---|---|
| Net sales | $84.4 | $74.1 | $156.1 | $140.1 |
| Gross profit / margin | $6.1 / 7.3% | $6.0 / 8.1% | $11.7 / 7.5% | $11.3 / 8.0% |
| Operating income | $2.2 | $2.2 | $3.7 | $3.5 |
| Net income | $1.5 | $1.5 | $2.5 | $2.6 |
| Diluted EPS | $0.31 | $0.34 | $0.54 | $0.56 |
- Second-quarter sales rose 14%, while gross profit rose 3%; net income declined about 4%. For the first half, sales rose 11%, gross profit rose 4%, and net income declined about 1%.
- SG&A was $4.0 million for the quarter and $8.0 million for the half-year, respectively 4.7% and 5.1% of sales. The effective tax rate was 36.1% for the quarter and 35.3% for the half-year, versus 33.4% in the comparable 2013 periods.
- Operating cash flow was negative $5.2 million for the first half, versus positive $0.7 million a year earlier. Investing cash use was $0.1 million; financing provided $0.5 million. Cash fell $4.9 million to $14.7 million.
- At June 30, current assets were $74.7 million and current liabilities $47.5 million, implying working capital of about $27.2 million. Total assets were $85.8 million and stockholders’ equity $38.4 million.
- No borrowings were outstanding on the $10 million revolving credit facility; the company reported covenant compliance. The facility matures January 4, 2016. The filing reports no long-term debt obligations and $0.4 million of operating lease commitments.
- Dividends paid were $1.6 million in the first half ($0.34 per share). The company received $1.8 million from option exercises and paid $0.3 million for treasury stock repurchases.
Material changes and management commentary
- Quarterly sales grew in both segments: Lifeboat rose 14% to $70.0 million and TechXtend rose 12% to $14.4 million. For the half-year, Lifeboat rose 12% to $129.2 million and TechXtend rose 8% to $26.9 million.
- Management attributed Lifeboat growth to stronger account penetration, expansion in virtual-infrastructure business and new product lines. TechXtend growth was primarily associated with more extended-payment-term sales.
- Gross margin declined year over year: management cited competitive pricing pressure at Lifeboat and lower-margin extended-payment-term transactions at TechXtend. Vendor rebates were $0.8 million for the first half, compared with $0.7 million.
- Management said price competition and rebate eligibility targets were affecting margins, and expected these pressures and the effect of extended-payment transactions to continue for the remainder of 2014. The filing provides no specific revenue or earnings guidance.
- Operating cash use primarily reflected a $12.5 million decrease in accounts payable and accrued expenses, partly offset by collections and lower prepaid assets. Management said cash and unused credit availability should cover working-capital and cash needs for at least the next 12 months.
Risks, contingencies and other items
- Results may fluctuate with software-industry conditions, product mix and availability, pricing, customer demand, returns, shipment timing, and sales on extended payment terms. Management warned that sales below expectations could materially affect results.
- Customer concentration was notable: three customers represented 16.7%, 15.1% and 11.1% of first-half sales; those customers together also accounted for 36.0% of net accounts receivable at June 30. One vendor represented 11.5% of first-half purchases.
- Canadian operations contributed 7.4% of first-half sales and expose the company to currency and market risks. First-half Canadian sales were $11.5 million, versus $10.6 million.
- Federal and Canadian tax returns for 2010–2013 and New Jersey returns for 2009–2013 remained open to examination. The company stated its tax accruals were adequate. No material litigation or quantified contingency is clearly described in the provided filing text.
- The company was evaluating a new revenue-recognition standard issued in May 2014, effective for its reporting year beginning January 1, 2017; impact was not yet determined. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm issuer identity: this filing is for Wayside Technology Group, Inc., not Climb Global Solutions, Inc.
- Assess whether revenue growth can offset sustained competitive pricing and lower gross margins, particularly in Lifeboat Distribution and extended-payment-term sales.
- Review working-capital and cash-flow trends, including the large accounts-payable reduction, customer collections, and use of the undrawn credit facility.
- Monitor major-customer and vendor concentration, extended-term receivables, currency exposure, tax examinations, and credit-facility covenant compliance.
- Consider the filing’s absence of numerical full-year guidance and its warning that quarterly results may fluctuate.