Business context and reporting period
Wayside Technology Group, Inc. (the registrant named in this filing; now identified in the request as Climb Global Solutions, Inc.) filed this Form 10-Q for the quarter ended March 31, 2015. It distributes technical software through Lifeboat Distribution and resells software, hardware, and services through TechXtend. Financial statement amounts below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Net sales | $92.7 | $71.7; up 29% |
| Gross profit / margin | $6.4 / 6.9% | $5.5 / 7.7% |
| SG&A / share of sales | $4.5 / 4.9% | $4.0 / 5.6% |
| Operating income | $1.9 | $1.5 |
| Net income / diluted EPS | $1.3 / $0.28 | $1.1 / $0.23 |
| Operating cash flow | $1.5 provided | $7.8 used |
At March 31, 2015, cash was $21.4 million, current assets were $82.8 million, current liabilities were $51.2 million, and stockholders’ equity was $37.6 million. The company had no borrowings outstanding under its $10 million revolving facility; the facility matures January 4, 2016. Management said cash and unused facility availability should cover working capital and cash needs for at least 12 months. There was no long-term debt reported. Operating leases totaled $0.4 million, including $0.3 million due within one year.
Operating cash flow benefited from a $5.0 million decrease in receivables, partly offset by a $4.0 million decrease in accounts payable and accrued expenses, a $0.7 million inventory increase, and a $0.4 million increase in prepaid and other current assets. Cash declined $1.8 million during the quarter, after $3.0 million of financing outflows, including $2.5 million of share repurchases and $0.8 million of dividends. Dividends were $0.17 per share, unchanged year over year.
Material changes and segment performance
- Lifeboat sales increased 40% to $82.9 million, attributed primarily to added product lines and deeper account penetration. Segment gross profit rose 27% to $5.2 million; gross margin fell to 6.3% from 6.9%, mainly because of a shift toward lower-margin products.
- TechXtend sales declined 22% to $9.7 million, primarily due to fewer extended-payment and large transactions. Gross profit decreased 21% to $1.1 million; segment gross margin was essentially flat at 11.5% versus 11.4%.
- Consolidated gross profit increased 15%, but gross margin fell 0.8 percentage point. SG&A rose 10.4%, mainly on higher employee-related expenses, while declining as a proportion of sales.
- Foreign currency translation produced a $0.6 million comprehensive loss for the quarter, compared with $0.3 million in Q1 2014. Canadian sales were $5.6 million in both periods.
Outlook, risks, and notable items
No specific numerical earnings or revenue guidance was provided. Management expected competitive pricing to continue affecting margins, discounts, and rebates through the remainder of the year, and said extended-payment transactions could also pressure gross margins. SG&A as a percentage of sales may vary with sales volume and continued investments in headcount and marketing; the company planned continued investment in Lifeboat.
Risks highlighted include product mix and pricing pressure; dependence on vendor relationships, product availability, and rebate programs; sales fluctuations and execution of extended-payment transactions; customer credit and collection risk; Canadian currency and market exposure; and stock-price volatility. Two vendors represented 25.6% and 10.0% of Q1 purchases. Two customers represented 18.5% and 17.8% of sales; they also represented 21.9% and 11.2% of net receivables at quarter-end. Federal tax returns for 2013 and 2014 and New Jersey and Canadian returns for 2011–2014 remained open to examination; the IRS examination of 2011–2012 concluded with no changes. The company reported covenant compliance, effective disclosure controls, and no material change in internal control over financial reporting. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether Lifeboat’s product-line additions and sales growth can continue, and whether lower-margin product mix will keep pressuring consolidated gross margin.
- Customer and vendor concentration, including customers’ ability to pay and the company’s exposure to changes in vendor rebates and credit support.
- Cash conversion and working-capital trends, particularly receivables, payables, inventory, and extended-payment sales.
- The timing and scale of repurchases and dividends relative to cash needs, and the status and renewal of the revolving facility maturing in January 2016.
- Exposure to currency movements and any developments in open tax examinations or other contingencies.