Climb Global Solutions, Inc.
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Good morning everyone. And thank you for participating in today's conference call to discuss Wayside Technology Group's Financial Results for the First Quarter ended March 31, 2021. Joining us today, our Wayside CEO, Mr. Dale Foster, the company's CFO, Mr. Michael Vesey, and the company's outside investor relations advisor, Cody Cree with Gateway Investors Relations. By now, everyone should have access to the first quarter 2021 earnings release, which went out yesterday afternoon at approximately 4

[Cody Cree:]

Thank you, James. Before I introduce Dale, I'd like to remind listeners that certain comments made in this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject generally to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which speak only as of the date of this call. Except as required by law. The company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements. Our presentation also includes certain non-GAAP financial measures, including adjusted gross billings, adjusted EBITDA, net income excluding non-recurring costs and non-GAAP earnings per share as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts and other important information in the earnings release in Form 8-K we furnished to the SEC yesterday. I would now like to turn the call over to Wayside CEO, Dale Foster.

[Dale Foster:]

Thank you, Cody. And good morning everyone. We continue to drive our growth strategy during the first quarter, giving our business a solid foundation for 2021. Despite a tough comparable prior year period, our gross profit reached $10.8 million, which is a company record. And we continue your over year growth across net sales and adjusted gross billings. While we continue to make strategic investments ahead of our growth objectives, the benefits of these investments have yet to fully flow through our profitability. However, we expect to build onto this bottom-line growth over time, as we continue to work and expand our vendor network, and drive integration and synergies with our recent acquisitions. The three core growth drivers we laid out last quarter underscore our progress during Q1, and they will guide our work for the rest of this year. As a brief reminder, these initiatives are as follows

[Michael Vesey:]

Thanks Dale. And good morning everyone. Net sales in the first quarter of 2021 increased slightly to $62.8 million compared to $62.6 million, in the year-ago quarter. This modest growth reflects the positive impact of CDF and Interwork and was partially offset by a changing product mix within our existing vendor network, relative to prior quarters as Dale had mentioned earlier. It's also important to note, the first quarter of 2020 had a substantial uptake in growth through significant client win. Adjusted gross billings, a non-GAAP measure, increased 22% to $210.9 million in the first quarter of 2021, compared to $173.1 million in the year-ago quarter. Gross profit in the first quarter of 2021 increased 33%, to a record $10.8 million compared to $8.2 million in the year-ago quarter. The increase was driven by the positive impact of CDF and Interwork during the quarter, with offsets from a variety of operational and strategic factors, including customers' early-pay discounts, reduced vendor rebates, and increased customer rebates, all of which were not incurred at the same elevated levels in the year ago quarter. We're working with both vendors and customers to mitigate these factors in the future as we continue investing in our business and capture. SG&A expenses in the first quarter of 2021, we're $8.8 million compared to $7.2 million, in the year-ago quarter. As percentage of net sales, SG&A was 14%, compared to 11.5% in the year ago quarter. The increase was primarily driven by incremental costs related to the operations of CDF and Interwork, as well as one-time severance expenses incurred during the quarter. On the whole, these elevated costs reflect investments we've made to support our base business, that are recognized ahead of the profit benefit we expect to realize over time, and move forward with integrating CDF in support of this growth. We continue to expect our SG&A margin to gradually improve as we leverage the resources of our combined organizations. Net income in the first quarter of 2021 increased 82% to $1.5 million, or $0.35 per diluted share, compared $0.8 million or $0.18 per diluted share in the year-ago quarter. Adjusted net income, which excludes non-recurring costs related to the unsolicited bid, and the Interwork and CDF acquisitions, net of taxes, was $1.5 million or $0.35 per share, compared to $2.2 million, or $0.50 per share in the year-ago quarter. In the first quarter of 2021, adjusted EBITDA was $2.6 million, compared to $3.1 million in the year-ago quarter. The decrease resulted from the impact of the severance expenses, early-pay discount programs, increased customer rebates, and decrease vendor rebates. As discussed on our expense line, we're working to mitigate these factors, creating greater, better aligned flow through from our growth investments. Effective margin, defined as adjusted EBITDA as a percentage of gross profit was 24.4%, compared to 38.2% in the year-ago quarter. The decrease reflected in adjusted EBITDA, and the associated mitigating factors on our profitability. We've set to improve our effective margin over time as we execute our growth objectives. Cash and cash equivalents increased $33.7 million as of March 31, 2021, compared to $29.3 million as of December 31, 2020. The increase was primarily the result of the timing of our vendor payments. We remain debt-free with no borrowings outstanding under our $20 million credit facility. Looking to the rest of the year, our strong liquidity position provides us with flexibility to execute on both our organic, and acquisitive growth strategies. On May 4, our Board of directors declared a quarterly dividend of $0.17 per share of common stock, payable on May 21 to shareholders of record on May 17, 2021. We continue to operate from a solid financial operational foundation, and make progress with our core growth drivers. We expect to expand profitability in the quarters ahead. This concludes our prepared remarks. Now we'll open it up for questions.

[Operator:]

[Operator Instructions]. And our first question comes from Ed Woo from Ascendiant Capital.

[Operator:]

[Operator Instructions]. Our next question comes from Howard Root [ph].

[Operator:]

Next question comes from Walter Ramsley from Walrus Partners.

[Operator:]

Our next question comes from Peter Luxe [ph].

[Operator:]

And that concludes the question-and-answer session. I'll now turn the call back over to Dale Foster for final remarks.

[Dale Foster:]

Thank you, Adrian. Appreciate it. And I want to just address right off the bat. Apologize for everybody. I know that time's valuable that we messed up kicking off the call. We did a recording this time, and the wrong recording was loaded. So my apologies to that. Thanks everybody on the call today that listened in. Our vendors, our customers, and also to the Wayside employee family, that I hope to see you in person soon. I look forward to driving continued growth in the company. Just like we said before, still looking for acquisition targets that make sense for us and expanding our customer reach. We don't talk about numbers with our customer reach, and this is the value of the resellers. But I can tell you that we continue to expand this. We took advantage where a lot of companies kind of, I would say turtled up over the last 12 months and we just expanded. We did think that a lot of companies didn't do and we'll continue to do that and be disruptive in the marketplace. So thank you to everybody. And I appreciate your support.

[Operator:]

Thank you, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.