Climb Global Solutions, Inc.
Q1 2017 Earnings Call Transcript

Published: 28 Apr 2017

[Executives:]

Melanie Caponigro – Director of Accounting Simon Nynens – Chairman and Chief Executive Officer Bill Botti – Executive Vice President Michael Vesey – Vice President and Chief Financial Officer

[Analysts:]

Jeff Geygan – Global Value Investments

[Operator:]

Thank you and good morning. Welcome to Wayside Technology’s First Quarter 2017 Earnings call. Before turning the call over to Melanie Caponigro, the company’s Chairman and CEO - put the customary cautionary language and comment about the webcast for this earnings call. We released earnings for our first quarter at approximately 5

[Melanie Caponigro:]

Thank you very much. I’m going to turn the call now over to Simon Nynens, the company’s Chairman and CEO.

[Simon Nynens:]

Thank you, Melanie, and good morning to everyone. We had an outstanding quarter. Gross profit increased 14%, income from operations increased 20% and earnings per share fully diluted increased 36% to a first quarter record of $0.30 per share. Our Lifeboat Distribution division represented 86% of gross profit and 89% of segment income in the first quarter. Cash and long term receivables were $22 million and represented a very healthy 60% of equity as of the end of March 2017. Regarding cash flow and capital, we are fortunate to be able to continue to return capital to our shareholders. We believe that repurchasing our shares represents an attractive use of our capital and this quarter, we bought back approximately 95,000 shares for a total of $1.7 million and paid out dividends totaling $800,000. Regarding the operational side of our business; our new headquarters now represents the professionalism, passion and most importantly, our culture. We also released a new corporate website at www.waysidetechnology.com. You can actually take a virtual tour of our new headquarters as well as get an in-depth background about our culture and what we stand for in a fresh, modern and a functional way. We also released a new techxtend.com website as well as a major overhaul of our hosted webstore Intel software products. In this quarter, we also received the SmartCEO Future 50 Award for our significant financial and employee growth and most importantly, we, yet again, were named one of the best places to work by New Jersey Biz. We are dedicated to creating an engaging and welcoming environment for our employees. We believe it’s essential to have a healthy work-life balance and it’s possible to have both, a successful career and personal life. Receiving this honor affirms the importance of putting people first and supporting a healthy and happy corporate culture. We are excited about the prospects of more software publishers joining us. Customer and vendor feedback continue to confirm that we are on the right track. Our customer service is outstanding. We care and our customers notice. We look forward to growing our business. Now I’d like to hand it over to Bill Botti, our Executive Vice President.

[Bill Botti:]

Thank you, Simon. As Simon said earlier, we had a very good quarter when compared to Q1 2016. In fact, at $112.8 million in revenue, it was nearly as strong as the $120 million we did in Q4 2016. In Q1 2017, we grew revenue in all geographies and business units and did the same gross profit dollars in most of them. Net sales increased 21% to $112.8 million. Lifeboat Distribution net sales increased 21% to $104.5 million and TechXtend net sales increased 19% to $8.3 million. Gross profit increased 14% to $6.8 million, distribution gross profit 13% to $5.8 million and TechXtend’s gross profit increased 15% to 0.9 million. Gross profit margin, which is gross profit as a percentage of net sales for the quarter, decreased by 0.4 percentage points to 6%. Lifeboat Distribution segment gross profit margin decreased 0.4 percentage points to 5.6% and TechXtend segment gross profit margin decreased 0.5 percentage points to 11%. We faced continued margin pressure from the very large distribution companies we compete with in the market. This is reflected in the 0.4 -- points to our gross profit margin. We’ve managed to overcome most of that with increased revenues in most of our vendors and customers. The Lifeboat and TechXtend business units under the leadership of Brian Gilbertson and Kevin Askew respectively are currently operating smoothly and building towards continued growth this year following a very good Q1. We’ll continue to be very excited about our future as we manage our expenses and build our product portfolio to help achieve our growing targets. Thank you. Simon, back to you.

[Simon Nynens:]

Thank you, Bill. Michael Vesey will now report on the financial numbers. Mike?

[Michael Vesey:]

Thanks, Simon. I’ll now review our operating expenses and balance sheet highlights. Total SG&A expenses for the quarter increased $500,000 to $5 million up from $4.5 million last year. The increase is mainly due to salary commissions and incentive payments that support our growth. Even though the overall spending levels are up, the increase in lower rate and sales resulting in a decrease in SG&A as a percentage of net sales were 4.4% in 2017 compared to 4.8% same quarter last year. As Bill noted, our net income for the first quarter increased 28% over the same period last year. In addition, we repurchased 95,000 shares of our common stock in the first quarter of 2017, which in combination with the previously repurchased shares resulted in a 5% decrease in weighted average shares outstanding on a diluted basis from the same quarter last year to 4,359,000 shares. As a result, the growth in EPS over the same quarter last year outpaced the net income growth by 0.8 percentage points. Earnings per share on a fully diluted basis was $0.30 from first quarter of 2017, a 36% increase over $0.22 per share from the same quarter last year. Moving on to the balance sheet, cash and cash equivalents was $11.1 million at the end of the quarter compared to $13.5 million at the end of 2016. Our cash balance reflects an increased investment in working capital and $2.5 million of cash utilized by dividends and repurchase or stock. The increase in working capital was mainly driven by higher receivables related to higher sales over the past two quarters and the increased payment terms for one of our major reseller accounts. Both our accounts payable and accounts receivable balances declined from seasonally high December levels, the longer payment terms on certain customer accounts resulted an increase of approximately $1.6 million in working capital accounts and a corresponding decrease in cash. During the quarter, we paid $800,000 in dividends and utilized $1.7 million of our cash balance to purchase the 95,000 shares of common stock. At March 31, 2017, we had no outstanding balances under our credit facility. Stockholders’ equity stood at $36.9 million compared to $37.6 million at the end of last year and total working capital, including cash, was $23.3 million compared to $24 million at the end of last year. On April 26, 2017, the Board of Directors declared a dividend of $0.17 per share payable on May 17, to shareholders of record on May 10. The company’s now paid dividends consecutively for over 57 quarters. In conclusion, we wrapped up the quarter with solid growth in sales, in net income and EPS, returned significant value to our stockholders in the form of stock buyback and dividends while maintaining a debt free balance sheet with adequate equity and working capital levels to support our growing business. Simon, turn it back to you.

[Simon Nynens:]

Thank you, Mike. Operator, we can now start the Q&A session.

[Operator:]

[Operator Instructions]. Our first question comes from the line of Jeff Geygan of Global Value Investments. Your line is now open.

[Operator:]

Thank you. [Operator Instructions]. I’m showing no further questions at this time.

[Simon Nynens:]

Thank you. We appreciate everyone’s interest in our company and we look forward to reporting our second quarter performance at the end of July of this year. Thank you so much.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s presentation. You may all disconnect. Everyone have a great day.