Climb Global Solutions, Inc.
Q3 2016 Earnings Call Transcript

Published: 28 Oct 2016

[Executives:]

Melanie Caponegro - IR Simon Nynens - Chairman and CEO William Botti - EVP Mike Vesey - VP and CFO

[Analysts:]

[Operator:]

Good morning ladies and gentlemen, and welcome to the Wayside Technology Group conference call. [Operator Instructions]. I would now like to introduce your host for today’s Conference, Melanie Caponegro. Miss. Caponegro, you may begin.

[Melanie Caponegro:]

Thank you and good morning. Welcome to Wayside Technology third quarter 2016 earnings call. Before turning the call over to Simon Nynens, the company’s Chairman and CEO I will dispense with the customary cautionary language and comment about the webcast for this earnings call. We released earnings for the third quarter at approximately 05

[Simon Nynens:]

Thank you Melanie and good morning to everyone. Considering the overall environment, we had a solid third quarter especially compared to our strong third quarter in 2015. Our Lifeboat division represented 90% of our revenue and 87% of segment income in the third quarter. Our international sales were 13% of our overall revenue, up from 11% for the third quarter of 2015. I want to start by welcoming Michael Vesey to our team. Mike started 3 ½ weeks ago. He comes to us with great experience in finance operations and management. Mike, welcome again. Now I’d like to hand it over to Bill Botti, our Executive Vice President.

[William Botti:]

Thank you Simon. As stated earlier by Simon, we had a solid quarter when compared with a very good Q3 2015. On a consolidated basis, revenue increased 2% or $1.9 million to $99.6 million compared to $97.7 million for the same period in 2015. Income from operations declined slightly to $2 million compared to $2.2 million over the same period last year. Total sales for the third quarter of 2016 for our Lifeboat division were $91.1 million compared to $86.1 million in the third quarter of 2015, representing an increase of $5 million or 6%. Total sales for the third quarter of 2016 for our TechXtend segment were $8.5 million compared to $11.6 million in the third quarter of 2015, representing a decrease of $3.1 million or 27%. The 6% increase in net sales for the Lifeboat distribution segment resulted mainly from our ongoing strategy of strengthening our account penetration. This was partially offset by lower sales for [indiscernible] resulting from changes in product mix upon annual contract renewals. The 27% decrease in net sales in the TechXtend segment was primarily due to the variability in large software sales transactions, including extended payment term sales when compared to the third quarter of the prior year. Gross profit for the third quarter ended September 30th 2016 was $6.4 million, a 7% decrease compared to $6.9 million from the third quarter 2015. Gross profit for our Lifeboat segment in the third quarter of 2016 was $5.4 million compared to $5.1 million for the third quarter 2015, representing a 1% decrease. Gross profit for our TechXtend segment in the third quarter 2016 was $0.9 million compared to $1.4 million for the third quarter 2015, representing a 33% decrease. As a percentage of net sales ST&A expenses for the third quarter of 2016 were 4.4% compared to 4.7% for the third quarter of 2015. We faced continued merging pressure from very large distribution companies we compete with in the market. We have managed to overcome most of that with increases in most of our vendors and customers. Some segments had increases while others decreased due to these pressures. Like the update to Lifeboat last quarter, we’ve released a new TechXtend logo brand website and we’ve refreshed our brand image with very positive feedback from our customers and suppliers. We’ve also began to verticalize part of our TechXtend team to focus on the sled market which is state local on education and they’ve also recently now started to engage with David Hensley, the former commissioner of education for New Jersey as a business development consultant to assist us to more rapidly penetrate this exciting vertical market. We continue to be excited about our future as we managed our expenses and build our product portfolio to help achieve our goal targets. Thank you. Simon, back to you.

[Simon Nynens:]

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

[Mike Vesey:]

Thank you Simon. I’ll cover some of our general and administrative expenses, then I’ll cover some balance sheet highlights since Bill already talked about our [indiscernible] down for the gross margin. Our total selling in general administrative expenses for the third quarter of 2016 were $4.4 million compared to $4.6 million for the third quarter of 2015, representing a $0.3 million or 6% change. This decrease was primarily the result of lower bonus expense partially offset by increased back compensation and occupancy costs in 2016 when compared to 2015. Exponentiated net sales as seen in expenses for the third quarter of 2016 were 4.4% compared to 4.7% for the third quarter of 2015. Our net income for the third quarter of 2016 was $1.4 million compared to $1.6 million in the prior year. Earnings per share on a fully diluted basis was ¢31 per share compared to ¢33 last year. Moving on to the balance sheet, compared to our balances as at December 31st 2015, the following key accounts had fluctuations. Cash decrease by approximately $2.8 million to $21 million as at September 30th 2016 compared to $23.8 million as at December 31st 2015. The decreases comprised primarily of dividends payments of $2.4 million, $3.6 million of purchases of treasury stocks, and $0.8 million of capital expenditures related to our new office. Current account receivable increased by 5% or $3.2 million mainly due to a large transaction in the second quarter with extended payment terms. Accounts payable and accrued expenses increased by 4% primarily due to an increase in deferred rent and other items related to the opening of our new corporate office. As of September 30th 2016 we had no outstanding balances under the credit facility. Working capital as at September 30th 2016 was $27.8 million. During the quarter we repurchased approximately 86 thousand shares of our common stock under our 10B5 stock purchase plan. We still have board authorization to repurchase up to approximately 278 thousand additional shares. Our stockholders equity stands now at $37.8 million. At our October 27th 2016 board meeting, the Board of Directors declared a ¢17 per share dividend for its common stock, payable on November 18th to shareholders of record on November 8th 2016. The company has now paid dividends consecutively for over 55 quarters. In conclusion, the company continues to have solid operating results, a strong balance sheet, and is adequately capitalized to support our continued growth plans. I want to personally thank all of our team members who are live, and Simon I turn it back over to you.

[Simon Nynens:]

Thank you Mike. During this quarter, as Mike mentioned we moved into our new headquarters in Eatontown, all without missing a beat. We will have two open houses. Lifeboat will open its open day on November 10th and TechXtend will host on November 18th. We received great feedback and continue to receive great feedback from employees, vendors, as well as customers about our new way of working together. We released a redesigned TechXtend website this quarter as well including personalized landing pages for our TechXtend experts. In conclusion, it was a busy quarter. I want to thank all of our team members for their hard work and dedication to the success of our company. Operator, we can now start with the Q&A session.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from Sam Schaffer [ph]. Your line is open.

[Operator:]

Thank you. At this time there are no further questions. Please continue with any closing remarks.

[Simon Nynens:]

We’d like to thank everybody for their interest in our company and we look forward to reporting our Q4 results in February of 2017. Thank you.

[Operator:]

This concludes today’s conference call. You may disconnect at this time and thank you for your participation.