Climb Global Solutions, Inc. (CLMB) Q3 2016 Earnings Report, Transcript and Summary

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.

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 05:00 PM Eastern Time, Thursday October 27th 2016. The earnings release is available at the company’s investor relations website at waysidetechnology.com. Today’s call including all questions and answers is being webcast live and a rebroadcast will be available at www.waysidetechnology.com/earnings-call. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, October 28th 2016. A detailed discussion of risks and uncertainties are discussed in our form 10Q and also in greater detail in our form 10K. Wayside Technology Group Inc. sees no obligation to update and does intend to update any forward looking statement. Now I would like to turn the call over to 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.

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.

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

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.

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.

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

Thank you. Good morning and thanks for taking my question.

Good morning.

There are two announcements this quarter for new hires with Mike and David. But with Mike being the new CFO I’m curious how Kevin’s role is going to change moving forward.

Sure. Kevin is actually in the room with us today. Kevin Scull will remain as our Chief Accounting Officer. He was our Chief Accounting Officer. Mike in addition in terms of making sure that we enhance the operational reporting about our finances as well as making sure we continue to fulfill with our continued growth in terms of our financing. So it’s really an addition.

And for David, the Senior Educations Consultant, I believe that is his title, what will his role be?

Bill, maybe you might want to pick up.

Sure, thank you. As we move into this vertical market, David is coming to us as Commissioner of Education for New Jersey on Governor Casey’s staff. An intimate relationships and knowledge of the various school districts particularly in the k312 area throughout the State of New Jersey and knows which ones have the greatest needs for technological improvements. He can introduce our sales organization through those teams and was an active participant this week in the New Jersey School Board Administrators and IT Exposition down in Atlantic City where we had a large booth. As touched on we were 750 of the schools district employees. This is a period of time and the timing for this is around Q4 and Q1 or when budgets are set and projects are defined firsthand in late Q1 and Q2 in preparation for implementation in Q3. So, he’s really the person who can introduce us and get past the gatekeepers at the majority of these places.

And as an example, we did Francis. We did a couple of physical security projects where we installed the cameras and we installed the whole systems in order to maintain the physical security of government offices. Again, operating as a value-added reseller, those are the kinds of projects we want to move into.

Great. I look forward to having a fulltime board and seeing the growth that they help derive. Simon, last quarter you referenced the pilot program. I’m just curious as to how that has been working and if it’s still recurring.

When you say pilot program, which one?

I believe it’s in reference to allowing employees more flexibility in their work schedule.

Oh, sure. That’s working very well with our new office where we’ve got good local press about our new headquarters. Again we monitor the productivity very closely of employees and really enabling to work here at whatever office they want by the way, it’s a new flexible work environment, or at home. Again, happy people are just more productive and we feel that definitely in Q3 and Q4. There are ways we have to right. I want to mention that and I want to just again explain what it is that we are in the overall environment. If you look at our year to date results and you look at our revenue, we were up 5% consolidated. And we had a not so good first quarter, we had a good second quarter. Most of that if you relate that, that’s transactional basis of TechXtend. Now, so far in October our pipeline is looking good for Q4 for those kinds of line transactions of the finance, the [indiscernible] kinds of transactions. But it’s still early in the quarter but those are transactional. If you look at Lifeboat per se and you look at our larger competitors, if you compare our complete company with competitors such as Ingram Micro, Tech Data, Arrow, Avnet, revenue year to date for Ingram Micro year to date is down 7%, for Tech Data down 1%, Arrow is up 5%, Avnet is year to date down 21%. Operate income from operations, we are in Lifeboat up 5% income from operations. That’s what the significant investment in our future growth. So, our revenue up 5% and our income from operation up 5%. If you combine all company year to date we’re down 6% compared to our competitors Ingram Micro without the impairment of the software implementation last year. They’re down 23% in income from operations. Tech Data is down 49%. Arrow is up 5% and Avnet is down 39% year to date. Again, that’s why I’m stating considering the overall environment, our very large competitors, our influx, our restructuring mode. I can’t win the bell every quarter. However, the long term plan is … We’re not deviating from the long term plan. When the dust settles here and when the fights are all over, people are dissatisfied with the fact that complete things are disappearing at these major publishers. They are not getting, continue to not get the service that they want and need as a software publisher and we are a viable alternative. In fact, every quarter we’re becoming more and more viable. So, our long term plan hasn’t changed, our long term commitment hasn’t changed, I don’t feel there’s a significant change in the market. If there is we will inform you right away. That’s how we look at our results and especially compared to a strong Q3 in 2015. When we do pilot programs we have to be very careful. We run a very profitable company and we’ve grown significantly over the last couple of years. If you look at since 2011, we were up in terms revenue. You’re up in 2015 and beyond, 2015 up 153% and that’s without acquisitions and we are looking actively at acquisitions. But other significant competitors of our, much larger, have done a lot of acquisitions and are all below us in terms of revenue growth. So we’ll continue to be excited about the long term prospects of this company and we look forward to reporting future quarters.

That’s great additional insight. Thank you Simon. You brought the looking for acquisition. Can you put out an update on the engagement of an investment banker?

Yes we have. We have signed an agreement. We’re with Marketing Wolf, very well known within the tech industry. They’re representing us and I think that’s our responsibility as board and as a fellow shareholder that we explore acquisitions. And that’s where we are in the early phases. They started in September and we have engaged with them for a period of six months. We have to see what’s out there currently and to see what’s available. That’s what we’re currently doing.

Great. Thanks for the additional insight and good luck in Q4 and the school [indiscernible].

Thank you so much. Have a good weekend.

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

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.