Q2 2020 Wayside Technology Group Inc Earnings Call

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[noise] or wayside CEO Mr. Dale Foster the company's CFO Mr., Michael V., the company's vice president of alliances for lifeboat distribution, Charles bass, and the companies outside Investor Relations adviser, Sean Mansuri with Gateway Investor Relations by now everyone should have access to the second quarter.

2020 earnings release, which went out this afternoon and approximately four or five P.M. eastern standard time.

The release is available in the Investor Relations section of Wayside technology groups website at Wayside technology Dotcom. This call is also available for webcast replay on the company's website.

Following managements remarks, well open the call for your questions I would now like to turn the call over to Mr. Mansuri for some introductory comment.

Thank you Sri before I introduce Dale I'd like to remind listeners that certain comments made in this conference call and webcast are considered forward looking statement.

Private Securities Litigation Reform Act of 1995.

These forward looking statements are subject to certain known and unknown risks and uncertainties.

As all the assumptions that could cause actual results to differ materially from those reflected in these forward looking statements.

These forward looking statements also subject to or also subject to generally to other risks and uncertainties that are described from time to time in the company's filings with the FCC.

You know.

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 released the results of any revisions to any forward looking statements.

Our presentation also includes certain non-GAAP financial measures, including adjusted gross billings adjusted EBITDA.

Net income excluding separation expenses 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 the FCC rules.

You'll find reconciliation charts and other important information in the earnings release and form 8-K, we furnished to the FCC. This afternoon.

I'll now turn the call overt wayside CEO Dell Foster.

[noise]. Thank you Shawn and good afternoon, everyone first and foremost the health and welfare of employees vendors and customers remains our top priority during these difficult times.

Despite the obvious Cobas 19 challenges the world phase during or the second quarter, we continue to execute on our strategic plan and serve as a valuable partner to our vendors and customers as we navigate the effects of dependent.

I've been very impressed with the way our team has risen to the occasion and the focus they have demonstrated in fact, although some of our key vendors experienced softer volumes and in this quarter, which in turn impacted our margins and profitability we drove.

What a drove a 12% increase in sales during one of the most turbulent period of recent memory. Our sales partially benefit from the acquisition is going to work in May we also generated growth with other emerging vendors on her line card or ability to grow even in this challenging environment underscores the continued demand for our high touch.

Approach to selling and servicing our customers needs I'm very grateful for teams resilience and dedication.

Across our industry technology vendors struggled with supply chain disruption postpone customer orders were delayed projects with various within market segments.

Small to medium sized businesses in particular have been severely impacted by the economic shock that pandemic, especially as they were quickly required to shift to remote work on the onset of lock down orders. However, many vendors and customers have utilize this time to focused on optimizing our resources and costs often by implementing tick.

LNG solutions to maker.

Operations more efficient for their customers and employees alike.

In this environment, we're focused on partnering with current vendors to help them meet their customers evolving technology needs.

We also continued to add vendors new vendors to our network, even admitted that tend to us which is a testament to the investments we made to enhance our vendor recruitment process and sales and marketing over the past 18 months Charles will provide an update on our vendor initiatives, but in a currently credibly proud of our teams work to sustain our growth in this area by.

Diversifying our revenue streams, and even driving an increase in average selling price per transaction during this quarter.

As many as you may have seen in May we rebranded our core lifepro distribution business.

To climb channel solutions. This name change more fully reflects our refreshed focus on emerging data center cloud and security products, which are all experiencing strong demand amid current remote work conditions.

Mark Klein brand is showing our customers in vendors. The decline teams are ready to take on any challenge worked hard to achieve the goals, we set and work together to increase our reach as we caution.

We are keenly focused on driving growth and increasing market share with emerging technology products, while we cannot predict the long term success over 19 on our industry, our network or business. The improvements we have made to our sales operations and vendor recruitment over the past 18 months has positioned us to continue to deliver on.

On our strategic initiatives, while helping our vendors and customers navigate these turbulent times with that I will now turn over the coal to Charles.

Thank you Dale and good afternoon, everyone as Dale just mentioned we were excited to rebrand our company from like book to climb channel solutions. During the quarter. We've received very positive feedback customers and vendors have already committed asked for making the change to reflect our strategic focus on emerging datacenter and cloud they spread.

Ends.

Although we have a new name we're operating with the same highly dedicated sales team and we're proud to be go into market within name that better were represent our operational progress in high touch differentiated service levels. All of our representatives are committed to further executing on our vendor alliant strategy to identifying and evaluating onboarding.

Emerging Tech partners that we can grow with for three years to come.

During the quarter, we added several key new vendors that illustrate the breadth of emerging partners that will drive our future success one.

Well those partners was endesa because in desk is a extremely successful SaaS company that makes supports.

Sales and customer engagement software and it's quick to implement it scales to fit changing business needs. There a publicly traded company that has shown excellent growth and market penetration. They came decline to enhance their existing routes to market and drive incremental sales through distribution on the other hand, another vendor we added in the quarter with liquid which is a.

Information Technology company that provides comprehensive composable infrastructure.

Their product is a leading edge and potentially disruptive technology in the market and there are fairly early stage startup. It's just beginning to create their routes to market. They came decline so that we could help them effectively create their sales channel together. We believe these two vendors additions kind of reflects our ability to partner with different types.

Of technology companies at various stages of their growth cycles. There addition to our apartment portfolio will be an excellent fit as we continue driving our sales momentum going forward.

Moving on to into work, we made excellent progress with our integration. Following the acquisition in May we have now onboard at all but two of the existing into work brands onto our clients systems and we expect to have the final two brands fully onboard and by August.

As we look ahead to the third quarter. Our most immediate area of focus is on launching our own self service cloud marketplace.

Businesses and consumers alike are increasingly dependent on virtual and cloud based infrastructure, especially in this heavily from both work environment. So we want our own cloud offerings to meet the needs of our vendor partners in this evolving marketplace. We're optimistic about our strategic direction and continued sales execution, especially in the face of Koby 19.

Challenges across our industry.

We continue to navigate this new environment will continue to develop vendor relationships, while working hard to offer a unique set of services that differentiates us from alternative routes to market.

Now I'd like to turn the call over to Michael to provide more details on our financial results Michael.

Thanks Charles.

Good afternoon, everyone first I'd like to remind everyone that our second quarter financials include operating result of into work effective may Onest 2020.

Now turning to the quarter net sales in Q2 increased 12% to 56.6 million compared to 50.7 million for the same period in 2019.

Time channel solutions, formerly lifeboat distribution segment net sales in the second quarter increased 15% to 54.2 million compared to 47.3 million.

Well take extend segment net sales were 2.4 million compared to 3.4 million in prior year.

Adjusted gross billings and non-GAAP measure increased 11% in the second quarter, two 158.7 million compared to 142.6 million for the same period last year.

Gross profit in the second quarter was 7.1 million compared to 7.8 billion for the same period in 2019.

Well, you're driving revenue growth with new vendors and inorganic growth we've been challenged by lower gross margins, resulting in part from accelerated discounts and rebates and partly due to lower volumes from some of our established vendors, which we believe the transitionary situation related to the current macroeconomic environment.

Year over year comparisons were also impacted by approximately $400000 of nonrecurring benefits related to vendor discounts and marketing event income realized in the second quarter of 2019 that did not occur in 2020.

One of the accelerated discounts we proactively implemented this year was early pay discount program with a large customer of ours, which is very much in net positive for us.

Under the new terms, we're conceiving approximately 300000 of gross profit per quarter going forward in exchange for reducing the collection cycle by approximately 60 days.

This program drove our cash position of three times to $45 million this quarter.

Moving on SDMA expenses in the second quarter were 6.4 million compared to 5.6 million in the year ago quarter.

As a percentage of revenue SGN, a increased 20 basis points to 11.2% compared to 11% in Q2 2019.

The increase was driven by several onetime nonrecurring expenses related to our settlement with North in Webster group regarding your unsolicited proposal and director nominees as well as cost associated with our acquisition of it to work technologies.

Net income in the second quarter of 2020 was $600000 or 13 cents per diluted share compared to 1.9 million were 41 cents per diluted share for the same period and 29 team.

The decrease was again driven by cost related to our settlement within NW EMEA to work acquisition.

Adjusted net income, which excludes these costs was 1.1 million or 27 cents per share compared to $1.9 million were 41% cents per share for the same period in 2019.

As a reminder, we're continuing to use adjusted EBITDA as a non-GAAP metric.

As we believe it is a useful supplemental metric to assess our profitability and company value.

In the second quarter, adjusted EBITDA was 2.1 million compared to 2.7 million for the same period and 29 team with the decrease driven by the aforementioned lower gross profit and margin concessions.

Effective margin, which is defined as EBITDA as a percentage of gross profit was 29.3% compared to 34.9% in the prior year period.

Cash and cash equivalents increased $45 million at June Thirtyth 2020, compared to 15 million at December 31st 2019, and where you may remain debt free at both June Thirtyth 2020 at December 30, Onest 2019.

The increase in cash was primarily driven by the early pay discount program with one of our large customers.

This increase cash working capital has not only provided us with a strong liquidity position to navigate the uncertain cobot 19 environment.

It is also provided us with more cash to invest in our business than we've ever had in our 35 year, plus 35 plus year history.

We're very excited about this new financial flexibility that will enable us to accelerate growth and profitability in a way that we never could before through both organic and inorganic means.

We've also maintain our ability to returning a significant portion of our earnings to shareholders in the form of the dividend on August four 2020, the board of directors declared a quarterly dividend of 17 cents per share of common stock payable August 28, 2020 to shareholders of record on August 24th 2020.

This concludes my prepared remarks, I'll turn the call back over to Dale.

Okay.

Thank you, Mike and before we open up.

The call for questions I wanted to provide a deeper update on our integration of innerwear for the full integration anticipated be completed during the fourth quarter of this year I'm pleased to report that the overall integration up to this point is progressing very well and meeting and in certain aspects exceeding our expectations, our Canadian and us.

Non GM sales teams along with their respective marketing teams are both integrated now and as Charles referenced they are already working to deepen our relationships with existing vendors and customers in both geographies.

We continue to expect an additional $1 million annualized adjusted EBITDA.

From inner work after driving further operational and financial synergies over the next couple of quarters.

Summer as our call today, we have effectively navigate in one of the most challenging periods of time in our nation's history. We continue to serve as a vital partner to our vendors and customers as reflected by our margins and profitability concessions in some areas over the near term, we know that deepening our relationships and being therefore vendors when they need just mode.

Most will only benefit our business in the long run we have more cash on hand today than ever before to continue driving growth with emerging vendors on our line card and further diversifying our revenue streams and less in a very short period of time, we've begun to realize the benefits from this management team is first acquisition at waste side, we are.

Very much in the early innings of accelerating growth and profitability for years ahead, as we position ourselves as a premier technology distributor for emerging data center.

And security products and operator with the we'll now open the call for Q1 day.

Thank you, ladies and gentlemen to ask a question you want me to press Star one on your telephone to withdraw your question press the pound.

Please standby volley compiled the Q and a roster.

My first question will come from Ed Woo with Ascendiant capital. Please go ahead.

Yes, congratulations on the quarter my core and also on.

Integration of acquisition. My question is aren't not do you know that you could do additional acquisitions near term and also what does the M&A landscape look like has there been more opportunities and as valuations come down.

Okay.

Thank goodness is still up.

Things on that I mean, what we're going to we'll do the same thing right. We're looking for organic growth I mean, that's the focus that we deal with everyday and then newer get inorganic side.

You're right I mean, what are the actual targets that are out there and it depends on how far out of our sweet spot that we want to go to look at those targets there our targets.

Throughout all the different geographies, but it really depends how far out of the inner work was just such a good fit for us and we're finding out that's even better fit for us with the teams and who they brought over who got the to know unworthy accident organizations that was a very you'd be wondering looking back on it the right thing to do so we'll continue to look for those.

More than the cloud space of course and of course in the software application fees.

Great and then my next question is I know you might to that you had some pockets of growth. But then you had some other partners that have lower revenue up what are you seeing currently are you seeing just a generalized return back on some of those other customers or is it.

Longer time path to return back to business.

It's not that we've talked.

Good and fly, but I mean as far as.

You look at what we saw and it was more of a delay than anything else.

So everybody goes into locked down everybody gets working from home and it seems like hey that it's good. It's fresh are we getting things done, but then it's kind of like of fatigue said and it's just the processing all the way to the end user that I think delayed a lot of things. So we haven't think seeing orders that we are tracking disappear, it's just taking longer to process and.

And we'll we'll see that in this quarter source of picking back up.

Great. Thanks for answering my questions I noticed you guys. Good luck.

Thanks and efficient access.

At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Foster for closing remarks.

Yeah, and thanks, operator, and just the to follow up you know we had our board meeting last week and we have Newport numbers on we have a refresh bore.

You know the subsequently from two years ago. It's just been a very positive impact that becomes more of a business discussions and a lot of these meetings that we have so I want to thank them. Thank the exact team and the most of all the employees have been great everybody stepped up they.

Figured out how they were going to do and be productive at home and we're seeing that and we did that very quickly in Q2 and it's just following on we're hoping that the customers and vendors ketchup as quick as we were able to transfer to that during that locked on order. So thank you the shareholders and this will conclude or call.

Ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines. This time, thank you for your participation.

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Yes.

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Thanks.

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