Q4 2020 Wayside Technology Group Inc Earnings Call
Good morning, everyone and thank you for participating in today's conference call to discuss Wayside technology group's financial results for the fourth quarter and full year ended December 31st appointed Sweeney joining us today on the wayside CEO and Mr. Dale Foster and company's CFO, Mr. Michael Vesey and to companies and outside Investor relation.
And so and adviser, Sean Mansouri with Gateway and Investor Relations and by now everyone should have and axis.
What are the full year, 'twenty and 'twenty earnings release, which went out yesterday afternoon and at approximately 415 P M Eastern time and it really.
It is available and Investor Relations section of the Wayside Technology group website at the Wayside technology Dot Com. This call is also available for webcast Rip League at the company's website.
Following management remarks, we'll open the call for any other questions I would now like to turn the call. The other day, Mr. I'm I'm, sorry for <unk> for some introductory comments. Thank you.
Thank you 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.
What was the 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 and the company's filings with the SEC did.
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 and 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 for the most directly comparable GAAP measure in accordance with SEC rules, you'll find reconciliation charts and other important information and the earnings release and form 8-K that we furnished to the SEC yesterday.
I'll now turn the call over to Wayside CEO Dale Foster Dale.
Thank you, Sean and good morning, everyone.
We ended 2020 and a very strong note delivering growth across all our key financial metrics for the fourth quarter gross billings net sales and gross profit increased to record levels during the quarter as we maintained our focus and adding new emerging vendors, who are like or integrating Syria and driving additional synergies from our acquisition of Interwork.
Both acquisitions are contributing to our top and bottom line and our businesses organically and recovered from the lows and the pandemic and the second quarter and we were back on track and.
Executing our growth strategy and.
And our ability to navigate through the pandemic would not have been possible for not for the resilience and exceptional support from our employees, our customers and vendors across the globe and we've done and generally thank you.
Our gross strategy can be broken down into three key initiatives.
First continued drove organic growth and revenue from our business by deepening existing vendor relationships.
Second diversifying our vendor line card by adding new emerging vendors with above average long term growth potential and third we'll utilize our balance sheet and their cash and free cash flow to identify it and make accretive acquisitions.
All while improving our overall margin profit margin.
The two acquisitions, we completed in 2020 further expand our suite of products and the depth and breadth of our vendor network the acquisition significantly increase and enhance our team's go to market approach as a result of these acquisitions our team nearly doubled from 150 to 270 employees today and accomplishment and I'm, particularly proud of.
And full well that this is the engine we are building for our future success.
With our acquisition of Interwork now fully integrated the climate Interwork teams are executing as a single unified team across U S and Canada under decline and branding.
And we're doing an excellent job of identifying valuable cross sell opportunities in both markets, we've had and a significant number of sales wins with some of the largest resellers in North America due to our expanded portfolio and with our strategic vendors.
Through Interwork, we have deepened our relationships was previously overlapping vendors such as a chromous where their cloud based offering and we're also able to add trend micro a significant vendor for our partner network and bulk and U S.
Yes.
Our integration and expansion with UK based CDN is well underway and our legacy European office in Amsterdam, now reports to the Cvs distributions Vice President and.
We continue to see consolidation and cost savings as we go forward there.
And there will be fewer overlapping vendor relationships with CTF acquisition, providing significant cross selling opportunities between EMEA and our U S. Canada sales force, we are more United and each day as we continue to develop a strong and focused sales team and culture of success.
For the acquisition of <unk>, we inherited some notable presence and strong partner.
Relationships across Europe developed over the past 20 years by combining the climb and distribution CDF distribution teams and operations teams. We are now the exclusive European provider of Intel software developer tools.
Bob Knowhow and division of CDI plus.
Cloud services business holds and maintains vendor certifications with marquee vendors, such as Microsoft looks their request and many others further enabling our cloud credentials.
Leveraging cloud Knowhow and cloud services businesses and specialized team of adoption and migration experts advances our position and standing with our reseller partners, making us a viable value added service provider. This represents a significant strategic leap beyond our traditional distribution function another important element of our Cds.
Acquisition Importantly, this offers real opportunity for wayside to expanse overall operating profit margin.
Now club channel solutions, and Cvs can provide.
Customers with services, ranging from every day technical support and specialized consulting and become and into the indispensable partner for customers.
On a product level CDF helps expedite the development of our internal platform, which can be which can be utilized by all of our subsidiary businesses across the geographies, we expect to launch new vendors onto the cloud marketplace and April and we'll continue to rollout and as many vendors that are moving to a subscription based cloud model.
Before discussing our vendor alliance strategy, which focused on identifying and onboarding high potential emerging technology vendors I would like to share a few words about the solar winds software cyber attack that occurred during the 2024th quarter. When he said the operations. We're not directly affected organization was not using the version of software that contain the compromised code.
And our vendor partnership and solar wins accounted for less than 10% of our 2020 gross profit to be sure. We experienced some sales weakness as a result since the cyberattack was pebble publicized we have maintained a solid relation for solar winds and its full suite of security and emerging technology products.
We'll continue to work closely with our vendor to preserve the safety and security and for their offerings and we remain supportive of our partner at solar winds.
Let me now highlight a few important vendor wins and updates from the quarter.
In November we began distributing then desk customer relations management software the service first customer.
Package offering is powerful and flexible software designed to help companies foster better communication and relationships to scale.
Through its CRM offering business and can offer a unified customer interface, while seamlessly engaging with their customers across multiple channels, including E Mail chat voice Whatsapp, Wechat and other social media and messaging apps Zen desk is very well known and successful brand now expanding its route to market to include distributions.
Current channel solutions as the only distributor.
We expect to be a big part of Zen does increase sales growth and the channel and 2021, and addition to offering solutions with front end interface and we're expanding our core technology product offerings from data centers and cohesive backend operations. We're now distributing sue say innovative open source solutions, which comprise a best in class Linux operating.
And <unk> system, a market, leading kubernetes management platform and a host of pioneering edge capabilities. These capabilities will allow a datacenter so efficiently and.
Great oil products and the core of their operations through our distribution distribution partner with suits that we now offer their open source solutions and expanded partner base delivering incremental value to our vendors throughout North America.
And I'd like to highlight our unique success, we enjoyed one of our key partners to entry, which is owned by GDN over the year ago century, and climb agreed on a mutual investment plan to increase sales. We both made substantial investments and brand enablement marketing and key personnel. Our investments are paying off during the fourth quarter tends to became a top five brand for <unk>.
One channel solutions, while becoming a focused brand for our entire global sales team and.
Extremely pleased with the vendors and products, we have added to the portfolio during the fourth quarter and year just ended.
Each enhances our offering and core product areas and serves as a testament to the continued focus and growth and growing strength of our sales business I would also like to acknowledge incredible leadership, Charles bass and earn tighter vendor Alliance team and December Charles and promoted to Chief marketing officer, a newly created and executive role and Wayside Technology group.
Under his leadership our teams worked diligently to drive brand awareness improved marketing efforts and bolster sales and bent for alliance strategies. The results have been excellent and as evidenced in our record results and the fourth quarter and the year.
Finally, our new strategic initiatives.
And we just don't and took last year was to build upon our organic growth strategy. We launched a division called climb elevate a wholly owned subsidiary of climb channel solutions and the next logical extension of our strategy to target new emerging and technology brands climb LD focuses on efficient quota share processes for brands that are.
And quite ready for full distribution partnership with climb this will increase our addressable market and the breadth of our potential new and exciting brands that we can take to market at full scale and the future as they develop.
And this new division will be led by industry veteran Michael Bernstein, who joins us after 26 year career at CDW climb elevate will strengthen our overall market position, we expect it to be a growing ancillary auxiliary business and allow our sales teams are more efficient.
Allocation of time and effort with our existing and new vendors.
As I reflect on our for free.
On my first full year of CEO was wayside I'm proud to and the excellent progress we have made moves to two two strategic.
<unk> acquisitions and related integrations.
And simultaneously advancing our strategic objectives throughout 2020.
We grew our topline and manage margins throughout the pandemic.
While rationalizing our balance sheet to provide more cash than we've ever had as a company. We remain committed to driving earnings growth to shareholder value. We are just getting started and look forward to accelerating our strong momentum throughout the year ahead.
Before turning the call over to Mike D. C. I want to reiterate my gratitude for combined climbed channel sales solutions teams Interwork CDF and tech extend teams for all of your dedicated work and for expanding and supporting our vendor and bar and then use and networks.
And what was arguably the most challenging year.
And the most recent history I will now turn the call over to Mike Vesey, our CFO for our financial results.
Thanks, Dale and good morning, everyone before we kick things off I'd like to remind everyone that our financial results include eight months of operating results for me to work as well as approximately two months of contribution from the acquisition of C. D F, which closed on November six 2020.
Net sales and the fourth quarter of 2020 increased 17% to $71 4 million compared to the year ago quarter.
The strong quarter reflects the impact of the two acquisitions completed this year as well as growth within our existing vendor network. During this period of seasonal strength and our business.
Adjusted gross billings and non-GAAP measure increased 35% to $226 4 million in the fourth quarter of 2020 compared to the year ago quarter.
Gross profit and the fourth quarter of 2020 increased 34% to $10 5 million compared to $7 9 million in the year ago quarter.
The increase was primarily attributable to the aforementioned strong net sales growth generated during the quarter.
With Interwork fully integrated and CDF already generating meaningful contribution we expect our acquisitions to continue contributing to our profitability improvements.
SG&A expenses and the fourth quarter of 2020 were $7 7 million compared to $5 3 million and the year ago quarter as.
As a percentage of net sales SG&A was 10, 8% compared to eight 8% and year ago quarter.
The increase was primarily driven by acquisition related costs associated with the CTF transaction.
And the additive expenses of the acquired businesses and increased sales cost as we continue to invest and more personnel to drive future growth.
As we grow we expect SG&A margins to improve as we leverage the resources of our combined organizations.
Net income and the fourth quarter of 2020 increased 25% to $2 5 million or <unk> 58 cents per diluted share compared to 2 million or <unk> 45 per diluted share and year ago quarter.
Adjusted net income, which excludes nonrecurring costs related to the unsolicited bid and the into work and CDF acquisitions increased 37% to $2 9 million or <unk> 69 per share compared to $2 1 million or 48 per share and year ago quarter.
In the fourth quarter of 2020, adjusted EBITDA increased 44% to $4 4 million compared to 3 million for the same period and 2019.
The increase was primarily driven by the aforementioned growth and gross profit during the quarter, resulting from the impact of the businesses we acquired during the year.
Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit increased 280 basis points to 41, 4% compared to 38, 6% and the year ago quarter.
Cash and cash equivalents increased $29 3 million at December 31, 2020, compared to $15 million at December 31, 2019.
We remain debt free as well.
During the fourth quarter, we paid the full $17 4 million net cash purchase price, which excludes working capital and other adjustments for C. D F.
Even after this payout our higher cash balance relative to the end of 2019 reflects sustained improvements in working capital, resulting from the liquidity benefits of and our early pay discount program implemented with one of our large customers during the second quarter.
On February 20, <unk> 'twenty 'twenty, one and the board of directors declared a quarterly dividend of <unk> 17 per share of common stock payable on March 19th 2021 to shareholders of record on March 12 2021.
As we look ahead through 2021, and our continued strong liquidity position provides us with flexibility to execute on our organic and acquisitive growth initiatives.
This concludes my prepared remarks, now we will open it up for questions.
Thank you and as a reminder to ask a question you will need depressed and star one on your telephone.
Starting on the number one to ask a question and please standby and while we compile the Q&A roster. Thank you.
I think we are.
And our first question is from the line of how long or with other investor and your line is now open. Thank you.
Hi, Dale can you hear me there.
Yeah hear you find thanks, and great. So congrats to you and the entire team and outstanding quarter and really.
For setting the stage in 2020 with those two acquisitions and getting ready for what I called a crazy.
Financing program with your vendor.
My question was really looking forward.
Now that you've got Interwork, and Cvs integrated and you've really expanded your footprint with this really a solid cloud based distribution system and you expanded your markets into Canada and Europe.
And now you've crossed really $1 billion annualized and gross billings and.
What do you see I guess two parts what do you see in 2021 as reasonable growth targets and you don't give guidance, but are we looking at 10% growth, 20% growth, but just give us some perspective of what you see for wayside and 2021 and then.
And also longer term, what do you see as your total addressable market and the emerging technology. It distribution market that you play and especially given these two acquisitions you made and how thats expanded your market.
Yes, Thanks, Howard and yes.
And first part as far as where we see our growth and Youre right and expanding our team members and like I said, you know to over 270 team members and everybody and we just got done our sales kickoff for 2021, which you can imagine it's virtual but we feel like the productivity came out of and very well and well.
Well, we're looking at as you know and 8% to 12% growth I mean, and just some internal thing that we focus on and we have our own metrics for our sales teams and when we actually set the commission and compensation plans, but that's the growth that we.
And we're trying to achieve nothing we do give that but thats the goal and that range as far as the addressable market is a little more difficult and we look at it two ways. So we have the big distributors that are out there and the four big ones that makeup.
And we over 100 billion.
And if you look at just the let's take North America because.
60% of.
I'm sorry looking at.
The emerging vendors.
Look at the U S and North America, being 60 per cent of the overall sales and each one of these big Disney's.
It probably has a 10% emerging vendor.
Portfolio and that they go on so take it and let's say, it's $100 billion 10, and $10 billion of the emerging side of things and that's the group, we're competing against and if you look at where we are and the GAAP and a $1 billion like you said is net.
The next one is 20 billion. So we have a big big GAAP that we can play and before we really become too disruptive to them and the emerging space and then expanding Canada. We look at the North American market is so combined right now because <unk> integration.
Integration was so seamless and so quick.
Climb channel solution, we don't even talk about and or could do and this release, but it's really.
One team we have integrated so many of the interwork teams into our everyday work and same thing going back into the innerwear side. So it's really one group, but if you look at that back to the addressable market and where we went into Europe, where we were really just a satellite office and now we have 100, and some people and the U K.
And we see that as our rural and ex expansion piece of it so okay addressable market.
And I can just keep saying, it's big and huge we need to get more addressable and and probably research. So that we know that that number is and the.
$5 to $15 billion range that we can go into.
Great and if I could ask just one quick follow up for Michael.
8% to 12% or 8% to 10% somewhere in that range of growth, but what do you have for for metrics for what would you be happy with in terms of percentage Bottomline.
What's your target margins and target profitability. If you can give anything color on that.
Yes, yes sure.
I think the best way to look at it because you do have the acquisitions to consider when you are looking are looking at our historical results for 2020 and trying to.
Looking to the future here. So first thing I would do is start with this year as a baseline and we acquired two businesses during the year.
Interwork, we said.
And would contribute about a $1 million and EBITDA per year once it.
Rationalized into our business, which it is now so and our current year results.
Eight months of Interwork. So next year, we're going to pick up for.
If you want to look at it that way.
No.
We'll pick up say for.
$400000 of EBITDA, just because we're picking up a full year of interwork.
And fully integrated next year right.
On the CTF acquisition their historical EBITDA and this is looking backwards for there.
For financial year that was ended in June 2020, actually but they did about $2 million in EBITDA per year. So in this year's results. We picked up you know close to two months.
And next year, we'll we'll pick up another 10, right. So you'll pick up another call it $1 6 million and EBITDA from that acquisition. So between the two of them will have $2 million of growth on EBITDA line just by virtue of the fact that we have the acquired numbers Bill.
And next year.
So I think thats, the starting point, if youre trying to look at what the next year is going to be and model. It out and then I think the question Youre asking on top of that as well, what's your organic growth is going to be in those businesses and.
I guess organic growth plus synergies and cross sell opportunities between the businesses and I think thats, where we get to the number that Dan was talking about somewhere in the high single digits to low digits.
Low double digits on top of that.
Sure.
Great well, thanks, and congrats again on a great quarter, and really tying up a nice year for the transition of wayside.
Thanks Sarah.
And there are no questions at this time, Sir turning it back to you and Mr. Foster. Thank you.
Yes again.
Thanks for everybody on the call today, and keeping track of bus.
<unk>.
I'm going to refer back to it's about the team that we're building as the engine of the company going forward Youll see.
Continued news from US as we go out throughout this year.
And I'd like to thank all the employees our board of directors Super supportive and just the teams for during a challenging time and making it work right. The biggest thing we're all facing and productivity right now and we got up and down throughout the summer and I think now we've got the optimism that we can sundar traveling again and really start seeing people.
And because the relationships should be face to face, but with that.
Again, thank you for the company I appreciate it I'll turn it back to the operator.
Ladies and gentlemen, this concludes today's conference call and you may disconnect. Your line and this time. Thank you for your participation.
And.
And.
Sure.
And then.
[music].
Yes.
And.
Yes.
And then.
And.
Moving.
And.
And.
And then.
Yeah.