Q2 2021 Wayside Technology Group Inc Earnings Call
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These forward looking statements are also subject to other risks and uncertainties that are described from time to time and the company's filings with the SEC.
Do not place undue reliance on any forward looking statements, which are being made only as of the date of this call accept as required by law. The company undertakes no obligation to revise or publicly released the results of any revision too and forward looking statements.
Our presentation also include certain non-GAAP financial measures, including adjusted gross billings and adjusted EBITDA.
And 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 SEC rules, you'll find reconciliation sharks and other important information and the earnings press release and form 8-K, we furnished to the SEC yesterday.
With that I'll turn on the call over to Wayside CEO sales foster.
Thank you Sean and good morning, everyone on a strong second quarter results reflect and continued focus and executions on both organic and inorganic growth initiatives regenerate and social growth across all the key operating and financial measures during the quarter along with our 2 acquisitions from the past year that are driving meaningful improve.
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And real estate and before we have 3 coordinate should've said drive and everything we do and number 1 generate organic growth from existing vendors and customers number to enhance our on line card. With addition of new emerging vendors and only 3 execute on our acquisition strategy by utilizing our balance sheet and free cash flow to acquire companies though.
Strategic and accretive to earnings.
Within the existing vendor network, we continue to deepen relationships with a sales and marketing focus on higher growth products are partners continue to recognize on unique ability to actively sell and market their products to channel customers spending on security and data center and cloud product lines remain all time highs and we plan to continue.
Capitalizing on this market momentum by serving as and effective sales channel 4 burgers.
The depth of on relationships is further reflected by the activity when in our top customers and partners for instance, and 2020, we generated $102 million of gross sales with our top 20 vendors today, we generated more than $156 million annualized gross sales with our top 20 or 50%.
Greece. This truly speaks to the quality of our service offerings and the value we provide to our customers and partners.
Although we are pleased with our performance to drive growth within our existing network and vendors and customers. We know there is always room for improvement and we will continue to seek opportunities to deepen these relationships. So.
Signing up new vendors is also key to ensuring that we have the most compelling list of technologies to offer on our lawn cart and Q2, we continue to execute on that front as reflected by several new partnerships announcements and Marcie company and like store, 1 and 2 on queue to put some numbers behind the improvements.
And we have made and 2020 and we generated 1 million plus and net sales with about 30 different customers today, we generate over $1 million of sales with more than 42 customers. This is a reflection of both and depth and breadth within our customer network and speak to the proactive sales culture, we have implemented across our various business you.
And it's an wayside.
On the acquisition front, and we continue to actively seek strategic opportunities across multiple geographies, while working to drive efficiencies through scale and various operating levers and all divisions on the company.
During the quarter, we rebranded Cdf's Sigma software distribution business to climb channel solutions, which brings together 2 highly respected channel brands servicing the emerging technology market Sigma and climbed share many vendor relationships, which is made for a seamless integration process with a shared focus on driving growth.
And deficiencies and <unk>.
You may have seen earlier this week, we launched climbing expedition, our new cloud and marketplace designed for Mst's and hybrid bars to explore and transact with vendors that are moving to a subscription based model of software delivery and.
Tradition is a flexible self service platform and enables our partners to interact more efficiently with clients slate and technology solutions and.
Expedition, not only benefits our customers, but also benefits are emerging vendors by extending their reach into the and a speed community I look forward to provide and future updates on expedition and how we and how the new marketplace will distinguish us from our competition.
Speaking of the competition and continued consolidation and and industry improve provides us with an even greater opportunity to separate wayside from the past and the past year, So lower top players and tech distribution, either merged or have been acquired including Ingram Micro's $7 billion acquisition by platinum equity and.
Well as cynics merger with Tech data, which will create a combined company and that will generate and $57 billion and pro forma annual sales companies like these don't offer the boots on the ground Hi Tech support that we offer through our distribution and solutions.
Emerging technology companies need more than simply supply chain logistics, which is a focus on most large distribution companies for this reason wayside as well positioned to win and differentiate itself and this segment of the market.
Before I turn on the call over I want to discuss a few key new additions to the wayside teen first we're thrilled to deepen our bench on the board with addition of Jerry Gold as a director Jerry brings nearly 3 decades of executive experience to the board and is currently the senior Vice President and CEO of HP financial services.
<unk> asset management and financing division of Hewlett factor, where she overseeing $13 billion and assets across more than 50 countries worldwide. We also retain and new investor relations from elevate IR to help improve our communications and awareness within and investment community given the are improved financial profile and the strong momentum and on.
Business, we felt the time was right to bolster our IRL efforts and we look forward to working with elevate to engage a broader audience going forward and finally and June we appointed drew Clark is our new CFO true and brings and outstanding track record of driving results for both public and private companies and most recently served as the seal.
Hello of medical and and served on multiple public company boards, including safe net and Howard Bancorp.
Most importantly drew shares our vision of creating and differentiated platform of distribution and solutions for emerging technology brands and the other team and understanding of the critical work and infrastructure required to take wayside to the next level. So without further ado and uncertain induced and everyone to drew Clark and he takes you through our financial results true.
Dale. Thank you can warm introduction and on absolutely thrilled to be joining the team such a pivotal time and the company's history. So let's jump right into our results and <unk>.
No that that all comparisons and variance commentary referred to the year ago quarter, unless otherwise specified.
Net sales and the second quarter of 2021 increased 33 per cent to $75 and $4 million compared to 56.6 million and prior period.
This reflects book shown on organic growth and the benefit from the acquisition Cvs as well as 1 month that incremental contribution from Interwork, which was acquired and May 2020.
Excluding these acquisitions, we increased net sales by 9.8 million or 17% year over year with CDF and enter we're contributing and estimated 6.9 million at $2 million respectively.
Adjusted gross buildings, and non-GAAP measure increased 48% to $235 and $1 million compared to $158.7 million and the prior quarter.
Again, we experienced strong organic growth of 20% or $45 to value with an estimated contribution of $29 million from Cps at $10 and $3 million from Interwork, which reinforced sales earlier comments regarding our continued and execution, both organic and and.
Organic growth strategies.
Gross profit and the second quarter of 2021 increased to a record 54%.
For $11 million compared to set and what day prior period.
Again, the increase is driven by organic growth and the benefit of the Cvs and George.
Acquisitions S.
SG&A expenses and the second quarter were $8.5 million compared to $6 and $4 million with the increased primarily related incremental costs from the operations and Cvs and network as well as costs related to investments and our business that we expect will drive continued growth and the quarters and years ahead. These.
These expenses, including $2 million from CBF operations, and 300000 related to increased amortization expense, primarily attributable to our acquisition of CDF and November of 2020.
200000 employee separation expenses were also part of this increase and core selling expenses associated with the organic growth.
Delivered to the gross profit increases all of which will offset by last year's non-recurring approximately $500000 of various expenses with a defense of the unsolicited and bid and $200 acquisition related costs as a percentage of net sales SG&A was 11, 30%.
Compared to 11 and 2% net.
Net income and the second quarter of 2021 and increased approximately 4 times to $2 and $1 million.
Dollars and 49 cents per diluted share compared to.
$600000.13 per diluted share adjusted.
Just and EBITDA and the second quarter and increased 68% true 5 million compared to $2 and $1 million. The increase was driven by the ACA mentioned organic growth and acquisitions assets as well as a strong operating leverage.
Effected margin and defined as adjusted EBITDA as a percentage and gross profit increased 270 basis points to 32% and the second quarter of 2021 compared to $29.3 per cent and the prior quarter.
Cash and cash equivalents for $23 and $8 million as of June 30th 2021, compared to $29 and 3 million as of December 31st 2020.
The expected decrease was primarily driven by Taiwanese cash flows and is not an indication of any business or operating Trent the.
The company remains debt frame and no borrowings outstanding under either or $20 million U S..4 8 million pounds UK credit facilities, both with Citibank.
On August 3rd our board of Directors declared a quarterly dividend of 17 cents per share a common stock payable on August 20th to share holders of record on August 16th 2021.
Looking towards the balance of 2021 are strong liquidity position and are operating cash flow and continues to provide us the flexibility to execute on both our organic and acquisition growth strategies.
Despite the strong results of our second quarter means of companies still have work to do to achieve our designer levels and growth and profitability.
As we look at the balance of 2021 that we see ample growth opportunities to capture and look forward to achieving both are short term and long term goals, while continuing to build meaningful long term relationships with our customers and vendor network.
This concludes our prepared remarks and will now open it up for questions.
Thank you and you have a question. Please press and then 1 on your Touchtone phone and if you wish to be removed from the queue. Please press the pound sign are the hash key and these and a speaker phone and you may need to pick up the handset first before pressing the numbers once again and if you have a question please price.
And then 1 on your touchdown.
And we have a question from it and.
And will please go ahead.
Yeah. Congratulations on the quarter. My question is what are you hanging from your enterprise customers do they feel that the business and environment is positive.
Or are they concerned about possibly uptake Todd.
Covid again or people in terms of running out of steam in terms of working from home and stuff.
And thanks, Ed and I think it's the and I think we talked about a little bit and the queue too.
When we're going into and it's just the optimism that you feel and the marketplace from our customers both enterprise and.
The wide.
Group of resources that we support we definitely see it from our vendors I think we've talked about it before that we were heading back to the office. Our teams are back in on July 6th.
So that's all positive but.
And I think there's optimism out there and we definitely see the pipelines filling up which I think they've been dragging and the past but.
And we're seeing it and the actual results side of things. So that's a good thing.
Great and my next question and it's in terms of M&A opportunity.
Are there a lot of opportunities out there and what are you seeing in terms of valuations and in terms of you know.
<unk> 4 M&A do you guys do that you guys are ready to take on another acquisition and.
At this time and let me.
Let me start with the balance sheet part of the first I mean, we're definitely in a position financially to do that you know depending on what the target looks like we definitely can go higher upstream as you can see what we could put some leverage on the business.
But as far as targets go.
It's been consulted and the us here and I've talked about that and the password and not very many targets there western Europe as our focus.
And I can tell you that we have.
Quite a few on the list we've engaged with a select group of that and it's always going to be part of our strategy and the in the near future too.
Kind of do what we did with and a work and and Cvs I mean, it's it was good fits for us.
We'll take our time to make sure that we make the right moves that it makes the right strategic.
And what's the right strategic acquisition for the company of where we're going to go and it's not going to be way outside of our lanes.
It's going to be and that distribution MSP services type type of solutions, so you'll see that and they ended up killing upcoming quarters and can talk about it.
Great well, thank you and and wish you guys. Good luck.
Thanks I appreciate it.
And is there a reminder of and have a question. Thus far then 1 on your Touchtone thumb. Our next question comes from Howard Grill. Please go ahead and good.
Good morning, and congratulations day and when drew on on on a great quarter and it's just wonderful results to see.
My question I have 2 questions 1 is on a cloud and our day.
And when you started and 2018, you really that was 1 of the glaring holes. He had no cloud distribution and he started working on it and I know you just had a project project and then you get acquired CDF, which had the cloud platform and I think that's what your views, but if you could talk about that project gone are you satisfied with it or is there more work to do and and what does that meant to your revenue from.
Yeah.
The project will never be done when it comes to the cloud piece of it because you'll see all the different providers, whether it's a hybrid cloud or how they actually want to transact, but you are correct and we we talked about it for a long time, we finally launched it with climb expedition. It is the under the underlying coding is the same 1 that the C. D F used and we ask.
And we're going in that direction you from 4 required them. So it was just a little more acceleration on our side, but if you look at it and we don't track and separately and out because it's so new as far as the dollar scope, but.
Here's here's the issue and that is vendors are moving in that direction and they're not moving.
And as fast as Microsoft and where Microsoft is as far as doing subscription by on on a monthly basis, they're gonna get there and might take and 18 months to get there so as they move in that direction and you'll see our our licenses and our sales go from perpetual 2 subscription base. So that will really kind of be a shift of our revenues, but we plan on capturing.
Side of that just new additional territories that we can go into that we couldn't go into before when there's many companies are just born and the cloud so it opens us up for.
Just more vendors to look at that are just club vendors that we could try and black with so it's really we're really new to it that way and so it was the rest of the market.
To be able to transact that way, you'll see us talk about that a lot.
3 Q4, and then and probably.
Next year will be the 1 we started actually.
Looking and and talking about the numbers on it.
Great well.
So I kind of sideways into my second question, which is really looking at future growth and I think I. Finally after following for a coupla years here and finally figured out I mean, I'm I'm really paying attention to adjusted gross billings, which really is all of your product movement, whether it's net sales or not and if I look at that up 48 per cent year over year and up 12 per cent sequentially and.
And your closing in on a billion dollars and adjusted gross billings and then I kind of take a look from that I look at what what what gross profit and you do from that and Ah I'm looking at it from around 5 per cent of that adjusted gross billings and dropping to your gross profit line.
If you could talk a little bit about looking forward is that and that kind of.
Growth rate just isn't sustainable and very many places when you were already at that size and what do you see as the potential I I don't want you to opinion and 48 per cent year over year growth for the next 5 years, but what are you seeing how are you at the beginning middle way later stages of that kind of growth and and what's the potential market for your price for your for the overall business.
Yeah, I guess, if I, if I look on the macro level and and I talked about it and the and the release as far as you know look at our next.
The smallest of the large competitors and you have scanned source and the billions of dollars range and and era was $30 billion. So that consolidations already happened. There's a lot of headroom for us that we can go and we tell investors and and we can double in size and not be effective to the market really we can it's.
And we'll make a disruptive and like we are now and we're being very disruptive and some of our competitors and certain aspects of their divisions right, whether it's ingram or arrow or cynics Tech data combination.
But the so I'm I'm, just saying, we can grow with that range, but there's so many targets and when I say targets. There's so many vendors. So we were approaching 500 vendors that we've looked at and the last 3 years and we've only signed 50. So we'll look at and I mean, that's over 100, a year or non stop we have a full recruit team and it's really about those vendors coming and.
And if we look at our top 20 vendors.
We didn't have a relationship with him 18 months ago. So there's that many coming out of the woodwork of the needs of products sold the issue is there you know, it's and I, even hitting single that's getting to that single hitting where you're saying, okay and they moved to deal at $10 million to $20 million and is that company gets a 50 and we have some and a portfolio that I've already done that and that's just.
It's kind of simple business, that's what we're gonna do and we'll just focus on bringing and vendors growing up with them and keeping them as long as possible and servicing and and the best way possible and then jettison the ones that are either on the margins going out of the product and you can say well there's the margins are already but that that's the business we're in.
And the only thing that both of those Margaret margins is more service piece of it which talks about all the time and you can see and some of the results that we are doing some of that with the C. D. F group and will bring some of that to the U S.
Great and and the cross profit side of that do you see that is.
And they talk about how you view gross profit as a percentage of adjusted gross billings is it a tennessee and I mean on my number.
You're right you're right Howard as far as you should look at the adjusted gross billings because that's the money. We're collecting every day then that's.
The gap piece are and how we actually have to count it for the the gapping and the accounting site, but you look at our gross profit growth you need to track a spy gross billings gross profit, yes, it's 5 per cent.
Our major competitors, you know, they're doing stuff and and this up for range.
And you have to do that once in a while on and as far as and when it gets competition, but that's our goal and we'd love to you know.
Add some stuff on accretive to the business that will get us over that 5 and keep your billing and that direction, but judging by the the gross profit piece of it and then how much are we spend out of the gross profit how much can actually go out to the bottom line are we have been inflection point the scale no do we feel like we're close to that yes that we can really put on a show the leverage that the business has where.
And and it's really about our vendors and now they they launch they take off 1 goes public Mexican and we're riding that train and you'll see that inflection point, where you see more drop through.
Great. Thanks.
And and once again wonderful question and I drew welcome to the team and a great quarter to start.
Thanks I appreciate it thanks for the sport yeah. Thanks, Thanks Howard.
And our next question comes from Walter Rampley. Please go ahead.
Oh, Thank you congratulations on Super corner question about the.
The tax rate that was down a little and the quarter and can you give us an idea of what it should look like from.
Second half and and maybe just for the full year.
Yeah, and Walter the the effective tax rate is slightly lower than the historical trends predominantly due to our CDF acquisition and some of the European tax rates when you factor and the various component parts thereof, Uhm, it's actually lowered our overall effective tax rate. So we.
Look to probably be at that 22.1.22.2 per cent for the balance of the year and and year and overall.
Okay, Oh that sounds good.
And the.
Solar winds company I mean, they've had their problems has that and I like.
Spilled over into your business or it could you like just talk about that a little.
Yes, I'm supposed to <unk>, we we talked a little bit on Q1, because it was really affecting us we've doubled down the solar ones they've been a great partner versus we've actually spent time with their team and Austin.
Getting back and we also so some recovery and Q2, we continue to see that going on they split off with the wonder MSP divisions called enable and we've signed the contract with them. So we'll actually have a 2 fold approach you know from the the legacy solar winds and going forward and.
But yeah, yeah, they're good company, they're they're actually gonna do some retooling of how they go to market with their tools and monitoring. So I think we'll see some exciting stuff on it that come into the queue for just like you know sofas and it's been a good and you know we've had solve quarters with them and it's been strong quarters, so close to announce their their firewall and.
Firewalls, and that's been just to bolster or boosting to their sales for this quarter as well.
Okay sounds good well, thanks again, great quarter.
Thanks hold on.
We have no further questions at this time I will turn it over to day I'll password for fine on remark.
Thanks up on and thanks to all the shareholders and I appreciate your support and thanks for the questionnaires that you put in will definitely reach out to the best on community and just keep updating and what we're doing and if you have any requests for being so and hook up with Sean. Thanks for the board of directors are bored and you got a different look to it <unk> great meetings. This week.
With their board and thanks, and employees everybody's back and charge and strong so I appreciate it and thank <unk>. Thank you everybody again I appreciate it.
Thank you, ladies and gentlemen debt Congrats today's conference. Thank you for participating you may now disconnect.
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