Wayside Technology Group, Inc. (NASDAQ: WSTG) (“Wayside” or the
“Company”), a value-added IT channel company providing innovative
sales and distribution solutions for emerging technology vendors,
is reporting results for the first quarter ended March 31, 2021.
First Quarter 2021 Summary vs. Same
Year-Ago Quarter
- Net sales
increased slightly to $62.8 million compared to $62.6 million.
- Gross profit
increased 33% to a record $10.8 million compared to $8.2
million.
- Net income
increased 82% to $1.5 million or $0.35 per share, compared to $0.8
million or $0.18 per share.
- Net income
excluding legal and financial advisory expenses, net - unsolicited
bid and related matters and acquisition related costs, net of taxes
(a non-GAAP financial measure defined below) was $1.5 million or
$0.35 per share, compared to $2.1 million or $0.47 per share.
- Adjusted EBITDA (a non-GAAP
financial measure defined below) was $2.6 million compared to $3.1
million.
Management Commentary
“During the first quarter, we continued to
execute on our growth strategy and lay a solid foundation for
2021,” said Dale Foster, CEO of Wayside. “Despite a tough
comparable period in the prior year, we generated year-over-year
growth across net sales, adjusted gross billings and gross margin,
reaching a record $10.8 million in gross profit for the quarter. As
we made further progress on our integration of CDF Group (CDF) and
develop both existing partnerships and cross-selling opportunities,
we are making key strategic investments ahead of our growth
objectives. While the benefits of these investments have yet to
fully flow through to our profitability, we expect to generate
further bottom-line growth over time as we keep supporting our
organic business and driving additional synergies with CDF and
Interwork.
“Our three core growth drivers continued to be
top of mind throughout the quarter, and they will underscore our
strategy going forward. As part of our ongoing support to current
vendors, we have helped them navigate a dynamic demand environment
as their end customers continue building their IT infrastructures
within an increasingly hybrid work-driven landscape. This new
environment has shifted our product mix from quarter to quarter,
with security, data center and cloud products garnering greater
demand in Q1. Even as broader recovery from the pandemic
progresses, IT needs will continue to evolve, and our diversified
portfolio and line card remain poised to support these needs.
“We are expanding this diversification even
further through adding new vendors with above-average growth
potential. As we ramp-up collaboration among our US, Canadian and
EMEA sales teams, we are already adding several emerging UK vendors
to our line card. In addition, we are building relationships with
larger international brands where we can distribute certain product
lines within our core categories. The cross-selling opportunities
we are identifying through Interwork and CDF’s networks will help
us deepen our global footprint and bolster the strength of our
combined sales team.
“Our work to develop our vendor network remains
well-supported by our strong balance sheet and the added
capabilities that our recent acquisitions have made possible. The
cloud products and consultative services offered through Grey
Matter and Cloud Know How (divisions of CDF), respectively, have
accelerated our long-running development of an internal cloud
marketplace. With the marketplace set to launch later this month,
we expect to expand our support for new and incoming cloud vendors,
as well as offer more comprehensive end-to-end services for
consumers. The cloud is a mainstay of today’s remote and hybrid
work environments, and we expect it to become an important and
strategic element of both our portfolio and our long-term
growth.
“As we look to the rest of 2021, we plan to
continue leveraging our strong foundation to support the emerging
vendors in our network and pipeline, as well as seek additional
accretive acquisition opportunities in the IT distribution and
solutions marketplace. These are still early days for our long-term
growth trajectory.”
Dividend
Subsequent to the quarter, on May 4, 2021,
Wayside’s board of directors declared a quarterly dividend of $0.17
per share of its common stock payable on May 21, 2021 to
shareholders of record on May 17, 2021.
First Quarter 2021 Financial
Results
Net sales in the first quarter of 2021 increased
slightly to $62.8 million compared to $62.6 million for the same
period in 2020. The modest growth reflects the positive impact of
CDF and Interwork, partially offset by a change in product mix sold
within the Company’s existing vendor network relative to prior
quarters. It is important to note that the first quarter of 2020
had substantial uptick in growth attributable to a significant
client win.
Adjusted gross billings (a non-GAAP financial
measure defined below) in the first quarter of 2021 increased 22%
to $210.9 million compared to $173.1 million for the same period in
2020.
Gross profit in the first quarter of 2021
increased 33% to $10.8 million compared to $8.2 million for the
same period in 2020. The increase in gross profit was driven by the
positive impact of CDF and Interwork. However, it is important to
note that the Company’s gross profit performance during the quarter
was impacted by multiple factors, including customer early pay
discounts, reduced vendor rebates and increased customer rebates
that the Company is working to mitigate and offset these costs in
future quarters.
Total selling, general, and administrative
(“SG&A”) expenses in the first quarter of 2021 were $8.8
million compared to $7.2 million for the same period in 2020. The
increase was primarily driven by incremental costs related to the
operations of CDF and Interwork, as well as a one-time severance
expense incurred during the quarter. Further, these expenses
reflect increased investments ahead of the Company’s growth
objectives, which are expected to drive continued gross profit
growth in the coming quarters. As a percentage of net sales,
SG&A was 14.0% compared to 11.5% for the same period in 2020.
Over time, the Company continues to expect SG&A margin to
decline as a percent of revenue as it leverages the resources of
the combined organizations.
Net income in the first quarter of 2021
increased 82% to $1.5 million or $0.35 per diluted share, compared
to $0.8 million or $0.18 per diluted share for the same period in
2020. Net income excluding costs related to the unsolicited bid and
related matters, as well as acquisition related costs, net of
taxes, were $1.5 million or $0.35 per share, compared to $2.1
million or $0.47 per share for the same period in 2020.
Adjusted EBITDA (a non-GAAP financial measure
defined below) in the first quarter of 2021 was $2.6 million
compared to $3.1 million for the same period in 2020. The decrease
was primarily driven by the impact of the aforementioned severance
expenses, early pay discount programs, and increased customer
rebates and decreased vendor rebates, which were elevated relative
to the year-ago quarter.
Effective margin, which is defined as adjusted
EBITDA (a non-GAAP financial measure defined below) as a percentage
of gross profit, was 24.4% in the first quarter of 2021 compared to
38.2% for the same period in 2020. The decrease was driven by the
aforementioned decline in adjusted EBITDA and the related
mitigating factors on the Company’s profitability performance.
Effective margin is expected to improve over the coming quarters as
the Company works to offset these factors and drive greater
benefits from its strategic investments.
Cash and cash equivalents increased 15% to $33.7
million on March 31, 2021, compared to $29.3 million at December
31, 2020. The increase was primarily driven by continued
improvements in working capital, along with the liquidity benefits
of the aforementioned early pay discount program. The Company
remained debt free on March 31, 2021, and had no borrowings
outstanding under its $20 million credit facility.
Financial results include operations of
Interwork Technologies effective May 1, 2020, as well as operations
of CDF Group effective November 6, 2020. The initial allocation of
the purchase price of CDF Group is based on preliminary information
and is subject to adjustments during a one-year measurement period
following the close date of the acquisition. This may include
adjustments to provisional balances including the fair value of
tangible and intangible asset values, amortization and deferred
taxes. More information will be available in the Company’s
quarterly report filed on Form 10-Q with the Securities and
Exchange Commission.
Conference Call
Wayside Technology Group will conduct a
conference call tomorrow, May 6, 2021, at 8:30 a.m. Eastern time to
discuss its results for the first quarter ended March 31, 2021.
Wayside management will host the conference
call, followed by a question and answer period.
Date: Thursday, May 6, 2021Time: 8:30 a.m.
Eastern timeToll-free dial-in number: (888) 771-4371International
dial-in number: (847) 585-4405Conference ID: 50151487
Please call the conference telephone number 5-10
minutes prior to the start time. An operator will register your
name and organization. If you have any difficulty connecting with
the conference call, please contact Gateway Investor Relations at
1-949-574-3860.
The conference call will be broadcast live and
available for replay here and on the investor relations section of
the company’s website at www.waysidetechnology.com.
About Wayside Technology
Group
Wayside Technology Group, Inc. (NASDAQ: WSTG) is
a value-added IT distribution and solutions company specializing in
emerging technologies. Wayside operates across the US, Canada and
Europe through multiple business units, including Climb Channel
Solutions, Sigma, Grey Matter, Interwork and TechXtend. The Company
provides IT distribution and solutions for emerging companies in
the Security, Data Management, Cloud, Connectivity, Storage &
HCI, Virtualization, and Software & ALM industries.
Additional information can be found by visiting
www.waysidetechnology.com.
Non-GAAP Financial Measures
We use non-GAAP financial measures, including
adjusted gross billings, net income excluding legal and financial
advisory expenses, net - unsolicited bid and related matters, net
of taxes and acquisition related costs, and adjusted EBITDA as
supplemental measures of the performance of our business. Our use
of these financial measures has limitations and you should not
consider them in isolation or use them as substitutes for analysis
of our financial results under generally accepted accounting
principles in the United States of America (“U.S. GAAP”). The
attached tables provide a reconciliation of each non-GAAP financial
measure to the most nearly comparable measure under U.S. GAAP.
Forward-Looking Statements
The statements in this release concerning the
Company’s future prospects are forward-looking statements that
involve certain risks and uncertainties. These risk and
uncertainties include, without limitation, the continued acceptance
of the Company’s distribution channel by vendors and customers, the
timely availability and acceptance of new products, product mix,
market conditions, contribution of key vendor relationships and
support programs, as well as factors that affect the software
industry in general and other factors. Currently, one of the most
significant factors, however, is the potential adverse effect of
the current pandemic of the novel coronavirus, or COVID-19, on the
Company, the global economy and financial markets. The extent to
which COVID-19 impacts the Company will depend on future
developments, which are highly uncertain and cannot be predicted
with confidence, including the scope, severity and duration of the
pandemic, the actions taken to contain the pandemic or mitigate its
impact, and the direct and indirect economic effects of the
pandemic and containment measures, including the impact on our
reseller partners and the end customer markets they serve, among
others. The forward-looking statements contained herein are also
subject generally to other risks and uncertainties that are
described from time to time in our filings with the Securities and
Exchange Commission.
Company Contact
Michael VeseyChief Financial
Officer1-732-389-0932michael.vesey@waysidetechnology.com
Investor Relations Contact
Cody Cree or Jackie KeshnerGateway Investor
Relations1-949-574-3860WSTG@gatewayir.com
WAYSIDE TECHNOLOGY GROUP, INC. AND
SUBSIDIARIES |
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
|
|
(Unaudited) |
|
|
(Amounts in thousands, except share and per share
amounts) |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
33,747 |
|
|
$ |
29,348 |
|
|
Accounts receivable, net of
allowances of $910 and $892, respectively |
95,412 |
|
|
93,821 |
|
|
Inventory, net |
4,190 |
|
|
4,936 |
|
|
Vendor prepayments and
advances |
7,531 |
|
|
1,235 |
|
|
Prepaid expenses and other
current assets |
3,777 |
|
|
3,837 |
|
Total current
assets |
144,657 |
|
|
133,177 |
|
|
|
|
|
|
|
|
Equipment and
leasehold improvements, net |
2,275 |
|
|
2,308 |
|
Goodwill |
17,457 |
|
|
16,816 |
|
Other intangibles,
net |
10,753 |
|
|
10,625 |
|
Right-of-use
assets, net |
1,856 |
|
|
1,933 |
|
Accounts
receivable long-term, net |
135 |
|
|
304 |
|
Other assets |
510 |
|
|
257 |
|
Deferred income
tax assets |
67 |
|
|
113 |
|
|
|
|
|
|
|
|
Total assets |
$ |
177,710 |
|
|
$ |
165,533 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
Accounts payable and accrued
expenses |
$ |
126,832 |
|
|
$ |
116,692 |
|
|
Lease liability, current
portion |
505 |
|
|
490 |
|
Total current
liabilities |
127,337 |
|
|
117,182 |
|
|
|
|
|
|
|
|
|
Lease liability, net of
current portion |
2,051 |
|
|
2,167 |
|
|
Deferred income tax
liabilities |
1,573 |
|
|
1,467 |
|
|
|
|
|
|
|
|
Total
liabilities |
130,961 |
|
|
120,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
|
|
Common stock, $.01 par value;
10,000,000 shares authorized, 5,284,500 shares |
|
|
|
|
|
|
issued, and 4,411,197 and
4,361,997 shares outstanding , respectively |
53 |
|
|
53 |
|
|
Additional paid-in
capital |
31,358 |
|
|
31,962 |
|
|
Treasury stock, at cost,
873,303 and 922,503 shares, respectively |
(13,921 |
) |
|
(14,747 |
) |
|
Retained earnings |
28,961 |
|
|
28,191 |
|
|
Accumulated other
comprehensive income (loss) |
298 |
|
|
(742 |
) |
Total
stockholders' equity |
46,749 |
|
|
44,717 |
|
Total liabilities
and stockholders' equity |
$ |
177,710 |
|
|
$ |
165,533 |
|
WAYSIDE TECHNOLOGY GROUP, INC. AND
SUBSIDIARIES |
|
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS |
|
(Unaudited) |
|
(Amounts in thousands, except per share data) |
|
|
|
|
|
Three months ended |
|
March 31, |
|
2021 |
|
|
2020 |
|
|
|
|
|
Net Sales |
$ |
62,813 |
|
|
$ |
62,618 |
|
|
|
|
|
Cost of sales |
51,970 |
|
|
54,454 |
|
|
|
|
|
Gross profit |
10,843 |
|
|
8,164 |
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
8,412 |
|
|
5,404 |
Legal and financial advisory expenses, net - unsolicited bid and
related matters |
- |
|
|
1,323 |
Acquisition related costs |
- |
|
|
403 |
Amortization &
depreciation expense |
399 |
|
|
96 |
Total selling, general and
administrative expenses |
8,811 |
|
|
7,226 |
|
|
|
|
|
Income from operations |
2,032 |
|
|
938 |
|
|
|
|
|
Interest, net |
10 |
|
|
62 |
Foreign currency transaction
(loss) gain |
(91 |
) |
|
115 |
Income before provision for
income taxes |
1,951 |
|
|
1,115 |
Provision for income
taxes |
431 |
|
|
279 |
|
|
|
|
|
Net income |
$ |
1,520 |
|
|
$ |
836 |
|
|
|
|
|
Income per common share -
Basic |
$ |
0.35 |
|
|
$ |
0.18 |
Income per common share -
Diluted |
$ |
0.35 |
|
|
$ |
0.18 |
|
|
|
|
|
Weighted average common shares
outstanding - Basic |
4,247 |
|
|
4,447 |
Weighted average common shares
outstanding - Diluted |
4,247 |
|
|
4,447 |
|
|
|
|
|
Dividends paid per common
share |
$ |
0.17 |
|
|
$ |
0.17 |
Reconciliation of GAAP and Non-GAAP Financial Measures
(unaudited) |
(Amounts
in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
The table below
presents net sales reconciled to adjusted gross billings
(Non-GAAP): |
|
|
|
|
|
|
|
|
|
Three months ended |
|
Adjusted Gross
Billings (Non-GAAP) (1) |
|
March 31, |
|
March 31, |
|
|
|
2021 |
|
2020 |
|
Net sales |
|
$ |
62,813 |
|
$ |
62,618 |
|
Costs of sales related to
Software – security and highly interdependent with support and
maintenance, support and other services |
|
148,048 |
|
110,481 |
|
Adjusted gross billings
(Non-GAAP) |
|
$ |
210,861 |
|
$ |
173,099 |
(1) We define adjusted gross billings as net sales in accordance
with US GAAP, adjusted for the cost of sales related to Software –
security and highly interdependent with support and maintenance,
support and other services. We provided a reconciliation of
adjusted gross billings to net sales, which is the most directly
comparable US GAAP measure. We use adjusted gross billings of
product and services as a supplemental measure of our performance
to gain insight into the volume of business generated by our
business, and to analyze the changes to our accounts receivable and
accounts payable. Our use of adjusted gross billings of product and
services as analytical tools has limitations, and you should not
consider them in isolation or as substitutes for analysis of our
financial results as reported under US GAAP. In addition, other
companies, including companies in our industry, might calculate
adjusted gross billings of product and services or similarly titled
measures differently, which may reduce their usefulness as
comparative measures.
The tables below present net income reconciled to net income
excluding legal and financial advisory expenses, net - unsolicited
bid and related matters, net of taxes and acquisition related costs
(Non-GAAP) (2) and net income reconciled to adjusted EBITDA
(3): |
|
|
|
|
|
Net income reconciled to net income excluding legal and
financial advisory expenses, net - unsolicited bid and related
matters, net of taxes and acquisition related costs
(Non-GAAP): |
|
Three months ended |
|
March 31, |
|
March 31, |
|
2021 |
|
2020 |
|
|
|
|
|
Net income |
|
$ |
1,520 |
|
$ |
836 |
Legal and financial advisory expenses, net - unsolicited bid and
related matters, net of taxes |
|
- |
|
|
992 |
Acquisition
related costs |
|
|
- |
|
|
302 |
Net income
excluding legal and financial advisory expenses, net - unsolicited
bid and related matters, net of taxes and acquisition related
costs |
|
$ |
1,520 |
|
$ |
2,131 |
|
|
|
|
|
Net income
excluding legal and financial advisory expenses, net - unsolicited
bid and related matters, net of taxes and acquisition related costs
per common share - diluted |
|
$ |
0.35 |
|
$ |
0.47 |
(2) We define net income excluding legal and financial advisory
expenses, net - unsolicited bid and related matters, net of taxes
and acquisition related costs, as net income, plus legal and
financial advisory expenses, net - unsolicited bid and related
matters and acquisition related costs, less the income tax benefit
attributable to the legal and financial advisory expenses, net -
unsolicited bid and related matters. We provided a reconciliation
of net income excluding legal and financial advisory expenses, net
- unsolicited bid and related matters, net of taxes and acquisition
related costs, to net income, which is the most directly comparable
U.S. GAAP measures. We use net income excluding legal and financial
advisory expenses, net - unsolicited bid and related matters, net
of taxes and acquisition related costs as supplemental measures of
our performance to gain insight into comparison of our businesses
profitability when compared to the prior year. Our use of net
income excluding legal and financial advisory expenses, net -
unsolicited bid and related matters, net of taxes and acquisition
related costs has limitations, and you should not consider it in
isolation or as a substitute for analysis of our financial results
as reported under U.S. GAAP. In addition, other companies,
including companies in our industry, might calculate legal and
financial advisory expenses, net - unsolicited bid and related
matters, acquisition related costs, legal and financial advisory
expenses, net - unsolicited bid and related matters, net of taxes,
or similarly titled measures differently, which may reduce their
usefulness as comparative measures.
|
|
|
Three months ended |
|
|
|
March 31, |
|
March 31, |
Net income
reconciled to adjusted EBITDA: |
|
2021 |
|
2020 |
|
|
|
|
|
|
Net income |
|
$ |
1,520 |
|
$ |
836 |
|
Provision for income
taxes |
|
431 |
|
279 |
|
Depreciation and
amortization |
|
399 |
|
96 |
|
Interest expense |
|
18 |
|
17 |
EBITDA |
|
2,368 |
|
1,228 |
|
Share- based compensation |
|
279 |
|
167 |
|
Legal and
financial advisory expenses, net - unsolicited bid and related
matters |
- |
|
1,323 |
|
Acquisition related costs |
|
- |
|
403 |
Adjusted
EBITDA |
|
$ |
2,647 |
|
$ |
3,121 |
(3) We define adjusted EBITDA, as net income, plus provision for
income taxes, depreciation, amortization, share-based compensation,
interest, legal and financial advisory expenses, net – unsolicited
bid and related matters and acquisition related costs. We define
effective margin as adjusted EBITDA as a percentage of gross
profit. We provided a reconciliation of adjusted EBITDA to net
income, which is the most directly comparable US GAAP measure. We
use adjusted EBITDA as a supplemental measure of our performance to
gain insight into our businesses profitability when compared to the
prior year and our competitors. Adjusted EBITDA is also a component
to our financial covenants in our credit facility. Our use of
adjusted EBITDA has limitations, and you should not consider it in
isolation or as a substitute for analysis of our financial results
as reported under US GAAP. In addition, other companies, including
companies in our industry, might calculate adjusted EBITDA, or
similarly titled measures differently, which may reduce their
usefulness as comparative measures.
|
|
Three months ended |
|
|
March 31, |
|
|
March 31, |
|
Components
of interest, net |
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
Amortization of discount on accounts receivable with extended
payment terms |
$ |
(25 |
) |
|
$ |
(62 |
) |
|
Interest income |
(3 |
) |
|
(17 |
) |
|
Interest expense |
18 |
|
|
17 |
|
Interest, net |
$ |
(10 |
) |
|
$ |
(62 |
) |
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