Climb Global Solutions, Inc 10-Q for FY2022 Q2
Climb Global Solutions, Inc. (CLMB)
About this 10-Q
Climb Global Solutions, Inc filed this 10-Q on August 4, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $67.86M
- down 9.9% from $75.35M a year earlier
- Net income
- $2.79M
- up 55.8% from net income of $1.79M a year earlier
- Diluted EPS
- $0.63
- up 53.7% from $0.41 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Wayside Technology Group, Inc. and Subsidiaries
Table of Contents
2
PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Wayside Technology Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
| | June 30, | | December 31, | | ||
|
| 2022 |
| 2021 |
| ||
| | | | | | | |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | | | $ | | |
Accounts receivable, net of allowance for doubtful accounts of $ | | | | |
| | |
Inventory, net | | | | |
| | |
Vendor prepayments and advances | | | | | | | |
Prepaid expenses and other current assets | | | | |
| | |
Total current assets | | | | |
| | |
| | | | | | | |
Equipment and leasehold improvements, net | | | | |
| | |
Goodwill | | | | | | | |
Other intangibles, net | | | | | | | |
Right-of-use assets, net | | | | | | | |
Accounts receivable-long-term, net | | | | |
| | |
Other assets | | | | |
| | |
Deferred income tax assets | | | | |
| | |
Total assets | | $ | | | $ | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued expenses | | $ | | | $ | | |
Lease liability, current portion | | | | | | | |
Term loan, current portion | | | | | | — | |
Total current liabilities | | | | |
| | |
| | | | | | | |
Lease liability, net of current portion | | | | | | | |
Deferred income tax liabilities | | | | | | | |
Term loan, net of current portion | | | | | | — | |
Non-current liabilities | | | | | | — | |
Total liabilities | | | | | | | |
| | | | | | | |
Commitments and contingencies | | | | | | | |
| | | | | | | |
Stockholders’ equity: | | | | | | | |
Common stock, $ | | | | |
| | |
Additional paid-in capital | | | | |
| | |
Treasury stock, at cost, | | | ( | |
| ( | |
Retained earnings | | | | |
| | |
Accumulated other comprehensive loss | | | ( | |
| ( | |
Total stockholders’ equity | | | | |
| | |
Total liabilities and stockholders' equity | | $ | | | $ | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Wayside Technology Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
(Amounts in thousands, except per share data)
| | Six months ended | | Three months ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
| | | | | | | | | | | | | |
Net sales | | $ | | | $ | | | $ | | | $ | | |
| | | | | | | | | | | | | |
Cost of sales | |
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Gross profit | |
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Selling, general, and administrative expenses | |
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Amortization and depreciation expense | | | | | | | | | | | | | |
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Income from operations | |
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Other income: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Interest, net | |
| ( | |
| | |
| ( | |
| | |
| | | | | | | | | | | | | |
Foreign currency transaction (loss) gain | | | ( | | | ( | | | ( | | | | |
| | | | | | | | | | | | | |
Income before provision for income taxes | |
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| | | | | | | | | | | | | |
Provision for income taxes | |
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| | | | | | | | | | | | | |
Net income | | $ | | | $ | | | $ | | | $ | | |
| | | | | | | | | | | | | |
Income per common share-Basic | | $ | | | $ | | | $ | | | $ | | |
| | | | | | | | | | | | | |
Income per common share-Diluted | | $ | | | $ | | | $ | | | $ | | |
| | | | | | | | | | | | | |
Weighted average common shares outstanding — Basic | |
| | |
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| | | | | | | | | | | | | |
Weighted average common shares outstanding — Diluted | |
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| | | | | | | | | | | | | |
Dividends paid per common share | | $ | | | $ | | | $ | | | $ | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Wayside Technology Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Amounts in thousands)
| | Six months ended | | Three months ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
| | | | | | | | | | | | | |
Net income | | $ | | $ | | $ | | | $ | | | ||
| | | | | | | | | | | | | |
Other comprehensive (loss) income: | | | | | | | | | | | | | |
Foreign currency translation adjustments | |
| ( | |
| |
| ( | |
| | | |
Other comprehensive (loss) income | |
| ( | |
| | |
| ( | |
| | |
| | | | | | | | | | | | | |
Comprehensive income | | $ | | | $ | | | $ | | | $ | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Wayside Technology Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(Amounts in thousands, except share amounts)
| | | | | | | | | | | | | | | | | Accumulated | | | | ||
| | | | | | | Additional | | | | | | | | | | Other | | | | ||
| | Common Stock | | Paid-In | | Treasury | | Retained | | Comprehensive | | | | |||||||||
|
| Shares |
| Amount |
| Capital |
| Shares |
| Amount |
| Earnings |
| (Loss) Income |
| Total | ||||||
Balance at January 1, 2022 |
| | | $ | | | $ | |
| | | $ | ( | | $ | | | $ | ( | | $ | |
Net income | | — | | | — | | | — | | — | | | — | | | | | | — | | | |
Translation adjustment | | — | | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Dividends paid | | — | | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
Share-based compensation expense | | — | | | — | | | | | — | | | — | | | — | | | — | | | |
Restricted stock grants (net of forfeitures) | | — | | | — | | | ( | | ( | | | | | | — | | | — | | | — |
Treasury shares repurchased | | — | | | — | | | — | | | | | ( | | | — | | | — | | | ( |
Balance at March 31, 2022 |
| | | $ | | | $ | |
| | | $ | ( | | $ | | | $ | ( | | $ | |
Net income | | — | | | — | | | — | | — | | | — | | | | | | — | | | |
Translation adjustment | | — | | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Dividends paid | | — | | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
Share-based compensation expense | | — | | | — | | | | | — | | | — | | | — | | | — | | | |
Restricted stock grants (net of forfeitures) | | — | | | — | | | ( | | ( | | | | | | — | | | — | | | — |
Treasury shares repurchased | | — | | | — | | | — | | | | | ( | | | — | | | — | | | ( |
Balance at June 30, 2022 |
| | | | | | | |
| | | | ( | | | | | | ( | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | | | | | | Other | | | | ||
| | Common Stock | | Paid-In | | Treasury | | Retained | | Comprehensive | | | | |||||||||
|
| Shares |
| Amount |
| Capital |
| Shares |
| Amount |
| Earnings |
| (Loss) Income |
| Total | ||||||
Balance at January 1, 2021 |
| | | | | | | |
| | | | ( | | | | | | ( | | $ | |
Net income | | — | | | — | | | — | | — | | | — | | | | | | — | | | |
Translation adjustment | | — | | | — | | | — | | — | | | — | | | — | | | | | | |
Dividends paid | | — | | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
Share-based compensation expense | | — | | | — | | | | | — | | | — | | | — | | | — | | | |
Restricted stock grants (net of forfeitures) | | — | | | — | | | ( | | ( | | | | | | — | | | — | | | — |
Treasury shares repurchased | | — | | | — | | | — | | | | | ( | | | — | | | — | | | ( |
Balance at March 31, 2021 |
| | | $ | | | $ | |
| | | $ | ( | | $ | | | $ | | | $ | |
Net income | | — | | | — | | | — | | — | | | — | | | | | | — | | | |
Translation adjustment | | — | | | — | | | — | | — | | | — | | | — | | | | | | |
Dividends paid | | — | | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
Share-based compensation expense | | — | | | — | | | | | — | | | — | | | — | | | — | | | |
Restricted stock grants (net of forfeitures) | | — | | | — | | | | | | | | ( | | | — | | | — | | | — |
Treasury shares repurchased | | — | | | — | | | — | | | | | ( | | | — | | | — | | | ( |
Balance at June 30, 2021 |
| | | | | | | |
| | | | ( | | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Wayside Technology Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
| | Six months ended | | ||||
| | June 30, | | ||||
|
| 2022 |
| 2021 |
| ||
Cash flows from operating activities | | | | | | | |
Net income | | $ | | | $ | | |
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities: | | | | | | | |
Depreciation and amortization expense | |
| | |
| | |
Provision for doubtful accounts | |
| | | | — | |
Deferred income tax expense | |
| | |
| | |
Share-based compensation expense | | | | | | | |
Amortization of discount on accounts receivable | | | ( | | | ( | |
Amortization of right-of-use assets | | | | | | | |
Change in fair value of contingent earn-out consideration | | | — | | | | |
Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable | |
| | |
| ( | |
Inventory | |
| | |
| | |
Prepaid expenses and other current assets | |
| | |
| ( | |
Vendor prepayments | | | ( | | | | |
Accounts payable and accrued expenses | |
| ( | |
| | |
Lease liability, net | | | ( | | | ( | |
Other assets and liabilities | |
| | |
| ( | |
Net cash and cash equivalents provided by (used in) operating activities | |
| | |
| ( | |
| | | | | | | |
Cash flows from investing activities | | | | | | | |
Purchase of equipment and leasehold improvements | |
| ( | |
| ( | |
Vendor advances | | | — | | | ( | |
Net cash and cash equivalents used in investing activities | |
| ( | |
| ( | |
| | | | | | | |
Cash flows from financing activities | | | | | | | |
Purchase of treasury stock | |
| ( | |
| ( | |
Borrowings under term loan | | | | | | — | |
Repayments of borrowings under term loan | | | ( | | | — | |
Dividends paid | |
| ( | |
| ( | |
Net cash and cash equivalents provided by (used in) financing activities | |
| | |
| ( | |
| | | | | | | |
Effect of foreign exchange rate on cash and cash equivalents | |
| ( | |
| | |
| | | | | | | |
Net increase (decrease) in cash and cash equivalents | |
| | |
| ( | |
Cash and cash equivalents at beginning of period | |
| | |
| | |
Cash and cash equivalents at end of period | | $ | | | $ | | |
| | | | | | | |
Supplementary disclosure of cash flow information: | | | | | | | |
Income taxes paid | | $ | | | $ | | |
Interest paid | | $ | | | $ | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Wayside Technology Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2022
(Unaudited)
(Amounts in tables in thousands, except share and per share amounts)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of Wayside Technology Group, Inc. and its subsidiaries (collectively, the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, as permitted by the rules and regulation of the Securities and Exchange Commission, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete audited financial statements.
The preparation of these condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, stock-based compensation, evaluation of performance obligations and allocation of revenue to distinct items, contingencies and litigation. The Company bases its estimates on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the opinion of the Company’s management, all adjustments that are of a normal recurring nature, considered necessary for fair presentation of the results for the periods presented, have been included in the accompanying condensed consolidated financial statements. The Company’s actual results may differ from these estimates under different assumptions or conditions. The unaudited condensed consolidated statements of earnings for the interim periods are not necessarily indicative of results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K filed with the Securities Exchange Commission for the year ended December 31, 2021.
The consolidated financial statements include the accounts of Wayside Technology Group, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
2. Recently Issued Accounting Standards:
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” ("ASU 2016-13"). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its Consolidated Financial Statements, particularly its recognition of allowances for accounts receivable.
3. Foreign Currency Translation:
Assets and liabilities of the Company’s foreign subsidiaries have been translated using the end of the reporting period exchange rates, and related revenues and expenses have been translated at average rates of exchange in effect during the period. Foreign currency transaction gains and losses are recorded as income or expenses as amounts are settled. The net sales from our foreign operations for the three months ended June 30, 2022 and 2021 were $
8
4. Comprehensive Income:
Cumulative translation adjustments have been classified within accumulated other comprehensive loss, which is a separate component of stockholders’ equity in accordance with FASB ASC Topic 220, “Comprehensive Income.”
5. Revenue Recognition:
The Company’s revenues primarily result from the sale of various technology products and services, including third-party products, third-party software and third-party maintenance, software support and services. The Company recognizes revenue as control of the third-party products and third-party software is transferred to customers, which generally happens at the point of shipment or fulfilment and at the point that our customers and vendors accept the terms and conditions of the arrangement for third-party maintenance, software support and services.
The Company has contracts with certain customers where the Company’s performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as the Company assumes an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent. These arrangements primarily relate to third party maintenance, cloud services and certain security software whose intended functionality is dependent on third party maintenance.
The Company allows its customers to return product for exchange or credit subject to certain limitations. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return. The Company also provides rebates and other discounts to certain customers which are considered variable consideration. A provision for customer rebates and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.
The Company considers shipping and handling activities as costs to fulfill the sales of products. Shipping revenue is included in net sales when control of the product is transferred to the customer, and the related shipping and handling costs are included in the cost of products sold. Taxes imposed by governmental authorities on the Company’s revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.
The Company disaggregates its operating revenue by segment, geography and timing of revenue recognition, which the Company believes provides a meaningful depiction of the nature of its revenue. See segment Note 15.
Hardware and software products sold by the Company are generally delivered via shipment from the Company’s facilities, drop shipment directly from the vendor, or by electronic delivery of keys for software products. The majority of the Company’s business involves shipments directly from its vendors to its customers. In these transactions, the Company is generally responsible for negotiating price both with the vendor and customer, payment to the vendor, establishing payment terms with the customer, product returns, and has risk of loss if the customer does not make payment. As the principal with the customer, the Company recognizes revenue upon receiving notification from the vendor that the product was shipped. Control of software products is deemed to have passed to the customer when they acquire the right to use or copy the software under license as substantially all product functionality is available to the customer at the time of sale.
The Company performs an analysis of the number of days of sales in-transit to customers at the end of each reporting period based on an analysis of commercial delivery terms that include drop-shipment arrangements. This analysis is the basis upon which the Company estimates the amount of net sales in-transit at the end of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment. The Company also performs a weighted average analysis of the estimated number of days between order fulfillment and beginning of the renewal term for term licenses recorded on a gross basis, and a deferral estimate is recorded for term license renewals fulfilled prior to commencement date.
Generally, software products are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect. The Company evaluates whether the software assurance is a separate performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core functionality of the software itself. This involves considering if the software provides its original intended functionality to the customer without the updates, if the customer would ascribe a higher value to the upgrades versus the up-front deliverable, if the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and if the customer chooses to not delay or always install upgrades. If the Company determines that the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software license,
9
the software license and the accompanying third-party delivered software assurance are recognized as a single performance obligation. The value of the product is primarily the accompanying support delivered by a third party and therefore the Company is acting as an agent in these transactions and recognizes them on a net basis at the point the associated software license is delivered to the customer. The Company sells cloud computing solutions that utilize third-party vendors to enable customers to access data center functionality in a cloud-based solution, including storage, computing and networking and access to software in the cloud that enhances office productivity, provides security or assists in collaboration. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue as it invoices the customer for its monthly usage on a net basis. For software licenses where the accompanying third-party delivered software assurance is not critical or essential to the core functionality, the software assurance is recognized as a separate performance obligation, with the associated revenue recognized on a net basis at the point the related software license is delivered to the customer.
The Company also sells some of its products and services as part of bundled contract arrangements containing multiple deliverables, which may include a combination of products and services. For each deliverable that represents a distinct performance obligation, total arrangement consideration is allocated based upon the standalone selling prices (“SSP”) of each performance obligation. SSP is determined based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through established standard prices, we use judgement and estimate the standalone selling price considering available information such as market pricing and pricing related to similar products.
The Company records freight billed to its customers as net sales and the related freight costs as cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, the Company records the freight costs as cost of sales. The Company’s typical shipping terms result in shipping being performed before the customer obtains control of the product. The Company considers shipping to be a fulfillment activity and not a separate performance obligation.
The Company pays commissions and related payroll taxes to sales personnel when customers are invoiced. These costs are recorded as selling general and administrative expenses in the period earned as all our performance obligations are complete within a short window of processing the order.
6. Goodwill and Other Intangible Assets:
The following table summarizes the changes in the carrying amount of goodwill for the six months ended June 30, 2022:
| | | |
Balance at January 1, 2022 | | $ | |
Translation adjustments | | | ( |
Balance June 30, 2022 | | $ | |
10
Information related to the Company’s other intangibles, net is as follows:
| | As of June 30, 2022 | |||||||
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | |||
Customer and vendor relationships | | $ | | | $ | | | $ | |
Trade name | | | | | | | | | |
Total | | $ | | | $ | | | $ | |
| | | | | | | | | |
| | As of December 31, 2021 | |||||||
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | |||
Customer and vendor relationships | | $ | | | $ | | | $ | |
Trade name | | | | | | | | | |
Total | | $ | | | $ | | | $ | |
Customer relationships are amortized over
During the three months ended June 30, 2022 and 2021, the Company recognized total amortization expense for other intangibles, net of $
Estimated future amortization expense of the Company’s other intangibles, net as of June 30, 2022 is as follows:
| | | |
2022 (excluding the six months ended June 30, 2022) |
| $ | |
2023 | |
| |
2024 | |
| |
2025 | |
| |
2026 | |
| |
Thereafter | |
| |
Total | | $ | |
7. Right-of-use Asset and Lease Liability:
The Company has entered into operating leases for office and warehouse facilities, which have terms at lease commencement that range from
Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of the lease payments over the lease term. As our leases do not provide a readily determinable implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term and included in selling, general and administrative expenses.
11
Information related to the Company’s ROU assets and related lease liabilities were as follows:
| | Six months ended | ||||
| | June 30, | ||||
| | | 2022 | | | 2021 |
Cash paid for operating lease liabilities | | $ | | | $ | |
Right-of-use assets obtained in exchange for new operating lease obligations | | $ | | | $ | |
Weighted-average remaining lease term | | | | | ||
Weighted-average discount rate | | | | | ||
Maturities of lease liabilities as of June 30, 2022 were as follows:
2022 (excluding the six months ended June 30, 2022) |
| $ | |
2023 | |
| |
2024 | |
| |
2025 | |
| |
2026 | |
| |
Thereafter | |
| |
| | | |
Less: imputed interest | | | ( |
Total lease liabilities | | $ | |
| | | |
Lease liabilities, current portion | | | |
Lease liabilities, net of current portion | | | |
Total lease liabilities | | $ | |
8. Fair Value:
The carrying amounts of financial instruments, including cash and cash equivalents, short-term accounts receivable and accounts payable approximated fair value at June 30, 2022 and December 31, 2021 because of the relative short maturity of these instruments. The Company’s accounts receivable long-term are discounted to their present value at prevailing market rates at the time of sale.
12
9. Balance Sheet Detail:
Equipment and leasehold improvements consist of the following:
|
| | | | ||
| | June 30, | | December 31, | ||
| | 2022 |
| 2021 | ||
Equipment | | $ | | | $ | |
Capitalized software | | | | | | |
Leasehold improvements | |
| | |
| |
| |
| | |
| |
Less accumulated depreciation and amortization | |
| ( | |
| ( |
| | $ | | | $ | |
During the three months ended June 30, 2022 and 2021, the Company recorded depreciation and amortization expense of $
In limited circumstances, the Company offers extended payment terms to customers for periods of
| | | | |||
| | June 30, | | December 31, | ||
| | 2022 |
| 2021 | ||
Total amount due from customer | | $ | | | $ | |
Less: unamortized discount | |
| ( | |
| ( |
Less: current portion included in accounts receivable | |
| ( | |
| ( |
| | $ | | | $ | |
The undiscounted cash flows to be received by the Company relating to these accounts receivable long-term is expected to be $
Accounts payable and accrued expenses consist of the following:
|
| | | | | ||
| | June 30, | | December 31, | | ||
| | 2022 |
| 2021 |
| ||
Trade accounts payable | | $ | | | $ | | |
Accrued expenses | |
| | |
| | |
| | $ | | | $ | | |
10. Credit Facility:
On November 15, 2017, the Company entered into a $
13
The Amended Credit Facility, which will continue to be used for working capital and general corporate purposes, matures on June 30, 2023, at which time the Company must pay all outstanding principal of all outstanding loans plus all accrued and unpaid interest, and any fees, costs and expenses. In addition, the Company will pay regular monthly payments of all accrued and unpaid interest. The interest rate for any borrowings under the Amended Credit Facility is subject to change from time to time based on the changes in the LIBOR Rate, as defined in the Amended Loan Agreement, with the LIBOR Rate not to be less than
Among other affirmative covenants set forth in the Loan Agreement, which were not amended as part of the Amended Credit Facility, the Company must maintain (i) a minimum Debt Service Coverage Ratio (as defined in the Loan Agreement) of not less than
At June 30, 2022 and December 31, 2021, the Company had
On April 13, 2021, Wayside Technology UK Holdings Limited (“Wayside UK”), a wholly-owned subsidiary of the Company, entered into an uncommitted short term credit facility of £
Interest on the unpaid principal balance of the Uncommitted Credit Facility will be calculated using a rate of
At June 30, 2022 and December 31, 2021, Wayside UK had
On April 8, 2022, the Company entered into a $
At June 30, 2022, the Company had $
11. Earnings Per Share:
Our basic and diluted earnings per share are computed using the two-class method in accordance with ASC 260. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Non-vested restricted stock awards that include non-forfeitable rights to dividends are considered participating securities. Per share amounts are computed by dividing net income available to common shareholders by the weighted average shares outstanding
14
during each period. Diluted and basic earnings per share are the same because the restricted shares are the only potentially dilutive security.
A reconciliation of the numerators and denominators of the basic and diluted per share computations follows:
| | (Unaudited) | | (Unaudited) | | ||||||||
| | Six months ended | | Three months ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Numerator: | | | | | | | | | | | | | |
Net income | | $ | | | $ | | | $ | | | $ | | |
| | | | | | | | | | | | | |
Less distributed and undistributed income allocated to participating securities | | | | | | | | | | | | ||
| | | | | | | | | | | | | |
Net income attributable to common shareholders | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Denominator: | | | | |
| | |
| | |
| | |
Weighted average common shares (Basic) | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
Weighted average common shares including assumed conversions (Diluted) | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | |
Basic net income per share | | $ | | $ | | $ | | | $ | | |||
Diluted net income per share | | $ | | $ | | $ | | | $ | | |||
12. Major Customers and Vendors:
The Company had
The Company had
13. Income Taxes:
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has appropriate support for the income tax positions it takes and expects to take on its tax returns, and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.
14. Stockholders’ Equity and Stock Based Compensation:
The 2021 Omnibus Incentive Plan (the “2021 Plan”) authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses and other equity-based awards. The 2021 Plan was approved by the Company’s stockholders at the 2021 Annual Meeting in June 2021. The total number of shares of the Company’s common stock, par value $
15
was
The 2012 Stock-Based Compensation Plan (the “2012 Plan”) authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses and other equity-based awards. The total number of shares of the Company’s Common Stock initially available for award under the 2012 Plan was
During the six months ended June 30, 2022, the Company granted a total of
During the six months ended June 30, 2021, the Company granted a total of
A summary of nonvested shares of Restricted Stock awards outstanding under the 2012 and 2021 Plans as of June 30, 2022, and changes during the six months then ended is as follows:
| | | | | | |
| | | | Weighted |
| |
| | | | Average Grant | | |
| | | | Date |
| |
| | Shares | | Fair Value |
| |
Nonvested shares at January 1, 2022 |
| | | $ | | |
Granted in 2022 |
| | |
| | |
Vested in 2022 |
| ( | |
| | |
Forfeited in 2022 |
| ( | |
| | |
Nonvested shares at June 30, 2022 |
| | | $ | | |
As of June 30, 2022, there is approximately $
During the three months ended June 30, 2022 and 2021, the Company recognized share-based compensation expense of $
15. Segment Information:
The Company distributes software developed by others through resellers indirectly to customers worldwide. We also resell computer software and hardware developed by others and provide technical services directly to customers worldwide.
FASB ASC Topic 280, “Segment Reporting,” requires that public companies report profits and losses and certain other information on their “reportable operating segments” in their annual and interim financial statements. The internal organization used by the public company’s Chief Operating Decision Maker (CODM) to assess performance and allocate resources determines the basis for reportable operating segments. The Company’s CODM is the Chief Executive Officer.
The Company is organized into
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“Solutions” segment is a cloud solutions provider and value-added reseller of software, hardware and services to customers worldwide.
As permitted by FASB ASC Topic 280, the Company has utilized the aggregation criteria in combining its operations in Canada, Europe and the United Kingdom with the domestic segments as the international operations provide the same products and services to similar clients and are considered together when the Company’s CODM decides how to allocate resources.
Segment income is based on segment revenue less the respective segment’s cost of revenues as well as segment direct costs (including such items as payroll costs and payroll related costs, such as profit sharing, incentive awards and insurance) and excluding general and administrative expenses not attributed to an individual segment business unit. The Company only identifies accounts receivable, vendor prepayments and inventory by segment as shown below as “Selected Assets” by segment; it does not allocate its other assets, including capital expenditures by segment. The following segment reporting information of the Company is provided:
| | Six months ended | | Three months ended | ||||||||
| | June 30, | | June 30, | ||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net Sales: | | | | | | | | | | | | |
Distribution | | $ | | | $ | | | $ | | | $ | |
Solutions | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Gross Profit: | | | | | | | | | | | | |
Distribution | | $ | | | $ | | | $ | | | $ | |
Solutions | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Direct Costs: | | | | | | | | | | | | |
Distribution | | $ | | | $ | | | $ | | | $ | |
Solutions | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Segment Income Before Taxes: (1) | | | | | | | | | | | | |
Distribution | | $ | | | $ | | | $ | | | $ | |
Solutions | |
| | |
| | |
| | |
| |
Segment Income Before Taxes | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | |
General and administrative | | $ | | | $ | | | $ | | | $ | |
Amortization and depreciation expense | | | | | | | | | | | | |
Interest, net | |
| ( | |
| | | | ( | | | |
Foreign currency transaction (loss) gain | | | ( | | | ( | |
| ( | |
| |
Income before taxes | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
| (1) | Excludes general corporate expenses including interest and foreign currency transaction (loss) gain. |
|
| |
| |
| ||
| | As of | | As of | | ||
| | June 30, | | December 31, | | ||
Selected Assets by Segment: | | 2022 | | 2021 | | ||
| | | | | | | |
Distribution | | $ | | | $ | | |
Solutions | |
| | |
| | |
Segment Select Assets | |
| | |
| | |
Corporate Assets | |
| | |
| | |
Total Assets | | $ | | | $ | | |
17
Geographic areas and net sales mix related to operations for the three and six months ended June 30, 2022 and 2021 were as follows. Revenue is allocated to a geographic area based on the location of the sale, which is generally the customer’s country of domicile.
|
| Six months ended |
| Three months ended | ||||||||||||||
| | June 30, 2022 | | June 30, 2022 | ||||||||||||||
| | Distribution |
| Solutions | | Total | | Distribution |
| Solutions | | Total | ||||||
Geography | | |
| | |
| | | | | |
| | |
| | | |
USA | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Europe and United Kingdom | |
| | |
| | |
| | |
| | |
| | |
| |
Canada | |
| | |
| | |
| | |
| | |
| | |
| |
Total net sales | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | |
Timing of Revenue Recognition | | |
| | |
| | | | | |
| | |
| | | |
Transferred at a point in time where the Company is principal (1) | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Transferred at a point in time where the Company is agent (2) | |
| | |
| | |
| | |
| | |
| | |
| |
Total net sales | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | |
|
| Six months ended |
| Three months ended | ||||||||||||||
| | June 30, 2021 | | June 30, 2021 | ||||||||||||||
| | Distribution |
| Solutions | | Total | | Distribution |
| Solutions | | Total | ||||||
Geography | | |
| | |
| | | | | |
| | |
| | | |
USA | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Europe and United Kingdom | |
| | |
| | |
| | |
| | |
| | |
| |
Canada | |
| | |
| | |
| | |
| | |
| | |
| |
Total net sales | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | |
Timing of Revenue Recognition | | |
| | |
| | | | | |
| | |
| | | |
Transferred at a point in time where the Company is principal (1) | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Transferred at a point in time where the Company is agent (2) | |
| | |
| | |
| | |
| | |
| | |
| |
Total net sales | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| (1) | Includes net sales from third-party hardware and software products. |
| (2) | Includes net sales from third-party maintenance, software support and services. |
Geographic identifiable assets related to operations as of June 30, 2022 and December 31, 2021 were as follows.
|
| June 30, | | December 31, |
| ||
Identifiable Assets by Geographic Areas | | 2022 |
| 2021 | | ||
USA | | $ | | | $ | | |
Canada | | | | | | | |
Europe and United Kingdom | | | | | | | |
Total | | $ | | | $ | | |
18
16. Related Party Transactions:
The Company made sales to a customer where a member of our Board of Directors was formerly an executive. This member of our Board of Directors employment with the customer ended during the three months ended June 30, 2022. During the three months ended June 30, 2022 and 2021, net sales to this customer totaled approximately $
The Company made sales to a customer where a family member of one of our executives has a minority ownership position. During the three months ended June 30, 2022 and 2021, net sales to this customer totaled approximately $
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of risk and uncertainties, including those set forth under the heading “Forward Looking Statements” and elsewhere in this report and those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 9, 2022. The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes included in this report and the consolidated financial statements and related notes included in our 2021 Annual Report on Form 10-K.
Overview
Wayside Technology Group, Inc. (the “Company,” “we,” “our,” or “us”) is a value-added IT distribution and solutions company, primarily selling software and other third-party IT products and services through two reportable operating segments. Through our “Distribution” segment we sell products and services to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide, who in turn sell these products to end users. Through our “Solutions” segment we act as a cloud solutions provider and value-added reseller, selling computer software and hardware developed by others and provide technical services directly to end user customers worldwide. We offer an extensive line of products from leading software vendors and tools for virtualization/cloud computing, security, networking, storage and infrastructure management, application lifecycle management and other technically sophisticated domains as well as computer hardware. We market these products through creative marketing communications, including our web sites, local and on-line seminars, webinars, social media, direct e-mail, and printed materials.
We have subsidiaries in the United States, Canada, the Netherlands, the United Kingdom and Ireland, through which sales are made.
COVID-19
We continue to closely monitor the impact of the 2019 novel coronavirus, or COVID-19, pandemic on all aspects of our business. COVID-19 has resulted and will continue to result in significant economic disruption, which could also impact our business.
While we did not incur significant disruptions to our operations during the three months ended June 30, 2022 as a result of the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our business, liquidity or results of operations at this time.
This situation is changing rapidly, and additional impacts may arise that we are not aware of currently. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers and shareholders.
Inflation
We have historically not been adversely affected by inflation, as abrupt changes in technology, rapid changes in customer preferences, short product life cycles and evolving industry standards within the IT industry have generally caused the prices of the products we sell to decline. This requires us to sell new products and have growth in unit sales of existing products in order to increase our net sales. We believe that most price increases could be passed on to our customers, as prices charged by us are not set by long-term contracts; however, as a result of competitive pressure, there can be no assurance that the full effect of any such price increases could be passed on to our customers or cause a reduction in our customers spending.
Factors Influencing Our Financial Results
We derive the majority of our net sales though the sale of third-party software licenses, maintenance and service agreements. In our Distribution segment, sales are impacted by the number of product lines we distribute, and sales penetration of those products into the reseller channel, product lifecycle competition, and demand characteristics of the
20
products which we are authorized to distribute. In our Solutions segment sales are generally driven by sales force effectiveness and success in providing superior customer service and cloud solutions support, competitive pricing, and flexible payment solutions to our customers. Our sales are also impacted by external factors such as levels of IT spending and customer demand for products we distribute.
We sell in a competitive environment where gross product margins have historically declined due to competition and changes in product mix towards products where no delivery of a physical product is required. In addition, we grant discounts, allowances, and rebates to certain customers, which may vary from period to period, based on volume, payment terms and other criteria. To date, we have been able to implement cost efficiencies such as the use of drop shipments, electronic ordering (“EDI”) and other capabilities to be able to operate our business profitably as gross margins have declined. We evaluate the profitability of our business based on return on equity and effective margin.
Gross profit is calculated as net sales less cost of sales. We record customer rebates and discounts as a component of net sales and record vendor rebates and discounts as a component of cost of sales.
Selling, general and administrative expenses are comprised mainly of employee salaries, commissions and other employee related expenses, facility costs, costs to maintain our IT infrastructure, public company compliance costs and professional fees. We monitor our level of accounts payable, inventory turnover and accounts receivable turnover which are measures of how efficiently we utilize capital in our business.
The Company’s sales, gross profit and results of operations have fluctuated and are expected to continue to fluctuate on a quarterly basis as a result of a number of factors, including but not limited to: the condition of the software industry in general, shifts in demand for software products, pricing, industry shipments of new software products or upgrades, fluctuations in merchandise returns, adverse weather conditions that affect response, distribution or shipping, shifts in the timing of holidays and changes in the Company’s product offerings. The Company’s operating expenditures are based on sales forecasts. If sales do not meet expectations in any given quarter, operating results may be materially adversely affected.
Dividend Policy and Share Repurchase Program. Historically we have sought to return value to investors through the payment of quarterly dividends and share repurchases. Total dividends paid and shares repurchased were $0.7 million and $0.2 million, respectively, during the three months ended June 30, 2022. Total dividends paid and shares repurchased were $0.7 million and $0.1 million, respectively, during the three months ended June 30, 2021. The payment of future dividends and share repurchases is at the discretion of our Board of Directors and dependent on results of operations, projected capital requirements and other factors the Board of Directors may find relevant.
Stock Volatility. The technology, distribution and services sectors of the United States stock markets is subject to substantial volatility. Numerous conditions which impact these sectors or the stock market in general or the Company in particular, whether or not such events relate to or reflect upon the Company’s operating performance, could adversely affect the market price of the Company’s common stock, par value $0.01 per share (“Common Stock”). Furthermore, the potential adverse effect of the current pandemic of COVID-19, fluctuations in the Company’s operating results, announcements regarding litigation, the loss of a significant vendor or customer, increased competition, reduced vendor incentives and trade credit, higher operating expenses, and other developments, could have a significant impact on the market price of our Common Stock.
Forward Looking Statements
This report includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements in this report regarding future events or conditions, including but not limited to statements regarding industry prospects and the Company’s expected financial position, results of operations, business and financing plans, are forward-looking statements. These statements can be identified by forward-looking words such as “may,” “will,” “plan,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” and “continue,” or similar words.
Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Because these forward-looking statements are subject to risks and uncertainties, actual results could differ materially from those indicated by such forward-looking statements. These risks and uncertainties include, but are not limited to, 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, competitive pricing pressures, contribution of key vendor relationships and support programs, including vendor
21
rebates and discounts, as well as factors that affect the software industry in general and other factors generally. Currently, one of the most significant factors is the potential adverse effect of the current COVID-19 pandemic 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. We strongly urge current and prospective investors to carefully consider the cautionary statements and risk factors contained in this report and our annual report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on March 9, 2022.
The Company operates in a rapidly changing business, and new risk factors emerge from time to time. Management cannot predict every risk factor, nor can it assess the impact, if any, of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The statements concerning future sales, future gross profit margin and future selling and administrative expenses are forward looking statements involving certain risks and uncertainties such as availability of products, product mix, pricing pressures, market conditions and other factors, which could result in a fluctuation of sales below recent experience.
Financial Overview
Net sales decreased 10%, or $7.5 million, to $67.9 million for the three months ended June 30, 2022 compared to $75.4 million for the same period in the prior year. Gross profit increased 14%, or $1.5 million, to $12.5 million for the three months ended June 30, 2022 compared to $11.0 million for the same period in the prior year. Selling, general and administrative (“SG&A”) expenses decreased 3%, or $0.2 million, to $7.9 million for the three months ended June 30, 2022 compared to $8.1 million for the same period in the prior year. Amortization and depreciation expense increased 12%, or less than $0.1 million, to $0.4 million for the three months ended June 30, 2022 compared to $0.4 million for the same period in the prior year. Net income for the three months ended June 30, 2022 was $2.8 million compared to $1.8 million for the same period in the prior year. Diluted income per share for the three months ended June 30, 2022 was $0.63 compared to $0.41 for the same period in the prior year.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements that have been prepared in accordance with US GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, stock-based compensation, contingencies and litigation.
The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The Company believes the following critical accounting policies used in the preparation of its consolidated financial statements affect its more significant judgments and estimates.
Revenue
The Company utilizes judgment regarding performance obligations inherent in the products for services it sells including, whether ongoing maintenance obligations performed by third party vendors are distinct from the related software
22
licenses, and allocation of sales prices among distinct performance obligations. These estimates require significant judgment to determine whether the software’s functionality is dependent on ongoing maintenance or if substantially all functionality is available in the original software download. We also use judgment in the allocation of sales proceeds among performance obligations, utilizing observable data such as stand-alone selling prices, or market pricing for similar products and services.
Allowance for Accounts Receivable
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including historical experience, aging of the accounts receivable, and specific information obtained by the Company on the financial condition and the current creditworthiness of its customers. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. At the time of sale, we record an estimate for sales returns based on historical experience. If actual sales returns are greater than estimated by management, additional expense may be incurred.
Accounts Receivable – Long Term
The Company’s accounts receivable long-term are discounted to their present value at prevailing market rates at the time of sale. In doing so, the Company considers competitive market rates and other relevant factors.
Inventory Allowances
The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-offs may be required.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.
Goodwill
We test goodwill for impairment on an annual basis, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
In a qualitative assessment, we assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary.
If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform the quantitative goodwill impairment test. We may also elect the unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test.
In the quantitative impairment test, we compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not
23
impaired. Conversely, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
Intangible Assets
Intangible assets with determinable lives are amortized on a straight-line basis over their respective estimated useful lives, which is determined based on their expected period of benefit. Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset's carrying amount over its fair value. In addition, each quarter, the Company evaluates whether events and circumstances warrant a revision to the remaining estimated useful life of each of these intangible assets. If the Company were to determine that a change to the remaining estimated useful life of an intangible asset was necessary, then the remaining carrying amount of the intangible asset would be amortized prospectively over that revised remaining useful life.
Income Taxes
The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance related to deferred tax assets. In the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.
Share-Based Payments
Under the fair value recognition provision, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period. We record the impact of forfeitures when they occur. We review our valuation assumptions periodically and, as a result, we may change our valuation assumptions used to value stock-based awards granted in future periods. Such changes may lead to a significant change in the expense we recognize in connection with share-based payments.
Foreign Exchange
The Company’s foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase the product. In cases where the Company is not able to create a natural hedge by maintaining offsetting asset and liability amounts in the same currency, it may enter into foreign exchange contracts, typically in the form of forward purchase agreements, to facilitate the hedging of foreign currency exposures to mitigate the impact of changes in foreign currency exchange rates. These contracts generally have terms of no more than two months. The Company does not apply hedge accounting to these contracts and therefore the changes in fair value are recorded in earnings. The Company does not enter into foreign exchange contracts for trading purposes and the risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which the Company minimizes by limiting its counterparties to major financial institutions. There were no contracts outstanding as of June 30, 2022.
Interest, Net
Interest, net consists primarily of income from the amortization of the discount on accounts receivable long term, net of interest expense on the Company’s credit facility.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” ("ASU 2016-13"). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods
24
within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its Consolidated Financial Statements, particularly its recognition of allowances for accounts receivable.
Results of Operations
The following table sets forth for the periods indicated certain financial information derived from the Company’s unaudited condensed consolidated statements of earnings expressed as a percentage of net sales. This comparison of financial results is not necessarily indicative of future results:
| | Six months ended | | | Three months ended | | | ||||
| | June 30, | | | June 30, | | | ||||
|
| 2022 |
| 2021 |
|
| 2022 |
| 2021 |
|
|
Net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
|
Cost of sales |
| 82.4 | | 84.2 | |
| 81.6 | | 85.4 | |
|
Gross profit |
| 17.6 | | 15.8 | |
| 18.4 | | 14.6 | |
|
Selling, general and administrative expenses |
| 11.6 | | 12.0 | |
| 11.7 | | 10.8 | |
|
Amortization and depreciation expense | | 0.6 | | 0.6 | | | 0.7 | | 0.5 | | |
Income from operations |
| 5.4 | | 3.2 | |
| 6.1 | | 3.2 | |
|
Other income (expense) |
| (0.2) | | 0.2 | |
| (0.7) | | 0.4 | |
|
Income before income taxes |
| 5.1 | | 3.4 | |
| 5.4 | | 3.7 | |
|
Income tax provision |
| 1.2 | | 1.0 | |
| 1.3 | | 1.3 | |
|
Net income |
| 4.0 | % | 2.4 | % |
| 4.1 | % | 2.4 | % |
|
Key Operating Metrics
Our management monitors several financial and non-financial measures and ratios on a regular basis in order to track the progress of our business. We believe that the most important of these measures and ratios include net sales, adjusted gross billings, gross profit, adjusted EBITDA, gross profit as a percentage of adjusted gross billings and adjusted EBITDA as a percentage of gross profit. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets. These key indicators include financial information that is prepared in accordance with US GAAP and presented in our Consolidated Financial Statements as well as non-US GAAP performance measurement tools.
| | Six months ended | | Three months ended | | | ||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | | | ||||
| | 2022 | | 2021 | | 2022 | | 2021 | | | ||||
| | | | | | | | | | | | | | |
Net sales | | $ | 139,182 | | $ | 138,163 | | $ | 67,863 | | $ | 75,350 | | |
Adjusted gross billings (Non-GAAP) | | $ | 480,510 | | $ | 445,981 | | $ | 241,813 | | $ | 235,120 | | |
| | | | | | | | | | | | | | |
Gross profit | | $ | 24,466 | | $ | 21,822 | | $ | 12,486 | | $ | 10,979 | | |
Gross profit - Distribution | | $ | 19,852 | | $ | 16,688 | | $ | 10,259 | | $ | 8,814 | | |
Gross profit - Solutions | | $ | 4,614 | | $ | 5,134 | | $ | 2,227 | | $ | 2,165 | | |
| | | | | | | | | | | | | | |
Adjusted EBITDA (Non-GAAP) | | $ | 8,722 | | $ | 6,158 | | $ | 4,471 | | $ | 3,512 | | |
| | | | | | | | | | | | | | |
Gross margin % - Adjusted gross billings (Non-GAAP) | | | 5.1% | | | 4.9% | | | 5.2% | | | 4.7% | | |
Effective margin % - Adjusted EBITDA (Non-GAAP) | | | 35.6% | | | 28.2% | | | 35.8% | | | 32.0% | | |
We consider gross profit growth and effective margin to be key metrics in evaluating our business. During the three months ended June 30, 2022, gross profit increased 14%, or $1.5 million, to $12.5 million compared to $11.0 million for the same period in the prior year while effective margin increased to 36.4% compared to 32.0% for the same period in the prior year. During the six months ended June 30, 2022, gross profit increased 12%, or $2.7 million, to $24.5 million compared to $21.8 million for the same period in the prior year while effective margin increased to 36.0% compared to 28.2% for the same period in the prior year.
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Reconciliations of Non-GAAP Financial Measures
| | Six months ended | | Three months ended | | ||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | | ||||
Reconciliation of net sales to adjusted gross billings (Non-GAAP): | | 2022 | | 2021 | | 2022 | | 2021 | | ||||
| | | | | | | | | | | | | |
Net sales | | $ | 139,182 | | $ | 138,163 | | $ | 67,863 | | $ | 75,350 | |
Costs of sales related to sales where the Company is an agent | | | 341,328 | | | 307,818 | | | 173,950 | | | 159,770 | |
Adjusted gross billings | | $ | 480,510 | | $ | 445,981 | | $ | 241,813 | | $ | 235,120 | |
We define adjusted gross billings as net sales in accordance with US GAAP, adjusted for the cost of sales related to sales where the Company is an agent. 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.
| | Six months ended | | Three months ended | | ||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | | ||||
Net income reconciled to adjusted EBITDA: | | 2022 |
| 2021 | | 2022 |
| 2021 | | ||||
| | | | | | | | | | | | | |
Net income | | $ | 5,503 | | $ | 3,311 | | $ | 2,791 | | $ | 1,791 | |
Provision for income taxes | | | 1,663 | | | 1,399 | | | 867 | | | 968 | |
Amortization and depreciation | | | 802 | | | 796 | | | 445 | | | 398 | |
Interest expense | | | 40 | | | 36 | | | 24 | | | 18 | |
EBITDA | | | 8,008 | | | 5,542 | | | 4,127 | | | 3,175 | |
Share-based compensation | | | 714 | | | 616 | | | 344 | | | 337 | |
Adjusted EBITDA | | $ | 8,722 | | $ | 6,158 | | $ | 4,471 | | $ | 3,512 | |
We define adjusted EBITDA, as net income, plus provision for income taxes, depreciation, amortization, share-based compensation and interest. 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 June 30, 2022 Compared to Three Months Ended June 30, 2021
Net Sales and Adjusted Gross Billings
Net sales for the three months ended June 30, 2022 decreased 10%, or $7.5 million, to $67.9 million compared to $75.4 million for the same period in the prior year. Adjusted gross billings for the three months ended June 30, 2022 increased 3%, or $6.7 million, to $241.8 million compared to $235.1 million for the same period in the prior year. Adjusted gross billings increased while net sales decreased due to differences in the product mix between the two periods and an unfavorable impact of foreign exchange rates. During the three months ended June 30, 2022, adjusted gross billings included a greater percentage of security, maintenance and cloud products, which are recorded net of related cost of sales, while during the three months ended June 30, 2021, adjusted gross billings included a greater percentage of hardware and software products, which are recorded on a gross basis.
26
Distribution segment net sales for the three months ended June 30, 2022 decreased 10%, or $6.9 million, to $63.0 million compared to $69.9 million for the same period in the prior year. Adjusted gross billings for the Distribution segment for the three months ended June 30, 2022 increased 3%, or $6.7 million, to $226.1 million compared to $219.4 million for the same period in the prior year. Adjusted gross billings increased while net sales decreased due to the aforementioned differences in the product mix between the two periods in our Distribution segment.
Solutions segment net sales for the three months ended June 30, 2022 decreased 11%, or $0.6 million, to $4.9 million compared to $5.5 million for the same period in the prior year. Adjusted gross billings for the Solutions segment for the three months ended June 30, 2022 remained consistent at $15.7 million with the same period in the prior year. Adjusted gross billings remained consistent with the same period in the prior year while net sales decreased due to the aforementioned differences in the product mix between the two periods in our Distribution segment.
During the three months ended June 30, 2022, the Company had two major customers that accounted for 21% and 20%, respectively, of our total net sales. The Company had two major customers that accounted for 17% and 17%, respectively, of our total net sales during the three months ended June 30, 2021. The Company had two major vendors that accounted for 16% and 9%, respectively, of total purchases during the three months ended June 30, 2022 and 18% and 12%, respectively, of total purchases during the three months ended June 30, 2021.
Gross Profit
Gross profit for the three months ended June 30, 2022 increased 14%, or $1.5 million, to $12.5 million compared to $11.0 million for the same period in the prior year.
Distribution segment gross profit for the three months ended June 30, 2022 increased 16%, or $1.5 million, to $10.3 million compared to $8.8 million for the same period in the prior year. The increase in Distribution segment gross profit was due to organic growth from our existing vendor partnerships and lower early pay discounts and fewer other rebates and discounts offered to our customers as a percentage of adjusted gross billings.
Solutions segment gross profit for the three months ended June 30, 2022 remained consistent at $2.2 million with the same period in the prior year.
Customer rebates and discounts for the three months ended June 30, 2022 were $1.8 million compared to $2.5 million for the same period in the prior year. Customer rebates and discounts vary based on terms of rebate and early pay discount programs offered to customers and timing of payments ultimately received from our customers.
Vendor rebates and discounts for the three months ended June 30, 2022 were $1.6 million compared to $1.1 million for the same period in the prior year. Vendor rebates are dependent on programs offered by our vendors and in some cases reaching certain volume targets set by our vendors. The Company monitors vendor rebate levels, competitive pricing, and gross profit margins carefully.
Selling, General and Administrative Expenses
SG&A expenses for the three months ended June 30, 2022 decreased 3%, or $0.2 million, to $7.9 million compared to $8.1 million for the same period in the prior year. SG&A expenses were 3.2% of adjusted gross billings for the three months ended June 30, 2022, compared to 3.5% for the same period in the prior year.
The decrease in SG&A expenses were primarily due to a decrease in personnel costs compared to the same period in the prior year. The Company expects that its SG&A expenses, as a percentage of adjusted gross billings, may vary depending on changes in sales volume, as well as the levels of continuing investments in key growth initiatives.
Amortization and Depreciation Expense
Amortization and depreciation expense for the three months ended June 30, 2022 increased 12%, or less than $0.1 million, to $0.4 million compared to $0.4 million for the same period in the prior year.
27
Income Taxes
For the three months ended June 30, 2022 and 2021, the Company recorded a provision for income taxes of $0.9 million and $1.0 million, respectively. The effective tax rate for the three months ended June 30, 2022 and 2021 was 23.7% and 35.1%, respectively. The provision for income taxes in the prior year was impacted by a deferred tax adjustment due to an increase in the corporate tax rate in a foreign jurisdiction the Company operates in that will impact the rate at which deferred taxes are reversed in future periods.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Net Sales and Adjusted Gross Billings
Net sales for the six months ended June 30, 2022 increased 1%, or $1.0 million, to $139.2 million compared to $138.2 million for the same period in the prior year. Adjusted gross billings for the six months ended June 30, 2022 increased 8%, or $34.5 million, to $480.5 million compared to $446.0 million for the same period in the prior year. Adjusted gross billings increased while net sales decreased due to differences in the product mix between the two periods and an unfavorable impact of foreign exchange rates. During the six months ended June 30, 2022, adjusted gross billings included a greater percentage of security, maintenance and cloud products, which are recorded net of related cost of sales, while during the six months ended June 30, 2021, adjusted gross billings included a greater percentage of hardware and software products, which are recorded on a gross basis.
Distribution segment net sales for the six months ended June 30, 2022 increased 3%, or $4.1 million, to $128.8 million compared to $124.7 million for the same period in the prior year. Adjusted gross billings for the Distribution segment for the six months ended June 30, 2022 increased 9%, or $35.2 million, to $447.9 million compared to $412.7 million for the same period in the prior year. Adjusted gross billings increased at a greater rate than the increase in net sales due to the aforementioned differences in the product mix between the two periods in our Distribution segment.
Solutions segment net sales for the six months ended June 30, 2022 decreased 23%, or $3.1 million, to $10.4 million compared to $13.5 million for the same period in the prior year. Adjusted gross billings for the Solutions segment for the six months ended June 30, 2022 decreased 2%, or $0.6 million, to $32.6 million compared to $33.2 million for the same period in the prior year. Adjusted gross billings decreased at a greater rate than the decrease in net sales due to the aforementioned differences in the product mix between the two periods in our Distribution segment.
During the six months ended June 30, 2022, the Company had two major customers that accounted for 23% and 18%, respectively, of our total net sales. The Company had two major customers that accounted for 18% and 15%, respectively, of our total net sales during the six months ended June 30, 2021. The Company had two major vendors that accounted for 19% and 9%, respectively, of total purchases during the six months ended June 30, 2022 and 21% and 9%, respectively, of total purchases during the six months ended June 30, 2021.
Gross Profit
Gross profit for the six months ended June 30, 2022 increased 12%, or $2.7 million, to $24.5 million compared to $21.8 million for the same period in the prior year.
Distribution segment gross profit for the six months ended June 30, 2022 increased 19%, or $3.2 million, to $19.9 million compared to $16.7 million for the same period in the prior year. The increase in Distribution segment gross profit was due to organic growth from our existing vendor partnerships and lower early pay discounts and other rebates and discounts offered to our customers as a percentage of adjusted gross billings.
Solutions segment gross profit for the six months ended June 30, 2022 decreased 10%, or $0.5 million, to $4.6 million compared to $5.1 million for the same period in the prior year.
Customer rebates and discounts for the six months ended June 30, 2022 were $3.7 million compared to $4.5 million for the same period in the prior year. Customer rebates and discounts vary based on terms of rebate and early pay discount programs offered to customers and timing of payments ultimately received from our customers.
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Vendor rebates and discounts for the six months ended June 30, 2022 were $2.6 million compared to $1.9 million for the same period in the prior year. Vendor rebates are dependent on programs offered by our vendors and in some cases reaching certain volume targets set by our vendors. The Company monitors vendor rebate levels, competitive pricing, and gross profit margins carefully.
Selling, General and Administrative Expenses
SG&A expenses for the six months ended June 30, 2022 decreased 3%, or $0.5 million, to $16.1 million compared to $16.6 million for the same period in the prior year. SG&A expenses were 3.4% of adjusted gross billings for the six months ended June 30, 2022, compared to 3.7% for the same period in the prior year.
The decrease in SG&A expenses were primarily due to a decrease in personnel costs compared to the same period in the prior year. The Company expects that its SG&A expenses, as a percentage of adjusted gross billings, may vary depending on changes in sales volume, as well as the levels of continuing investments in key growth initiatives.
Amortization and Depreciation Expense
Amortization and depreciation expense for the six months ended June 30, 2022 remained consistent at $0.8 million with the same period in the prior year.
Income Taxes
For the six months ended June 30, 2022 and 2021, the Company recorded a provision for income taxes of $1.7 million and $1.4 million, respectively. The effective tax rate for the six months ended June 30, 2022 and 2021 was 23.2% and 29.7%, respectively. The provision for income taxes in the prior year was impacted by a deferred tax adjustment due to an increase in the corporate tax rate in a foreign jurisdiction the Company operates in that will impact the rate at which deferred taxes are reversed in future periods.
Liquidity and Capital Resources
Our cash and cash equivalents as of June 30, 2022 remained consistent at $29.3 million compared to as of December 31, 2021.
Net cash and cash equivalents provided by operating activities for the six months ended June 30, 2022 was $1.3 million, comprised primarily of net income adjusted for non-cash items of $7.3 million and changes in operating assets and liabilities of $6.0 million.
Net cash and cash equivalents used in investing activities during the six months ended June 30, 2022 consisted of $0.7 million of purchases of fixed assets.
Net cash and cash equivalents provided by financing activities during the six months ended June 30, 2022 was $0.2 million, comprised of borrowings under term loan, net of $2.1 million, dividend payments on our Common Stock of $1.5 million and purchases of treasury stock of $0.4 million.
On November 15, 2017, the Company entered into a $20,000,000 revolving credit facility (the “Credit Facility”) with Citibank, N.A. (“Citibank”) pursuant to a Second Amended and Restated Revolving Credit Loan Agreement (the “Loan Agreement”), Second Amended and Restated Revolving Credit Loan Note (the “Note”), Second Amended and Restated Security Agreement and Second Amended and Restated Pledge and Security Agreement. On August 31, 2020, the Company entered into an amendment to the Credit Facility (the “Amended Credit Facility”) pursuant to a First Amendment to Second Amended and Restated Revolving Credit Loan Agreement and Other Loan Documents (the “Amended Loan Agreement”) and First Allonge to Second Amended and Restated Revolving Credit Loan Note (the “Amended Note”). The Amended Credit Facility, which will continue to be used for working capital and general corporate purposes, matures on June 30, 2023, at which time the Company must pay all outstanding principal of all outstanding loans plus all accrued and unpaid interest, and any, fees, costs and expenses. As of June 30, 2022, no borrowings were outstanding under the Credit Facility.
On April 13, 2021, Wayside Technology UK Holdings Limited (“Wayside UK”), a wholly-owned subsidiary of the Company, entered into an uncommitted short term credit facility of £8,000,000 (“Uncommitted Credit Facility”) with
29
Citibank N.A., London Branch (“Citibank London”) pursuant to certain terms and conditions. Obligations under the Uncommitted Credit Facility are guaranteed by the Company and will be used for working capital and general corporate purposes and have a maturity date of April 13, 2023, at which time Wayside UK must pay all outstanding principal of all outstanding loans plus all accrued and unpaid interest, and any interest, fees, costs and expenses, if any. As of June 30, 2022, no borrowings were outstanding under the Uncommitted Credit Facility.
On April 8, 2022, the Company entered into a $2,148,000 term loan (the “Term Loan”) with First American Commercial Bancorp, Inc. (“First American”) pursuant to a Master Loan and Security Agreement. The proceeds from the Term Loan will be used to fund certain capital expenditures. The borrowing under the Term Loan bears interest at a rate of 3.73% per annum and is being repaid over forty-eight monthly installments of principal and interest through April 2026. As of June 30, 2022, the Company had $2.1 million outstanding under the Term Loan.
We anticipate that our working capital needs will increase as we invest in the growth of our business. We believe that the funds held in cash and cash equivalents and our unused borrowings under our Credit Facility and Uncommitted Credit Facility will be sufficient to fund our working capital and cash requirements for the next 12 months.
Foreign Exchange
The Company’s foreign subsidiaries are subject to changes in demand or pricing resulting from fluctuations in currency exchange rates or other factors. We are subject to fluctuations primarily in the Canadian Dollar, Euro Dollar and British Pound-to-U.S. Dollar exchange rate.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Smaller reporting companies are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures”, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of various members of our management, including our Company’s Chief Executive Officer (principal executive officer), Vice President and Chief Financial Officer (principal financial officer) and Vice President and Chief Accounting Officer (principal accounting officer). Based upon that evaluation, the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this report, to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act, that occurred during the three months ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
30
PART II - OTHER INFORMATION
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds
The table below sets forth the repurchase of Common Stock by the Company and its affiliated purchasers during the second quarter of 2022.
ISSUER PURCHASE OF EQUITY SECURITIES
|
| |
| | |
| |
| | |
| Maximum |
|
| | | | | | | | | | | | Number of |
|
| | | | | | | Total Number | | | | | Shares That |
|
| | | | | | | of Shares | | | | | May Yet Be |
|
| | | | | | | Purchased as | | | | | Purchased | |
| | Total | | Average | | Part of Publicly | | | | Under the |
| ||
| | Number | | Price Paid | | Announced | | Average | | Plans or |
| ||
| | of Shares | | Per Share | | Plans or | | Price Paid | | Programs |
| ||
Period | | Purchased | | (2) | | Programs | | Per Share | | (3) |
| ||
| | | | | | | | | | | | | |
April 1, 2022 - April 30, 2022 |
| — | | $ | — |
| — | | $ | — |
| 545,786 | |
May 1, 2022 - May 31, 2022 |
| 5,151 | (1) | $ | 34.50 |
| — | | $ | — |
| 545,786 | |
June 1, 2022 - June 30, 2022 |
| — | | $ | — |
| — | | $ | — |
| 545,786 | |
Total |
| 5,151 | | $ | 34.50 |
| — | | $ | — |
| 545,786 | |
| (1) | Includes 5,151 shares surrendered to the Company by employees to satisfy individual tax withholding obligations upon vesting of previously issued shares of Restricted Stock. These shares are not included in the Common Stock repurchase program referred to in footnote (3) below. |
| (2) | Average price paid per share reflects the closing price the Company’s Common Stock on the business date the shares were surrendered by the employee stockholder to satisfy individual tax withholding obligations upon vesting of Restricted Stock or the price of the Common Stock paid on the open market purchase, as applicable. |
| (3) | On December 3, 2014, the Board of Directors of the Company approved an increase of 500,000 shares of Common Stock to the number of shares of Common Stock available for repurchase under its repurchase plans. On February 2, 2017, the Board of Directors of the Company approved an increase of 500,000 shares of Common Stock to the number of shares of Common Stock available for repurchase under its repurchase plans. The Company expects to purchase shares of its Common Stock from time to time in the market or otherwise subject to market conditions. The Common Stock repurchase program does not have an expiration date. |
Item 3. – Defaults Upon Senior Securities
None.
Item 4. – Mine Safety Disclosures
None.
Item 5. – Other Information
None.
Item 6. Exhibits
(a) | Exhibits |
| |
31
3.1 3.1(a) 3.2 31.1 | Form of Amended and Restated Certificate of Incorporation of the Company. (1) Certificate of Amendment of Restated Certificate of Incorporation of the Company. (2) Amended and Restated Bylaws of Wayside Technology Group, Inc. (3) |
| |
31.2 | |
| |
31.3 | |
| |
32.1 | |
| |
32.2 | |
| |
32.3 | |
| |
101 | The following financial information from Wayside Technology Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, filed with the SEC on August 4, 2022, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Income, (3) Condensed Consolidated Statements of Stockholders’ Equity, (4) Condensed Consolidated Statements of Comprehensive Income, (5) Condensed Consolidated Statements of Cash Flows, and (6) the Notes to the Unaudited Condensed Consolidated Financial Statements. |
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104 | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
(1) Incorporated by reference to the exhibit of the same number to the Registrant’s Registration Statement on Form S-1 or amendments thereto (File No. 333-92810) filed on May 30, 1995, July 7, 1995 and July 18, 1995
(2) Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 3, 2006.
(3) Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on August 6, 2020.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | WAYSIDE TECHNOLOGY GROUP, INC |
| | | |
August 4, 2022 | | By: | /s/ Dale Foster |
Date | | | Dale Foster, Chief Executive Officer (Principal Executive Officer) |
| | | |
| | | |
August 4, 2022 | | By: | /s/ Andrew Clark |
Date | | | Andrew Clark, Vice President and Chief Financial Officer (Principal Financial Officer) |
| | | |
| | | |
August 4, 2022 | | By: | /s/ Matthew Sullivan |
Date | | | Matthew Sullivan, Vice President and Chief Accounting Officer (Principal Accounting Officer) |
33
Exhibit 31.1
CERTIFICATION
I, Dale Foster, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Wayside Technology Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting ( as defined in Exchange Act Rules 13a-15(f) and 15(d) -15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 4, 2022
/s/ Dale Foster | |
Dale Foster | |
Chief Executive Officer | |
(Principal Executive Officer) | |
| |
Exhibit 31.2
CERTIFICATION
I, Andrew Clark, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Wayside Technology Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting ( as defined in Exchange Act Rules 13a-15(f) and 15(d) -15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 4, 2022
/s/ Andrew Clark | |
Andrew Clark | |
Vice President and Chief Financial Officer | |
(Principal Financial Officer) | |
Exhibit 31.3
CERTIFICATION
I, Matthew Sullivan, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Wayside Technology Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting ( as defined in Exchange Act Rules 13a-15(f) and 15(d) -15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 4, 2022
/s/ Matthew Sullivan | |
Matthew Sullivan | |
Vice President and Chief Accounting Officer | |
(Principal Accounting Officer) | |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Wayside Technology Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dale Foster, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Dale Foster | |
Dale Foster | |
Chief Executive Officer | |
(Principal Executive Officer) | |
August 4, 2022 | |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Wayside Technology Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew Clark, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Andrew Clark | |
Andrew Clark | |
Vice President and Chief Financial Officer | |
(Principal Financial Officer) | |
August 4, 2022 | |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Wayside Technology Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew Sullivan, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Matthew Sullivan | |
Matthew Sullivan | |
Vice President and Chief Accounting Officer | |
(Principal Accounting Officer) | |
August 4, 2022 | |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by Company and furnished to the Securities and Exchange Commission or its staff upon request.