Wayside Technology Group, Inc. (WSTG) Q2 2022 Earnings Conference Call August 4, 2022 8:30 AM ET Company Participants Sean Mansouri - Elevate IR Andrew Clark - VP & CFO Dale Foster - President & CEO Conference Call Participants Unidentified Analyst - Private Investor Operator Good morning, everyone and thank you for participating in today's conference call to discuss Wayside Technology Group's Financial Results for the Second Quarter ended June 30, 2022. Joining us today are Wayside's CEO, Mr. Dale Foster; ...

Table of Contents Title of each class:Trading Symbol Name of each exchange on which registered: Common stock, $.01 par value WSTG The NASDAQ Global Market UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission F ...

Financial Data and Key Metrics Changes - In Q1 2022, the company achieved a 13% increase in adjusted gross billings, reaching $238.7 million compared to $210.9 million in the prior year quarter [6] - Net sales increased by 13% to $71.3 million from $62.8 million year-over-year [6] - Net income surged by 79% to $2.7 million or $0.61 per diluted share, up from $1.5 million or $0.35 per diluted share in Q1 2021 [7] - Adjusted EBITDA rose by 61% to $4.2 million compared to $2.6 million in the previous year [7] - Cash and cash equivalents increased to $37 million as of March 31, 2022, up from $29.3 million at the end of 2021 [7] Business Line Data and Key Metrics Changes - Gross selling with the top 20 vendors grew nearly 20% to $171 million during the quarter, indicating strong organic growth [3] - Gross profit increased by 11% to $12 million compared to $10.8 million in Q1 2021, with gross profit as a percentage of adjusted gross billings at 5% [6][7] Market Data and Key Metrics Changes - The company has seen a significant increase in the number of brands looking to partner, evaluating over 50 new prospective brands and signing eight new agreements in Q1 [3] - The partnership with Cato Networks, a network security company, was highlighted as a notable addition to the company's offerings [4] Company Strategy and Development Direction - The company is focused on organic growth through existing vendors while also adding new and disruptive vendors to its line card [3] - M&A initiatives are ongoing, with discussions about multiple targets that can enhance geographic reach and service offerings [5] - The company aims to maintain a purposefully limited line card while expanding relationships with new vendor networks and customers globally [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to continue driving organic growth and meaningful operating leverage [8] - Concerns regarding supply chain issues in Europe were acknowledged, but management noted that their primary focus is on software, which remains strong despite hardware-related delays [20] - The company is preparing for a new ERP implementation to enhance operational efficiency and scalability [28][29] Other Important Information - The Board of Directors declared a quarterly dividend of $0.17 per share, payable on May 20, 2022 [8] - The company remains debt-free with no borrowings outstanding under its credit facilities [7] Q&A Session Summary Question: Thoughts on receivables management - Management indicated that their receivable portfolio turns quickly, with DSOs likely under 45 days, and they take advantage of early payment discounts with vendors [11][12] Question: Insights on new vendor agreements - Management noted that the recent agreements were a result of timing and a growing presence in the marketplace, leading to more vendors approaching them [17][18] Question: Future M&A activity - Management confirmed they are considering a range of acquisition sizes, from small tuck-ins to transformative opportunities, to enhance their business [19] Question: Observations on European market challenges - Management stated that while there are supply chain issues, their focus on software mitigates some of the risks associated with hardware delays [20] Question: Guidance on future growth and adjusted gross billings - Management discussed the potential for continued low double-digit growth and indicated that they would provide more directional guidance in upcoming calls [28][32]

Table of Contents Title of each class: Trading Symbol Name of each exchange on which registered: Common stock, $.01 par value WSTG The NASDAQ Global Market UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to Commission file number: 000-26408 WAYSIDE TECHNOLOGY GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 13-3136104 (State or o ...

Financial Data and Key Metrics Changes - In Q4 2021, adjusted gross billings increased 16% to $262.1 million compared to $226.4 million in the prior year quarter [16] - Net sales in Q4 2021 increased 6% to $75.5 million compared to $71.4 million [16] - Gross profit in Q4 2021 increased 20% to a record $12.6 million compared to $10.5 million [18] - Net income in Q4 2021 increased 36% to $3.4 million or $0.78 per diluted share compared to $2.5 million or $0.58 per diluted share in the prior year quarter [19] - Adjusted EBITDA in Q4 increased 17% to $5.1 million compared to $4.4 million [19] Business Line Data and Key Metrics Changes - Adjusted gross billings in North America with top 20 vendors increased 25% to $588 million in 2021 from $471 million in 2020 [8] - CDF contributed $10 million to total gross profit and accounted for 25% of overall growth in gross profit [10] - SG&A expenses in Q4 were $8.2 million compared to $7.7 million, but as a percentage of adjusted gross billings, it declined to 3.1% from 3.4% in Q4 2020 [18] Market Data and Key Metrics Changes - The company became an approved vendor for the NCPA contract, allowing access to over 90,000 agencies nationwide [12] - The majority of sales are from North America, followed by the UK and other parts of Europe [35] Company Strategy and Development Direction - The company focuses on three growth initiatives: driving organic growth, adding new emerging vendors, and pursuing acquisitions [8] - Plans to integrate CDF and Wayside back-offices under a uniform ERP platform to achieve cost synergies [11] - The company is actively evaluating M&A opportunities both domestically and internationally [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2022, highlighting strong liquidity and growth opportunities [21] - The ongoing geopolitical situation, particularly in Ukraine, has minimal direct impact on the company's business [14] - There is an increase in demand for security solutions due to rising cyber threats [35] Other Important Information - The company declared a quarterly dividend of $0.17 per share, payable on March 18 [20] - A new board member, Greg Scorziello, was appointed, bringing extensive experience in global operations [13] Q&A Session Summary Question: Accounts receivable increased significantly in Q4, what happened? - Management noted that larger customers delayed payments towards year-end, but all were collected post year-end, with no indication of a continuing trend [24] Question: Is the jump in adjusted gross billings from Q3 to Q4 a one-off? - Management indicated that Q4 typically sees stronger performance due to budget renewals, and they expect continued growth as they build their public sector practice [27] Question: How does the company view the use of stock versus cash for acquisitions? - Management stated they have not needed to use stock for acquisitions and prefer cash, but would consider equity if a transformative opportunity arises [28] Question: Can you elaborate on the impact of ASC 606 and CDF's revenue? - Management explained that the accounting mechanisms affect net sales, with a significant portion of revenue related to software solutions and ongoing support from vendors [32] Question: How has the geopolitical landscape affected sales opportunities? - Management noted an increase in inquiries for security solutions, but did not see a dramatic rise in sales opportunities compared to six months ago [35]

Financial Data and Key Metrics Changes - Net sales in Q3 2021 increased by 13% to $68.9 million compared to $60.9 million in Q3 2020, reflecting both organic growth and the impact from the acquisition of CDF [10] - Adjusted gross billings, a non-GAAP measure, increased by 33% to $226.9 million compared to $171.0 million in the prior year quarter, with strong organic growth of 20% or $35.4 million [10] - Gross profit in Q3 2021 increased by 56% to a record $11.3 million compared to $7.2 million in the prior period, with gross profit margin growing to 16.4% of net sales [10][12] - Net income increased more than 4x to $2.4 million or $0.55 per diluted share compared to $0.5 million or $0.13 per diluted share in the prior year [11] - Adjusted EBITDA increased by 128% to $4.2 million compared to $1.9 million, with effective margin rising to 37.4% [12] Business Line Data and Key Metrics Changes - The CDF acquisition contributed an estimated $6.8 million to net sales, with organic growth excluding the acquisition increasing by $1.2 million year-over-year [10] - The Microsoft CSG business was up 26% in Q3 2021 versus Q3 2020, indicating strong performance in this segment [8] Market Data and Key Metrics Changes - The distribution landscape has seen consolidation, with major players focusing internally on integration, which may create opportunities for the company [8] - Spending on security, data center, and cloud product lines is at all-time highs, providing a favorable market environment for the company [9] Company Strategy and Development Direction - The company is focusing on building a cloud marketplace that highlights emerging technologies and enables partners to transact flexibly [9] - There is an emphasis on targeting companies for acquisition that will be accretive to earnings and fit the strategic direction, with active discussions ongoing [8] - The company aims to leverage its strong liquidity position and operating cash flow to execute on both organic and acquisition growth strategies [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the business outlook for 2022, noting that projects previously delayed during COVID-19 are now coming in [14] - Sales cycles are returning to normal for software delivery licensing, although hardware-related sales may still experience delays due to supply chain issues [15] - The company sees a stronger business environment in Europe, particularly in the U.K., compared to North America [16] Other Important Information - Cash and cash equivalents were $29.9 million as of September 30, 2021, with the company remaining debt-free [13] - A quarterly dividend of $0.17 per share was declared, payable on November 19 [13] Q&A Session Summary Question: Outlook for 2022 and enterprise customer sentiment - Management noted optimism among enterprise customers, with many projects that were delayed now being executed [14] Question: Sales cycle normalization - Management indicated that while software delivery cycles are normalizing, hardware-related sales may still face delays due to supply chain issues [15] Question: Differences in business environment between Europe and North America - Management observed that the business environment in Europe, particularly the U.K., appears to be ahead of North America in terms of recovery and activity [16] Question: Marketplace offering and competition - Management explained that the company is positioned between traditional distributors and cloud-native companies, focusing on subscription-based delivery models [18][19] Question: Signs of spending slowdown in IT - Management stated that they do not see significant signs of a spending slowdown affecting their emerging vendor base, which is expected to grow despite broader market trends [20][22] Question: Acquisition strategy and criteria - Management outlined that future acquisitions will focus on geographic expansion, vendor relationships, and enhancing service capabilities, with cultural fit being a key consideration [23][24] Question: Financial parameters for acquisitions - Management indicated that they will evaluate acquisitions based on traditional financial metrics like adjusted EBITDA, with a potential mix of cash, debt, and equity for larger transactions [31]

Financial Performance - Net sales increased by 13%, or $8.0 million, to $68.9 million for the three months ended September 30, 2021, compared to $60.9 million for the same period in the prior year[142]. - Gross profit increased by 56%, or $4.1 million, to $11.3 million for the three months ended September 30, 2021, compared to $7.2 million for the same period in the prior year[142]. - Net income for the three months ended September 30, 2021, was $2.4 million compared to $0.5 million for the same period in the prior year[142]. - Diluted income per share for the three months ended September 30, 2021, was $0.55 compared to $0.13 for the same period in the prior year[142]. - For the nine months ended September 30, 2021, net sales increased to $207.1 million from $180.1 million for the same period in 2020, representing a growth of 15%[169]. - Gross profit for the nine months ended September 30, 2021, was $33.1 million, a 47% increase from $22.5 million in the prior year[171]. - Net income for the nine months ended September 30, 2021, was $5.8 million, compared to $1.9 million in the same period of 2020, indicating a significant increase[173]. Expenses - Selling, general and administrative expenses increased by 30%, or $1.8 million, to $7.8 million for the three months ended September 30, 2021, compared to $6.0 million for the same period in the prior year[142]. - SG&A expenses for the nine months ended September 30, 2021 increased 44%, or $7.4 million, to $24.3 million compared to $16.9 million for the same period in the prior year[203]. Adjusted Metrics - Adjusted EBITDA for the nine months ended September 30, 2021, was $10.4 million, up from $7.1 million in the same period of 2020, reflecting a 47% increase[173]. - The effective margin for adjusted EBITDA was 31.3% for the nine months ended September 30, 2021, slightly down from 31.4% in the prior year[171]. - The gross profit margin for adjusted gross billings was 4.9% for the nine months ended September 30, 2021, compared to 4.5% in the prior year[169]. Cash and Capital Management - Cash and cash equivalents increased to $29.9 million as of September 30, 2021 compared to $29.3 million as of December 31, 2020[210]. - The company anticipates an increase in working capital needs as it invests in business growth, with sufficient cash and unused borrowings to meet requirements for the next 12 months[217]. - Total dividends paid and shares repurchased were $0.7 million and $0.2 million, respectively, during the three months ended September 30, 2021[133]. Market and Operational Context - The Company operates in a competitive environment where gross product margins have historically declined due to competition and changes in product mix[128]. - The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, although it did not incur significant disruptions during the three and nine months ended September 30, 2021[125]. - The Company has subsidiaries in the United States, Canada, the Netherlands, the United Kingdom, and Ireland, through which sales are made[123]. Accounting and Financial Reporting - The company plans to adopt ASU No. 2016-13 in the first quarter of fiscal 2023, which may affect the recognition of allowances for accounts receivable[165][166]. - The company does not apply hedge accounting to foreign exchange contracts, and the fair value of these contracts was not material to the consolidated financial statements as of September 30, 2021[162]. - As of September 30, 2021, there were no off-balance sheet arrangements[219]. Debt and Credit Facilities - As of September 30, 2021, no borrowings were outstanding under the Uncommitted Credit Facility of £8,000,000[216]. - The company is subject to fluctuations in currency exchange rates, primarily in the Canadian Dollar, Euro Dollar, and British Pound to U.S. Dollar[218].

Financial Data and Key Metrics Changes - Net sales in Q2 2021 increased 33% to $75.4 million compared to $56.6 million in the prior period, reflecting strong organic growth and acquisitions [16] - Adjusted gross billings rose 48% to $235.1 million from $158.7 million in the prior quarter, with organic growth contributing 28% [17] - Gross profit increased to a record 54% or $11 million compared to $7.1 million in the prior period, driven by organic growth and acquisitions [18] - Net income increased approximately 4x to $2.1 million or $0.49 per diluted share compared to $600,000 or $0.13 per diluted share [20] - Cash and cash equivalents were $23.8 million as of June 30, 2021, down from $29.3 million as of December 31, 2020, but the company remains debt-free [21] Business Line Data and Key Metrics Changes - The company generated over $156 million of annualized gross sales with its top 20 vendors, a 50% increase from $102 million in 2020 [8] - The number of customers generating over $1 million in net sales increased from about 30 to more than 42 [10] Market Data and Key Metrics Changes - Spending on security and data center and cloud product lines remains at all-time highs, indicating strong market momentum [8] - The company is focusing on Western Europe for potential acquisition targets due to consolidation in the U.S. market [25] Company Strategy and Development Direction - The company has three core initiatives: generate organic growth, enhance the vendor line card, and execute on acquisition strategy [7] - The rebranding of CDF's Sigma software distribution business to Climb Channel Solutions aims to drive growth and efficiencies [11] - The launch of Climb Expedition, a new cloud marketplace, is designed to enhance interactions with vendors and customers [11] Management's Comments on Operating Environment and Future Outlook - Management noted optimism in the marketplace from enterprise customers and a filling pipeline, indicating a positive business environment [24] - The company is actively seeking strategic acquisition opportunities and is financially positioned to pursue them [25] - Management acknowledged that while growth rates may not be sustainable at 48%, there are ample opportunities for expansion within the vendor network [32] Other Important Information - The company declared a quarterly dividend of $0.17 per share, payable on August 20, 2021 [22] - The effective tax rate is expected to be around 22.1% to 22.2% for the balance of the year due to the CDF acquisition [38] Q&A Session Summary Question: What are you hearing from your enterprise customers regarding the business environment? - Management noted optimism in the marketplace and a filling pipeline, indicating positive sentiment among enterprise customers [24] Question: Are there many M&A opportunities available and what are the valuations like? - Management confirmed readiness for acquisitions and mentioned a focus on Western Europe for potential targets, emphasizing strategic fit [25] Question: What is the status of the cloud distribution project? - Management stated that the project is ongoing with the recent launch of Climb Expedition, which aims to capture new revenue streams as vendors shift to subscription models [28][29] Question: How sustainable is the current growth rate? - Management indicated that while 48% growth may not be sustainable, there are significant opportunities for expansion within the vendor network [32] Question: What is the outlook for gross profit as a percentage of adjusted gross billings? - Management emphasized the importance of tracking gross profit growth relative to adjusted gross billings, aiming to maintain a competitive edge [35] Question: What is the expected tax rate for the second half of the year? - Management projected an effective tax rate of approximately 22.1% to 22.2% for the remainder of the year [38] Question: Has SolarWinds' issues affected the company? - Management confirmed a strong partnership with SolarWinds and noted recovery in Q2, with plans for future collaboration [39]

Financial Performance - Net sales increased by 33%, or $18.8 million, to $75.4 million for the three months ended June 30, 2021, compared to $56.6 million for the same period in the prior year[137]. - Gross profit increased by 54%, or $3.9 million, to $11.0 million for the three months ended June 30, 2021, compared to $7.1 million for the same period in the prior year[137]. - Net income for the three months ended June 30, 2021, was $2.1 million compared to $0.6 million for the same period in the prior year[137]. - Diluted income per share for the three months ended June 30, 2021, was $0.49 compared to $0.13 for the same period in the prior year[137]. - Net sales for the six months ended June 30, 2021, were $138.2 million, an increase from $119.2 million for the same period in 2020, representing a growth of 15.4%[165]. - Gross profit for the six months ended June 30, 2021, was $21.8 million, up 43% from $15.3 million in the same period last year[167]. - Net income for the six months ended June 30, 2021, was $3.7 million, compared to $1.4 million for the same period in 2020, indicating a significant increase[169]. - Income from operations for the six months ended June 30, 2021, was 3.2% of net sales, an increase from 1.4% in the same period of 2020[163]. Sales and Revenue Growth - Adjusted gross billings for the six months ended June 30, 2021, reached $446.0 million, compared to $331.8 million for the same period in 2020, reflecting a growth of 34.4%[168]. - Adjusted gross billings for the three months ended June 30, 2021, increased 48%, or $76.4 million, to $235.1 million compared to $158.7 million for the same period in the prior year[173]. - Distribution segment net sales for the three months ended June 30, 2021, increased 29%, or $15.7 million, to $69.9 million compared to $54.2 million for the same period in the prior year[174]. - Solutions segment net sales for the three months ended June 30, 2021, increased 131%, or $3.1 million, to $5.5 million compared to $2.4 million for the same period in the prior year[175]. - Net sales for the six months ended June 30, 2021, increased 16%, or $19.0 million, to $138.2 million compared to $119.2 million for the same period in the prior year[190]. - Adjusted gross billings for the six months ended June 30, 2021, increased 34%, or $114.2 million, to $446.0 million compared to $331.8 million for the same period in the prior year[190]. - Gross profit margin as a percentage of adjusted gross billings was 4.9% for the six months ended June 30, 2021, compared to 4.6% in the prior year[165]. Expenses and Costs - Selling, general and administrative expenses increased by 49%, or $2.7 million, to $8.1 million for the three months ended June 30, 2021, compared to $5.5 million for the same period in the prior year[137]. - Effective margin for adjusted EBITDA decreased to 28.2% for the six months ended June 30, 2021, down from 34.1% in the prior year[167]. - The company recorded an adjusted EBITDA of $6.2 million for the six months ended June 30, 2021, compared to $5.2 million for the same period in 2020[169]. Corporate Structure and Operations - The Company has subsidiaries in the United States, Canada, the Netherlands, the United Kingdom, and Ireland, through which sales are made[117]. - The Company operates in a competitive environment where gross product margins have historically declined due to competition and changes in product mix[122]. - The Company evaluates the profitability of its business based on return on equity and effective margin[124]. Cash and Financing - Cash and cash equivalents decreased to $23.8 million as of June 30, 2021, compared to $29.3 million as of December 31, 2020[208]. - The Company entered into a $20,000,000 revolving credit facility with Citibank, maturing on June 30, 2023, with no borrowings outstanding as of June 30, 2021[211]. - Wayside Technology UK Holdings Limited entered into an uncommitted short term credit facility of £8,000,000 with Citibank London, maturing on April 13, 2022, with no borrowings outstanding as of June 30, 2021[212][213]. - The Company anticipates an increase in working capital needs as it invests in business growth, with sufficient cash and unused borrowings to meet requirements for the next 12 months[215]. Market and Risk Factors - The Company monitors the impact of COVID-19 on its business, although it did not incur significant disruptions during the three and six months ended June 30, 2021[119]. - The Company is subject to fluctuations in currency exchange rates, primarily in the Canadian Dollar, Euro Dollar, and British Pound to U.S. Dollar[216]. - As of June 30, 2021, the Company did not have any off-balance sheet arrangements[217]. - Smaller reporting companies are not required to provide quantitative and qualitative disclosures about market risk[218]. Acquisitions - The company completed the acquisition of Interwork Technologies Inc. for a purchase price of $3.6 million on April 30, 2020, and the acquisition of CDF Group Limited for $17.4 million on November 6, 2020[170][172]. Future Accounting Changes - The company is planning to adopt ASU No. 2016-13 in the first quarter of fiscal 2023, which may impact its recognition of allowances for accounts receivable[161][162].