Wayside Technology Group Reports Fourth Quarter and Record Full Year 2019 Results

- Record Annual Net Sales of $208.8 Million and Net Income of $6.8 Million -

- Annual Adjusted EBITDA (a non-GAAP financial measure defined below) of $10.5 Million and Return on Invested Capital (see calculation defined below) of 24.5% -

- Returned $3.1 Million of Capital to Shareholders in 2019 via Dividends -

Eatontown, NJ – February 19, 2020 – Wayside Technology Group, Inc. (NASDAQ: WSTG) (“Wayside” or the “Company”), an IT channel company providing innovative sales and distribution solutions, is reporting results for the fourth quarter and full year ended December 31, 2019, and is declaring a quarterly dividend of $0.17 per share.

Fourth Quarter 2019 Highlights vs. Same Year-Ago Quarter

Full Year 2019 Highlights vs. 2018

Management Commentary

“Our strong fourth quarter and record full year results reflect the benefits of the various investments and initiatives we have undertaken since 2018,” said Dale Foster, CEO of Wayside. “We have become a sales-focused organization through our Lifeboat Distribution business, and the investments in our sales teams and processes have led to our first year of double-digit gross profit growth since 2011. In fact, during the fourth quarter, our sales team brought in what we believe to be the largest booking in Company history, further validating that our strategy to deepen customer relationships and expand our vendor network is working.

“As we look to 2020, we plan to carry this strong momentum through the year and drive sustainable, profitable growth through our Lifeboat Distribution business. Our financial goals focus on both gross profit and adjusted EBITDA, which is a new metric that we are introducing this quarter as a

supplemental measure of the profitability of our operations. With the scalability in our business model, we continue to believe that we can flow through a significant portion of our growth in gross profit to pre-tax income. We look forward to further executing on our strategy and delivering value for all Wayside stakeholders in 2020 and the years ahead.”

Fourth Quarter 2019 Financial Results

Net sales in the fourth quarter of 2019 increased 24% to $60.9 million compared to $49.1 million for the same period in 2018. Lifeboat Distribution segment net sales in the fourth quarter increased 30% to $57.4 million compared to $44.3 million, and TechXtend segment net sales for the fourth quarter were $3.5 million compared to $4.8 million.

Adjusted gross billings (a non-GAAP financial measure defined below) in the fourth quarter of 2019 increased 25% to $167.5 million compared to $134.3 million for the same period last year.

Gross profit in the fourth quarter of 2019 increased 9% to $7.9 million compared to $7.2 million for the same period in 2018. The increase was driven by the Company’s primary business segment, Lifeboat Distribution, which benefitted from the addition of multiple new technology vendors and strong organic growth with existing clients.

Total selling, general, and administrative (“SG&A”) expenses in the fourth quarter of 2019 were $5.3 million compared to $5.1 million for the same period in 2018. As a percentage of revenue, SG&A decreased 150 basis points to 8.8% compared to 10.3% in 2018, with the decrease driven by prudent cost management and improvements in operating efficiency.

Net income in the fourth quarter of 2019 increased 16% to $2.0 million or $0.45 per diluted share, compared to $1.7 million or $0.39 per diluted share for the same period in 2018.

Adjusted EBITDA in the fourth quarter of 2019 increased 11% to $2.9 million compared to $2.6 million in 2018, with the increase driven by the aforementioned organic growth with existing clients and new vendor additions, coupled with prudent cost management and operating efficiencies.

Effective margin, which is defined as adjusted EBITDA (a non-GAAP financial measure defined below) as a percentage of gross profit, increased 90 basis points to 37.1% compared to 36.2% in the prior year period.

Full Year 2019 Financial Results

Total net sales in 2019 increased 15% to $208.8 million compared to $181.4 million in 2018. Lifeboat Distribution segment net sales increased 18% to $193.6 million compared to $163.6 million in 2018, and TechXtend segment net sales were $15.2 million compared to $17.9 million.

Adjusted gross billings (a non-GAAP financial measure defined below) in 2019 increased 18% to $601.0 million compared to $510.0 million in 2018.

Gross profit in 2019 increased 11% to $30.0 million compared to $26.9 million in 2018.

Total SG&A expenses in 2019 decreased 6% to $21.5 million compared to $22.8 million in 2018. As a percentage of revenue, SG&A decreased 220 basis points to 10.3% compared to 12.5% in 2018. SG&A expenses included executive separation expenses of $0.1 million in 2019 and $2.4 million in 2018.

Net income in 2019 increased 92% to $6.8 million or $1.51 per diluted share, compared to $3.5 million or $0.78 per diluted share in 2018.

Net income excluding separation expenses, net of taxes (a non-GAAP financial measure defined below) in 2019 increased 24% to $6.9 million compared to $5.5 million last year.

Adjusted EBITDA (a non-GAAP financial measure defined below) in 2019 increased 14% to $10.5 million compared to $9.2 million in 2018. Effective margin increased 70 basis points to 34.8% compared to 34.1% in the prior year period.

Dividends per share declared in 2019 were $0.68, which is flat compared to the prior year.

Cash and cash equivalents were $15.0 million at December 31, 2019 compared to $14.9 million at December 31, 2018. The Company remained debt free at both December 31, 2019 and December 31, 2018.

Dividend

Subsequent to the quarter, on February 18, 2020, Wayside’s board of directors declared a quarterly dividend of $0.17 per share of its common stock payable on March 6, 2020 to shareholders of record on March 2, 2020.

Unsolicited Proposal

On December 10, 2019, Wayside received a preliminary unsolicited proposal from Shepherd Kaplan Krochuk, LLC and North & Webster SSG, LLC (together, the “N&W Group”) to acquire the Company for $16.38 per share, subject to certain conditions. Although the N&W Group’s offer expired on December 16, 2019, Wayside’s board of directors took extensive measures to evaluate their proposal, including engaging Stifel Financial Corporation (“Stifel”) to act as financial advisor to the board. Wayside management, members of the board of directors and Stifel engaged with principals of the N&W Group on multiple occasions to discuss their expired bid. After a thorough review of the inbound inquiry and in consultation with its advisors, the board determined that the expired bid was not in the best interest of shareholders and did not serve as a basis for further diligence or discussion. This was communicated to the N&W Group on February 11, 2020.

Conference Call

Wayside Technology Group will conduct a conference call today at 10:00 a.m. Eastern time to discuss its results for the fourth quarter and full year ended December 31, 2019.

Wayside management will host the conference call, followed by a question and answer period.

Date: Wednesday, February 19, 2020

Time: 10:00 a.m. Eastern time

Toll-free dial-in number: 1-844-683-0552

Conference ID: 7289306

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 1-949-574-3860.

The conference call will be broadcast live and available for replay via webcast here, and on the investor relations section of the company’s website at www.waysidetechnology.com/site/content/webcasts. 

About Wayside Technology Group

Wayside Technology Group, Inc. (NASDAQ: WSTG) is an IT channel company and parent of Lifeboat Distribution, an international value-added distributor for Emerging Technology Vendors with solutions for Security, Data Management, Connectivity, Storage & HCI, Virtualization & Cloud and Software & ALM. Lifeboat provides vendors access to thousands of VARs, MSPs, CSPs and other resellers. Lifeboat holds an IT-70 GSA contract vehicle that provides resellers and vendors with a competitive edge within the Public Sector.

Additional information can be found by visiting www.waysidetechnology.com.  

Non-GAAP Financial Measures

We use non-GAAP financial measures, including adjusted gross billings, net income excluding separation expenses, net of taxes, and adjusted EBITDA as supplemental measures of the performance of our business. Our use of these financial measures has limitations and you should not consider them in isolation or use them as substitutes for analysis of our financial results under generally accepted accounting principles in the United States of America (“U.S. GAAP”). The attached tables provide a reconciliation of each non-GAAP financial measure to the most nearly comparable measure under U.S. GAAP.

Forward-Looking Statements

The statements in this release concerning the Company’s future prospects are forward-looking statements that involve certain risks and uncertainties. Such risks and uncertainties include the continued acceptance of the Company’s distribution channel by vendors and customers, the timely availability and acceptance of new products, and contribution of key vendor relationships and support programs. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

Important Additional Information

The Company, its directors and certain of its executive officers are participants in the solicitation of proxies from the Company’s shareholders in connection with the Company’s 2020 annual meeting of shareholders. The Company intends to file a definitive proxy statement and a WHITE proxy card with the SEC in connection with any such solicitation of proxies from the Company’s shareholders. SHAREHOLDERS OF THE COMPANY ARE STRONGLY ENCOURAGED TO READ SUCH PROXY STATEMENT, ACCOMPANYING WHITE PROXY CARD AND ALL OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION. The Company’s soliciting material filed with the SEC on January 15, 2020 as DEFA 14A (the “DEFA 14A”) contains information regarding the direct and indirect interests, by security holdings or otherwise, of the Company’s directors and executive officers in the Company’s securities. If the holdings of the Company’s securities change from the amounts provided in the DEFA 14A, such changes will be set forth in SEC filings on Forms 3, 4, and 5, which can be found through the Company’s website at www.waysidetechnology.com or through the SEC’s website at www.sec.gov. Information can also be found in the Company’s other SEC filings, including its Annual Report on Form 10‑K for the year ended

December 31, 2018. Updated information regarding the identity of potential participants, and their direct or indirect interests, by security holdings or otherwise, will be set forth in the company’s definitive proxy statement and other materials to be filed with the SEC in connection with the 2020 annual meeting of shareholders. Shareholders will be able to obtain the definitive proxy statement, any amendments or supplements to the proxy statement and other documents filed by the Company with the SEC at no charge at the SEC’s website at www.sec.gov. Copies will also be available at no charge at the Company’s website at www.waysidetechnology.com.

Company Contact

Michael Vesey

Chief Financial Officer

1-732-389-0932

michael.vesey@waysidetechnology.com    

Investor Relations Contact

Sean Mansouri, CFA or Cody Slach

Gateway Investor Relations

1-949-574-3860

WSTG@gatewayir.com    

WAYSIDE TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in thousands, except share and per share amounts)

WAYSIDE TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

( Amounts in thousands, except per share data)

(1) Includes $1,661 of stock compensation during the year ended December 31, 2018.

Reconciliation of GAAP and Non-GAAP Financial Measures (unaudited)

(Amounts in thousands, except per share data)

The table below presents net sales reconciled to adjusted gross billings (Non-GAAP):

The tables below present net income reconciled to net income excluding separation expenses, net of taxes (Non-GAAP) (2), net income reconciled to adjusted EBITDA  (3) and calculation of return on invested capital (4):

The following represents the components of interest, net: