Melanie Caponigro – Director of Accounting Simon Nynens – Chairman and Chief Executive Officer Bill Botti – Executive Vice President Michael Vesey – Vice President and Chief Financial Officer.

Jeff Geygan – Global Value Investments.

Thank you and good morning. Welcome to Wayside Technology’s First Quarter 2017 Earnings call. Before turning the call over to Melanie Caponigro, the company’s Chairman and CEO - put the customary cautionary language and comment about the webcast for this earnings call.

We released earnings for our first quarter at approximately 5:00 PM Eastern Time, Thursday, April 27, 2017. The earnings release is available at the company’s Investor Relations website at waysidetechnology.com.

Today’s call including all questions and answers is being webcast live and a rebroadcast will be available at www.waysidetechnology.com/site/content/webcast. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, April 28, 2017.

A detailed discussion of risks and uncertainties are discussed in our Forms 10-Q and also in greater detail in our Forms 10-K. Wayside Technology Group Incorporated sees no obligation to update and does not intend to update any forward-looking statements. Now I’d like to turn the call over to Melanie Caponigro. You may begin. .

Thank you very much. I’m going to turn the call now over to Simon Nynens, the company’s Chairman and CEO..

Thank you, Melanie, and good morning to everyone. We had an outstanding quarter. Gross profit increased 14%, income from operations increased 20% and earnings per share fully diluted increased 36% to a first quarter record of $0.30 per share.

Our Lifeboat Distribution division represented 86% of gross profit and 89% of segment income in the first quarter. Cash and long term receivables were $22 million and represented a very healthy 60% of equity as of the end of March 2017. Regarding cash flow and capital, we are fortunate to be able to continue to return capital to our shareholders.

We believe that repurchasing our shares represents an attractive use of our capital and this quarter, we bought back approximately 95,000 shares for a total of $1.7 million and paid out dividends totaling $800,000.

Regarding the operational side of our business; our new headquarters now represents the professionalism, passion and most importantly, our culture. We also released a new corporate website at www.waysidetechnology.com.

You can actually take a virtual tour of our new headquarters as well as get an in-depth background about our culture and what we stand for in a fresh, modern and a functional way. We also released a new techxtend.com website as well as a major overhaul of our hosted webstore Intel software products.

In this quarter, we also received the SmartCEO Future 50 Award for our significant financial and employee growth and most importantly, we, yet again, were named one of the best places to work by New Jersey Biz. We are dedicated to creating an engaging and welcoming environment for our employees.

We believe it’s essential to have a healthy work-life balance and it’s possible to have both, a successful career and personal life. Receiving this honor affirms the importance of putting people first and supporting a healthy and happy corporate culture. We are excited about the prospects of more software publishers joining us.

Customer and vendor feedback continue to confirm that we are on the right track. Our customer service is outstanding. We care and our customers notice. We look forward to growing our business. Now I’d like to hand it over to Bill Botti, our Executive Vice President. .

Thank you, Simon. As Simon said earlier, we had a very good quarter when compared to Q1 2016. In fact, at $112.8 million in revenue, it was nearly as strong as the $120 million we did in Q4 2016. In Q1 2017, we grew revenue in all geographies and business units and did the same gross profit dollars in most of them.

Net sales increased 21% to $112.8 million. Lifeboat Distribution net sales increased 21% to $104.5 million and TechXtend net sales increased 19% to $8.3 million. Gross profit increased 14% to $6.8 million, distribution gross profit 13% to $5.8 million and TechXtend’s gross profit increased 15% to 0.9 million.

Gross profit margin, which is gross profit as a percentage of net sales for the quarter, decreased by 0.4 percentage points to 6%. Lifeboat Distribution segment gross profit margin decreased 0.4 percentage points to 5.6% and TechXtend segment gross profit margin decreased 0.5 percentage points to 11%.

We faced continued margin pressure from the very large distribution companies we compete with in the market. This is reflected in the 0.4 -- points to our gross profit margin. We’ve managed to overcome most of that with increased revenues in most of our vendors and customers.

The Lifeboat and TechXtend business units under the leadership of Brian Gilbertson and Kevin Askew respectively are currently operating smoothly and building towards continued growth this year following a very good Q1.

We’ll continue to be very excited about our future as we manage our expenses and build our product portfolio to help achieve our growing targets. Thank you. Simon, back to you. .

Thank you, Bill. Michael Vesey will now report on the financial numbers.

Mike?.

Thanks, Simon. I’ll now review our operating expenses and balance sheet highlights. Total SG&A expenses for the quarter increased $500,000 to $5 million up from $4.5 million last year. The increase is mainly due to salary commissions and incentive payments that support our growth.

Even though the overall spending levels are up, the increase in lower rate and sales resulting in a decrease in SG&A as a percentage of net sales were 4.4% in 2017 compared to 4.8% same quarter last year. As Bill noted, our net income for the first quarter increased 28% over the same period last year.

In addition, we repurchased 95,000 shares of our common stock in the first quarter of 2017, which in combination with the previously repurchased shares resulted in a 5% decrease in weighted average shares outstanding on a diluted basis from the same quarter last year to 4,359,000 shares.

As a result, the growth in EPS over the same quarter last year outpaced the net income growth by 0.8 percentage points. Earnings per share on a fully diluted basis was $0.30 from first quarter of 2017, a 36% increase over $0.22 per share from the same quarter last year.

Moving on to the balance sheet, cash and cash equivalents was $11.1 million at the end of the quarter compared to $13.5 million at the end of 2016. Our cash balance reflects an increased investment in working capital and $2.5 million of cash utilized by dividends and repurchase or stock.

The increase in working capital was mainly driven by higher receivables related to higher sales over the past two quarters and the increased payment terms for one of our major reseller accounts.

Both our accounts payable and accounts receivable balances declined from seasonally high December levels, the longer payment terms on certain customer accounts resulted an increase of approximately $1.6 million in working capital accounts and a corresponding decrease in cash.

During the quarter, we paid $800,000 in dividends and utilized $1.7 million of our cash balance to purchase the 95,000 shares of common stock. At March 31, 2017, we had no outstanding balances under our credit facility.

Stockholders’ equity stood at $36.9 million compared to $37.6 million at the end of last year and total working capital, including cash, was $23.3 million compared to $24 million at the end of last year. On April 26, 2017, the Board of Directors declared a dividend of $0.17 per share payable on May 17, to shareholders of record on May 10.

The company’s now paid dividends consecutively for over 57 quarters.

In conclusion, we wrapped up the quarter with solid growth in sales, in net income and EPS, returned significant value to our stockholders in the form of stock buyback and dividends while maintaining a debt free balance sheet with adequate equity and working capital levels to support our growing business. Simon, turn it back to you. .

Thank you, Mike. Operator, we can now start the Q&A session. .

[Operator Instructions]. Our first question comes from the line of Jeff Geygan of Global Value Investments. Your line is now open. .

Good morning, gentlemen.

Good morning. .

Very nice quarter. .

Thank you, Jeff. .

I’ve seen your websites, excellent upgrade on those. .

Yeah, thank you. They worked hard with the teams and we’re excited about that, fresh new look. .

Yeah, I agree. The virtual tour is a nice addition too. .

Right, right, and especially the vendors visit us, we have more vendors visiting us than customers and it really represents them the kind of distributor that they want to see in terms of the fresh culture and the way we work together, is really what they would like to see. .

Fantastic.

So can you talk a little bit about your vendor development and how that’s progressing and the evidence that we have good new vendors in the pipeline?.

Yeah so in terms of vendor development, I’ll let Bill go first and I’ll follow up.

Bill?.

Yeah, sure. Good morning, Jeff. That’s an ongoing process. We’re currently in discussions with several vendors of course, all those dialog are under NDA so can’t give you any specifics at this time. Some are [indiscernible].

Bill? Jeff, can you hear Bill?.

No regrettably he cut out. .

I’m sorry, I’ll take over, I’ll take over, we have a bad connection seems to be and I apologize for that. So as Bill said, with those vendors that we’re currently in negotiations with of course under NDA we cannot discuss those. There is a good pipeline.

In terms of timing, if you look at the growth in the first quarter, that came from our current vendors, that definitely also came from vendors that we signed up last two, three years.

There continues to be a healthy interest in terms of the large distributors, the ownership model, data of buying Avnet and it’s involved in incorporating that into micro now, Chinese [indiscernible]. So in terms of our competition, there remains strong interest from vendors, medium sized as well as large sized to work with us.

So, we continue to be excited about those prospects and like we said, we’re really keen on making sure that we can provide value for them and hit the ground running. So that’s our main objective. .

Great. Good color. Thank you. With respect to use of cash at one point, I believe you retained outside counsel to help you navigate the market to see if there was any perspective intelligent acquisition.

- that relationship may have ceased but can you give us some sense of what the landscape looks like?.

Yeah so we hired investment banker really on a six month basis to really go out aggressively and see if there are any acquisitions that makes sense and we can incorporate and the main thing we wanted to accomplish is, is one and one really three? Can we really incorporate get some synergies out, as we continue to grow? We haven’t found that, nor that we -- we wanted to see really what is out there, really an extensive search of what is out there right now.

We continue to look for acquisitions. In terms of our cash, we all agree an acquisition would make the most sense. A risk free acquisition would make the most sense. Unfortunately, they don’t exist, they always take on some level of risk. So you try to stay as close to your current business as you can and the business that you understand.

That’s the point where the acquisitions that we looked at in the last six months and we really looked at a lot of them, possible acquisition targets, we’re a little further away from our core model.

And looking at our internal growth, we decided that at this moment we’re not going to explore those but what we are going to do, is we’re going to continue to look for a possible acquisition model. While we are doing that, we look at a conservative use of our cash, we all agree that there is excess cash on our balance sheet.

How much? That is something that we, as management, in close cooperation with the Board review on a quarterly basis and say what is the reasonable level, because we are in a growing business and we do need that cash to facilitate to grow.

So, - and then, your second option would be buying back shares, third option is to increase the dividend or to at least keep the dividend, very comfortable that we can keep the dividend and the increase of dividend is something that we are discussing with the Board as well.

But as you’ve seen from our past of the 57 quarters, it was Mike? A long, long time, if we increase the dividend, we try to at least maintain that dividend. So we’re conservative when it comes to increases in terms of dividend. .

I appreciate that. You touched a little bit on the share buyback spent about $1.7 million, de facto that we have made a decision to buy a company that we know very well which is our own.

So can you talk a little bit about how you view the value of our stock when you think about going to the marketplace to buy shares?.

Sure, and I want to start off with the fact that I’m not a stock valuation expert, nor do we employ anybody who is stock valuation expert. I leave the – stock up to the market. I do believe in one factor that is that the market will follow performance sooner or later.

The waves we might not be able to time those but I do believe if we perform well that our stock is going to follow. Now regarding our valuation of following, our PE ratio is in the low-to-mid teens and the market is -- our competition is at least higher but they’re all above I believe about 20. So we’re low to mid teens, they’re over 20.

In terms of EBITDA including cash, we’re around eight times valuation and excluding cash, we’re around seven times EBITDA. So that considered to the overall market is lower. Now, whether I want to say that is undervalued stock or grade value stock, I’m not sure about those valuations. I do believe it’s a great investment for us.

We also have a dividend yield of around 4%. The main point that I’d like to make is that we’re not valued as a growth company, yet in the past years we have shown strong growth. But for the long term investors, that has been very good and we continue to believe that is a very good option and that’s why we value it as an attractive investment. .

Thank you for the color. I would agree in terms of your ability to affect growth in your top-line which you’ve done very well and consistently over time.

I would also add to your commentary if your market cap is $90 million and you have $20 million-ish in cash which you really do in terms of cash and long-term receivables, that the valuation starts to look far, far more attractive, then to – the dividend as you’ve mentioned has been paid consistently 57 quarters.

So, I think you guys are doing a good job. Appreciate your time today. Want to wish you luck going forward. .

Thank you, Jeff. Really appreciate that. .

Sure thing. .

Thank you. [Operator Instructions]. I’m showing no further questions at this time..

Thank you. We appreciate everyone’s interest in our company and we look forward to reporting our second quarter performance at the end of July of this year. Thank you so much..

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s presentation. You may all disconnect. Everyone have a great day..