What changed in this filing

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Item 1. Business

2021-03-16 compared with 2020-03-04 · 71 added, 70 removed, 60 unchanged (70% of the section changed)

Wayside Technology Group, Inc.

and Subsidiaries (the “Company,”

“us,”

“we,”

or “our”) is an information technology (“IT”) channel company.

The Company primarily operates through its “Lifeboat Distribution”

segment, which distributes emerging technologies to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide.

The Company also operates a smaller segment called “TechXtend”, which is a value-added reseller of software, hardware and services for corporations, government organizations and academic institutions in the USA and Canada.

and Subsidiaries (the “Company,” “us,” “we,” or “our”) is a value added information technology (“IT”) distribution and solutions company.

The Company primarily operates through its “Distribution” segment, which distributes emerging technologies to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide under the names “Climb Channel Solutions” and “Sigma Software Distribution”.

The Company also operates a smaller segment called “Solutions”, which is a cloud solutions provider and value-added reseller of software, hardware and services for customers worldwide under the names “TechXtend” and “Grey Matter”.

Across both segments, 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.

The Company was incorporated in Delaware in 1982.

Our common stock, par value $0.01 per share (“Common Stock”) is listed on The NASDAQ Global Market under the symbol “WSTG”.

Our main web site address is www.waysidetechnology.com, and the other web sites maintained by our business include www.lifeboatdistribution.com and www.techxtend.com.

Our common stock, par value $0.01 per share (“Common Stock”) is listed on The NASDAQ Global Market under the symbol “WSTG”.

Our main web site address is www.waysidetechnology.com, and the other web sites maintained by our business include www.climbcs.com, www.techxtend.com, www.sigmasd.com, and www.greymatter.com.

The information contained on, or otherwise accessible through, our websites is not part of, or incorporated by reference into, this report.

In our Lifeboat Distribution segment, we distribute technology products from software developers, software vendors or original equipment manufacturers (OEMs) to resellers, and system integrators worldwide.

In our Distribution segment, which accounted for approximately 93% of our consolidated net sales and 88% of our consolidated gross profit during the year ended December 31, 2020, we distribute technology products from software developers, software vendors or original equipment manufacturers (OEMs) to resellers, and system integrators worldwide.

We purchase software, maintenance/service agreements, networking/storage/security equipment and complementary products from our vendors and sell them to our reseller customers.

The large majority of products we sell are “drop shipped”

directly to the customers, which reduces physical handling by the Company and required investment in inventory.

The large majority of products we sell are “drop shipped” directly to the customers, which reduces physical handling by the Company and required investment in inventory.

Generally, a vendor authorizes a limited number of companies to act as distributors of their product and sell to resellers of their product.

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We combine our core strengths in customer service, marketing, distribution, credit and billing to allow our customers to achieve greater efficiencies in time to market in the IT channel in a cost-effective manner.

While our Lifeboat Distribution business is characterized by low gross profit as a percentage of adjusted gross billings, or gross margin, and price competition, we have been able to operate profitably by leveraging an efficient business model.

While our Distribution business is characterized by low gross profit as a percentage of adjusted gross billings, or gross margin, and price competition, we have been able to operate profitably by leveraging an efficient and scalable business model with low capital investment requirements.

The large majority of the products we sell are either digital products such as license authorizations, third party maintenance contracts, or hardware which is dropped shipped to the end customer directly by the vendor.

We utilize electronic digital interchange (“EDI”) and other automation to fulfill these orders on a cost-efficient basis.

We also maintain relatively low inventory balances relative to our gross billings and enjoy what we believe is favorable credit from our suppliers, allowing us to deploy a capital efficient model as reflected by our return on invested capital and pre-tax income as a percentage of gross profit generated.

In our Lifeboat segment, we are highly dependent on the end-market demand for the products we sell, and on our partners’

strategic initiatives and business models.

We utilize electronic digital interchange (“EDI”) and other automation to fulfill these orders on a cost-efficient basis.

We also maintain relatively low inventory balances relative to our gross billings and enjoy what we believe is favorable credit from our vendor partners, allowing us to deploy a capital efficient model as reflected by our return on equity and pre-tax income as a percentage of gross profit generated.

In our Distribution segment, we are highly dependent on the end-market demand for the products we sell, and on our partners’ strategic initiatives and business models.

This end-market demand is influenced by many factors including the introduction of new products, replacement and renewal cycles for existing products, competitive products, overall economic growth and general business activity.

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We continually review the marketplace to identify new and emerging vendors and products to potentially add to our vendor partners.

We also provide comprehensive IT solutions directly to end users through our TechXtend segment.

Products in this segment are acquired directly from original equipment manufacturers (OEMs), software developers or distributors and sold to end users.

We also provide comprehensive IT solutions directly to end users through our Solutions segment, which accounted for approximately 7% of our consolidated net sales and 12% of our consolidated gross profit during the year ended December 31, 2020.

Products in this segment are acquired directly from original equipment manufacturers (OEMs),

software developers or distributors and sold to end users.

We provide customer service, billing, sales and marketing support in this segment and provide extended payment terms to facilitate sales.

The Company operates a distribution facility in Eatontown, New Jersey.

An essential part of our ongoing operations and growth plans is the continued recruitment of software vendors for which we become authorized distributors of their products.

Through our Lifeboat Distribution business, we sell a wide variety of technology products from a broad range of software vendors and manufacturers, such as Bluebeam Software, Flexera Software, Intel Software, Lenovo, Micro Focus, Mindjet, SmartBear Software, SolarWinds, Sophos, StorageCraft Technology, TechSmith, Unitrends, CloudGenix, Tintri and Extrahop.

We view acquisitions as an important part of our strategic growth plan.

During 2020, we completed two acquisitions to add scale, broaden our geographic footprint, expand partner relationships and add cloud support capabilities.

● Interwork Technologies Inc.

(“Interwork”) acquired on April 30, 2020 is a technology distributor specializing in cyber security products based in Toronto, Canada.

The acquisition added scale to our existing Canadian operation and brought key vendor partner relationships to our portfolio.

● CDF Group Limited (“CDF”) acquired on November 6, 2020 is a technology distributor and solutions provider with a specialty in cloud enablement and support services.

The acquisition expanded our sales presence in the United Kingdom and Europe, added a key vendor partner relationship for Microsoft cloud products, and provided valuable technical expertise in cloud enablement and support.

We integrated Interwork into our business platform immediately to enable cost efficiencies and to leverage partner relationships across the companies as part of our strategic growth plan.

We are evaluating the integration plan for CDF and plan to fully integrate its operations in 2021.

We plan to continue to evaluate acquisition opportunities as part of our strategic growth plan going forward.

An essential part of our ongoing operations and strategic growth plan in our Distribution segment is the continued recruitment of software vendors for which we become authorized distributors of their products.

Through our Distribution segment, we sell a wide variety of technology products from a broad range of software vendors and manufacturers, such as Bluebeam Software, Flexera Software, Intel Software, Microsoft, Micro Focus, Mindjet, SmartBear Software, SolarWinds, Sophos, StorageCraft Technology, TechSmith, Trend Micro, Unitrends, CloudGenix, Tintri and Extrahop.

On a continuous basis, we screen new vendors and products for inclusion in our line card based on their features, quality, price, profit margins and current market trends.

We believe that effective purchasing from a diverse vendor base is a key element of our business strategy.

Developing a diverse vendor base is a key element of our business strategy.

We focus on establishing deep relationships with our vendor and reseller partners by providing specialized product training to our sales force and the use of dedicated sales teams.

We have also established an efficient ordering process with our key partners through the implementation of electronic ordering and other processes adapted to their requirements.

As a result, our relationships with our key vendor partners tend to be long-term in nature despite the absence of long-term contracts, with a significant portion of sales derived from annually recurring renewals of software maintenance and subscription agreements related to our partners embedded base of customers utilizing their software products.

Additionally, a key part of our strategic growth plan is to provide a high level of support to select emerging technology vendors through our Climb Elevate program to develop future relationships throughout the growth cycle of a vendor partner.

In our Solutions business, an essential part of our strategic growth plan is to pursue opportunities with higher growth prospects and gross margin characteristics through the sale of specialty products, services and cloud offerings.

Through the acquisition of CDF we added certain technical and administrative support capabilities to enable us to resell cloud and software as a service products (“SaaS”) including Microsoft products in the United Kingdom.

Our strategic growth plan is to expand our cloud offerings by leveraging these support services to other markets and products.

For the year ended December 31, 2020, Sophos and SolarWinds accounted for 20% and 12%, respectively of our consolidated purchases.

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Sales of hardware and peripherals represented 9% and 6% of our adjusted gross billings in 2020 and 2019, respectively.

Our vendor and reseller partners are increasingly incorporating cloud and hybrid cloud products into their portfolios.

An essential part of our strategic growth plan is to provide value added services to our vendor partners and customers to enhance their ability to market these products.

This includes maintaining infrastructure to facilitate licensing of cloud and SaaS products, providing technical support for cloud products, and providing integration and enablement services.

The acquisition of CDF provided us with the ability to provide support for these cloud services in the United Kingdom and Europe.

We plan to leverage these capabilities to provide cloud support services throughout our worldwide operations.

Marketing and Distribution

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These programs provide a cost-effective and service-oriented means to market and sell and fulfill software products and meet the needs of users.

We sell products to large, multi-national broad line resellers, sometimes referred to as direct market resellers (DMRs), as well as thousands of value added resellers (VARs ), which tend to be smaller and focus on value added services to their customers.

As part of our strategic growth plan, we expect to continue diversifying our customer base by offering compelling products to the VAR community as we develop our vendor partner lineup.

As a result, a higher proportion of our sales in 2020 were from VARs, driven by a focus on increasing sales to larger VARs with more than $1 million in annual sales.

The Company had two customers that each accounted for more than 10% of total consolidated net sales for 2020.

For the year ended December 31, 2020, CDW Corporation (NASDAQ:

CDW) (“CDW”) and Software House International Corporation (“SHI”), accounted for 26%, and 16%, respectively, of consolidated net sales and as of December 31, 2019, 43% and 12%, respectively, of total net accounts receivable.

For the year ended December 31, 2018, CDW and SHI accounted for 26%, and 17%, respectively, of consolidated net sales and as of December 31, 2018, 36% and 15%, respectively, of total net accounts receivable.

CDW) (“CDW”) and Software House International Corporation (“SHI”), both of whom are considered DMRs, accounted for 24%, and 14%, respectively, of consolidated net sales and as of December 31, 2020, 19% and 9%, respectively, of total net accounts receivable.

For the year ended December 31, 2019, CDW Corporation (NASDAQ:

Our top five customers accounted for 52% and 56% of consolidated net sales in 2020 and 2019, respectively.

The Company generally ships products within 48 hours of confirming a customer’s order.

This results in minimum backlog in the business.

Net sales to customers in Canada represented 7% and 6% of our consolidated net sales in 2020 and 2019, respectively.

Net sales in Europe and the rest of the world represented 5% and 6% of our consolidated net sales in 2019 and 2018, respectively.

Net sales in Europe and the rest of the world represented 5% of our consolidated net sales in 2020 and 2019, respectively.

For geographic financial information, please refer to Note 14 in the Notes to our Consolidated Financial Statements.

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Purchasing and Fulfillment

The Company’s success is dependent, in part, upon the ability of its suppliers to develop and market products that meet the changing requirements of the marketplace.

The Company’s success is dependent, in part, upon the ability of its vendor partners to develop and market products that meet the changing requirements of the marketplace.

The Company believes it maintains good relationships with its vendors.

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As is customary in the industry, the Company has no long-term supply contracts with any of its

While substantially all the Company’s contracts with its vendors are terminable upon 30 days’

notice or less, the tenure of the relationships with our vendor partners tends to extend over several years.

Moreover, the way software products are distributed and sold is changing, and new methods of distribution and sale may emerge or expand.

Software vendors have sold, and may intensify their efforts to sell, their products directly to end-users.

The Company’s business and results of operations may be adversely affected if the terms and conditions of the Company’s authorizations with its vendors were to be significantly modified or if certain products become unavailable to the Company.

The Company purchased approximately 98% and 97% of its products directly from manufacturers and software vendors in 2019 and 2018, respectively, and the balance from multiple distributors.

Most suppliers or distributors will “drop ship”

products directly to the customers, which reduces physical handling by the Company.

Inventory management techniques, such as “drop shipping”

allow the Company to offer a greater range of products without increased inventory requirements or cost of carrying inventory.

Inventory levels may vary from period to period, due in part to increases or decreases in sales levels, the Company’s practice of making advance purchases when it deems the terms of such purchases to be attractive, and the addition of new suppliers and products.

vendor partners, and substantially all the Company’s contracts with its vendors are terminable upon 30 days’ notice or less, however, it is notable that the tenure of our relationships with vendor partners tends to extend over a longer term.

We attribute this to the deep relationships we establish with our partners involving sales support, product and customer knowledge, and tailored infrastructure to facilitate efficient order processing.

The Company purchased approximately 98% of its products directly from manufacturers and software vendors in 2020 and 2019, respectively, and the balance from multiple distributors.

Most vendor partners or distributors will “drop ship” products directly to the customers, which reduces physical handling by the Company.

Inventory management techniques, such as “drop shipping” allow the Company to offer a greater range of products without increased inventory requirements or cost of carrying inventory.

From time to time, we may make advance payments to vendors to apply against future purchases from the vendor.

Moreover, the Company’s order fulfillment and inventory control systems allow the Company to order certain products just in time for next day shipping.

The Company promotes the use of EDI with its suppliers and customers, which helps reduce overhead and the use of paper in the ordering process.

The software market is highly competitive and characterized by aggressive pricing practices by both software distributors and resellers.

This has resulted in declining gross margins as a percentage of adjusted gross billings, which the Company expects to continue.

The Company faces competition from a wide variety of sources competing principally based on price, product availability, customer service and technical support.

In the Lifeboat Distribution segment, we compete against much larger broad-line distributors, as well as specialty distributors and, in some cases, the direct sales teams of the vendors we represent, who also sell directly to the end-customers.

In the TechXtend segment, we compete against vendors who sell directly to customers, as well as software resellers, superstores, e-commerce vendors, and other direct marketers of software and hardware products.

In both segments, some of our competitors are significantly larger and have substantially greater resources than the Company.

There can be no assurance that the Company can compete effectively against existing competitors or new competitors that may enter the market or that it can generate profit margins which represent an acceptable return to the Company.

An increase in the amount of competition faced by the Company, or its failure to compete effectively against its competitors, could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company competes with other distributors and resellers to become an authorized distributor or reseller of products from software developers and vendors.

It also competes with distributors and resellers to attract prospective buyers, and to source new products from software developers and vendors, and to market its current product line to customers.

The Company believes that its ability to offer software developers and IT professionals easy access to a wide selection of the desired IT products at reasonable prices with prompt delivery and high customer service levels, along with its good relationships with vendors and suppliers, allows it to compete effectively.

Moreover, the Company’s order fulfillment and inventory control systems allow the Company to order certain products just in time for next day shipping.

The Company promotes the use of EDI with its vendor partners and customers, which helps reduce overhead and the use of paper in the ordering process.

The market for the technology products we sell is characterized by rapid changes in technology, user requirements, and competitive pricing.

The way software products are distributed and sold is constantly changing, and new methods of distribution and sale may emerge or expand, including direct sales by technology providers to end users, and the introduction of cloud versions of their products.

As an IT channel solutions provider, a critical element of our strategic growth plan is to maintain our ability to offer an efficient route to market for emerging technology vendors.

Additionally, a key element of our strategic growth plan is to capitalize on market changes by implementing new value added services such as its cloud support and integration offerings.

In our Distribution segment, we compete with other distributors to become an authorized distributor of products from software developers and vendors.

The Company competes to gain distribution rights for new products primarily based on its reputation for successfully bringing new products to market and the strength of and quality of its relationships with software vendors and the reseller community.

The market for the software products we sell is characterized by rapid changes in technology, user requirements, and customer specifications.

The way software products are distributed and sold is changing, and new methods of distribution and sale may emerge or expand.

Software developers and vendors have sold, and may intensify their efforts to sell, their products directly to end-users.

The continuing evolution of the internet as a platform in which to conduct e-commerce business transactions has both lowered the barriers for competition and broadened customer access to products and information, increasing competition and reducing prices.

From time to time, certain software developers and vendors have instituted programs for the direct sale of large order quantities of software to certain major corporate accounts and

renewals of maintenance agreements.

These types of programs may continue to be developed and used by various developers and vendors.

While some software developers and vendors currently sell new releases or upgrades directly to end users, they have not attempted to completely bypass the distribution and reseller channels.

There can be no assurances, however, that software developers and vendors will continue using distributors and resellers to the same extent they currently do.

Future efforts by software developers and vendors to bypass third-party sales channels could materially and adversely affect the Company’s business, results of operations and financial condition.

In addition, resellers and software vendors may attempt to increase the volume of software products distributed electronically through ESD (Electronic Software Distribution) technology, through subscription services, and through on-line shopping services.

Any of these competitive programs, if successful, could have a material adverse effect on the Company’s business, results of operations and financial condition.

For a description of additional risks relating to competition in our industry, please refer to “Item 1.A.

Risk Factors.”

We also compete against other distributors to gain market share among authorized resellers for products we are authorized to distribute based on price, and level of service.

We compete against much larger broad-line distributors with more resources than we have, including Arrow Electronics Inc.

ARW), Synnex Corporation (NYSE:

SNX), Tech Data Corporation and Ingram, as well as specialty distributors.

We believe we offer a compelling solution for emerging technology vendors seeking to establish the IT channel as a route to market, by offering broad distribution capabilities with more flexibility than some of our larger competitors.

In our Solutions segment, we compete against a large variety of IT solutions providers including e- commerce sites, service organizations, value added resellers, cloud solution providers and technology providers offering direct solutions.

We believe that we have ability to offer software developers and IT professionals easy access to a wide selection of the desired IT products at reasonable prices with prompt delivery and high customer service levels, along with its good relationships with vendor partners, allows it to compete effectively.

Information Technology

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Our IT systems allow us to monitor sales trends, real-time product availability, order status throughout the full order cycle, and automates order transactions and invoicing transactions for our customers and vendors.

The main focus of our IT systems is to allow us to transact and communicate with our customers and vendors in the most efficient manner possible.

The main focus of our IT systems is to allow us to transact and communicate with our customers and vendors in the most efficient manner

We provide various options to transact electronically with our customers and vendors through EDI, XML and other electronic methods.

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In that regard, the Company anticipates that it will, from time to time, require software and hardware upgrades for its present IT systems.

The Company conducts its business under various trademarks and service marks including Lifeboat Distribution, TechXtend and International Software Partners.

The Company conducts its business under various trademarks and service marks including Climb Channel Solutions, TechXtend, Grey Matter and International Software Partners.

The Company protects these trademarks and service marks and believes that they have significant value to us and are important factors in our marketing programs.

As of December 31, 2020, Wayside Technology Group, Inc.

and its subsidiaries had 142 full-time employees.

and its subsidiaries had 275 total employees, including 270 full-time employees.

The Company is not a party to any collective bargaining agreements with its employees, has experienced no work stoppages and considers its relationships with its employees to be satisfactory.

Available Information

Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is required to file annual, quarterly and current reports, proxy and information statements and other information with the Securities and Exchange Commission (“SEC”).

The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business