Good afternoon, everyone, and thank you for participating in today's conference call to discuss Wayside Technology Group Financial results for the first quarter ended March 31, 2020. Joining us today are Wayside's CEO, Zrdale Foster, the company's CFO, Mr. Michael Vesey, and the company's Vice President of Alliance for Lifeboat Distribution Charles Bass. By now, everyone should have access to the first quarter 2020 earnings release. Which went out this afternoon at approximately 4:0:5 pm Eastern Time.
The of Wayside Technology Group's website at waysidetechnology dot com. This call is also available for webcast replay on the company's website. Following management remarks, we'll open the call for your questions. Before I introduce Mr. Foster, I'd like to remind listeners that certain comments made in this conference call and webcast are considered forward looking statements under the Private Securities Litigation Reform Act of 1995.
These forward looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward looking statements statements are also subject generally to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Currently, the company is to the potential adverse effect of the current pandemic Global Economy And Financial Markets. The extent to which COVID-nineteen 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 effect of the pandemic and containment measures among others, do not to place undue reliance on any forward looking statements, which speak only as of the date of this call. Except as required by law, The company undertakes no obligation to revise or publicly release the results of any revision to any forward looking statements.
This presentation also includes certain non GAAP financial measures, including adjusted gross billings, adjusted EBITDA, net income, including separation, expenses, and non GAAP earning per share as supplemental measures of performance of our business. All non GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation chart and other important information in the earnings release and Form 8 K furnished to the SEC this afternoon. I would now like to turn the call over to Wayside's CEO, Dale Foster.
Thank you, Phyllis, and good afternoon, everyone. Before we get into the operational updates, I want to acknowledge the challenges many people in our communities are facing as a result of the COVID-nineteen. I'm especially proud of our team and their dedication to serving our customers during this at any time. Despite the challenging environment, we continue to execute well as the strong momentum we generated throughout last year as carrying into 2020. We drove double digit growth in gross profit and nearly 40% adjusted EBITDA growth in Q1 to 3 point $1,000,000.
The sales and marketing investments that we made last year have allowed us to address customer demand amid the current stay at home mandates. Where companies are using many of our technology partner products that will allow and the corporate data centers. Our ability to keep expanding our vendor network and deepen customer relationships even in these current market conditions tells us that we have built a successful and resilient foundation as a sales driven organization. We spent the second half of March to support the health and safety of our employees. All of our corporate teams are now working remotely, though our business has not been negatively impacted by COVID nineteen to date, we are continuing to diligently manage our costs and operating structure to mitigate any potential impacts down the road.
With these priorities in place, we are proud to be operating at full capacity and strength as we continue our momentum into the second quarter. One of our most significant business updates that I could share with you is the subsequent to Q1, our acquisition of InnerWork Technologies. Which we announced on April 22nd this year and officially closed on the 30th April. Innerwork is the Toronto based value added specialty distributor focused on cybersecurity, information management and network solutions in both Canada and the U. S.
Lifeboat and inter work have very similar cultures built on servicing clients with a differentiated high touch approach, and we will identify multiple near term costs and revenue synergies between the two organizations in the short term. Charles will discuss some of the benefits that InnerWork brings to our net a vendor network and the line strategy shortly. For now, I'll say that we greatly look forward to getting integrated to inter work to our LIFO distribution platform to further expand our distribution network. Before I provide more detail on the Save Our Business And Wayside's post Q1 trajectory, like to pass the call over to Charles to discuss recent technology vendor and marketing highlights. From there, Mike will walk us through the financials and we will and I will come back in closing remarks.
With that, Charles.
Thanks, Dale. On the topic of the inter workout acquisition, InnerWork brings more than 20 new vendor partners in a vast network of value added resellers of VARs. InnerWork's current network of VARs presents a great opportunity for us to expand our presence, particularly in Canada. The company's deep relationships in Canada and reputation for highly responsive service levels provide us with a lot of leverage as we execute on our own vendor alliance strategy, which focuses on identifying, evaluating the onboarding, high potential emerging tech partners. Given our limited overlap in customers and technology partners, we expect to actively cross sell products and services across both organizations.
In fact, Corona is one of light boats and Innerworks, only 3 overlapping vendor partners strongly endorsed the acquisition. They see significant value in the combination and its capacity to grow a Cronos distribution network, along with our ability to accelerate their go to market for new products. We welcome this enthusiastic feedback from Kronos, and we remain committed to delivering value to all of our vendors as we integrate inner work into the Lightboat platform. I'd also like to mention that we see 2 important future benefits that fit well with our emerging technology strategy. So first, Innerworks business focused on security and data protection, which is like boats largest product category.
They've developed a critical mass of talent and experience here that we will leverage across Lifeboat brands. And second, we've got a very had very positive interactions with Trend Micro, one of InnerWork's larger vendor partners. Life Boat will fast track the onboarding of these top vendor brands and commit significant resources to replicating InnerWorks success with them. We remain committed to our core strategy of adding new emerging vendors to our line card, while building even deeper relationships with focused resources on our current partners. In our view, the InnerWork acquisition is a significant bolster to our strategy rather than an interruption.
With that, I'd like the call over to Michael to provide more details on our financial results.
To our results. Net sales in the first quarter increased 40 percent to $62,600,000 compared to $44,900,000 for the same period in 2019. Just over half of this growth was attributable to increased adjusted gross billings volume, while the rest was a result of a change in mix in products we recorded on a gross sales basis. Life boat distribution segment net sales in the first quarter increased 43 percent to $57,300,000 compared to 40,100,000 and TechXtend segment net sales increased 11 percent to $5,300,000 compared to $4,800,000. Adjusted gross billings and non GAAP measure increased 22% in the first quarter to $173,100,000 compared to $141,900,000 for the same period last year.
As we have stated in the past, the most appropriate metric to gauge our growth is gross profit given unique revenue accounting treatments in our industry. With that said, Gross profit in the first quarter increased 13 percent to $8,200,000 compared to $7,200,000 for the same period in 2019. The increase was driven by our primary business segment, LIFO Distribution, which benefited from our continued work to deepen customer relationships expand our vendor network to drive growth. Total SG and A expenses in the first quarter remained consistent at 5,500,000 with the same year ago quarter. As a percentage of revenue, SG and A decreased 350 basis points to 8.8% compared to 12.3% in Q1 2019, demonstrating the scalability of our business as we continue to leverage our investments in field sales and vendor recruit which enables our growth without a proportion increase in SG And A.
Net income in the first quarter of 2020 was $800,000 or $8 per diluted share compared to $1,500,000 or $0.32 per diluted share in the same period in 2019. The decrease was driven by costs related to our settlement with N And W Group, which Dale will highlight shortly, as well as costs related to the Antawork acquisition. Adjusted net income in Q1, which excludes these costs, these one time costs, was $2,100,000 or $0.48 per share. Adjusted EBITDA in the first quarter increased 38 percent to $3,100,000 compared to $2,300,000 period in 2019. The increase in adjusted EBITDA was driven by organic growth with our existing partners and new vendor additions.
Coupled with prudent cost management and operating efficiencies. Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit, increased 7 hundred basis points to 38.2% compared to 31.2% in the prior year period. Which continues to reflect were $11,600,000 free with $20,000,000 of availability under our credit facility. The decrease in cash from the end of 2019 is attributable to the timing of receivables. As our customers mitigate the impacts of the pandemic on their business, so several of them have communicated with us about flexibility and payment timing and terms regarding receivables.
We view our reseller as our partners, and we are therefore committed to helping them adjust to these difficult market conditions. Maintaining these open lines of communication and flexibility only strengthens and make our business that much more resilient and is unprecedented time. Continue to return a significant portion of our earnings to shareholders in the form of a dividend. On May 5, 2020, dividend of 18, 2020. Now on to details from our transaction that closed at the end of this month.
We view the acquisition of interwork technologies is a great opportunity to accelerate growth in both gross profit and adjusted EBITDA. We acquired dollars payable closing, plus a potential post closing $1,100,000 earn out. In U. S. Dollars, this equates to $3,600,000 at closing plus $800,000, on the earnout.
We expect the acquisition to add approximately USD 1,000,000 in annualized adjusted EBITDA after realizing synergies that will be phase in during the second and third quarter. More importantly, we put our capital to use effectively, picking up a strategic asset that within our operating strategy and provides opportunities for future growth. This concludes my prepared remarks.
Thank you, Mike. Before I get into the plans, for the road ahead, I'd like to first provide details on the recent actions that we took with the North And Webster Group. As mentioned before, on April 16, we reached a settlement with N and W regarding their proxy solicitation to nominate direct candidates for election at our 2020 annual stockholders meeting. This solicitation followed an unsolicited proposal we received from NW to acquire wayside in December of last year, which we determined did not serve the best interest of our shareholders as we further communicated on our Q4 conference call. In candidates and cease any further solicitation activity, and we agreed to dismiss our lawsuit against N And W.
Most notably, the settlement will also allowed us to repurchase 5.8 percent of our common shares outstanding from their group at a price of $13.19 per share. Looking to Q2 and beyond, we continue to expect that we will carry our strong momentum throughout the year and drive sustainable, profitable growth through our LIFO distribution business. Even in these challenging times, from a product perspective, we will continue to deepen our presence in our core verticals while delivering growth in newer verticals like cloud and connectivity. Across our business, we are maintaining our focus on generating double digit organic growth in gross profit, and we expect to flow through a significant portion of that growth to adjusted EBITDA. Integrating inner work into LIFO distributions platform in the coming quarters will allow us to make us even stronger and continue our progress towards goal and further advance the momentum as a sales driven organization.
In addition, we are in the process of evaluating a comprehensive rebrand for the company to better reflect the strength on this initiative soon. That aside, we will continue to operate diligently in this environment and remain cautious about the long term impacts of the pandemic may have on our broader economy. With the latest information available to today, we believe we are well positioned to continue executing in this environment, and we are committed to sporting all of our partners in the months and quarters ahead. With that, I'll open up to the operator for
And our first question will come from Ed Woo with Ascendiant Capital.
Yes, thank you for taking my questions and congratulations on the quarter. I was wondering if you could just give us a little bit of more color on how the quarterly trends have played out. Do you see any changes in March versus January February?
This is Dale. We look at the quarter. Of course, we're going month by month, but we're always taking the dollar or taking the sales into the quarter side, but we saw it end up strong. And I think a lot of that has to do with what we had build up during the quarter and people actually, transacting in a lot of the products that we sell A lot of it was surrounding, virtual desktops, everybody doing remote. We don't get into the hardware game of selling laptops and things like that, but everything that's security related all the way back to the data center, and everybody was bringing those products on board.
So even though we're in the middle of the channel, it was end user demand at that time that finished the quarter strong?
Great. And then, obviously, congratulations on the recent acquisitions. How do you feel in terms of, potential M and As, do you believe that you need some time to integrate your current acquisition? Or do you feel that you guys have the capacity if you guys find the right opportunity to do something soon?
Yes, it's the first one
the company has done in 25 years as a company. And we have people in the company that come from different areas, over the last 4 or 5 years. So we believe we can continue to look, why we're integrating inner work, they're a great fit for us. Just a great team. And if it wasn't for the the personalities and the culture that they have that's similar to us.
And some of our backgrounds are very similar in the technology space as well. It's going to make it a lot easier for us. And the teams have already, you try to stop them until things actually get done finalized, but our teams have already been talking and starting that process. So yes, we'll continue to look, first, we'll do that as well. But we'll get this integrated pretty quickly just because of our mix of cultures that are close.
Great. Well, thank you for answering my questions and I wish you guys continued good luck. Thank you.
Our next question comes from the line of Peter Luxe, Private Investor.
Hi guys, good quarter. So a couple of questions. Is there anything in the suite of products that you sell that will be Given the background we're working in, that is particularly potentially, given the COVID thing that it would enhance people's use of these products based on the current environment specific products that people might concentrate more on because of the environment we're working in?
Charles, do you want to start with that, not where I can, and you can add
Yes, sure. So I would say that when you look at the overall products that we carry and where we see the candidly the most current success and the most what future looking success, Peter, is in the security side. We do have some companies that benefited in maybe a fairly small way from a rush to be a home capable, but where we see probably the most future success from the, from COVID impact of the economy is going to be in the security space, where it's fairly universal that, end users and our partners are finding that there's a rush to kind of protect, remote assets and the like So we think that there's a couple brands that we actually talked about in the last earnings call like Security ScoreCard that we think will have excellent future upside because of the environment we feel that we're in today.
Go ahead.
Peter, go ahead.
Let me ask, I do agree with Charles on the security side. And then just to add to that, there's a real important that started 6 or 7 years ago when they sold virtual desktop, it's referred to as VDI. And it'll people to run, remotely these virtual desktops. So we have about 4 vendors, and I'll just name a couple like Tentry and, data core, in the hyperconverged space, but that's what they do. They have a focus and you can see that they're putting energy into their products, to get them out to the market.
So we'll take advantage of that as well. And so will the the customers because everybody's got to start thinking this way that they need to have as close to 100% operational efficiency as they can with people sitting in their homes and they had to do all the stuff back at the data centers.
Right. So, with that said, have you guys added any new writers or potential vendors in the quarter that that you're particularly excited
about?
Peter, this is Charles again. I'm excited about all the vendors we had in the quarter. I will say that we did, joking aside, we have tried to be far more selective than we were perhaps a year ago. As we've had success with vendors, we're allocating assets to those vendors that are winning with us. But there's been a couple brands that we picked up here in even the last 30 days that we think are going to be impactful a year out from now.
And a lot of it are companies like Liquid, which is a composable architecture, hardware platform. We just ink that contract here within 10 days. And we see a tremendous amount of upside in the differentiation they have in the market. So, I would say liquids, one of the ones that's actually fairly new that we're just beginning the onboarding process on. And candidly, we're on, at least on the light boat side.
A lot of excitement on some of the key security brands that we'll be moving over from inter work.
So, Mike, it's a question for you. Just would you apply the straight math of reducing capitalization or stock in the market by 5.8%. So you would apply that directly. And so we might see it based on the the quarter that you just had, you would then see perhaps a 6% increase in, in both the EBITDA and, net gross profit? Well, yes, so definitely the share
outstanding share count will change by the 5.8%. The transaction happened in April.
So when
you're looking at Q2 results, there'll be a weighted average impact to that. And when you look at the year to date results, it'll be the same thing. 4.5 months with the old share count and the remainder of the year with the new share count, but it'll, be accretive to our EPS, for sure, for the rest the year.
And just one other thing is sort of a comment. One of the things that we talked about over the last a couple of months, particularly with the N and W boys on your back was, trying to be more transparent to, with your shareholders. Unfortunately, I didn't really see that during the first half of the year, first quarter of the year. Perhaps it was because NNW was breather and in echo, but is it your intent to be more conversant with, with the news that, that comes your way and to, communicate that to shareholders more frequently.
Yes, I think Peter, I mean, we want to do that and be more transparent. I think that some of the stuff we just couldn't talk about, because there was a lot of stuff going behind the scenes that we were not they were just fast moving and that we couldn't, put out there legally.
Thanks. Hey, this is a good quarter and keep it up and good luck.
Your next question comes from the line of Justin Jacobs, Private Investor.
Hey guys, congratulations on another strong quarter. And appreciate you taking the question. Just a clarification or just kind of digging in briefly on the timing of receivables that you commented on in the releases and then earlier in the prepared remarks. As you look today, so meaning the beginning of May, Have you seen accounts receivable stretching further? And are you seeing any increase in your bad debts?
Yes. Hey, Justin, it's, it's Mike. Increase in bad debts, no. And the, in terms of our receivables overall, our receivables really haven't, degraded in any way. We had a couple of situations where resellers wanted us to work with them on terms.
And it was a little bit of a hand in glove because there was a give and take in order to help them get a deal If we're familiar with reseller, I know they have the ability to pay, we'll work with them to get extended terms in different ways. So at the end of the quarter, we had a couple of large deals order to reel them in, we had to help the resellers out given the current environment.
Go ahead.
I'm sorry. I'll add real quick. We have insight into the end users. We're a distributor, so we're selling to these resellers. We do have insight because a lot of our products, their deal regs, so they have registrations that tied to them, so the actual information is available.
So we are taking a closer look at what industries they're in and maybe asking more questions, taking a harder look at the reseller and also the end user. So we'll continue to do that because it's very important in a lower margin game. Okay. So just to confirm though,
as you look beyond the end of the quarter, you haven't seen as you look through Q2 today, so roughly a little over a month. Not seeing any material change in what you saw versus the end of the quarter?
No, we are not.
Perfect. Great. Thank you very much guys. Keep up the great work. Thank you.
Appreciate it.
Your next question comes from the line of Josh Peters with Minute Sterling Advisors.
Hello, good afternoon, gentlemen. I really want to add my congratulations as well. I think your execution would be exceptional, even in an ordinary environment and what we're dealing with now. It's a it is truly something to see. I do have a question just about, cash flow and cash reserves.
So we ended the quarter with about $11,500,000 of cash. Since then, you purchase those shares that looked like about $3,500,000, about another $3,600,000 U. S. To purchase Innerworks. So that brings you down, although being equal to about $4,500,000.
As the year unfolds, do you see yourself, using your revolver or seeking additional supplies of capital in order to finance your growth.
Just before Mike will give you more detail, but some of about the timing of receivables and payables on that. So that affected some, but I don't if we have to use our revolver, we we rarely tap into it, but it's there if we need that.
Yes. So I think our view is that we we could fund the inter work acquisition and the stock buyback that we did to date out of our existing cash reserves. We have the revolver for, availability. We do have an intra quarter cash cycle that we go through. So perhaps we use the revolver from time to time into quarter to manage ebbs and flows in our working capital, particularly if we have a large no deal come through.
But we don't think anything that we've done to date would put us in a position where we have, permanent debt. So we think we still have liquidity looking forward to review other deals and other uses of our capital prudently.
Okay. Thank you very much and again, congratulations.
At this time, this concludes our question and answer session. I would now like to turn call back over to Mr. Foster for closing remarks.
Great. Thank you, Phyllis. I'd like to thank everybody that attended today's call. I appreciate your support. Keeping track of us and continue to watch us as we progress through Q2.
And we'll talk to you, when we do an report at the end of Q2 and talk about Q2 results. And everybody, please stay safe.
Ladies and gentlemen, this does conclude today's conference. You may now disconnect. Your lines at this