Good morning, ladies and gentlemen, and welcome to the Wayside Technology Group Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that callers are limited to one question each. As a reminder, this conference is being recorded.
I would now like to introduce your host for today's conference, Melanie Campanagro, Mister Capanagro, please begin.
Thank you, and good morning. Welcome to Wayside Technologies Third Quarter 2019 Earnings Call. Before turning the call over to Dale Foster, the president of Lifeboat Distribution, I'll dispense with the customary cautionary language and comments about the webcast for this earnings call. We released earnings for the third quarter at approximately 9 am Eastern Time, Wednesday, November 6, 2019. 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.wasteighttechnology.com forward slash site forward slash content forward slash webcast. I'd like to remind you that certain comments made in this conference call and webcast are considered forward looking statements under the Private Securities Litigation Reform Act of 1990 5. Those statements are subject to risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in our forms 10 q10 k filed with the SEC. Wayside Technology Group, Inc.
Seasonal obligation to update and does not intend to update any forward looking statements. Our presentation also includes certain non GAAP financial measures, including adjusted gross billings, non GAAP net income, and non GAAP earnings per share. All non GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts in the earnings release and forms 8 K we furnished to the SEC. Now, I would like to turn the call over to Dale.
Thank you, Melanie, and good morning to everyone. Appreciate everyone joining us today for today's call and, discuss our third quarter 2019 operating results. I would like to introduce the speakers for today when you're joining me, Mike BC, our CFO, and VP of Finance. Along with Charles Bass, our VP of Marketing And Vendor Alliance is will be on the call today to discuss the progress we're making in Q3 results. In this quarter, we continued to execute on the plan that we said in motion over a year ago, the the plan is very sim fairly simple and has 2 operating or 2 primary components.
First, we invested in a territory field based sales team in coverage model. And then second, we invested in our recruit team that is responsible for launching and growing new and emerging vendors. We continue to show progress on this plan as we are reporting our 2nd consecutive quarter of double digit growth in gross profit. Our Q3 adjusted gross billings on a non GAAP basis increased from 134,000,000 to 149,100,000,000 an increase of 11% over the same period of 2018. Our gross margin dollars also increased, to 800k or 12% from prior year's Q3.
Our year to date results continue to show improvement with gross profit up 12% to 21 22,100,000. And we just had a, you know, good finishing up a good third quarter. Charles, could you talk more about the sales team and the emerging bankers?
Yes. Thank you, Dale. So we are now 20 months into the execution of our shift in strategy. We've been driving towards becoming a sales led organization that our strategy has focused on adding incremental field personnel and incremental vendor partners with a focus on cross selling to our entire base of our customers. We made 2 significant related investments.
1st, we've built our field sales team into 7 geographically assigned sales territories In addition to these sales teams, we've also dedicated field sales and resources specifically focused on strategic customer accounts. These teams have been fully integrated into the existing LIFO insight sales teams, and we've implemented aligned goals to ensure that we're effectively driving consistent cross selling behavior. 2nd, we've implemented a comprehensive vendor recruit plan. We've been using an establishment to recruit plan and methodology that's designed to work in concert with our outside sales teams at to recruit resellers and cross sell emerging technology brands to our partner base. We've used this many recruit plans to evaluate over 300 new or emerging prospective vendors, and we've entered into contractual agreements with over 40 of those vendors based on a best fit for our go to market strategy.
Both these investments in field sales and vendor recruiting are not point in time actions, but rather investments that we view as ongoing commitments to sales results. I would now like to turn the call over to Michael Biccia, our CFO, to discuss our third quarter financial results.
Thanks, Charles. I'll review our financial results for the 3rd quarter then discuss our balance sheet and liquidity. Overall, net sales for the quarter increased 9% to 52 point $1,000,000 compared to $47,900,000 for the third quarter last year. Lifeboat distribution sales were up 11% for the quarter to $48,800,000, while tech expense sales were were down 6% for the quarter to $3,600,000. Overall, adjusted gross billings on a non GAAP basis increased 11% to $149,100,000 from $134,000,000 in the prior year.
The difference in growth rates between net revenue and adjusted gross billings on a non GAAP basis is due to the change in mix of items reported net of cost of sales under GAAP. Gross profit for the quarter increased 12 percent to $7,100,000 compared to $6,300,000 for the same period last year. LIFO distribution accounted for all of the growth in gross profit increasing 13% to $6,400,000 compared to $5,600,000 for the third quarter last year. The increased gross profit at Lifeboat was driven by both incremental sales from new product lines and growth in some of our existing lines. Gross profit from our tech extend business remained relatively unchanged from the prior year.
As discussed in previous quarters, the Tech Accenture business provides an opportunity for us to leverage our existing infrastructure and generally incremental profit contribution and cash flow However, we believe our LIFO business provides the best opportunity for sustained growth. And accordingly, we have focused most of our sales and marketing efforts there. Gross profit margin as a percentage of net sales increased to 13.5% compared to 13.2% in the third quarter last year. The change in gross profit margin was mainly due to the change in the percentage mix of products recorded on a net basis under ASC 606. Under ASC 606, our gross margin as a percentage of net sales is composite items that are recorded net of the related cost of sales, We're in an effective 100% reported gross margin and items that are recorded on a gross basis, typically reflecting a high single digit profit margin.
During the third quarter of 2019, approximately 9.3 percent of our net revenues were from security maintenance and other products, which were recorded on a net basis or an effective 100% gross margin compared to 8% in the same quarter last year. This shift in product mix had the effect of increasing gross profit as a percentage of net sales by 120 basis points. This increase was partially offset by lower gross margin on software and hardware products recorded on a gross basis. On a non GAAP basis, gross profit margin as a percentage of adjusted gross billings remained constant with prior period and is up 4.7%. Total SG and A expenses for the quarter increased by $200,000 to $5,100,000 compared to $4,900,000 for the same quarter in 2018.
The increase is primarily due to increased salary and commission expenses at to support the increased sales. SG and A expenses as a percentage of net sales for the quarter were 9.7% in 2019 compared to 10.2% in the prior year. Income before the provision for income taxes of a was $2,000,000 for the quarter ended September 30, 2019 compared to $1,700,000 for the same period in 2018. During the third quarter of 2019, the company recorded a provision for income taxes of $600,000 compared to $400,000 for the same period in the prior year. The company's current period provision for income taxes was impacted by an increase in the provision for state income taxes, for states which have enacted economic nexus statutes.
As a result, net income for the quarter ended September 30, 2019 was $1,400,000 compared to $1,300,000 for the same period in 2018. Revenue income per share for the quarter ended September 30, 2019 was $0.32 compared to $0.29 for the same period in 2018. Moving on to the balance sheet. We continue to manage a strong balance sheet and liquidity position with cash and cash equivalents of $10,200,000 at the end of the period compared $14,900,000 at the end of 2018, and we have no outstanding borrowings under our $20,000,000 credit facility. The decrease in our cash balance reflects an increased investment in working capital when compared to December 2018, reflecting seasonally lower payables due to year end order volume and increased sales to one of our customers with end of payment terms.
Stockholders' equity stood at $43,800,000 compared to $40,600,000 at the end of last year. Total working capital including cash was $40,600,000 compared to $36,200,000 at the end of last year. We continue to run a capital efficient business with return on invested capital of approximately 22% on a year to date basis for 2019 compared to 15% in the same period last year. We calculate return on invested capital by dividing non GAAP net income, excluding separation expenses, net of taxes by our stockholders' equity, less cash. We continued to return a significant portion of our earnings to shareholders in the form of a dividend On November 5, 2019, the Board of Directors declared a quarterly dividend of $0.17 per share of its common stock payable, November 22, 2019, to shareholders of record on November 18, 2019.
So in summary, our quarterly results continue to show our payback and the investments we made in vendor and sales and marketing since the beginning of 2018, with revenues increasing 9% over the third quarter of last year and gross profits increasing $800,000 or 12 percent over the prior year. The results also demonstrate the leverage in those investments and scale in the business with more than 40% of our incremental gross profit growth dropping through the pretax income line. And notably, this growth is driven by our core strategy of investing in vendor equipment and sales that are like about distribution business. We also continue to strengthen our balance sheet while returning over half of our net income to shareholders in a formative dividend. I'll now turn it back to Dale.
Dale?
Thanks, Mike. And as you can see, we've made some important progress this year in transitioning the company into a sales first approach with a focus on vendor and customer relationships And we're always, enhancing our customer service to both our partners on the vendor side and the customer bar side. We have a great team here at wayside and we'll continue to build on the success along with targeting areas in the company that we can become more efficient. To increase our value to the customers and vendor partners. In closing, I'd like to recognize our board of directors and shareholders for the ongoing support and encouragement as we continue to make progress executing our long term strategic business plan.
At this time, I'd like to have the operator open the call to our investor and analyst community for questions.
If your question has been answered or you wish to remove yourself from the queue, you may press the pound key. Our first question comes from Josh Peters. Your line is open.
Hello. Good morning. I'm very, appreciate the progress that you're making and the business, certainly the year over year numbers look quite strong. I'm wondering if maybe you could comment on the difference in results between the second quarter 3rd quarter. Honestly, I'm scratching my head a little bit trying to figure out why the stock is reacting so negatively here, and that's just about the only thing I can think of.
Yeah. Let me make a comment on that and then Dale if you want to answer what we can. But the, our business is not, exactly the linear from quarter to quarter. So it could be people compare results to the last quarter sequentially. As we've explained in the past, our businesses tends to be kind of a barbell when you look at the four quarters, in the first quarter of the year, one of our larger vendors has their year end tends to be a strong quarter for us.
4th quarter is generally a strong IT spending quarter and also several of our vendors that we year end at December 31st, just because there's a predominance of that. And then the middle two quarters are, usually the slower of the 2. So, sequentially, our results don't always walk quarter to quarter. The way we'd like to look at it, as you look at the trailing average of four quarters, if you chart that out, you'll see that the progress has been continual through the 3rd quarter that we we just completed. And, also, you'll note that it's, the light's pointing out that it's in the light boat business.
So going back to the beginning of 2018, we made a decision to on like folks who sell a market opportunity to grow sustainably there on a capital, efficient basis So the fact that the growth is skewed towards, that end of the business, while certain other parts where we think there's not good loan opportunities have been more flattish, you know, people may not be seeing that through the numbers if
they don't, listen to
the context on the call. So I think maybe that could also have an impact.
Okay. Yeah. It might Okay. Agreement as well.
No. That's all I was gonna say. But, yeah, please, whatever you'd like to add.
Yeah. Real real quick. This is Dale. You know, like Mike said, I mean, it's not linear. And if you look at Q2, we have, you know, as we said, as Mike said, the 1st quarter we the vendors that drift over and the orders drift over to Q2, they get recognized.
And then also, you know, at the end of, Q2 and June is the end of most, states fiscal year. So we have a lot of customers who sell into state and local governments. So we'll see a bump there as well on early Q2.
And our next question comes from Peter Locke Your line is open.
Hi, guys. How you doing? It seems to be some, some investors are waiting in the grass. So the weeds to get out on your on your numbers. I've seen, during the quarter, you did some outreach to the investment community right now, it doesn't look like any of it is really stuck.
What is your continuing plan to make this a viable, company with the investment community and perhaps get some strong hands rather than weak hands into the stock.
Yeah. I'll open that one up and then, Dale, you can,
add on to that.
You know, Peter, as you know, if you've been, you know, kind of following the story continuously here, we made an investment in changing the direction of business 2018 through 2019. And we started some investor awareness programs, mainly through conferences in 2018. And the successes have started to show through in, primarily in the 2nd and quarter of 2019. So I think we're at the point where we're continuing the exposure through exposure through conferences. You know, we're in dialogues and meetings with people, continuously.
And, as you know, the first meeting is an introduction. And realistically, people like to follow the story for a few orders and talk to management probably 4 or 5 times before they might actually take position in the stock.
So I think
we're continuing to go down the road of developing relationships with people answering their questions as they follow-up progress trying to, explain why we're investing in the areas of the business we are. And we're going to continue to just expand, communication and as long as the business performs, we expect that the industrials have the opportunity to to follow, but we are going to continue in creating awareness and, and, you haven't been doing so over the past 18 months for sure.
Just one other thing. You got, Dale seems to have taken the lead as president of, of Lifeboat. But, does the lack of a a CEO of the entire company, and, sort of hinder, where you guys are and, what's the, ongoing thought about, have a permanent CEO
So two things, I'll I'll take that. Number 1, it doesn't hinder us, in the company. Right? If you look at, the way that it's structured, Mike and I are taking the leadership roles and just like you've seen us out there gearing in the marketplace and in becoming much more aware your first question that you've seen, the company in, more conferences and also, you know, we're getting a lot of the meetings, as Mike mentioned. So at the end of the day, it's really the results, that, you know, we do we need to work on.
And then that's up to the board as far as on the the CO and the they're so phone billing.
Okay. Thanks a lot.
Thank you. And at this time, there are no further questions. Please continue with any closing comments.
I think we're good at this time. Thank you, operator, and thank you everybody.
Ladies and gentlemen, thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Thank you.