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. As a reminder, ladies and gentlemen, this conference is being recorded. I would now like to introduce your host for today's conference, Melanie Capanegro, Ms.
Kathleen Gro, you may begin your conference at this time.
Thank you, and good morning. Welcome to Wayside Technologies Second Quarter 20 18 earnings call. Before turning the call over to Steve DeWinds, the company's interim President and CEO, I'll the quarter at approximately 5 relationswebsite@wacitechnology.com. Today's call, including all questions and answers, is being webcast live and a rebroadcast will be available at waysidetechnology.com/site/content/webcast. This conference call and the associated webcast contain time sensitive information that is accurate only as of today, August 7, 2018.
A detailed discussion of risks and uncertainties are discussed in our forms 10Q, and also in greater detail in our forms 10 K. Wayside Technology Group, Inc. Sees no obligation to update and does not intend to update any forward looking statements. Now, I would like to turn the call over to Steve DeWindt.
Thanks, Melanie. Hello, everyone. Thank you for joining us today to discuss our second quarter 2018 operating results. This quarter had mixed results On the plus side, percent year over year. On the negative side, our gross margins were squeezed due to competitive pressure and product mix, coming down to 14 point In addition, Chairman and CEO.
This led us to showing a loss for the quarter. However, on an adjusted basis, our net income for the executive separation expenses. Wayside's position in the marketplace has always focused on introducing new vendors and technologies into As you may have seen in recent press releases, we are continuing to do so having signed several new intriguing emerging technology vendors this year. Data management, and networking products. In Q1, we also began to invest in a regional field sales team, with business development for the enterprise marketplace to expand and solidify our reseller network with new products in high touch sales support.
We're encouraged by the enthusiasm our reseller partners have shown in our initiative as we make investments now to position ourselves for the future. And found that the sheet and have not needed to take on debt. The company historically returns some of the cash to investors as a dividend with a is still in place and as has been the case in the past, the board will make decisions regarding stock purchases on a quarterly basis based on current business needs, objectives and market conditions. This past quarter has shown that demand for IT solutions delivered through a reseller channel remains robust with opportunity for share gains and growth in security hyperconverged storage data management and networking products. As we continue to and focus on controlling costs and improving our IT delivery and reporting systems.
We're feeling very good about the outlook for Let me now hand off
I'll review our financial results for $1,000,000 or $0.25 per share, resulting from $2,000,000 of separation expenses, net of taxes that we recorded upon the departure of our former chairman and CEO. The net expenses consisted of $1,700,000 of accelerated vesting of restricted stock, approximately $800,000 of cash payments and reflect an income tax benefit of $400,000. To provide better comparability, we reported non GAAP earnings, So without the impact of the separation expenses, we reported non GAAP net income of $900,000 and non GAAP diluted earnings per share of $0.20 per share compared to net income of $1,300,000 last year and diluted earnings per share of $0.28 for the same quarter last year. I'd also like to remind effective January 1, 2018. But resulted in a significant portion of our revenue being reported net of cost of sales and increased our gross profit margin percentages.
We present prior year results on as a non GAAP measure in our earnings release and 10 Q filing to assist with comparability with our historical results. Overall, net sales for the quarter last year. Lifeboat distribution net sales were up 8% for the quarter to $38,300,000, while tech extend net sales for the quarter were up 52 percent to $5,600,000. As we have discussed in the past, our Lifeboat segment accounts for about 90% of our net sales and has shown consistent top line growth over the past several years, while techxtend sales tend to fluctuate from quarter to quarter based on the timing of deal flow. This period, we benefited from a strong quarter for our techxtend business when compared to the prior year's quarter due to several large enterprise software sales.
Gross profit for the quarter decreased slightly to 6.5 Life boat distribution gross profit for the quarter decreased 6 percent to $5,300,000, while techxtend increased 27% or $300,000 due to the increased sales we previously discussed. At Lifeboat, we experienced turnover in our vendor were somewhat lower than the ones impacting our GAAP gross margin percentages. Gross profit margin as a percentage of net sales decreased by 200 basis points to 14.8% compared to 16.8% in the second quarter last year. The change in gross profit margin was primarily due to a shift in product mix compared to the same quarter last year. Under ASC 606, our gross margin as a percentage of net sales is a composite of items that are recorded net of the related cost of sales were 100% gross margin and items that are recorded on a gross basis, typically reflecting a high single digit profit margin.
The weighting of the 2 product categories in the composite margin is based on the relative percentage of GAAP revenue. During the second quarter of 2018, approximately 8.7 percent of our net revenues were from security maintenance and other products which were recorded on a net basis or effectively 100% gross margin and 91.3% were products that were reported on a gross basis. For the same quarter in 2017, 10.5 percent of our net sales were for products recorded on a net basis and 89.5 1 160 of the 200 basis point decline in gross profit as a percentage of net sales quarter over quarter. The remainder of the change was due to decline in gross margins as a percent of net sales for hardware and software products, which are recorded on a gross basis. The decline in those products was 6 point the margin for those products was 6.7% in the current year's quarter compared to 7.1% the prior year quarter.
The decrease in gross profit margin on the hardware and software products was due to the growth in higher volume product lines which do carry a lower incremental margin than our overall average rate category. We report adjusted gross billings and gross margin as a percentage of adjusted gross billings as a supplemental non GAAP information in our earnings release. And our soon to be filed 10Q to assist in the analysis of our gross margins. General administrative expenses for the quarter increased by $500,000 to $5,300,000 compared to $4,800,000 for the same quarter in 2017, due to higher personnel costs resulting from the investment in our business development and field sales organization and higher legal accounting and public company costs. During the first quarter of 2018, we hired 2 executives and 5 senior field sales personnel to enhance our outreach to new vendor prospects and expand our field sales capabilities.
This investment is expected to as we recruit new vendors and expand our reseller base into new market segments. We also incurred additional legal and accounting fees due to the implementation of the new revenue standard corporate changes and public company compliance. SG and A expenses as a percentage of net sales, was 12.1% in 2018 compared to 12.4% in the prior year. For the second quarter of 2018, the company recorded a provision for income taxes of $100,000 compared to $600,000 in the prior year. The company's income taxes for the 3 months ended June 30, 2018 was impacted by limitations on the deductibility of separation expenses resulting from Section 162 M of the internal revenue code and $200,000 in adjustments to the accrual for state income taxes in states which have recently enacted economic nexus statutes.
The company recorded a $500,000 tax benefit related to the separation expenses during the 3 months of June 30, 2018, which was accounted for as a discrete item an 18% effective tax benefit rate. The company's effective tax rate on ordinary income before the separation expenses was 24.1% for the 3 months ended June 30, 2018, compared to 32% for the same period in 2017. As previously mentioned, the company incurred a GAAP net loss of compared to net income of $1,300,000 during the prior year. However, the net loss was primarily attributable to the $2,000,000 in separation expenses, due to the departure of our former Chairman and Chief Executive Officer. Non GAAP net income, excluding the impact of the separation expenses, was $900,000 compared quarter ended June 2018 was $0.25 compared to diluted income per share of $0.28 in the same period in 2017.
Non GAAP diluted earnings per share, excluding the impact of separation expenses, net of taxes, was $0.20 per share Moving on to our cash and cash equivalents of $10,400,000 The increase was due to the positive impacts to operating cash flow resulting from the utilization of vendor prepayments made last year and reduced long term receivables from extended payment sale. In addition, we had no outstanding borrowings under our $20,000,000 credit facility. We paid approximately $800,000 in dividends during the quarter, And as of June 30, 2018, stockholders' equity stood at $38,900,000 compared to $38,700,000 at the end of last year. Total working capital, including cash, was $32,100,000 compared to $29,500,000 at the end of last year. In addition, our long term receivable balances of approximately $5,300,000, which are not included in working capital are available to us as sources of future liquidity.
On August 1, 2018, the Board of Directors declared a quarterly dividend of common stock payable August 22, 2018 to shareholders of record on August 8, 2018. So in summary, we showed strong top line growth this quarter. However, our gross margin contribution was slightly down and we experienced higher operating expenses, some due to investment in our business development and field sales organization and some due to higher legal and accounting expenses resulting from corporate changes adoption of new accounting standard and other public company compliance costs. Steve?
So that concludes our remarks for today. Operator, we'd now be happy to take any questions.
Thank questions. Our first question comes from the line of Peter Delgado.
Yes. Hey, good morning, Stephen Mike. Peter Delgado from Global Value Research Company. It was really great to see the top line growth this quarter. I was, been very intrigued with your recent news flow about signing of some new partners on the vendor side.
Do you
guys see,
continued strength in this area?
Absolutely. Peter, thanks for your question. One of the things, as I mentioned, one of the areas that we really focus on is introducing and finding, introducing and then focusing on new and interesting emerging technologies. And so we have a group of people that focus exclusively on talking with venture capitalists, talking with resellers and talking with large corporate users about technology that they see coming up that appears to be very useful. We then go out and spend time talking to these new vendors finding out what their go to market strategy is and assuming that they have a play for looking at resellers we focus on trying to sign these people and helping to introduce them.
That's been one of the strengths of wayside over the past 30 years of our life, finding new interesting technologies and bringing them to the fore within the reseller channel. And we fully expect that to continue to play an important role
Our next question comes from the line
So I had 2 questions. One question, but sort of two parts, and I we've had sort of this discussion, but I'm going to ask you a question again. Steve, you know, you still have an interim, an adviser name. Are you guys still looking for a new CEO, or are you going to eventually remove that, that, Monica? Secondly, we've talked about how do we bring this company to the forefront of investors as it has languished has sort of in the darkness with a very good record that no one seems to care about.
And I was wondering what your plan is.
Peter, thanks for your question. Regarding the first part with interim, the board is going through a process of looking at, exactly what the role requires and what it needs. And beyond that, I'm really not at liberty to sort of discuss where things stand, which probably isn't very satisfying for you, but, you can continue to ask that question feel free. Next, in terms of going out and talking to investors, Peter, we've taken this to heart and Mike and I are regularly speaking with, both analysts and potential investors. And, we are also looking at are there various conferences that where we can present our story and just make sure that wayside is better known to people.
And we will be attending, excuse we'll be attending one in San Francisco in September. I'd be happy to give you more information on that if you're truly interested. But please know that we've taken this to heart and are going and beginning to reach out more.
Just as a follow-up, when you speak to potential investors, what's the feedback there from them?
Overall, I would say, people are pleased. They look at our long time history the fact that we've been sort of a steady eddy within the industry, continue to be profitable, continue to generate cash, and continue to provide dividends that give people, at least in the area of 5% return. All of that seems to resonate for investors in small cap companies.
Thanks.
Really, I just want to thank everybody. We appreciate your interest in our company, and we look forward to updating you again
This concludes today's conference call. You may disconnect at this time and thank you for your participation.