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 all callers are limited to one question each. If anyone should require assistance during the conference, please press star and then the zero key on your touchtone telephone. As a reminder, ladies and gentlemen, this conference is being recorded. I would now like to introduce you to today's conference, Melanie Caponigro. Ms. Caponigro, you may begin your conference at this time.
Thank you, good morning. Welcome to Wayside Technology's second quarter 2016 earnings call. Before turning the call over to Simon Nynens, the company's Chairman and CEO, I'll dispense with the customary cautionary language and comment about the webcast for this earnings call. We released earnings for the second quarter at approximately 5:00 P.M. Eastern Time, Thursday, July 28th, 2016. 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 waysidetechnology.com/earnings-call. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, July 29th, 2016. 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 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 Simon Nynens.
Thank you, Melanie, good morning to everyone. We had a very solid second quarter. Revenue was up in all geos and all divisions. Overall, revenue increased to a record $105 million in one quarter, both revenue and income from operations increased 14% compared to Q2 of last year. Our Lifeboat division represented 85% of our revenue and 81% of segment income in the second quarter, our international sales were 11% of our overall revenue, up slightly from 10% for Q2 of 2015. We continue to have a rock-solid balance sheet with working capital of $32 million, or 83% of our equity, allowing us to continue to invest in our own success. We paid $800,000 in dividends this quarter. By the way, the 54th quarter, more than 13 years of declaring very healthy quarterly dividends.
We invested about $1 million to buy back 62,000 of our own shares. We released a redesigned Lifeboat website in June. We had a great conference for our Lifeboat customers. We continue to work hard to stay on top in terms of operational efficiency, and we continue to expand our team in order to support our growth. Our new headquarters is coming along, and we expect to move in during the third quarter of 2016. In conclusion, it was a very good, busy, and exciting quarter. I want to thank all of our team members for their hard work and dedication to the success of our company. I'd like to hand it over to Bill Botti. Bill?
Thank you, Simon. As Simon stated earlier, we had a very good quarter with improvements in all business segments across all of our geographies. Overall, revenue increased 15% to a record $105.3 million, and income from operations increased 14% over the same period last year. On a consolidated basis, net sales for the second quarter ended June 30th, 2016, increased 14% to $13.3 million to $105.3 million, compared to $92 million for the same period in 2015. Total sales for the second quarter of 2016 for our Lifeboat distribution segment were $89.7 million compared to $81.3 million in the second quarter of 2015, representing an increase of $8.4 million or 10%. Total sales for the second quarter of 2016 for our TechXtend segment were $15.6 million compared to $10.7 million in the second quarter of 2015, representing an increase of $4.9 million or 46%.
Gross profit for the second quarter ended June 30th, 2016, was $7 million, an increase as compared to $6.4 million for the second quarter of 2015. Gross profit for our Lifeboat segment in the second quarter 2016 was approximately $5.5 million, compared to approximately $5.1 million for the second quarter of 2015, representing a 9% increase. Gross profit for our TechXtend segment in the second quarter of 2016 was $1.5 million, compared to $1.3 million for the second quarter of 2015, representing a 10% increase. Gross profit margin, gross profit as a percentage of net sales, for the second quarter ended June 30th, 2016, was 6.7%, compared to 7% for the second quarter of 2015. Gross profit margin for our Lifeboat distribution segment for the second quarter of 2016 was 6.2%, compared to 6.3% for the second quarter of 2015.
The decrease in gross profit margin for the Lifeboat distribution segment was primarily caused by a program change by one of our main vendors, causing a gross margin to decline by 1.8% for that line. Gross profit margin for our TechXtend segment for second quarter 2016 was 9.3%, compared to 12.3% for the second quarter of 2015. The decrease in gross profit margin for the TechXtend segment was primarily caused by the increase in extended payment transaction that's carry low margins. As a percentage of net sales, SG&A expenses for the second quarter 2016 were 4.5%, compared to 4.8% for the second quarter of 2015. We face continued margin pressure from very large distribution companies we compete with in the market. We have managed to overcome that with increases in most of our vendors and customers.
At our customer partner summit in Scottsdale, Arizona in June, we released a new Lifeboat logo, brand, website, and it refreshed our brand image with very positive feedback from customers and suppliers. We continue to be excited about our future. Brian Gilbertson, our new VP and General Manager for Lifeboat, has begun overseeing operations there and will provide even greater laser focus on our sales team and operations. We continue to manage our expenses and build our product portfolio to help achieve our growth targets. Thank you. Simon, back to you.
Thank you, Bill. Now I'd like to hand it over to Kevin Scull, who will report on the financial numbers. Kevin?
Thank you, Simon, and good morning to everyone. Since Bill already discussed sales and gross margin, I will start with our selling, general, and administrative expenses. Total selling, general, and administrative, SG&A, expenses for the second quarter of 2016 were $4.8 million compared to $4.4 million for the second quarter of 2015, representing an increase of $400,000 or 7%. This increase is primarily the result of an increase in stock compensation and amounts accrued for bonus expense in 2016 compared to 2015. As a percentage in net sales, SG&A expenses for the second quarter were 4.5% compared to 4.8% for the same period last year. Our net income for the second quarter of 2016 was $1.5 million compared to $1.4 million in the prior year. Earnings per share on a fully-diluted basis was $0.34 per share compared to $0.29 last year. Moving on to the balance sheet.
Compared to our year-end balance sheet at December 31st, 2015, the following key accounts had fluctuation. Cash increased by approximately $800,000 to $24.6 million at June 30th, compared to $23.8 million at December 31st, 2015. This increase is comprised primarily of net cash flow from operations of $4.7 million, offset in part by dividend payments of $1.6 million and $2 million of purchases of treasury stock. Accounts receivable, current and long-term, increased by 2%, and accounts payable increased by 5%, primarily due to higher sales volume in the quarter compared to our Q4 2015. As of the end of the quarter, we had no outstanding balances under the credit facility. Working capital at June 30th was $31.9 million. During the quarter, we repurchased approximately 51,000 shares of our common stock under our 10b5-1 stock purchase plan. We still have board authorization to repurchase up to approximately 364,000 more shares.
Our stockholder equity now stands at $38.6 million. At our July 27th, 2016 board meeting, the board declared a $0.17 dividend per share for its common stock, payable August 18th to shareholders of record on August 8th. In conclusion, the company continues to have solid operating results, a strong balance sheet, and is adequately capitalized to support our continued growth plans. I want to personally thank all of our team members worldwide. Simon, I turn it back to you.
Thank you, Kevin. Operator, we can now start with the Q&A session.
Thank you. Ladies and gentlemen, at this time, if you have a question, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. If you are using speakerphone, please pick up the handset before asking a question. One moment please, for the first question. Our first question comes from the line of Sam Schaefer. Your line is now open.
Thank you for taking my question today, guys, I want to congratulate you on passing the $100 million for the quarter and a $400 million run rate annually. That's a great job.
Thank you.
Simon, I know I'd asked this last quarter as well. I thought you'd referenced the headquarters move. That's in progress currently?
As anybody knows, in construction, usually delays. We expected to move in in July. That's been delayed slightly to September. It's about the same footprint as we currently have. Our furniture here is fully depreciated as we were in this current building for 16 years, more than 16 years. I think close it to 17 years, right? We'll pick up that depreciation expense. I don't expect the occupancy costs to go up significantly. It's about the same all-in as we pay here. We're very excited about the move. It's a new concept of working together. We're all excited to be able to move into the new building, which will be about five miles from where we currently are. We're renting that place for the next 10 years there.
Great. You said it should be about the same expense. Does that include depreciation expense, or are you solely referencing the rental expense?
It will go up slightly because of the furniture and the new IT expenses. The way we've set up that building is to really facilitate future growth in terms of employees without the need to expand our footprint there. It's an open concept. It's an activity-based working environment, so we can host a lot more employees there. What we're planning to do is build a really great beehive. Our office in Arizona, our office in Toronto, our office in Amsterdam, where all the workers, we basically plan to get together twice a year, and that's our central beehive to really get together. Then allowing the people to work remotely, but while keeping the team spirit alive. That's our plan, and that's what we're piloting here at the current building, and it's working very well.
The work from home and the flexible work environment works very well for people. We monitor our productivity closely, and it's actually been up since we started with the pilot program. We're excited about that.
Great. Glad to hear it. Moving on. I know, Bill, you had referenced multiple new relationships and new vendors on the last quarter. I don't believe you did on this quarter, but I was curious how the relationships with those new vendors, I think you said Micro Focus, NetIQ, or a few of them, really how those have been evolving over the last quarter and six months.
Yeah. We continue to communicate with and investigate new lines. It's an active part of what Brian Gilbertson and I work on. Out of the lines that we've brought on, some of them are beginning to gain traction. In fact, the Micro Focus opportunity continues to grow fairly rapidly. In fact, because of that relationship, the large extended payment transaction we had in TechXtend was with Micro Focus as a opportunity founded on that relationship. We see that being a very positive line for us, along with a couple of the other smaller, newer lines that are beginning to move past $1 million in revenue. We expect that process to continue.
Great. I know last quarter you lost one key vendor, and you stated the contract typically comes up for rebid about every six months. Is this a contract we're still actively going to go after? Has it already come up for rebid?
That one has not come up for rebid. Depending upon the customer, some product lines are quarterly, some are twice a year, and some are annually. It depends on the customer and the product line on how they bid the process out. It's a continual process. We will always go after the business. Sometimes you win, sometimes you lose.
Great. Just a few more. There was a large increase in TechXtend. I think that was really the first increase of that size for a few quarters. You had stated that it was a result of the extended payment terms. I was curious, I thought the extended payment terms kind of flow into the accounts receivable long term, which actually declined quarter-over-quarter. Am I looking at that wrong?
This is Kevin. I can answer that question. As Bill mentioned, we had a large deal through Micro Focus to one of our TechXtend customers, and it was an extended payment transaction, but it doesn't gap to one year. The accounts receivable long term are those receivables due greater than a year.
This just had extended payment terms, it didn't go out a year.
Oh, okay. That makes sense. One last question, then I'll go back into queue. I see that you have been purchasing stocks for the company in a treasury for a while now, and over the last quarter, I think it was just about $1 million. It seems that as you're doing so, you're issuing stock for management, basically resulting in a net-net position. As you're aware, the stock price really hasn't improved very much over the past two years. I'm just curious, with the large cash position, how does the company feel about rewarding some of their more long-term patient shareholders?
As I said, this is more than 13 years of declaring very healthy quarterly dividends. We also, as I mentioned at the end of our last quarterly conference call, we are retaining an investment banker to take a really close look at acquisitions, and that's something that we discussed at the board. I know we've talked about it before, we continue to periodically really explore all of our strategic options in terms of our cash. If you're looking at our growth and the cash flow during the quarter, we do now more than what we did in 2004 in a year, in one quarter. We continue to grow very healthily, and we need that cash in order to support our future growth. Now, not all of that cash. That's why we continue to pay a quarterly dividend.
A one-off payment in dividends wouldn't do much to our stock. It's this continued expansion of our company which will reward shareholders and will reward us as management. That's our philosophy.
It sounded like you said you were actively engaging investment bankers last quarter to look for-
No, we explored that option last quarter. We will start working with them in September and October. They're going to really explore all the strategic options in terms of acquisitions for us. They're going to take a really close look for us.
Great
That's where we're currently at.
Great. I'll step back in the queue here. Thank you guys very much, and congratulations on the great quarter and the 100 million accomplishment.
Thanks, Sam. Appreciate it. Have a good weekend.
You as well.
Thank you. Again, ladies and gentlemen, if you would like to ask a question, please press star and then one. We do have a question from the line of Aaron Lehemann, a private investor. Your line is now open.
Hello. Congratulations again on another wonderful quarter. As the previous questioner had mentioned, I've been a patient shareholder for all these years. Not unhappy, but I'm not happy about not realizing the full potential of this stock, given your balance sheet and given your growth as a company. You are engaging an investment banker for beginning September to look for acquisitions. Is he also going to possibly seek out a buyer that can give you a more immediate gratification of the whole company as a whole?
We always are open for those discussions. As I said before, it would require a significant premium over our stock for us to sell this company. We really believe in the future of our company. I can never take that off the table if somebody would come to us with a very healthy offer, all the shareholders have to consider that. People are always exploring those kind of options. It would take a very significant uptick over our current share price as we really believe in the future of our company.
Okay, thank you.
You're welcome.
Thank you. We do have a follow-up from the line of Sam Schaefer. Your line is now open.
Thank you guys for taking the follow-up. Just looking at gross margin, it's kind of trended down over time. I was curious if you could comment a little bit on really how we should look at that moving forward.
Yeah, as I said before, that continues to be a major trend in our industry, revenue going up and the gross margin going down. It is our plan really to increase income from operations, to run the most efficient machine that we can and to really not lose lines on gross margin, but be able to take them and still make a profit on them. We expect continued margin pressure on that line. We try to counter that with addition of professional services, the addition of really focused on the expansion of our sales to vars, the specialized vars, and the addition of new key lines, as Bill alluded to, in terms of higher gross profit lines, which are the smaller lines. You have to offset that. You can only focus on so many lines.
If we want to be a true value-added distributor, you can only focus on so many lines. You only can be knowledgeable on so many lines. That's how we counter that.
Just like to put a comment in here at the end. It would be, if the company feels the stock is undervalued and going to continue to buy it would be great to see senior management or the board members step out and buy some stock in the open market.
Sure. Thank you.
Thank you. At this time, there are no further questions. Please continue with any closing remarks.
Thank you. We appreciate your interest in our company, and we look forward to reporting our Q3 results at the end of October of this year. Thank you.