Good morning, ladies and gentlemen, and welcome to the Wayside Technology Group Conference Call. At this time, all all participants are in a listen only mode. As a reminder, ladies and gentlemen, this conference I would now like to introduce your host for today's conference, Melanie Caponegro. Ms. Caponegro, you may begin your conference at this time.
Thank you, and good morning. Welcome to Wayside Technology's 2nd Quarter 20 15 Earnings Call. Before turning the call over to Simon Ninen, the and CEO, I'll dispense with the customary cautionary language and comments about the webcast for this earning call. We released earnings for the second quarter at approximately 5 pm Eastern Time, Thursday, July 30, 2015. The earnings release is available at the company's investor relations website at resitechnology.com.
Today's call the technology.comforward/earningsdashcall. This conference call and the associated webcast contain time sensitive information that is accurate only as of today, July 31, 2015. A detailed discussion of risks and uncertainties are discussed in our Form 10 Q and also in greater detail in our Form 10 K. WASA 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
percent and gross profit increased 5% over the same period last year due to continued strong performance from our LIFO distribution team. We continue to invest in our future growth and we are pleased to announce that we have recently opened a Liveville distribution sales office in Mesa, Arizona to enhance customer service for our Midwest And West Coast customers. Our LIFO division represented 88% of our revenue and 82% of segment income in the first quarter. Cash and long term receivables were 24,400,000 and represented a very healthy 63 percent of amounted to $32,400,000 representing 84 percent of equity as of the end of June. Regarding cash flow and capital, we very fortunate to be in a position to continue to return capital to and paid out $810,000 in dividends.
Looking at the future, we continue to invest in the growth of our business. And as you can see year. As announced in Q3 of last year, we have expanded our sales services to include a field sales team as well as a professional services team. This resulted in an increase in selling costs of about sales and gross margin growth. As a percentage of net sales, SG and A expenses for the second quarter were 4.8% compared to 4 point 7% for the second quarter of 2014.
We are excited about the prospect of and we have a good pipeline of opportunities customer and vendor feedback confirms that we're on the right track. Our customer service is outstanding. Now, I would like to hand it over to Bill Botay, our Executive Vice President.
Thank you, Simon. As noted in our release, we had a good quarter overall with revenue up 9% and gross profit up 5% year over year. Our LIFO business grew 16% in Q2 to $81,300,000 compared to $70,000,000 in Q2 of 2014. Our techxtend segment retracted 26 percent when compared to the same period last year due to a continued decrease in our extended payment term transactions. Gross profit for our Lightboat segment in the first quarter was up 11% to $5,100,000 versus $4,600,000 in the same period last year, due to an increase in sales volume and deeper account penetration into strategic accounts.
The Tecxtend segment and a higher percentage of GP compared to last year, but declined 14% due to the lower volumes. We made a lot of progress towards our goal of expanding our sales organization with the opening of our Mesa Arizona office as an extension of our inside sales team to better serve our Mountain Pacific Time Zone customers. This office opened in July and is now operational and should be expected at expected staff levels for 2015 by early August. The feedback about this new coverage is up year over year due businesses. We were able to keep our net income nearly flat year over year and nearly overcame these increased SG and A costs while positioning your business to have the opportunity for continued growth this year and next.
We continue to execute against our plans in Lightboat AndTech XN and are now focusing on accelerating the addition of new product lines in the second half. We continue to manage our expenses and build our product portfolio to help achieve our continued growth targets.
Kevin Skol will now report on the financial numbers. Kevin?
Thank you, Simon, and good morning to our investors, analysts and employees. I will discuss our second quarter financial results both on a consolidated basis as well as by business segment. Net sales for the second quarter of 2015 were 92,000,000 This is compared to $84,400,000 in Q2 last year, representing a 9% increase on a consolidated basis. Sales for our Lifeboat Distribution segment were $81,300,000 and represent 88% of our total revenue during the quarter. Life Boat sales reflect a 16% increase compared to the prior year.
This increase in sales in the Lifeboat segment was mainly a result the segment were $10,700,000 compared to $14,400,000 in the prior year, representing a 26% decrease The decrease in net sales in the Tech Extense segment was primarily due to both a decrease in extended payment term sales transaction and larger sales transactions as compared to the prior year. On a consolidated basis, our gross profit was $6,400,000 compared to $6,100,000 for the second quarter 2014, representing a 5 7% compared to 7.3% in Q2 last year. Flight book distributions gross profit for the quarter was 5,100,000 This compared to $4,600,000 in Q2 last year, representing an 11% increase. This increase was primarily due to higher sales volume in the current Our TechExense segment's gross profit was $1,300,000 and decreased by 14% compared to the last year. The decrease in gross margin for our tech $4,400,000 compared to $4,000,000 in the prior year.
This increase is primarily the result of an increase in sales related employee and employee related expenses, salaries, commissions, bonuses and benefits in 2015 compared to the prior year. A large part of this increase is due to us hiring the field sales and professional service team. We expect these investments to support and accelerate future sales and gross margin growth. Our net income for the quarter was one point $1,000,000 compared to $1,500,000 in the prior year. Earnings per share on a fully diluted basis were $0.29 per share compared to 0.31 dollars in the prior year.
Now moving on to the balance sheet. Compared to our year end balance sheet, the following key accounts had fluctuations. Cash was a healthy $18,900,000 at the end of the quarter compared to $23,100,000 at December 31st. This decrease is primarily composed of $6,000,000. Couns for receivable current and long term decreased by 10%.
This decrease is primarily due to a lower level of sales as compared the fourth quarter of 2014 and fewer extended payment term transactions in 2015 as compared to 20 counts payable on crude expenses decreased by 16% due to lower sales volume. Compared to the prior year and an increase in early payment discounts taken by the company in the current year. The company has no debt. We do however have however, have a $10,000,000 revolving credit facility that can be used for working capital purposes, including financing of larger extended payment term sales transaction. At the end of the quarter, we have no outstanding balance under the credit facility.
Working capital at the end of the quarter was $32,400,000. During the quarter, we've repurchased approximately 13,000 shares of our common stock. We still have authorization to buyback approximately 549,000 shares. Our stockholders' equity now stands at 38,600,000 At our July 29, 2015 Board of Directors meeting, the Board declared a dividend of $0.17 per share For its common stock payable, August 17th to shareholders of record on August 10th. In conclusion, the company continues to have solid operating result A strong balance sheet and has adequately capitalized to support our future growth plan.
Simon, I'll turn it back to you.
Thank you, Gavin.
You. And our first question comes from the line of Sam Shaffer. Your line is now open.
And kudos to you for driving that top line. It's been very impressive to watch over the last 4 or 5 years.
Thank you.
Simon, can you talk a little bit about the pipeline of software offerings and how we should think about that with the potential impact?
Yes. So there is a like I said, we have a good pipeline of opportunities ahead of us with the field sales team, but also hiring a Director of Business Development. We're really exploring, expanding our offerings, into several different markets. And I'll let Bill Bota expand to it and I'll come back to it after Bill's comments. Bill?
Yes. Thank you, Simon. Hello, Jeff. I think I think one of the keys is we begin to focus on new vendor relationships by adding Brian Gilbert's and our senior director of new vendor business development who joined us about 8 weeks ago, coming over many years at, at Arrow Enterprise Computing Business where he ran the virtualization segment. We have our roots in virtualization, as you may recall.
And so we're looking at ways to expand our portfolio into the the new converged technology space and be able to provide our reseller partners more of a solution orientation than a product orientation. This also couples well into the utilization of our engineering resources to assist them in coming on board with these new technologies, both of which will drive new revenue streams for us. We're also looking at adjacent markets we haven't been in very much. I'm in the in the Linux and unit space and the associated open source capabilities of there. So those are adjacent markets to what we've been doing.
And again, we'll provide new revenue streams. So Ryan has compiled a a very solid list. We have, some that we're trying to get into the into the boat, if you will. This quarter. Many of those vendors, we've also have, formed and have already, formed in contract on the techxtend side, again, to expand that solution portfolio along with services.
So, That's the direction. Did that address your question?
Yes, it did. I had a further question for you, Bill, unless Simon wanted to add comments to that?
No, no, I'm good.
Great. Thank you. Then Bill, it sounds like your Mesa Arizona office went live in July. Is is that right? Yes.
Okay. So as we look forward, what kind of impact should we expect as a result of having, presence in the Arizona serving Mountain And West Coast?
So the way we've looked at this is that the analysis that we've done on the East Central Mountain And West showed a much larger revenue stream in those two areas. And and having been a West Coast law for, 10 years, I know that when I reached out to my distribution partners, I always had someone who work with me and process my orders. And because we've only had a physical presence in New Jersey, we cover some later hours, especially at month and quarter end, but it's in the day to day process. This is part of our expansion, and we were going to increase our sales organization providing additional coverage on a per territory basis, And when we looked at that analysis, we determined that if we're going to add people a second person into Southern California or Northern California or Northwest, etcetera, then let's put them on the West Coast where we're not fighting a shift differential with people and their families who are effectively working 11 to 8 or 11 to 9, because they tend to wanna move it back into their their local time zone, especially people with kids. So Phoenix being the largest call center city in the country I've laid with many, many major corporations here.
The opportunity for talent, is much larger. So, we already have people in the office working. We have, one of our staff members moving out from, New Jersey, position. And here, so we have additional experience level here and additional staff members who are in training back in New Jersey now. So, as I said, my early August, mid August, we'll be at our planned staffing levels for this year and do expect an uptick, in that business.
Great. Thank you for the color. Simon, I had a question or 2 more. May I go on or do you want me to jump back in queue?
Well, no, that's fine. Go ahead.
Okay. Bill, both you and Kevin used the term account penetration. And I think that's intuitive enough, but can you describe a little bit more what you mean by account penetration?
Sure. Happy to do so. In, in our business, at the transactional level. The inside team interfaces with and transact with individual sales reps at our partners. And with the buyers who are placing purchase orders.
In order to be strategic and increase our visibility into the reseller organizations. Our field sales team is working from the top down in those organizations going face to face. Understanding what their on a is is much easier from the top down of it from the bottom up. And one of the reasons we invested in this earlier is to build those relationships so that as we add products and services, we have a, willing audience to our proposition and how to do that. And so it's very key as we do that.
One final addition to that is that the field sales team are working very closely with their counterparts at our vendors. So, you know, they join calls. They do account mapping. They build relationships with their strategic vendor partners. So that we're able to be the go to distributor when that person has any ability to select who you're going to work with at a particular reseller.
I appreciate it. Empirically, I would think that penetration would help improve margin. Is that a fair way to think?
Not necessarily. The in terms of the margin, that doesn't necessarily have to impact the margin. There are some larger lines for instance, if we lead with a small a specialized product. They could say, you know what? I'll buy the larger line from you, I'm making this up a security product that carries typical lower margins from you as well.
But what we try to do is that be that be more of that solution focused distributor who can also take these other products from you. So we're trying to expand into that sector.
Great to know. And, Kevin, it looks like your AP declined by about 10,000,000 or $9,000,000 or so. Is that a change in your policy or a more of a timing issue?
I think it's a timing issue. We also have started to take advantage and reach out to vendors to get early payment discount because we just think it's a good it's a good use of our cash.
Yes, but it's also end of year business for the 2nd quarter business.
Got it. And Simon in conclusion, I think as I've talked to other investors about your company, you guys do an awful lot of things really well. So I congratulate you on that. But there is some concern about margin and what where that ultimately goes. Can you provide any kind of a sense of where the bottom on your the the either operating or net margin on the business might be at some point in the future?
Yes. So if you look at our margins since 2014, it's 7.7%. And I'm talking quarters here. 1st quarter, 7.7, 2nd quarter, 147.3, 3rd quarter, 6.84 to 7.4 this year, 1st quarter, 6.9 second quarter, 7.0. I really again, we've really tried to drive that operating income on the long term.
Now, we said we're going to in Q3 last year. So the good thing is we're adding selling costs. We just have to make sure that the investment in selling costs somehow keeps track of also keeps trends with the gross margin that we generate. We are trying to build a a model that is profitable than that income percentage and drive that ultimate number. I think we fell on that trap before years ago.
We said, we don't do low margin, high volume lines. And I think it had hurt our business. So, Although I think there is not that much of a decline more coming, I think the decline has leveled off as you can see from the previous year. If we do get an opportunity for and by the way, the professional services that we're adding should also have an effect on those gross profit margins. But I do think if we have the opportunity to add a solid vendor to sell solid products to our solid customers, meaning not a lot of credit risk, at lower margins, we should not shy away from that.
All right. Appreciate it. I'm sorry. Do you have other comments?
Oh, and I know it's not a clear cut answer. It's like it should be around 7 or aid, but I just hope that everyone understands it. Ultimately, we drive the overall growth of the company. Drive the return to investors. And that's a mix of how efficient can we take business and at what margins does that does that have to be?
Thank you very much for the color. I appreciate your time, Bill, Kevin, and wanna wish you guys good luck going forward.
Thank you. Have a good weekend.
Thank you.
Thank you. And our next question comes from the line of Aaron Lewin. Your line is now open.
Hi. It's, Aaron Lehman, a long time shareholder and, happy at that, but, somewhat unhappy the fact that, here's a company that has been around for quite a while, muddling through, in some cases, really growing to significantly, but the story is totally silent to the investment community. Are there any plans or foot that will give you more exposure to investors in general so that, we can see a greater appreciation going forward?
Yes. So, first of all, a word about our stock performance compared to our larger competitors. If you track our stock and any Google finance or anybody Yahoo or any of those stock Cymbals can do that for you. You can see that we actually fared quite well without that of investor relation, as you said. We've looked at that paid research no longer pays off.
We do reach out. And I have plans again to attend to attend investor meetings. I have them planned here in New York. Did the paid research no longer pays off? And I think the execution as shown in our share price by the way this year has gone up significantly.
I don't think we're meddling. I think we our share price increased significantly this year and it should have increased significantly as our performance, as I think being stellar, especially considering the fact of the overall IT environment and the overall broad distributors, the growth that they're showing versus the growth that we're showing. So I'm actually quite happy with the results so far and we're here for the long term and I hope this trend will continue.
K. Thank you.
You're welcome.
Thank you. Our next question comes from the line of Natalie Your line is now open.
Hi. Good morning, everyone. Thank you for taking my call.
You're welcome. Good morning.
Great. So I just wanted to ask a couple of questions about your service. I think you're going the right way you buy to becoming more service oriented in this field. You talk a little bit about how, like, for example, with the Veeam product, how those performed, did they hit expectations, and the growth with other vendors and offering these kind of tailored products for these vendors?
Yes. So we can talk sector specific, but we do not discuss a publisher individual performance, as I'm sure you understand, that's private information to them. But Bill can definitely give you a color in terms of the overall virtualization and security environment, Bill?
Great. Yes. Thank thank you, Simon. Good morning, Natalie. You know, what we're building is a value proposition the services.
And while we've announced some vendor specific services, we are in the process of working with other vendors, to do the same thing so that we can create, SKU SKU based services available to the resellers because, especially the larger account resellers, their sales reps are working off of that basis. So when they sell a product line, they generally don't sell services. So if we offer them a way to make significant margin while we retain significant margin and add a, a remote installation or a health check type of service, then, they can be taught how to basically add fries with the hamburger Right? Add this to every quote, get your end user to begin the discussion. And as we expand this across small of vendors, we created value proposition with the reseller that differentiates us from other distributors.
In the past, we did this with alternative technology. It was tried to be replicated, by many other distributors, they weren't, very successful at it and took their services in a different direction and we believe there's still a large opportunity where the resellers will embrace this and create additional loyalty to what the light bulb brand already has. In loyalty from the customers.
Question was just having to do with electronic cloud distribution networks, kinda where you're feeling right now about that as a threat and how you're combating it essentially?
I'm sorry. I couldn't hear the question clearly. Can you restate
Oh, I'm sorry about that. So, just how are if you could talk a little bit about how the company plans on providing value with the threat of electronic cloud distribution networks with vendors, giving these products over the internet and how you're viewing that because there's opportunity there,
but there's a threat. So if
you could just expand a little bit on that.
Sure. There's there's an evolution taking place, and all of this here, but these are trying to figure
out how they play in
the cloud when they stop delivering physical products and the vendors are are selling hardware products, and infrastructure products directly to cloud providers in our particular model, because many of our vendors are already migrating for adding subscription based licensing models to their perpetual license. Many of our traditional resellers have become more of a hybrid in making their business decisions about where they place their bets in cloud on storage or or combined hosting and storage, etcetera. And we work with many MSPs today, delivering those subscription license and during the the billing for the vendor to the this this group of resellers with detailed information about their end users so think it's all day filling. So we're kind of evolving into that. We're gonna continue to watch it.
In the distribution space today, there's not very many people who have, overcome their their investments yet, right, and and and the same thing with the with the software vendors. It's a growing and significant piece of their revenues, but it's it's not still carrying the perpetual license model still curing them today. So we absolutely are involved with trying to determine where our play is in that a foot.
Okay. Great. I really appreciate it and congratulations. Give wish you guys luck moving forward.
Thank you Natalie.
At this time, there are no further questions. Please continue with any closing remarks.
We thank everybody for their interest in our company and we look forward to presenting our third
call. You may disconnect at this time and thank you for your participation.