Melanie Caponigro - Director, Accounting Simon Nynens - Chairman, President and CEO Bill Botti - EVP Kevin Scull - Vice President Accounting and Chief Accounting Officer.

Sam Schaefer - Global Value Research Company Aaron Lehman - Private Investor.

Presentation:.

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 and instructions will follow at that time. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded.

I would now like to introduce your host for today's conference, Melanie Caponigro. Ms. Caponigro, you may begin your conference at this time..

Thank you, and 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 first quarter at approximately 5:00 PM Eastern Time, Thursday, July 28, 2016. The earnings release is available at the Company's Investor Relations Web site at waysidetechnology.com.

Today's call including all questions and answers is being webcast live and a rebroadcast will be available at www.waysidetechnology.com/earnings-call. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, July 29, 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, and good morning to everyone. We had a very solid second quarter. Revenue was up in all GOs and all divisions. Overall revenue increased to a record $103.5 million in one quarter, both revenue and the 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, and our international sales were 11% of our overall revenue, up slightly from10% 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 their 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.

And we invested about a $1 million to buyback, 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. Now 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 30, 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 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 30, 2016, was $7 million, an increase as compared to $6.4 million in the second quarter of 2015.

Gross profit for our Lifeboat segment in the second quarter of 2016 was approximately $5.5 million, compared to approximately $5.1 million for the second quarter of 2015, representing a 9% decrease.

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 mid sales for the second quarter ended June 30, 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 changed by one of our main vendors causing our gross margin to decline by 1.8% over that line.

Gross profit margin for our TechXtend segment for second quarter of 2016 was 9.3% compared to 12.3% for the second quarter of 2015. The decrease in gross profit margin for TechXtend segment was primarily caused by the increase in extended payment transaction with the security 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 within the market. We have managed to overcome that with increases in most of our vendors and customers.

Either our customer had partner someone 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 to overseeing operations there and we’ll provide you in greater laser focus on our sales teams 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. And 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 dilutive basis was $0.34 per share compared to $0.29 last year.

Now moving on to the balance sheet. Compared to our year-end balance sheet at December 31, 2015, the following key accounts had fluctuations. Cash increased by approximately 800,000, to 24.6 million at June 30, compared to 23.8 million at December 31, 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 purchase 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 have no outstanding balances under our credit facility. Working capital at June 30, was 31.9 million.

During the quarter, we repurchased approximately 51,000 shares of our common stock under our 10-b51 Stock Repurchase Plan. We still have Board authorization to repurchase up to approximately 364,000 more of shares. Our stockholders equity now stands at 38.6 million.

At our July 27, 2016 board meeting, the Board declared a $0.17 dividend per share for its common stock payable August 18, to shareholders of record on August 8. In conclusion, the company continues to have a 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. [Operator Instructions] And our first question comes from the line of Sam Schaefer. Your line is now open..

Thank you for taking my question, and hey guys, I want to congratulate you on passing the $100 million for the quarter and a $400 million run rate annual that’s a great job..

Simon Nynens:.

And Simon, I thought – I know I’ve had asked this last quarter as well, I thought you’d reference the headquarter move that’s in progress currently..

Simon Nynens:.

Great.

And you said it should be about the same expense, does that include depreciation expense or you solely referencing the rental expense?.

Simon Nynens:.

Great, glad to hear it.

And 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 and as you said micro focus on IT or few of them, and really how those have been evolving over the last quarter and six months?.

Bill Botti:.

Great, I know last quarter you lost one key vendor in the state of the contract typically comes up for rebid about every six months.

Does this contract you’re still actively going to go after, has it already come up for rebid?.

Simon Nynens:.

Great, great. And 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 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?.

Kevin Scull:.

Oh okay, that makes sense. And then one last question and I’ll go back into queue, I see that you have been purchasing stocks for the company and treasury for a while now and over the last quarter I think it was just about a $1 million but it seems that as you’re doing for your issuance stock for management basically resulting in a net-net position.

And as you’re aware of 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 patience shareholders?.

Simon Nynens:.

It sounded like you said you were actively engaging investment bankers last quarter to look forward..

Simon Nynens:.

Great..

Simon Nynens:.

Great, great. And I’ll step back in the queue here. Thank you guys very much and congratulations on the great quarter and the $100 million accomplishment..

Simon Nynens:.

You as well..

Thank you. [Operator Instructions] And we do have a question from the line of Aaron Lehman, Private Investor. Your line is now open..

Aaron Lehman:.

Simon Nynens:.

Aaron Lehman:.

Simon Nynens:.

Thank you. And we do have a follow-up in the line of [ph] Sam Shaffer. Your line is now open..

Unidentified Analyst:.

Simon Nynens:.

Unidentified Analyst:.

Simon Nynens:.

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..

This concludes today’s conference call. You may disconnect at this time. Thank you for your participation..