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 [Operator Instructions] As a reminder 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 2019 Earnings Call. Before turning the call over Dale Foster, President of Lifeboat Distribution, I'll dispense with the customary cautionary language and comments about the webcast for this earnings call. We released earnings release for the second quarter at approximately 5 p.m. Eastern Time, Wednesday, August 7, 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.waysidetechnology.com/site/content/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 1995. 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-Q and 10-K filed with the SEC. Wayside Technology Group sees no 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 Form 8-K we filed with the SEC. Now I would like to turn the call over to Dale.

Thanks, Melanie and good morning everyone. Thank you for joining us today to discuss our second quarter 2019 operating results. This quarter we saw some tangible results from investments we made in vendor recruitment and sales and marketing over the past 18 months with revenues increasing 15% over the second quarter last year and gross margin dollars increasing $1.3 million or 20%. We also saw the leverage this new model can achieve with non-GAAP net income increasing $1 million or 117% over the same quarter last year. It is also noteworthy that this increase in gross profit was achieved entirely within our Lifeboat business, providing validation of our strategy and building upon Lifeboat's position in the market. In a technology market defined by new entrance and disruption, Lifeboat has developed a unique presence with a diverse line card and 20 plus years of history in the channel. In 2018, we expanded our vendor recruitment and field sales organizations to increase the breadth of our vendors' relationships and provide a higher level of sales interaction to our partners to support the growth initiatives. 2019 is clearly beginning to show the return on this investment in the form of increased gross profits as we remained focused on providing the highest level support to our existing vendor partners along with expanding relationships with new and emerging technology innovators. Our year-to-date results show similar improvements with growth profits cloning $1.7 million or 12% with $0.9 million dropping through to our net income line. As we continue to execute on the strategic plan to become the leading distributor for new and emerging technology companies, we consistently tune our sales and marketing investments to drive success with emerging partners. Looking back over the last 6 months, we have made significant progress with a number of emerging vendors. We've continued to invest in field day sales positions and adding outside sales team members and several additional territories. These investments are allowing us to reach incremental resellers with our vendor partners. These field sales resources will enable us to cross-sell multiple emerging brands to our base of value-added resellers as well. From a marketing standpoint, we've begun to offer our GSA contract vehicle with our vendor partners. We are actively teaming our vendor -- our valued resellers with our manufacturer partners on GSA contracts. We've launched new relationships with outstanding security players such as unproven Garland Technology. We've also launched a relationship with the Monte in the rapidly evolving container space. And we just recently added Arcserve to our backup space to complement our portfolio and storage vendors. , :

Thanks, Dale. I'll review our financial results for the second quarter then discuss our balance sheet and liquidity. Overall net sales for the quarter increased 15% to $50.7 million compared to $43.9 million for the second quarter last year. Lifeboat distribution net sales were up 23% for the quarter to $47.3 million, while TechXtend net sales were down 40% for the quarter to $3.4 million. Gross profit for the quarter increased 20% to $7.8 million compared to $6.5 million for the same period last year. Lifeboat distribution gross profit for the quarter increased 35% to $7.1 million compared to $5.3 million for the second quarter of last year due to growth in several of our more significant product lines, incremental sales from new product lines and approximately $400,000 due to changes in vendor rebates and early pay discounts. Our TechXtend business declined in part as a result of a decreased extended payment sales terms which we determined were not providing an adequate return on capital required to fund them. Declining business just had a negative impact on consolidated net sales and gross profit but it's freed up capital to invest in our quarter Lifeboat business. Gross profit margin as a percentage of net sales increased 15.4% to 14.8% in the second quarter of 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. During the second quarter of 2019, approximately 9.7% of our net revenues were from security maintenance and other products which were reported on a net basis or an effective 100% gross margin compared to 8.7% in the same quarter of last year. This shift in product mix had the effect of increasing gross profit as a percentage of net…

Thank you, Mike. I would like to thank all of our employees whose hard work continues to make this a great company and place to work. Your initiatives are noteworthy. I would also like to thank our vendors and customers who have been wonderful in working together to achieve our mutual goals. Lastly, I would like to recognize our Board of Directors and shareholders for their ongoing support and encouragement as we continue to execute our long term strategic business plan. With that, operator, please open the call to our investor and analyst community for questions.

Absolutely, thank you. [Operator Instructions] Our first question comes from Lewis Morton [ph]. Your line is now open.

Good morning. I was just wondering, I followed the stock for many years and there are 2 things that I had in mind. The earnings that you've just produced, which seem to be very good, is this an anomaly or is this something that you're confident of generating on a going-forward basis based on the configuration of the different sales people that you've added and software that are now selling to the customers?

Hi, this is Mike Vesey. The way we look at the business, we have 2 segments for our business, TechXtend and Lifeboat. And our TechXtend business, as we've discussed in the past tends to fluctuate from quarter to quarter. It's kind of a deal you're oriented business. Big deal one quarter, smaller deal the next. Over the past 1.5 years, we've been focusing on building the Lifeboat businesses which is a little more predictable. They're step functions as we add vendor relationships and growth driven by various things, acceptance of our vendors' products in the marketplace. Our vendors' year-end play into it. So we believe we're focused -- that being said, we believe we're focusing on the more sustainable part of our business in Lifeboat. We think it's within our strategy of exploiting a market niche for emerging technologies or disruptive technologies. It's not a stagnant market, there's always new entrants and we feel we have an advantage there. So to the extent from a strategy perspective, we think we're trying to execute it in a sustainable part of the market. From an any could happen point of view that's always a risk in any business. So tomorrow technology spending could be down and things like that so we're always subject to those same risks. So that's I think the way to view it.

I also noticed that there are no analysts following the company, is there any effort in terms to get more exposure for the stock, especially since you had a really nice dividend and you've got a good balance sheet and you seem to be moving in a positive direction in terms of your configuring your sales force and products?

Yes, the answer is yes. We've had a lot of changes in the company over the past year and we have begun some outbound awareness at conferences and follow up meetings with people. In terms of getting analyst coverage in the small-cap universe right now, as you're probably aware, that has changed a little bit. So we do have an eye towards trying to get some interest and get people writing on us. We feel we may have to just create some general awareness in the market through conferences and execute on a couple of quarters under our business strategy perhaps to really get that in place. So definitely something that we're working on how to put it under the more general category of creating market awareness and establishing how we can execute upon our strategy.

Selling a large amount of shorts in the stock [indiscernible] statistics that I'm looking at, what do you suppose that is?

I don't know if there's a specific reason, to be honest with you. There's not a lot of trading in our stock so I don't know that the numbers that you're looking at reflect a -- determines how we quantify a lot of short interest in the stock. So I don't think we have the ability to -- nothing known that we think would drive that in terms of industry fundamentals or it's not like a best buy situation where somebody said, I think they didn't get the industry or anything like that.

I remember when the stock was around $18 and change at one point and it has consistently gone down. But if, at this point because of the quote that you just did plus it seems to be the emphasis on changing the format and it's been successful. Now's the time to really try to get some public interest. So as you say, I hope you continue to look for analysts that might help you and give you that kind of interest. Certainly, help get the price of stock up. Today, there's a fair amount of interest and then some people noticed your quarter came out late today. So I think that it looks positive and I wish you guys best of luck in continuing to do good job.

Appreciate that.

Thank you, Lewis.

[Operator Instructions] Thank you. At this time there are no further questions please continue with any closing remarks.

We'd like to thank everybody for joining us for our quarterly conference call and look forward to the next call after our third quarter. Thank you.

Now this concludes today's conference call. You may disconnect at this time. Thank you for joining.