UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 13, 2020
WHERE FOOD COMES FROM, INC.
(Exact Name of Registrant as Specified in its Charter)
| Colorado | 333-133624 | 43-1802805 | ||
(State
or Other Jurisdiction |
(Commission File Number) |
(I.R.S.
Employer Identification No.) |
| 202 6th Street, Suite 400 | ||
| Castle Rock, Colorado | 80104 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(303) 895-3002
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.001 par value | WFCF | OTC Markets Group |
Item 2.02 Results of Operations and Financial Condition
Reference is made to the Where Food Comes From, Inc. (the “Company”) press release on August 13, 2020 and conference call transcript, attached hereto as Exhibits 99.1 and 99.2, respectively, and incorporated by reference herein (including, without limitation, the information set forth in the cautionary statement contained in the press release and conference call transcript), relating to the Company’s financial results for the second quarter and year to date period ended June 30, 2020.
Item 9.01 Financial Statements and Exhibits
| (d) | Exhibits |
Exhibit No. |
Description | ||
| 99.1 | Press Release issued and dated August 13, 2020 | ||
| 99.2 | Transcript for August 13, 2020 conference call |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
WHERE FOOD COMES FROM, INC. (Registrant) | ||
| By: | /s/ Dannette Henning | |
| Date: August 17, 2020 | Dannette Henning | |
| Chief Financial Officer | ||
Exhibit 99.1
Where Food Comes From, Inc. Reports 2020 First Quarter Financial Results
CASTLE ROCK, Colorado – August 13, 2020 – Where Food Comes From, Inc. (WFCF) (OTCQB: WFCF), the most trusted resource for independent, third-party verification of food production practices in North America, today announced its 2020 second quarter and six-month financial results.
“We are very pleased with our overall performance in light of the continuing impact of COVID-19 on our business,” said John Saunders, chairman and CEO. “Although auditing activity with pork, poultry, dairy and egg customers was down significantly due to their restrictions on outside visitation in more enclosed environments, our beef verification business was strong in the quarter due to less stringent visitation restrictions on cattle ranches, which are more remote, outdoor operations with fewer employees. And despite widespread slowdowns and shutdowns at beef processing facilities, demand for animals we verified to standards such as source, NHTC, natural and CARE® remained consistent. Product sales were also strong in the quarter, up 25% year over year. We continued to generate positive cash flows from operations in the second quarter and have strengthened our balance sheet year-to-date with a 65% increase in cash and short-term investments.
“I’m proud of the effort put forth by our entire team in responding to the unique challenges presented by the pandemic in the first half of 2020,” Saunders added. “These challenges have carried into the second half of the year and we believe we’ll continue to meet them in innovative ways that keep our business moving forward. I’m also pleased to report good initial traction of our Where Food Comes From CARE® suite of sustainability standards launched earlier this year – particularly our BeefCARE™ program, which has been adopted by two global food processing companies to verify sustainable production practices on millions of acres of domestic cattle grazing land.”
Second Quarter Results – 2020 vs. 2019
Revenue in the second quarter ended June 30, 2020, decreased 10% to $4.4 million from $4.9 million in the same quarter last year. Lower revenue was attributed to fewer on-site audits conducted primarily for poultry, pork, dairy and egg customers. Revenue mix included:
| ● | Verification and certification services, down 17% to $3.1 million from $3.7 million. | |
| ● | Product revenue, up 25% to $796,000 from $635,000. | |
| ● | Software license, maintenance, and support (excluding intercompany sales), down 34% to $237,000 from $300,000. | |
| ● | Software-related consulting services (excluding intercompany sales), up 15% to $275,000 from $210,000. |
Gross profit in the second quarter was flat year over year at $2.1 million. Gross margin increased to 47.6% from 42.7%.
Selling, general and administrative expense decreased 3% in the second quarter to $1.6 million from $1.7 million in the same quarter last year.
Operating income increased 16% in the second quarter to $469,000 from $403,000 in the same quarter last year.
Net income attributable to Where Food Comes From, Inc. in the second quarter decreased 3% to $351,000, or $0.01 per share, from net income of $361,000, or $0.01 per share, in the same quarter last year.
Adjusted EBITDA in the second quarter decreased 5% to $782,000 from $824,000 in the same quarter last year.
Six-Month Results – 2020 vs. 2019
Total revenue for the six-month period ended June 30, 2020, decreased 6% to $8.3 million from $8.8 million in the same period last year. Revenue mix included:
| ● | Verification and certification services, down 10% to $5.9 million from $6.6 million. | |
| ● | Product revenue, up 19% to $1.5 million from $1.3 million. | |
| ● | Software license, maintenance, and support (excluding intercompany sales), down 31% to $380,000 from $595,000. | |
| ● | Software-related consulting services (excluding intercompany sales), up 16% to $516,000 from $417,000. |
Gross profit for the six-month period decreased slightly to $3.7 million from $3.8 million. Gross margin increased to 44.5% from 42.5%.
Selling, general and administrative expense decreased 2% year over year to $3.6 million from $3.7 million.
Operating income increased 12% year over year to $115,000 from $103,000.
Net income attributable to Where Food Comes From, Inc. decreased 50% year over year to $110,000, or less than $0.01 per share, from $218,000, or $0.01 per share, in the prior year.
Adjusted EBITDA decreased 20% year over year to $728,000 from $907,000.
The Company generated $1.7 million in net cash from operations in the first six months of 2020, up 27% from $1.4 million in the same period last year.
The cash, cash equivalents and short-term investments balance at June 30, 2020, increased 65% to $4.8 million from $2.9 million at 2019 year-end. The Company had $3.4 million in working capital at June 30, 2020, up from $3.1 million at 2019 year-end.
The Company will conduct a conference call today at 10:00 a.m. Mountain Time.
Call-in numbers for the conference call:
Domestic Toll Free: 1-877-407-8289
International: 1-201-689-8341
Conference Code: 13707128
Phone replay:
A telephone replay of the conference call will be available through September 13, 2020, as follows:
Domestic Toll Free: 1-877-407-8289
International: 1-201-689-8341
Conference Code: 13707128
About Where Food Comes From, Inc.
Where Food Comes From, Inc. is America’s trusted resource for third party verification of food production practices. Through proprietary technology and patented business processes, the Company supports more than 15,000 farmers, ranchers, vineyards, wineries, processors, retailers, distributors, trade associations, consumer brands and restaurants with a wide variety of value-added services. Through its IMI Global, International Certification Services, Validus Verification Services, SureHarvest, A Bee Organic and Sterling Solutions units, Where Food Comes From solutions are used to verify food claims, optimize production practices and enable food supply chains with analytics and data driven insights. In addition, the Company’s Where Food Comes From® retail and restaurant labeling program uses web-based customer education tools to connect consumers to the sources of the food they purchase, increasing meaningful consumer engagement for our clients.
*Note on non-GAAP Financial Measures
This press release and the accompanying tables include a discussion of EBITDA and Adjusted EBITDA, which are non-GAAP financial measures provided as a complement to the results provided in accordance with generally accepted accounting principles (“GAAP”). The term “EBITDA” refers to a financial measure that we define as earnings (net income or loss) plus or minus net interest plus taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation and, when appropriate, other items that management does not utilize in assessing WFCF’s operating performance (as further described in the attached financial schedules). None of these non-GAAP financial measures are recognized terms under GAAP and do not purport to be an alternative to net income as an indicator of operating performance or any other GAAP measure. We have reconciled Adjusted EBITDA to GAAP net income in the Consolidated Statements of Income table at the end of this release. We intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting.
CAUTIONARY STATEMENT
This news release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, based on current expectations, estimates and projections that are subject to risk. Forward-looking statements are inherently uncertain, and actual events could differ materially from the Company’s predictions. Important factors that could cause actual events to vary from predictions include those discussed in our SEC filings. Specifically, statements in this news release about industry leadership and demand for, and impact and efficacy of, the Company’s products and services on the marketplace; ability to continue posting positive financial results; and ability to continue meeting challenges and moving the business forward are forward-looking statements that are subject to a variety of factors, including availability of capital, personnel and other resources; competition; governmental regulation of the agricultural industry; the market for beef and other commodities; and other factors. Financial results for the second quarter and six-month period are not necessarily indicative of future results. Readers should not place undue reliance on these forward-looking statements. The Company assumes no obligation to update its forward-looking statements to reflect new information or developments. For a more extensive discussion of the Company’s business, please refer to the Company’s SEC filings at www.sec.gov.
Company Contacts:
John Saunders
Chief Executive Officer
303-895-3002
Jay Pfeiffer
Pfeiffer High Investor Relations, Inc.
303-880-9000
Where Food Comes From, Inc.
Statements of Income (unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (Amounts in thousands, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Revenues: | ||||||||||||||||
| Verification and certification service revenue | $ | 3,108 | $ | 3,743 | $ | 5,911 | $ | 6,555 | ||||||||
| Product sales | 796 | 635 | 1,521 | 1,276 | ||||||||||||
| Software license, maintenance and support services revenue | 237 | 300 | 380 | 595 | ||||||||||||
| Software-related consulting service revenue | 275 | 210 | 516 | 417 | ||||||||||||
| Total revenues | 4,416 | 4,888 | 8,328 | 8,843 | ||||||||||||
| Costs of revenues: | ||||||||||||||||
| Costs of verification and certification services | 1,516 | 2,097 | 3,050 | 3,659 | ||||||||||||
| Costs of products | 501 | 398 | 1,003 | 841 | ||||||||||||
| Costs of software license, maintenance and support services | 109 | 162 | 255 | 316 | ||||||||||||
| Costs of software-related consulting services | 190 | 143 | 310 | 273 | ||||||||||||
| Total costs of revenues | 2,316 | 2,800 | 4,618 | 5,089 | ||||||||||||
| Gross profit | 2,100 | 2,088 | 3,710 | 3,754 | ||||||||||||
| Selling, general and administrative expenses | 1,631 | 1,685 | 3,595 | 3,651 | ||||||||||||
| Income from operations | 469 | 403 | 115 | 103 | ||||||||||||
| Other expense (income): | ||||||||||||||||
| Dividend income from Progressive Beef | (30 | ) | (30 | ) | (60 | ) | (60 | ) | ||||||||
| Other income, net | (2 | ) | (2 | ) | (4 | ) | (5 | ) | ||||||||
| Loss / (Gain) on foreign currency exchange | 2 | - | (1 | ) | - | |||||||||||
| Gain on sale of assets | - | - | - | (1 | ) | |||||||||||
| Interest expense | 3 | 2 | 5 | 5 | ||||||||||||
| Income before income taxes | 496 | 433 | 175 | 164 | ||||||||||||
| Income tax expense | 145 | 129 | 65 | 46 | ||||||||||||
| Net income | 351 | 304 | 110 | 118 | ||||||||||||
| Net loss attributable to non-controlling interest | - | 57 | - | 100 | ||||||||||||
| Net income attributable to Where Food Comes From, Inc. | $ | 351 | $ | 361 | $ | 110 | $ | 218 | ||||||||
| Per share - net income attributable to Where Food Comes From, Inc.: | ||||||||||||||||
| Basic | $ | 0.01 | $ | 0.01 | $ | * | $ | 0.01 | ||||||||
| Diluted | $ | 0.01 | $ | 0.01 | $ | * | $ | 0.01 | ||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | 24,874 | 24,709 | 24,910 | 24,833 | ||||||||||||
| Diluted | 25,029 | 24,908 | 25,082 | 25,032 | ||||||||||||
* less than $0.01 per share
Where Food Comes From, Inc.
Calculation of Adjusted EBITDA*
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (Amounts in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Net income attributable to Where Food Comes From, Inc. | $ | 351 | $ | 361 | $ | 110 | $ | 218 | ||||||||
| Adjustments to EBITDA: | ||||||||||||||||
| Interest expense | 3 | 2 | 5 | 5 | ||||||||||||
| Income tax expense | 145 | 129 | 65 | 46 | ||||||||||||
| Depreciation and amortization | 244 | 285 | 478 | 546 | ||||||||||||
| EBITDA* | 743 | 777 | 658 | 815 | ||||||||||||
| Adjustments: | ||||||||||||||||
| Stock-based compensation | 24 | 47 | 55 | 92 | ||||||||||||
| Cost of acquisitions | 15 | - | 15 | - | ||||||||||||
| ADJUSTED EBITDA* | $ | 782 | $ | 824 | $ | 728 | $ | 907 | ||||||||
*Use of Non-GAAP Financial Measures: Non-GAAP results are presented only as a supplement to the financial statements and for use within management’s discussion and analysis based on U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information is provided to enhance the reader’s understanding of the Company’s financial performance, but non-GAAP measures should not be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of the most directly comparable GAAP measures to non-GAAP measures are provided herein.
All of the items included in the reconciliation from net income to EBITDA and from EBITDA to Adjusted EBITDA are either (i) non-cash items (e.g., depreciation, amortization of purchased intangibles, stock-based compensation, etc.) or (ii) items that management does not consider to be useful in assessing the Company’s ongoing operating performance (e.g., M&A costs, income taxes, gain on sale of investments, loss on disposal of assets, etc.). In the case of the non-cash items, management believes that investors can better assess the Company’s operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect the Company’s ability to generate free cash flow or invest in its business.
We use, and we believe investors benefit from the presentation of, EBITDA and Adjusted EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.
Because not all companies use identical calculations, the Company’s presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, these measures can still be useful in evaluating the Company’s performance against its peer companies because management believes the measures provide users with valuable insight into key components of GAAP financial disclosures.
Where Food Comes From, Inc.
Balance Sheets
| June 30, | December 31, | |||||||
| (Amounts in thousands, except per share amounts) | 2020 | 2019 | ||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,517 | $ | 2,638 | ||||
| Accounts receivable, net of allowance | 1,770 | 2,515 | ||||||
| Short-term investments in certificates of deposit | 261 | 258 | ||||||
| Prepaid expenses and other current assets | 351 | 450 | ||||||
| Total current assets | 6,899 | 5,861 | ||||||
| Property and equipment, net | 1,697 | 1,545 | ||||||
| Operating lease right-of-use assets | 3,139 | 3,268 | ||||||
| Investment in Progressive Beef | 991 | 991 | ||||||
| Intangible and other assets, net | 3,258 | 3,248 | ||||||
| Goodwill | 2,946 | 2,946 | ||||||
| Deferred tax assets, net | 349 | 378 | ||||||
| Total assets | $ | 19,279 | $ | 18,237 | ||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 780 | $ | 1,023 | ||||
| Accrued expenses and other current liabilities | 740 | 674 | ||||||
| Deferred revenue | 1,206 | 797 | ||||||
| Current portion of long term debt | 465 | - | ||||||
| Current portion of finance lease obligations | 10 | 8 | ||||||
| Current portion of operating lease obligations | 254 | 239 | ||||||
| Total current liabilities | 3,455 | 2,741 | ||||||
| Long term debt, net of current portion | 565 | - | ||||||
| Finance lease obligations, net of current portion | 16 | 21 | ||||||
| Operating lease obligation, net of current portion | 3,395 | 3,526 | ||||||
| Total liabilities | 7,431 | 6,288 | ||||||
| Commitments and contingencies | ||||||||
| Equity: | ||||||||
| Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding | - | - | ||||||
| Common stock, $0.001 par value; 95,000,000 shares authorized; 25,812 (2020) and 25,802 (2019) shares issued, and 24,839 (2020) and 24,977 (2019) shares outstanding | 26 | 26 | ||||||
| Additional paid-in-capital | 11,483 | 11,425 | ||||||
| Treasury stock of 973 (2020) and 825 (2019) shares | (1,934 | ) | (1,665 | ) | ||||
| Retained earnings | 2,273 | 2,163 | ||||||
| Total equity | 11,848 | 11,949 | ||||||
| Total liabilities and stockholders’ equity | $ | 19,279 | $ | 18,237 | ||||
Exhibit 99.2
WFCF
2020 Second Quarter Conference Call Script
Call date: Thursday August 13, 2020
Call time: 10:00 a.m. Mountain Time
Jay
Good morning or good afternoon and welcome to the Where Food Comes From second quarter earnings call.
Joining me on the call today are John Saunders, CEO; Leann Saunders, President, and Dannette Henning, CFO.
During this call we’ll make forward-looking statements based on current expectations, estimates and projections that are subject to risk. Statements about future revenue, expenses, profitability, cash, growth strategy, new customer wins, business opportunities, market acceptance of our products and services, and potential acquisitions are forward looking statements. Listeners should not place undue reliance on these statements as there are many factors that could cause actual results to differ materially from our forward-looking statements. We encourage you to review our publicly filed documents as well as our news releases and website for more information about the Company. Today we’ll also discuss EBITDA and Adjusted EBITDA, which are non-GAAP financial measures provided as a complement to the results provided in accordance with GAAP. We use and believe investors benefit from the presentation of EBITDA and Adjusted EBITDA in evaluating our operating performance as it provides an additional tool to compare that performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our operations.
I will now turn the call over to John Saunders, chairman and chief executive officer.
John
Good morning and thanks for joining the call today.
Earlier this morning we released our Q2 financial results and I’m pleased to say that we are more than holding our own given the pervasive and continuing negative effects the pandemic is having on the food supply chain in general and our customers in specific.
Revenue in the second quarter was $4.4 million, which was down only 10% year-over-year. Our six-month revenue was $8.3 million, down only 6% from the same period last year. As I said, these relatively positive results come at a time when many of our customers across the food supply chain are in great difficulty. The nation’s largest protein processors are struggling to remain consistently operational, suffering from intermittent slowdowns and plant closures that are creating havoc up and down the supply chain. Our ranch and farm customers – particularly in the area of pork, poultry, dairy and egg production, where facilities are more enclosed relative to cattle ranches – have severely curtailed on-site audits for the time being. So, in this context, we think our top line is pretty good.
For those of you who have followed us for a while, you know that one of my recurring themes when I talk to investors is the depth and breadth of our solutions portfolio. For whatever reason, it seems our industry is subject to more ups and downs and anomalous events than other industries – and through the years, as we have grown and diversified our services, we’ve seen certain parts of our business pick up the slack for other parts. Avian and swine flu are just two examples of that. Although both had devastating impacts on our poultry and swine business in given years, our overall business continued to grow and prosper because of the diversity of our revenue streams. So, this year – when pork, poultry, dairy and egg verifications have declined, our beef business has actually continued to grow and has taken up at least some of the slack.
Despite widespread slowdowns and shutdowns at packing plants over the past four months, our beef business has actively thrived. That doesn’t mean the bottlenecks that occurred when packing plants slowed or ceased production created an over-supply of cattle – so when the packers did get back up and running, they prioritized the more premium beef products that grocers were demanding based in part on the closure of restaurants serving high quality beef. By premium I’m referring to cattle that had been verified to standards such as source, NHTC, Natural and our new CARE standard. Of course, as our beef business continued to grow, our product sales grew as well – up 25% year-over-year in Q2.
The increase in more profitable beef audits and the increase in product sales drove gross margins up nearly 500 Bps in the second quarter to 47.6% from 42.7%.
Rounding out our financial performance:
| ● | We were solidly profitable in the second quarter with net income of $351,000, or one cent per share, down just 3% year over year. | |
| ● | We continued to generate good cash flows from operations, up 27% through six months to $1.7 million. | |
| ● | And we strengthened our balance sheet with a 65% increase in cash and short-term investments over December 31 year-end. |
Switching gears now, I want to talk a little bit about our CARE initiative. You’ll recall that in the first quarter we rolled out the WFCF CARE program – a suite of sustainability solutions that address consumer demand for sustainably produced beef, dairy, poultry and pork products. We’ve been getting good interest at retail for this program and, as we announced in our earnings release this morning, we recently won two important new customers for CARE – two leading food processing companies with protein-centric brands and deep commitments to sustainability and transparency. Their adoption of BeefCARE represents a commitment to verify sustainable production practices on potentially millions of acres of domestic cattle grazing land. Several hundred ranches that supply beef to these companies are already enrolled in the program. We believe this is just the tip of the iceberg for the CARE program as more and more producers respond to the American consumer’s preferences for sustainably produced products.
I encourage you all to visit WFCFCARE.com.
And speaking of consumer preferences, the pandemic has shone a bright light on the food supply chain and given consumers even more reason to scrutinize where their food comes from. Protein shortages in grocery stores – restaurant closures – endless stories about infected workers and plant closures in the food industry – I believe all of this is moving consumers further down the path of verifications of all kinds. We are in new times and I believe we are uniquely positioned to provide invaluable services to consumers, family farms and ranches, and everybody in between.
In closing, I want to again thank the Where Food Comes From team for their outstanding effort this year and our shareholders and other stakeholders for their continued support.
And with that, I’ll open the call to questions. Operator…
Question 1:
Terry Thompson: Hello, John. Hello to all in Castle Rock looks like things worked out pretty good considering everything that’s going on, all the disruptions. My question is concerning the trade issues vis-à-vis China, primarily present view of that, and any predictions on what may be coming in the future?
John Saunders: Hey Terry, I’m going to let Leann answer that question.
Leann Saunders: Hi, Terry.
Terry Thompson: Hi, Leann.
Leann Saunders: So trying to predict anything relative to trade agreements right now is a little bit challenging. So I won’t try to do that. But thus far everything relative to kind of the protein movement quotas that are existing all seem to be holding. So we haven’t seen any sort of disruption outside of when you had containers out on water because of COVID held up, where you just couldn’t get meat through the channels initially, those channels have seemed to have opened up and product seems to be flowing relatively well, Terry given all the circumstances. And we haven’t really seen any sort of disruption yet even with all of the discussion and rhetoric in the media
Terry Thompson: Great. Well that’s good news, ma’am, in these uncertain times. Thanks again and give my best everyone up there.
John Saunders: Thanks, Terry.
Question 2:
Chris Brown: Thank you. Last quarter, I asked a little bit about the credit exposure you have to your customers and how they’re doing given the COVID disruption. Can you just talk a little bit about that? And then my second question was, I noticed you guys added some debt to your balance sheet, could you describe what that was and the purpose? Thank you.
John Saunders: Sure. Yes, the first question is no, we haven’t seen any change in our payment by producers. In fact, I think in certain areas, specifically our organic business, has improved, if you can believe it. And there’s just been such a demand for organic products. I think our producers are ready to make sure that they’re all up to speed on stuff. So it’s been really positive. The debt question I will let Dannette answer specifically, but I believe it’s related to our PPP loan.
Dannette Henning: Yes, it is related to the PPP loan. And it was just a great opportunity that the SBA was offering companies; it was during the time we didn’t know what our performance was going to look like at that very moment when they made the offer. And so we decided that it would be beneficial to our business and it has helped. We have not received any notification of whether or not it will be fully forgiven. However, we anticipate that a significant portion of it will be forgiven. SBA is still trying to finalize those rules on forgiveness.
Chris Brown: And what was the total size of the loans?
Dannette Henning: It was just a little bit over $1 million.
Chris Brown: Great. Hey thank you very much and thank you for the call today.
Dannette Henning: Sure. Thank you.
John Saunders: Thanks, Chris.
Question 3:
Alex Team: Hi, guys, congrats on the great quarter. Can you talk a little bit of more about your SG&A reduction and if that will be a continuing trend? Or is this just for this quarter?
John Saunders: I’ll let again Dannette answer the specifics. But I tell you I think the — there’s been such a reduction in travel, marketing costs. We were attending two dozen different conferences over the course of the year. So we’ve had a lot of changes there, and because we’re doing a certain degree of remote audits, there’s a reduction there as well. So it’s been a real change for us as a verification company. I think it offers us benefit moving forward.
To answer your question about will it always be this way? I think probably again; this has been the worst quarter for everybody because there’s been such a decline in business and travel. I don’t see it staying consistently that way. But I do see there being a change in our business model moving forward, where we incorporate technology and potentially remote auditing as a bigger part of our services. So Dannette, I’ll let you give the specifics.
Dannette Henning: Yes, what John said was exactly right. Our marketing and our travel has decreased, I don’t know how long it’ll stay at that level. Obviously as we start to return to business as it’s going to look out in the future, it’s hard to say whether or not that will continue at that level. But I think we will continue to invest in our marketing. And there will have to be a little bit more traveling pickup as we go into the future. Thank you.
Operator: There are no further questions. At this time, I’d like to turn the call back over to John Saunders for closing comments.
John Saunders: Well, we had great group out today. We really appreciate everybody’s participation, and we’ll talk to you in 90 days. Have a great day.
Operator: This concludes today’s conference. You may disconnect your lines at this time. And we thank you for your participation.