Earnings Call Transcript
Quest Resource Holding Corp (QRHC)
Earnings Call Transcript - QRHC Q2 2020
Operator, Operator
Good day and welcome to the Quest Resource Holding Corp. Second Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Dave Mossberg, Investor Relations representative. Please go ahead, sir.
Dave Mossberg, Investor Relations Representative
Thank you, Cody, and thank you everyone for joining us on the call. Before we begin, I'd like to remind everyone that this conference call may contain predictions, estimates, and other forward-looking statements regarding future events and or future performance requests. Use of the words like anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on Quest's current expectations, estimates, projections, beliefs, and assumptions and involve significant risks and uncertainties. Actual events or Quest's results could differ materially from those discussed in the forward-looking statements as a result of various factors, which are discussed in greater detail in Quest's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and to consult our SEC filings for additional risks and uncertainties. Such forward-looking statements are presented as of the date made and we disclaim any duty to update such statements unless required by law to do so. In addition, in this call, we may include industry and market data and other statistical information, as well as Quest's observations and views about industry conditions and developments. The data and information are based on Quest's estimates, independent publications, government publications, and reports by market research firms and other sources. Although Quest believes these sources are reliable and the data and other information are accurate, we caution that Quest has not independently verified the reliability of the sources or the accuracy of the information. Certain non-GAAP financial measures will be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful for investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliations of non-GAAP to GAAP financial measures are included in today's earnings release. And with that said, I'll now turn the call over to Ray Hatch, President and Chief Executive Officer.
Ray Hatch, President and Chief Executive Officer
Thank you, Dave. Thanks to everyone for your interest in Quest. We hope that you and your families are healthy and safe. And we appreciate that you've taken the time to join us to discuss our second quarter results. Regarding our results, while we're not fully recovered by any stretch, results were ahead of where we thought they would be and the trend was positive through June. Within our end markets, recovery began sooner than expected and has continued steadily since then. In certain markets such as grocery and specialty retail, we saw stable volumes, which helped offset the decreases in other areas. We were able to demonstrate the flexibility of our cost structure and show an increase in adjusted EBITDA year-over-year, post-positive operating cash flow and maintain a strong balance sheet. We successfully replaced our asset-based credit facility, which was due to expire in 2021. I'm happy to say we achieved this objective ahead of schedule and with more favorable terms. Importantly, through the hard work of our management and staff, we were able to adapt quickly to a work-from-home environment without disruption in our service business. It has not been easy, and I want to thank our folks for all of their efforts to manage through this uncertainty. I'm going to turn the call over to Laurie Latham, our Chief Financial Officer, to review financials, and then I'll get back to review the trends that we see in our major end markets and discuss some of our strategic initiatives. Laurie?
Laurie Latham, Chief Financial Officer
Thank you, Ray, and good afternoon to everyone on the call. Second quarter revenue was $22 million, a 13.7% decrease compared with $25.4 million in the second quarter last year. The decrease was primarily due to lower levels of services due to COVID-19 related shutdowns and reduced operations at some of our customers. Gross profit was $4.4 million, a decrease of 7.9% when compared with the second quarter last year. Gross margin for the second quarter was 19.9%, a 120 basis point improvement compared with last year. The relatively smaller decrease in gross profit was primarily related to three factors: first, we have flexibility in our cost structure and we've aligned costs to meet the current level of demand; second, we have continuously worked to optimize services on behalf of our clients; and the third factor relates to service mix, which can fluctuate from quarter to quarter. In the second quarter this year, our mix had less revenue related to lower-margin commodity waste disposal services. SG&A expenses were $4 million during the second quarter compared to $4.2 million during the same period last year. We took action to lower our SG&A expenses and preserve cash including discretionary spending cuts and a labor force reduction. The biggest contributors to the decrease in SG&A were a reduction in labor costs, professional fees, and travel, which was partially offset by employee recalls under the Paycheck Protection Program, severance costs, increased stock compensation expenses, and third-party legal accounting and professional fees related to our corporate development efforts. At the end of the first quarter, we temporarily reduced our workforce through separations, attrition, and furloughs. Thankfully, we were able to secure a Paycheck Protection loan under the CARES Act, which allowed us to bring back many of the furloughed employees, maintaining the continuity of our workforce in support of the essential services provided by our customers. The $1.3 million use of proceeds from the PPP loan shows up in the other income line and funded eligible payroll, rent, and utility expenses. During the balance of the year, while certain SG&A expenses such as travel will remain low, we expect SG&A costs will increase from Q2 levels due to increased staffing in relation to business recovery and corporate development activities. Net income per basic and diluted share was $0.08 for the second quarter of 2020 compared with breakeven for the second quarter of 2019. Our adjusted EBITDA for the second quarter was $1.1 million compared to $825,000 during the same period last year. I would note that the adjusted EBITDA excludes the use of proceeds from the PPP loan as well as expenses related to COVID-19 labor recall, severance, and third-party legal accounting and professional fees related to our corporate development efforts. Moving onto a review of the balance sheet and cash flow. During the second quarter, we generated $1.5 million in cash flow from operations. Excluding the $1.3 million use of PPP loan proceeds, we still generated positive cash flow, which speaks to the flexibility of our model as well as our actions to optimize services on behalf of our clients. With positive operating cash flow, our cash balance increased by $600,000 to $4 million at the end of the second quarter. We also used cash to reduce debt levels. We had $3.8 million drawn on our credit facility, which was a decrease of $800,000 from the end of the first quarter. Last week, we entered into a new loan agreement with a new lender. This new loan provides access to an asset-based revolving credit facility of $15 million with an accordion feature permitting the facility to be increased up to $25 million. There is also an equipment loan facility of $2 million. We elected to secure the new agreement now because our existing credit facility was set to mature in 2021 and we were able to capture better terms. The credit facility's primary use will be for working capital needs. We maintained strong working capital discipline and continued to carefully monitor the status of our accounts receivable. DSOs remain within the normal range and through our efforts we have been able to keep receivables in order. As previously announced, we closed a common stock placement on August 7 with net proceeds of more than $3 million. The capital raised in the offering is intended to support the company's acquisition strategy. In summary, with the actions taken to increase our financial flexibility, we are well positioned to continue the pursuit of enhancing shareholder value while providing uninterrupted service to our customers. At this time, I'll turn the call back to Ray.
Ray Hatch, President and Chief Executive Officer
Thank you, Laurie. During this pandemic, we've remained focused on protecting the health and safety of our employees and taking care of our customers. More than 90% of our staff is working remotely. There's a skeleton crew that continues to work from the office. We implemented safety measures to protect the health and safety of our workers, and are grateful to our employees' willingness to do what it takes to deliver uninterrupted service to our clients. The change in our operation has been seamless and is facilitated by investments we made last year to move our technology infrastructure to the cloud. I want to point out that we were able to show an improvement in adjusted EBITDA and generate positive cash flow during one of the most challenging economic periods in our lifetime. This demonstrates the resiliency of our business and the power of our asset-light model. Clearly, this is also visible to our new lender and was a factor in the willingness to replace and extend our credit facility with stable returns. Before I go into more detail about the end markets and strategies, I'd like to review some of the reasons that we are well positioned to continue to weather the pandemic. First, we are fortunate that we, along with most of our customers, are considered an essential business and have remained operational throughout the period. Second, while certain customers have lower volumes of waste, they still have the same waste streams and the need for our services. Third, we have diverse end markets. Finally, our asset-light business model gives us the ability to align our costs with the current level of business. Next, I'll review what we've seen in terms of economic activity in the major end markets. In the grocery end market, volumes have stayed strong throughout the entire period and, in some cases, have experienced modest growth. We continue to work with our grocery customers to divert more waste from landfills and grow the food waste programs that we have in place. With a few exceptions, most of our retail customers are specialty retailers that are classified as essential and have remained open. In certain cases, some of those customers saw modest volume gains during the early stages of the pandemic. In the automotive end market, we saw a significant decrease in automotive repair and maintenance at the beginning of the quarter. Consumer-focused automotive maintenance tends to correlate to miles driven, and in April, U.S. miles driven declined an unprecedented 40% year-over-year. Industry data suggests that the rate of the year-over-year decrease has steadily improved since then, but it's still below historic levels. Consumer demand has had less of an impact on the industrial end market. However, during the quarter, certain industrial customers curtailed production and temporarily closed some of their plants due to the breakout of the virus. Most of our industrial customers are considered essential and have indicated they expect to recover the majority of their business that was delayed due to the disruptions. The restaurant end market, relatively new for us, is worth mentioning because it is one of our fastest-growing efforts; it was one of our fastest-growing areas prior to the pandemic. While full-service restaurant customers have been significantly impacted, quick service customers have done well in terms of volumes. Overall, the restaurant market has recovered somewhat from the April lows, but it is still significantly lower year-over-year. Next, I'll talk about our growth initiatives. Most of our growth in gross profit dollars over the past few years has been from existing customers. And while volumes are down in certain end markets, we continue to see interest and are having success adding programs with current customers. We continue to pursue and have a strong pipeline of new customer opportunities. As you might expect, many prospects have slowed down their evaluations and have delayed large enterprise decisions in the current environment. Later in the second quarter, we were able to convert one large opportunity with a specialty retailer that has about 1,000 stores. We've started servicing this specialty retailer in July. We also had a number of smaller wins during the quarter. Regarding our M&A efforts, as we previously discussed, we've been actively pursuing an M&A strategy. Our industry is highly fragmented with 18,000 local or regional players, which provides plenty of opportunity for growth and consolidation. To recap, our strategy is to acquire regional local players that offer differentiated service with long-standing customer relationships, but who are reluctant or unable to grow due to lack of infrastructure. We've built a scalable platform, which includes a national vendor network, back-office capabilities, and systems to support the acquired company growth. We believe the integration of these businesses will be similar to our process of seamlessly onboarding new customers, which we repeatedly demonstrated on a national scale. Over the past year, we have been selectively building a pipeline of companies that potentially fit our criteria. Recently, two of those targets have advanced to the LOI stage. Although we won't be able to give any specifics at this time, we'll have more to say if and when we're able to come to a definitive agreement. This pulled our M&A strategy around the financing last week, as we described earlier. In summary, there's still a great deal of uncertainty about how this pandemic will affect the economy in the second half of the year and maybe into 2021. However, at this point, we feel we've turned that corner, while we expect to see another decrease in year-over-year financial comparisons. But we're cautiously optimistic that we'll see a sequential improvement in gross profit dollars during the third quarter, and we continue to expect positive cash flow for the year. Longer term, we believe the trend towards sustainability will continue and that companies will continue to deploy programs in order to divert more waste from the landfill and reduce their environmental footprint. In addition, we believe Quest is well positioned to benefit, and in some cases take a leadership role, in affecting this secular growth trend. I look forward to keeping you updated on our progress. We would now like the operator to provide instructions on how listeners can queue up for questions. Operator?
Operator, Operator
Thank you. We'll take our first question from Gerry Sweeney with Roth Capital. Please go ahead.
Gerry Sweeney, Analyst
Hi, good afternoon, Ray and Laurie. Thanks for taking my call.
Laurie Latham, Chief Financial Officer
Sure.
Ray Hatch, President and Chief Executive Officer
Hi, Gerry.
Gerry Sweeney, Analyst
I wanted to start on the M&A front. I know you can't talk that much about it. But you touched upon it. These potential opportunities in the pipeline that you look at, is it fair to say, maybe they bring geographic and/or additional waste stream opportunities, that you could either sell some of your other streams that they may not have into different areas, et cetera, or cross-selling opportunity? I'm just curious as to a little bit more push or pull-through of opportunities.
Ray Hatch, President and Chief Executive Officer
Yes. I'll speak in general to our acquisition strategy as far as what the targets look like. And there's both opportunities for geographic expansion. And there are also definitely opportunities to sell additional waste stream services into the existing client base. A lot of times the existing client base in a target may only be regional, while we have a national platform, as you know. That gives us the chance to use our network to expand geographically. And also due to the breadth of the service offerings we have, we feel there's a lot of opportunity to sell that into the acquisition market.
Gerry Sweeney, Analyst
I understand. We're both clearly on the same page regarding the significant opportunity in sustainability and the services you provide to companies. However, growth has been somewhat slower than we expected. This may be due to larger companies adjusting to outsourcing the work you can handle. Is there a way to accelerate the growth process, perhaps by streamlining the transition for more people to join the platform quickly? Could that be another perspective to consider?
Ray Hatch, President and Chief Executive Officer
Yes. There are two types of growth to consider. We are focused on increasing gross profit dollars, which we have discussed in emails. While we continue to see growth in that area, it's clear that our pipeline has expanded. We are eager to accelerate this process and are actively seeking ways to expedite it. However, I want to note that we are currently experiencing a slowdown in decision-making due to various distractions affecting our target companies. This has caused a bit of stagnation, but it is encouraging that we are still adding new accounts to the pipeline during this slow period. The challenge lies in advancing these opportunities to completion. In Q2, we had some success in this regard, and we hope to maintain that momentum to close out our existing pipeline effectively.
Gerry Sweeney, Analyst
I wanted to discuss flexibility and any communication you might have had with your clients. As we approach the fall, there are concerns about a potential resurgence of COVID-19. How much flexibility do you have, and what communication have you had with your clients? Understanding their expectations can help you manage staffing levels to meet demand and service requirements based on what they're experiencing.
Ray Hatch, President and Chief Executive Officer
Yes, Gerry, that’s a great question. And it really just boils down to effective communication. Luckily, we talk with good partners, our integral partners with all of our clients. So we're able to communicate quite regularly. And I would say that our intelligence relative to what's going on with their businesses is in many cases as good as theirs, however good that is, because it's hard to anticipate some of these ups and downs. But staying as close as we can to the ups and downs in foot traffic and volume allows us to work with them to make sure our services are meeting those needs consistently and placing with that. But communication is very, very important. And I will tell you I believe that the company has gotten much better with that through this COVID crisis.
Gerry Sweeney, Analyst
I’ll jump back in the queue. And I appreciate it. Thank you.
Ray Hatch, President and Chief Executive Officer
Thanks, Gerry.
Operator, Operator
We'll take our next question from Amit Dayal with H.C. Wainwright.
Amit Dayal, Analyst
Good morning, Dave. Hi, Ray, hi, Laurie.
Laurie Latham, Chief Financial Officer
Hi there.
Amit Dayal, Analyst
With respect to sort of your customer base, I know you've added one large customer in the second quarter. Did you lose any customers?
Ray Hatch, President and Chief Executive Officer
No, we didn't have any churn. I guess obviously this crisis we're in has changed a lot of things. But along with the slowness in adding those, there's actually been no churn on the other side. That's very positive. And you know that, I think one of the key reasons why we continue to retain these clients is our ability to understand their needs, communicate with them and help them meet it. So we actually feel like we've been a big service to a lot of our existing clients and haven't had any kind of issues like that.
Amit Dayal, Analyst
And is this like your cash flow in those aspects of the business also continue to hold up pretty well? I was just wondering if you faced any challenges on the collection side or the account receivable side.
Laurie Latham, Chief Financial Officer
No. Amit, we have put in place even before the COVID-19 crisis hit good practices to keep up with our receivables, and we've seen the DSOs stay right in our expected range, and our receivables have stayed and balances have stayed in very good shape.
Amit Dayal, Analyst
Understood. And then your second quarter revenues came in ahead of our expectations. So it looks like the revenues have recovered at a faster pace. Should we anticipate sequential improvements for the rest of the year as well? And any color on how much sequential improvements you are just anticipating with the visibility you have?
Ray Hatch, President and Chief Executive Officer
The one thing we want to convey is that we are understandably cautious in this uncertain environment. However, we do expect our gross profit dollars to improve sequentially. While there are several factors that could influence this, we remain optimistic. We hope to see continued improvement throughout the remainder of the year, similar to what we have observed. This quarter exceeded our expectations, indicating our clients are performing well, though we will still fall short of last year's figures. The key issue is the pace of recovery, which is difficult to predict, but we anticipate that Q3 will see a sequential increase in gross profit dollars, though not year-over-year.
Amit Dayal, Analyst
Understood, understood. And maybe just last one. I don't know if you touched on this with respect to the commentary on your M&A efforts. But in terms of timeline, are these expected to potentially translate into a deal or a transaction before the end of the year? Or is that a little too early to kind of what the environment right now is?
Ray Hatch, President and Chief Executive Officer
Yes, Amit, as we mentioned, we do have two LOIs in place. And obviously that leads to that succession of activities, and we definitely expect those activities to get us there by the end of the year. Of course, nothing is done, but we're hopeful. So, yes, the timeline should be within that frame.
Amit Dayal, Analyst
Okay, great. With that, I’ll get back in queue and take my other questions offline. Thank you so much.
Ray Hatch, President and Chief Executive Officer
Thank you, Amit.
Operator, Operator
Thank you. We'll now take our next question from Greg Kitt with Pinnacle Family Office Investments. Please go ahead.
Greg Kitt, Analyst
Hi, Ray and Laurie. How are you?
Ray Hatch, President and Chief Executive Officer
Hi, Greg. How are you doing?
Laurie Latham, Chief Financial Officer
Hi, Greg.
Greg Kitt, Analyst
Thanks for taking my question. First just a comment. Congratulations on a great quarter. I'm shocked that you were able to generate $1.5 billion of cash from operations in this quarter in this market environment, and then additionally be able to grow EBITDA sequentially in Q2. I think this quarter proved the durability of your operating model and that your COGS and operating expenses are truly variable. So I'm very excited by this quarter.
Ray Hatch, President and Chief Executive Officer
Thanks.
Greg Kitt, Analyst
You’re welcome. I'm encouraged to hear about the spec retailer win. Can you give us any color on why this customer chose to work with you? And how big the opportunity is with that customer?
Ray Hatch, President and Chief Executive Officer
It's a significant opportunity as we expand to all locations. We anticipate improvements in our health metrics. The reason we were able to secure this is that customer service is crucial. In my opinion, customer service is something this industry frequently overlooks, but Quest places a strong emphasis on it, making it somewhat unique. This focus on good customer service—being responsive and attentive to customer needs—has garnered appreciation from our large multi-unit clients. Therefore, I would certainly attribute part of our growth to enhancements in customer service.
Greg Kitt, Analyst
Thank you. And can you give any color on the types of services that you're offering?
Ray Hatch, President and Chief Executive Officer
It's waste and recycling, and hopefully helping them find even more opportunities to recycle more materials than they were dealing with their previous provider. So that's the deal. You get better customer service, and you get more opportunities to leverage our more sustainable program by finding better homes for a number of materials that will go into the landfill with you.
Greg Kitt, Analyst
Thank you. And my last question is you talked about COVID slowing down the decision process for some customers in your pipeline. Do you feel that COVID might have also created some disruption opportunities that open some doors for you to have a conversation with potential customers where the customer maybe previously wasn't necessarily as motivated to look at changing vendors?
Ray Hatch, President and Chief Executive Officer
Yes, I think that's a valid point, Greg. Typically, a crisis presents opportunities where they can be found. It has caused a bit of upheaval, leading many people to reassess their next steps, which in turn slows down decision-making processes. However, there are also circumstances where customer needs evolve, and their current provider may not be meeting those needs. We believe this could create opportunities for us as well, and we are actively seeking those out.
Greg Kitt, Analyst
Great. Thank you very much and congratulations on a great quarter.
Ray Hatch, President and Chief Executive Officer
Thanks again, Greg. Appreciate it.
Laurie Latham, Chief Financial Officer
Thank you.
Operator, Operator
Thank you. We'll hear next from George Karutz with Karutz Capital.
Unidentified Analyst, Analyst
Good afternoon, Ray?
Ray Hatch, President and Chief Executive Officer
Hey, George.
Unidentified Analyst, Analyst
Hey. So I've got a couple of questions for you. One is before the COVID for the last couple of years, you struggled with your salesforce. And you hired a pretty high-profile guy ahead of sales. And what I'd like to ask you is how is that working out and then not being able to see people face-to-face? The other question is as far as your offering that you did it’s dilutive at this point unless you make the deals and you did it at a pretty cheap price of $1.15. So, obviously, your deals must be priced comparable to the low equity price that you got. And so what I’m asking you is this. If those two deals that you have LOIs, will they be accretive after that dilution?
Ray Hatch, President and Chief Executive Officer
I'll address the second question first, George. I can't provide specific details right now regarding the accretive aspect and other related topics. I understand your concerns, and while I wish I could share more, I hope you trust that we are doing our best. We believe that it's going to work out.
Unidentified Analyst, Analyst
Well, you're not going to do something stupid. You're not going to raise money at $1.15 and then go make a deal that's twice as expensive as you should because that would be a foolish thing to do. And I think you're going to have to work out of it for two years or something.
Ray Hatch, President and Chief Executive Officer
Yes, we try to do it.
Unidentified Analyst, Analyst
You completed the deal very quickly, which suggests you must be quite confident that it will be finalized, otherwise you wouldn't have raised money at $1.15. You mentioned something about the end of the year, and I suspect you will have everything closed by the end of September. Can you provide any updates on that?
Ray Hatch, President and Chief Executive Officer
The question I received was whether we would close before the end of the year, and I responded affirmatively. However, I'm unable to provide more details, and I apologize for that.
Unidentified Analyst, Analyst
Okay. No problems. Okay. So, how about your Head of Sales? How is that working out? And because you've struggled for a couple of years with the whole salesforce, and that was something that you weren't happy with the way it went and everything. And you hired a guy who is pretty high-profile, maybe came from waste management or whatever. Is he still there?
Ray Hatch, President and Chief Executive Officer
Yes, he's still there. And your question was about how the sales pipeline is working in acceptance that. And I do feel good about our sales pipeline. It was actually pretty encouraging. We've actually moved some stuff across the goal line during some very difficult times. I'm disappointed as is everybody else in the lack of progress because of what we talked about getting stagnant, George. And it is all you mentioned not being able to see people face-to-face. That's one reason. People want to make decisions are distracted and we're still trying to do calls with folks. And it's just not conducive to really accelerate it. But we have a nice pipeline, George, I really feel good about the fact as we move through this as we grow back on the right track.
Unidentified Analyst, Analyst
Let me ask you this. You have a fast-food chain with 600 stores. Initially, they conducted 60% of their business indoors and 40% through the drive-thru. Now, they may be closed indoors and doing only 20% of their business that way, while 80% is now coming from the drive-thru. How much does that impact your waste levels?
Ray Hatch, President and Chief Executive Officer
It moves the waste away from the restaurant. When you drive up, pick it up, and go home, you're not throwing it away there. There's still waste from the kitchen preparation. The net effect is that it doesn't create more waste; it just moves it to a different location, which is generally people's homes. However, it seems that the volume at fast-food places has really increased overall. We've been collaborating well with them, especially considering the current circumstances. The poll service providers have struggled significantly, as dine-in services have been heavily impacted, making it really challenging for them.
Unidentified Analyst, Analyst
Okay. Okay. Well, thank you. Good job. I mean, things are kind of coming along now and pretty optimistic.
Ray Hatch, President and Chief Executive Officer
Thanks, George. Regarding the restaurant sector, we've discussed it quite a bit. I want to highlight that, considering the impact of COVID, this segment is relatively small for us. I'm quite grateful for that at this moment, particularly given recent developments.
Unidentified Analyst, Analyst
So, basically, you could be doing more now with the COVID than you did before because you've got some business that you never had before. So, even if there's less waste, you had zero before out of those new clients.
Ray Hatch, President and Chief Executive Officer
Yes, we were really smaller penetrated. So, but the ups and downs in that space really haven't moved our needle a whole lot based on the mix, at least at this point.
Unidentified Analyst, Analyst
And let me ask you one last thing. So, in the deals you're going to do and try to do, so how do you want to structure them? I mean, how much cash, how much debt, how much equity, and how much earn-out? What's your goal to do there?
Ray Hatch, President and Chief Executive Officer
Well, I think each deal is going to be different, George. And that's again a hard one to say. But I think typically don't have an element to all those, all the above and are not so nice because we've got a real engagement on a go-forward basis. But we'll do what we can as far as equity and debt goes. It's going to depend on the deal. Again, we're so young in this process we've got a couple out there, but we hope to have a couple more down the line. And I really would hate to be specific as to the kind of structure. But I would say that all three of the elements are there for sure.
Unidentified Analyst, Analyst
When you provided the end of the quarter information on July 30, I mean June 30, you mentioned $4 million in cash and $3.8 million in debt. This indicates that for the first time in a long while, we actually have a net cash position. Is that right? And this is before the offering. What is the situation regarding the debt cost?
Ray Hatch, President and Chief Executive Officer
That's right, George.
Laurie Latham, Chief Financial Officer
Yes, that's correct.
Unidentified Analyst, Analyst
Okay. Yes. Okay. And that's the first time in a long time. It used to be like $5 million in debt and $2.5 million in cash a year ago. Something like that, Laurie, wasn't it like that?
Laurie Latham, Chief Financial Officer
Well, yes. And remember we received $1.4 million from a PPP loan in May also.
Ray Hatch, President and Chief Executive Officer
But you're right on the ratio, George, where it typically had been for sure.
Unidentified Analyst, Analyst
Okay. Well, thank you very much.
Ray Hatch, President and Chief Executive Officer
You bet. Thank you, George. We appreciate it.
Operator, Operator
We'll hear next from George Melas with MKH Management. Please go ahead.
George Melas, Analyst
Thank you. Hi Ray, hi Laurie, how are you?
Laurie Latham, Chief Financial Officer
Good.
George Melas, Analyst
Great. Laurie this is a question I think mostly for you. I'm just trying to get to a bigger number. So, I think there's roughly $300,000 of one-time expenses that probably are in SG&A that we take out. Is that about right? And can you maybe give some more?
Laurie Latham, Chief Financial Officer
Yes. Remember that we did put the use, which was about $1.3 million in PPP loan use that we took out. It's an adjustment out of EBITDA. And then the remainder of the other adjustment line items are expenses that we adjusted out of SG&A related to severance, COVID-19 recall, and also to third-party expenses related to acquisitions such as legal.
George Melas, Analyst
Okay. So if we look at your SG&A going forward, if we exclude also the third-party expenses regarding acquisitions, it's probably going to be a bit lower in the year. Is that right?
Laurie Latham, Chief Financial Officer
Well actually, I think George if you look at it, we'll start to see some of our labor costs coming back up in line with the increased services that we're having with the recovery with our customers while some of our expenses will remain low such as travel and trade shows, things that are clearly not happening because of COVID-19. So, we do expect that SG&A expenses will come up a little bit from what we had in the second quarter. And in addition, we'll have some corporate acquisition-type expenses running through there also.
George Melas, Analyst
Thank you, Laurie. Ray, I have a quick question for you about the timing of the acquisition. Have you developed the platform and put the necessary systems in place that you may not have had a year ago? Now that those systems are in place, do you feel prepared to pursue acquisitions? Is this the nature of your business?
Ray Hatch, President and Chief Executive Officer
Yes. That's a great question. First, I thought you were going to ask me when the acquisition was...
George Melas, Analyst
No. I was not going to do that.
Ray Hatch, President and Chief Executive Officer
Okay. But the timing is relative to the evolution of business is a great, great observation. I think, George, you've been following the company for a number of years. We've evolved pretty steadily into a much more disciplined organization, knows how to generate gross profit, manage costs, and develop our platform. And it's a great platform for growth and with the scalability I think that's been developed here, we feel it's the right time to start down this path. And we're excited about it. I think the evolution of the company, this is exactly where we should be doing based on where we are as we've evolved.
George Melas, Analyst
Okay. Thanks a lot. Okay. Thank you very much, folks. Thank you.
Ray Hatch, President and Chief Executive Officer
Thank you.
Laurie Latham, Chief Financial Officer
Thank you.
Operator, Operator
Thank you. And that does conclude today's question-and-answer session. It does also conclude our conference call today. We thank you all for your participation. You may now disconnect.