8-K
Where Food Comes From, Inc. (WFCF)
UNITEDSTATES
SECURITIESAND EXCHANGE COMMISSION
WASHINGTON,D.C. 20549
FORM 8-K
CURRENTREPORT
Pursuantto Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 14, 2020
WHEREFOOD COMES FROM, INC.
(Exact Name of Registrant as Specified in its Charter)
| Colorado | 333-133624 | 43-1802805 |
|---|---|---|
| (State<br> or Other Jurisdiction of<br><br> <br>Incorporation) | (Commission<br><br> <br>File<br> Number) | (I.R.S.<br> Employer <br><br> Identification No.) |
| 202 6^th^ Street, Suite 400 | ||
| --- | --- | |
| Castle Rock, Colorado | 80104 | |
| (Address<br> of Principal Executive Offices) | (Zip<br> Code) |
(303)895-3002
(Registrant’s Telephone Number, Including Area Code)
Notapplicable
(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<br> communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| [ ] | Soliciting<br> material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| [ ] | Pre-commencement<br> communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| [ ] | Pre-commencement<br> 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<br> of each class | Trading<br> Symbol(s) | Name<br> of each exchange on which registered |
|---|---|---|
| Common<br> Stock, $0.001 par value | WFCF | OTC<br> 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 May 14, 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 first quarter period ended March 31, 2020.
| Item 9.01 | Financial Statements and Exhibits |
|---|---|
| (d) | Exhibits |
| --- | --- |
| Exhibit<br><br>No. | Description |
| --- | --- |
| 99.1 | Press Release issued and dated May 14, 2020 |
| 99.2 | Transcript for May 14, 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.<br><br> <br>(Registrant) | ||
|---|---|---|
| By: | /s/ Dannette Henning | |
| Date:<br> May 15, 2020 | Dannette<br> Henning | |
| Chief<br> Financial Officer |
Exhibit 99.1
WhereFood Comes From, Inc. Reports 2020 First Quarter Financial Results
CASTLE ROCK, Colorado – May 14, 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 financial results for its first quarter ended March 31, 2020.
“The first quarter is historically our slowest quarter of the year – and Q1 this year was additionally impacted by the devastating effects of Covid-19 on the food supply chain. As a result, total first quarter revenue declined approximately 1% year over year to $3.9 million from $4.0 million and net loss increased $98,000 to $241,000 from $143,000,” said John Saunders, Chairman and CEO. “We experienced reduced verification activity due to our customers’ no visitor policies as they strive to keep their facilities open while dealing with workforce shortages and shelter in place government mandates. In addition, our software business was impacted by supply chain disruptions and customers delaying purchasing decisions pending more clarity on the schedule for reopening the economy. All segments of the food supply chain have been impacted, including farmers and ranchers, meat processing facilities and food service. In the meantime, lower verification activity has carried into the second quarter and will likely continue to some extent for the remainder of 2020 even as the economy reopens. We have worked to be as nimble as possible during these uncertain times. Our long-term view remains positive as we believe the impact of Covid-19 underscores the importance of traceability in the food supply chain and that our services will be more relevant than ever when the economy is back on track.”
FirstQuarter Results
Revenue in the first quarter decreased slightly to $3.9 million from $4.0 million in the first quarter last year. Revenue components included:
| ● | Verification<br> and certification services, flat at $2.8 million. |
|---|---|
| ● | Product<br> sales, up 13% to $725,000 from $641,000. |
| ● | Software<br> license, maintenance, and support (including intercompany sales*), down 32% to $233,000 from $344,000. Software license, maintenance<br> and support (excluding intercompany sales*) down 52% to $143,000 from $295,000. |
| ● | Software-related<br> consulting services (including intercompany sales*), up 20% to $265,000 from $221,000. Software-related consulting services<br> (excluding intercompany sales*), up 16% to $241,000 from $207,000. |
*(Under segment accounting rules, the Company must reflect the impact of intercompany sales in its software sales and consulting revenue segment. Intercompany sales include the provision by the Company’s SureHarvest subsidiary of software and services to Where Food Comes From, Inc. to support Company-wide technology initiatives not directly related to SureHarvest. For more information, refer to the Results of Operations section of the Company’s Form 10-Q.)
Gross profit in the first quarter (excluding intercompany sales*) decreased 3% year over year to $1.6 million from $1.7 million. Gross margin declined to 41.2% from 42.1% year over year.
Sales, general and administrative expenses in the first quarter were flat year-over-year at $2.0 million.
Net loss attributable to Where Food Comes From, Inc. in the first quarter was $241,000, or less than one cent per share, a 69% increase over last year’s first quarter net loss of $143,000, or less than one cent per share.
The adjusted EBITDA loss for the first quarter was $40,000 versus positive adjusted EBITDA of $82,000 in the first quarter last year.
The Company generated approximately $900,000 in net cash from operations in the first quarter, down from $1.3 million in the same quarter last year.
Cash, cash equivalents and short-term investments at March 31, 2020, was up 11% year over year to $3.2 million from $2.9 million.
The Company will conduct a conference call today at 10:00 a.m. Mountain Time.
Call-innumbers for the conference call:
Domestic Toll Free: 1-877-407-8289
International: 1-201-689-8341
Conference Code: 13703548
Phonereplay:
A telephone replay of the conference call will be available through June 4, 2020, as follows:
Domestic Toll Free: 1-877-660-6853
International: 1-201-612-7415
Conference Code: 13703548
AboutWhere 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, Postelsia, 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.
*Noteon 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.
CAUTIONARYSTATEMENT
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; expectations to extend the Company’s track record of profitable growth; and ability to continue introducing and advancing verification standards 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 fourth quarter and full year 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
WhereFood Comes From, Inc.
Statementsof Income
| Three<br> months ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| (Amounts in thousands, except per share amounts) | (Unaudited) | (Unaudited) | ||||
| Revenues: | ||||||
| Verification<br> and certification service revenue | $ | 2,803 | $ | 2,812 | ||
| Product sales | 725 | 641 | ||||
| Software license,<br> maintenance and support services revenue | 143 | 295 | ||||
| Software-related<br> consulting service revenue | 241 | 207 | ||||
| Total<br> revenues | 3,912 | 3,955 | ||||
| Costs of revenues: | ||||||
| Costs of verification<br> and certification services | 1,534 | 1,562 | ||||
| Costs of products | 502 | 443 | ||||
| Costs of software<br> license, maintenance and support services | 146 | 154 | ||||
| Costs<br> of software-related consulting services | 120 | 130 | ||||
| Total<br> costs of revenues | 2,302 | 2,289 | ||||
| Gross profit | 1,610 | 1,666 | ||||
| Selling, general<br> and administrative expenses | 1,964 | 1,967 | ||||
| Loss from operations | (354 | ) | (301 | ) | ||
| Other expense (income): | ||||||
| Dividend income<br> from Progressive Beef | (30 | ) | (30 | ) | ||
| Other income, net | (2 | ) | (3 | ) | ||
| Gain on sale of<br> assets | - | (1 | ) | |||
| Gain on foreign<br> currency exchange | (3 | ) | - | |||
| Interest<br> expense | 2 | 3 | ||||
| Loss before income taxes | (321 | ) | (270 | ) | ||
| Income tax benefit | (80 | ) | (83 | ) | ||
| Net loss | (241 | ) | (187 | ) | ||
| Net loss attributable<br> to non-controlling interest | - | 44 | ||||
| Net<br> loss attributable to Where Food Comes From, Inc. | $ | (241 | ) | $ | (143 | ) |
| Per share - net income attributable<br> to Where Food Comes From, Inc.: | ||||||
| Basic | $ | * | $ | * | ||
| Diluted | $ | * | $ | * | ||
| Weighted average number of common shares outstanding: | ||||||
| Basic | 24,947 | 24,957 | ||||
| Diluted | 24,947 | 24,957 |
WhereFood Comes From, Inc.
Calculationof Adjusted EBITDA*
(Unaudited)
| Three<br> months ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| (Unaudited) | (Unaudited) | |||||
| Net loss attributable to<br> Where Food Comes From, Inc. | $ | (241 | ) | $ | (143 | ) |
| Adjustments to EBITDA: | ||||||
| Interest expense | 2 | 3 | ||||
| Income tax benefit | (80 | ) | (83 | ) | ||
| Depreciation<br> and amortization | 233 | 260 | ||||
| EBITDA* | (86 | ) | 37 | |||
| Adjustments: | ||||||
| Stock-based compensation | 31 | 45 | ||||
| Cost of acquisitions | 15 | - | ||||
| ADJUSTED EBITDA* | $ | (40 | ) | $ | 82 |
*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.
WhereFood Comes From, Inc.
BalanceSheets
| March<br> 31 | December<br> 31, | |||||
|---|---|---|---|---|---|---|
| (Amounts in thousands, except per<br> share amounts) | 2020 | 2019 | ||||
| (Unaudited) | ||||||
| Assets | ||||||
| Current assets: | ||||||
| Cash<br> and cash equivalents | $ | 2,964 | $ | 2,638 | ||
| Accounts receivable,<br> net of allowance | 1,972 | 2,515 | ||||
| Short-term investments<br> in certificates of deposit | 259 | 258 | ||||
| Prepaid<br> expenses and other current assets | 289 | 450 | ||||
| Total current assets | 5,484 | 5,861 | ||||
| Property and equipment, net | 1,575 | 1,545 | ||||
| Operating lease right-of-use assets | 3,204 | 3,268 | ||||
| Investment in Progressive Beef | 991 | 991 | ||||
| Intangible and other assets, net | 3,410 | 3,248 | ||||
| Goodwill | 2,946 | 2,946 | ||||
| Deferred tax<br> assets, net | 383 | 378 | ||||
| Total assets | $ | 17,993 | $ | 18,237 | ||
| Liabilities and Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 681 | $ | 1,023 | ||
| Accrued expenses<br> and other current liabilities | 583 | 674 | ||||
| Deferred revenue | 1,413 | 797 | ||||
| Current portion<br> of finance lease obligations | 9 | 8 | ||||
| Current<br> portion of operating lease obligations | 247 | 239 | ||||
| Total current liabilities | 2,933 | 2,741 | ||||
| Finance lease obligations, net of current<br> portion | 19 | 21 | ||||
| Operating lease<br> obligation, net of current portion | 3,460 | 3,526 | ||||
| Total liabilities | 6,412 | 6,288 | ||||
| Commitments and contingencies | ||||||
| Equity: | ||||||
| Common stock | 26 | 26 | ||||
| Additional paid-in-capital | 11,456 | 11,425 | ||||
| Treasury stock | (1,823 | ) | (1,665 | ) | ||
| Retained<br> earnings | 1,922 | 2,163 | ||||
| Total equity | 11,581 | 11,949 | ||||
| Total liabilities<br> and stockholders’ equity | $ | 17,993 | $ | 18,237 |
Exhibit 99.2
WFCF
2020First Quarter Conference Call Script
Call date: Thursday May 14, 2020
Call time: 10:00 a.m. Mountain Time
Speakers call in number: 877-407-8290 or 201-689-8344
Jay
Good morning and welcome to the Where Food Comes From first quarter earnings call.
Joining me on the call today are John Saunders, CEO; Leann Saunders, President, and Dannette Henning, CFO.
During the course of this call we will 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 will also be discussing EBITDA and Adjusted EBITDA, which are non-GAAP financial measures provided as a complement to the results provided in accordance with GAAP principles. We use and believe investors benefit from the presentation of EBITDA and Adjusted EBITDA in evaluating our operating performance because it provides 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.
I will now turn the call over to John Saunders, chairman and chief executive officer.
John
Good morning and thanks for joining the call.
On our last earnings call on March 5^th^ I talked about Covid-19 almost as a footnote, noting its early impact on the beef supply chain but having – like nearly everyone else – little appreciation for how broad and how deep its impact would be on our overall economy and the food supply chain in particular. Today, I think it’s appropriate we lead off with the subject.
In my remarks last quarter, I focused on beef demand, which has in fact remained fairly strong, including from China. What has transpired in the interim are government mandated quarantines and social distancing edicts that have had a devastating impact on the food supply chain, including farmers and ranchers, processors and food service. Our customers’ “no outside guest” policies have cut into our on-site farm and ranch verification activity.
The software side of our business has also been impacted – primarily by supply chain disruptions and by customers delaying purchasing and investment decisions until they can get more clarity on the re-opening of the economy.
As a result, our revenue in the first quarter was essentially flat year over year.
For as much as we’ve learned over the last 10 weeks, there remain a lot of unknowns as to when things will return to normal and exactly what normal will look like. The trend of reduced on-site verifications and packing plant disruptions has carried into the second quarter and we think it’s safe to say we’ll continue to see some impact through the balance of 2020 – but to what extent, it is really hard to know at this point. Every day we read about this state or that state’s re-opening plans and there’s still not much consistency. Hopefully, the next few weeks will provide some clarity, so we’re really in wait-and-see mode.
From a financial results perspective, as I said, our Q1 revenue was down slightly to $3.9 million from $4.0 million.
Breaking that down into its four components:
| ● | Verification<br> and certification services were flat at $2.8 million. Again, this reflects the impact of social distancing on farms and ranches<br> and the impact and processing plant closures due to infection rates. |
|---|---|
| ● | Product<br> sales were up 13% to $725,000 from $641,000. |
| ● | Our<br> software business was a mixed bag but down overall year over year due to the aforementioned supply chain disruptions and general<br> budget caution. Our license, maintenance and support business, net of intercompany sales, declined to $143,000 from $295,000.<br> That was partially offset by an increase in software consulting services, net of intercompany sales, to $241,000 from $207,000. |
Gross profit in the first quarter, net of intercompany sales, decreased 3% year over year to $1.6 million from $1.7 million.
SG&A expense was flat at $2.0 million.
And net loss attributable to WFCF increased to $241,000 from $143,000 year over year.
We generated $900,000 in net cash from operations in the first quarter, down from $1.3 million in the same quarter last year.
We maintain a strong balance sheet with:
| ● | Cash,<br> cash equivalents and short-term investments at March 31^st^ of $3.2 million, up 11% from $2.9 million at year-end; |
|---|---|
| ● | Working<br> capital of $2.6 million; |
| ● | No<br> long-term debt. |
The last few months have been good reminder of how fast things can change. We entered 2020 with momentum from our strongest year ever – with revenue and all profit metrics reaching record levels in 2019. We had every expectation of continuing those trends until the pandemic and more importantly - the government’s reaction to the pandemic – took center stage.
The good news is, because we run a lean organization with a focus on balance sheet discipline, we think we’re better positioned than many to weather the current storm.
In addition, we believe our staying power is further strengthened by the depth and breadth of our services portfolio, which is second to none in our industry.
In the first quarter we continued to expand that portfolio.
We entered the seafood space with our acquisition of Postelsia Holdings, a leader in environmental and social sustainability programs for the seafood industry. Prior to this acquisition, seafood had been the only major food sector where we didn’t have a presence. Postelsia rounds out our protein offering, extends our geographical reach and exposes us to some very interesting new customers and business relationships that we hope will lead to new revenue streams.
Another highlight in the first quarter: We rolled out the Where Food Comes From CARE program – a suite of sustainability solutions that address consumer demand for sustainably produced products. Since the first of the year we’ve introduced CARE programs for beef, dairy, pork and poultry. Sustainability is front of mind for a growing number of consumers, so we think these programs have a lot of potential to contribute to future growth. We had a good initial response to CARE and are optimistic we can rekindle that trend once Covid-19 is under control.
In closing, I want to again thank the Where Food Comes From team for continuing to perform at a high level under very difficult circumstances. I also want to thank our shareholders and other stakeholders for continuing to support us over the last few months.
Like everyone, we are looking forward to the economy reopening and getting back to business as usual.
And with that, I’ll open the call to questions. Operator…
Questionand Answer Session:
Our first question is from Alex Team, First Ballantyne. Please proceed with your question.
Question1: Terry Thompson
Well, it’s good to be expected these days. As you know, I’m living in rural North Central Oklahoma now and those been — it’s taken off like a rocket here a real movement, consumers buying directly from the producers, the farmers and the ranchers. In fact, there was a Facebook Group started two weeks ago called Shop Kansas Farms. In two weeks had 75,000 members, and I’m wondering if this is something that could Where Food Comes From might be able to move into and capitalize on?
JohnSaunders
Yes, great comment. We’ve seen a similar trend. And we’ve recommended to a number of our ranch customers across the country that that is a good diversification of their business. So I think you’re right on track. And we’re actually working through our CARE programs to offer our producers that already have online sales systems direct to consumers to collaborate and to have that access to that type of information around the country. So yes, we’re totally on board. I think it’s a great comment and a great opportunity for us.
TerryThompson
Great. Well, once we get through this, I think that we’re back on track. And I appreciate, I missed coming to the meeting this year.
JohnSaunders
Yes, I know that was a strange one and haven’t had that for us. Thanks, Terry. Appreciate it.
Question2: Andreas Aaen
I’m great here. Denmark is a little bit in front of this, I think so. We are basically back to normal economic state. Okay. So may I have three questions, my first one is can you maybe elaborate about the verification business here, last quarter you had some pull up demand for the beef. And now it seems like some on demand side kind of getting delayed there. Is there — how long can farmers delay this until the kind of they lose the verification or the standard verification to? I would assume it’s that expense in audit, you have some timeline to do this, you cannot just pull it out. So I would just know if those verifications are they canceled or as they just like rescheduled?
JohnSaunders
Great question. I’m going to let Leann answer that one. She’s been dealing with it mostly.
LeannSaunders
Yes, that’s a great question. So it depends right now, a great degree based on how the certification body looks at it. So you have some certification bodies that are just kind of kicking the can down the road. And so with those, we’re following our procedures for extensions. And those would be primarily, if you look at some of these large handling and processing facilities, they’re just looking at six months extensions and then for other things like organic certification, they’ve moved to kind of remote virtual auditing in the near-term, but we still have to look at those operations onsite within the year. So it’s kind of a mixed bag.
So whenever we can, we’re continuing to move and to conduct the audits as we always have, when we can. When we have both the customer and we have the available audit team willingness to do that with kind of all of what we have to deal with now a PPP. So, hopefully that answers your question.
And we hope to get back to normal as quickly as possible. But with both you look at state situations and then local government situations, everything’s different. So we’re having to manage all of that with every single verification that we do.
JohnSaunders
And specific to beef, I think it’s important to note that really has been the one area that we’ve stayed relatively consistent. As you notice our tag revenue was actually up in the first quarter year-over-year. So the vast majority of our beef producers are out in the country and were the last ones to be affected. So it’s actually remained very strong in the beef specific area.
AndreasAaen
Okay.
LeannSaunders
Yes, the ones most affected would be your larger confinement facilities with that — with a larger workforce. I mean really what’s happening right now, we’ve dealt with animal disease issues in the past, but now we’re dealing with great concern over their workforce and maintaining their workforce.
AndreasAaen
Okay, that sounds good. So that could be a likely scenario where let’s say six months from now when states open up again, that you have a lot of farmers that basically have like only have a short time to get their orders done?
LeannSaunders
Yes, that is correct.
AndreasAaen
Okay. Okay can you maybe elaborate about how we should think about this long-term, obviously, this is hitting you now. But I would assume with a health crisis like this, this was just like, make people even more care about, what they put in their mouth and how think about the health and stuff like that?
JohnSaunders
Yes, that’s a great point. We’ve spent a lot of time thinking through that and really preparing for I think, what the post COVID-19 world will look like. And as I mentioned our CARE program, the sustainability program has obviously traceability a key part of it, but it also has animal welfare, and environmental stewardship and then a worker component, which we think as you say probably will become even more important in the future.
So yes, we’re — as I mentioned we’re I think very, very strong in the long-term because of our focus on providing people a way that they can learn more about where their food comes from.
AndreasAaen
Okay, that sounds feasible. Okay. The U.S. Hemp Authority you have, can you elaborate that because I saw news from a company called FoodChain, I view they said they were named the official certification body. So did you lost that one or how should we think about the hemp industry now?
JohnSaunders
Yes, we worked with them for a year and I think our overall perspective of the hemp industry was that, it was a product that was a little bit before its time. And as I think you see in the public market, most of the hemp providers and CBD providers have really struggled and our decision was that that specific program, there’s many programs for verification, but that specific program really didn’t have the same alignment.
So it was a mutual decision to move away from that program. So yes, you’re reading it correctly. It’s more just; we had two years’ worth of experience working with that specific program and decided that there were others that were more appropriate for our long-term goals. So you’ll be seeing and hearing about that in the future.
AndreasAaen
Okay, okay perfect. Then my last question is more general about the capital allocation side. You did the recent acquisition in the seafood industry. How are you looking at marine right now, is there all kinds of companies that are struggling that you could take advantage of this or and also related to, obviously, your share price reacting quite negative right now. So are you still committed to your buyback program, you have ample liquidity now or how should you think about?
JohnSaunders
Yes, that’s a great question as well. I think we acquired Postelsia literally a week or so prior to all of this really, really coming to light. And what — there was obviously some drawbacks in that and that the primary part of their business is based in Southeast Asia where all this started. So we really kind of got — we saw that as a negative at the beginning. But I think now what we’re starting to realize again back to our conversation around what consumers are going to want, we think there’s going to even be more scrutiny on seafood specifically as it’s coming into the United States and or around the world that we’re in a very unique position with Postelsia now that we’re really going to be at the forefront of being able to provide consumers more information about where that food is coming from.
And yes, related to — I can’t think of any standard setting body or any certification company that isn’t struggling right now through this and trying to determine what the future of certification and verification looks like. And we see a number of opportunities, both here in the United States but also internationally where there’s great chances for us to expand in this level of both our stock price but also the — just the certification business in general.
So yes, we’re looking to really utilize our strong balance sheet as I’ve talked about many times in the past, we have no debt. 2019 was the best year we’ve ever had. And we had an opportunity to really put a lot of capital away and we feel very fortunate about that. So yes, I think there’s going to be great opportunities for us to grow and to take advantage of this time where others are not as necessarily well-positioned as we are.
AndreasAaen
Okay, perfect. Yes, I think that was everything I had for now. I wish you all well.
JohnSaunders
Thanks.
Question3: Chris Brown
I had a question on — hi — I had a question on how you look at kind of credit exposure, and then potential bad debt and bankruptcies impacting you from your customers over the remainder of the year? Thanks.
JohnSaunders
Yes, great question. Yes, there are a lot of people involved in agriculture right now that are really struggling. We’ve been very fortunate over the last half a decade to really diversify our business away from any specific customer. So most of the farms specifically beef customers that we’re working with right now they have relatively strong balance sheet. So we’re fairly confident that that group of producers that we work with are in a fairly good financial position. I think some of the middle companies and what I mean by that are those that either feed yards or pork and poultry growers and finishers, there is some concern there that over the long-term and short-term, there’s going to be some bankruptcy issues.
And so we’re monitoring that. I think again, we’re so diversified, Chris, that we’re not really concerned that any one specific customer or a bankruptcy of any one specific customer will have too material effect on us. But yes, we’re monitoring and managing that and I think it’s a big — it’s a big issue long-term for the food supply chain, good question.
Question4: Unidentified Analyst
Hey, guys, sorry, I missed the first 10 minutes, if you already covered this. I was pleased to see in the earnings release, even though this was a weak quarter that you’re still cash flow positive from operations. Given John’s guidance for continued weakness throughout the rest of the year, can you comment on cash burn or cash flow for the rest of the year?
JohnSaunders
Great question. The first quarter typically, Josh is our slowest quarter. So if you look historically, that’s really where we’ve had the most, or the largest deficit when it comes to our profitability. But we also have certain programs that we — they pay upfront. So the cash is actually coming in, in the first quarter even though it’s a year-long certification, that’s not across the board. But we do have a lot of programs like that.
I think we’re very hopeful. April was probably the most difficult month that we experienced. We’re starting to see things reopen. So I think we’re pretty positive about the future. I think we got a really, really strong balance sheet as I’ve talked about many times. And I think, if we can get the economy back open and we can really get the food service started, again that’s literally overnight 50% of the outlet for our products disappeared and were closed. So I think as we start to see restaurants, hospitals, universities start to reopen that business, that side of the business we’ll come back strong, so we’re pretty positive.
Question5: Andreas Aaen
Hey, guys, sorry, I just have one question and I forgot to ask. Have you taken advantage of any of the government programs in the United States? Some of the other companies in business have put out securities that said we have gotten so much from the government programs and stuff like that. Anything you can say there?
JohnSaunders
Yes, we’ve pursued those programs that we can, we’ll talk about it more in the future. We’re the definition of a small business; we have just under 60 employees, so yes we think there are opportunities. And we’re going to take advantage of those. But again I feel pretty strong that regardless of those opportunities and those programs just because we’ve had such good, good business the last couple years, and we’ve done a really good job of building our balance sheet that we probably won’t need them. But yes, we are — we are pursuing them where we can.
AndreasAaen
Okay. I understand that. Some of the programs that basically you take a loan, but you can, it’s a job done through R&D expenses and employee payroll. So you basically, it’s basically kind of a fee, you don’t have to pay them — back to them of course.
JohnSaunders
Yes, we agree. And perhaps even more important are the programs that are being directed towards our customers. So there’s been two programs as of late, which I think are really going to help especially our dairy and pork and poultry producers. So we’re encouraged that that the government has been really taking the lead on helping them see through this difficult times. So I think those are probably just as important as anything that we would get directly.
Operator
Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I’ll turn the floor back to Mr. Saunders for any final comments.
JohnSaunders
Well, great questions everyone. Again, we really appreciate all of your support. We’ll look forward to talking here in three months. Take care and we’ll talk soon.
Operator
This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.