Where Food Comes From Q1 2023 Earnings Report

Where Food Comes From EPS Results

• Actual EPS: $0.02
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Where Food Comes From Revenue Results

• Actual Revenue: $5.27 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Where Food Comes From Announcement Details

• Quarter: Q1 2023
• Date: 5/15/2023
• Time: N/A
• Conference Call Date: Monday, May 15, 2023
• Conference Call Time: 12:00PM ET

Where Food Comes From (NASDAQ:WFCF), together with its subsidiaries, operates as a third-party food verification company in North America. The company operates through Verification and Certification, and Professional Services segments. It conducts on-site and desk audits to verify that claims being made about livestock, food, other specialty crops, and agricultural and aquaculture products are accurate, as well as offers Where Food Comes From Source Verified retail and restaurant labeling program, which connects consumers directly to the source of the food they purchase through product labeling, and web-based information sharing and education. It also offers professional services and technology solutions; verification solutions; and consulting services, as well as sells hardware. The company serves beef and pork packers, organic producers and processors, and specialty retail chains. The company was formerly known as Integrated Management Information, Inc. and changed its name to Where Food Comes From, Inc. in December 2012. Where Food Comes From, Inc. was founded in 1996 and is based in Castle Rock, Colorado.

Where Food Comes From Q1 2023 Earnings Call Transcript

[Operator]

Hello, and welcome to the Where Food Comes From First Quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Jay Pfeiffer, Investor Relations. Please go ahead, Jay.

[Speaker 1]

Good morning, and welcome to the Where Food Comes From 2023 First Joining me on the call today are CEO, John Saunders President, Leanne Saunders and Chief Financial Officer, Danette Henning. During this call, we'll make forward looking statements based on current expectations, estimates and projections that are subject to risk. Statements about current and future financial performance, growth strategy, customers, 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 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 complement to GAAP results.

[Speaker 1]

Please refer to today's earnings release for important disclosures regarding non GAAP measures. I'll now turn the call over to John Saunders.

[Speaker 2]

Good morning, and thanks for joining the call today. This morning, we announced our Q1 financial results for the period ended March 31, 2023. As we detailed in our news release, we encountered a flurry of anomalous Circumstances and events in Q1 that negatively impact both revenue and profitability. The good news is, In an economic environment where many companies are focusing on layoffs and hammering down costs wherever they can in the face of inflationary pressures and a potential recession, we believe we are faring comparatively well. In fact, we believe the commodification industry tailwinds, very sticky customer relationships, our lean operating model and the tremendous value we provide our customers will enable us to continue to weather macro headwinds and profitably grow our business over the long haul.

[Speaker 2]

Now to our Q1 results. Revenue in Q1 was $5,300,000 down from $6,200,000 in the Q1 last year. But keep in mind, however, that in the year ago first quarter, we booked $850,000 in software and consulting revenue from a one off consulting contract with a Japanese government agency. So adjusted for that, year over year revenue would have been essentially flat, which isn't too bad given the macro headwinds and the impact of a few unrelated events I referenced earlier. Specifically, our verification and certification revenue is flat based on a few things.

[Speaker 2]

1, we are still feeling the effects of severe drought conditions that significantly reduced herd sizes last year and had ripple effects this year in the form of fewer cattle for us to verify. The situation of our fewer cattle moving through the system in the current cycle impacts not only the annual on-site audits, but also the revenue we some time, but we think we'll see some positive offset to that from the USDA's ADT program, which in the coming years is expected to add up to another 11,000,000 head of cattle annually required to be verified with an RFID tag. The momentum behind this evolving new standard, which has been in the works for years, is based largely on concerns about how traceability in the event of foreign animal disease enters the United States. While there is pushback in some circles, the National Cattlemen's Beef Association is fully supporting the program, and we believe the transition is relatively inevitable. Another factor impacting revenue was the severe winter weather events across the country that limited our ability to conduct audits and deliver ear tags in the month of March.

[Speaker 2]

The good news is those audits were delayed, not canceled. So we expect to capture that revenue over the remainder of the year, although not necessarily all in the Q2. To put this more into perspective, in all our years as a public company, only recently has weather, be it drought or too much activity is a shift in consumer purchasing activity based on food inflation. We're seeing this not so much in the beef area where consumers continue to pay up Lower revenue due to the events I just described, combined with some continued wage inflation, impacted gross margins for our Verification Products segment, which came in at 40 $2,000,000 from $1,800,000 last year. A lot of this increase resulted from the timing of activities that had been laid due to COVID shutdowns.

[Speaker 2]

Specifically, in the Q1, we incurred significant costs due to the following: 1, we've sent teams to a number of industry trade shows around the country. 2, we resumed our annual on-site trading program that brought some 100 auditors from across the country to Castle Rock and Des Moines for 2 2 day sessions. And we sent a contingent to New York for the NASDAQ bell ringing ceremony, an event that drew a lot of attention to the company, but again as a one time cost. As a result of lower gross margins, inflationary pressures and the abnormal concentration of various expenses in the Q1, Q1 net income was $100,000 or $0.02 per basic and diluted share compared to net income of $500,000 or $0.08 per basic and diluted share in the same quarter last year. Adjusted EBITDA was $400,000 down from $900,000 year over year.

[Speaker 2]

Cash and cash equivalents at March 31, 2023 were $3,400,000 versus $4,400,000 at 2021 year end. The lower cash balance is attributable to 2 factors, both of which validate our optimism about future growth and the sustainability of our solid cash flows. 1, we invested $200,000 in seafood traceability company BlueTrace, whose management team we got to know at one of the trade shows I referenced earlier. Currently a private company, BlueTrace offers a cloud based solution that helps players across the shellfish supply chain comply with government regulations, manage their inventories and optimize profitability. Our investment was part of an oversubscribed stock offering led by Venture Capital and Angel Investors.

[Speaker 2]

Based in Maine, BlueTrace is growing rapidly with more than 3 50 customers, primarily in the shellfish industry in all but 2 coastal U. S. States and most Canadian provinces. The company's digital traceability solution uses the mobile app and tamper evident barcode tags to replace outdated paper based tracking solutions that have become more challenging in light of increasingly stringent traceability standards. Those standards are established and enforced by the Interstate Shellfish Sanitation Commission, which is particularly focused on safety issues around freshness and temperature.

[Speaker 2]

BlueTrace is expected to benefit from ongoing implementation of the Food Safety Modernization Act, which is expanding traceability beyond shellfish to include other types of seafood beginning in 2023. The company's software and systems designed originally to address the oyster industry are seamlessly adaptable for the broader seafood landscape. We made the BlueTrace investment for two reasons. 1, we like the space and BlueTrace's early mover status, and we believe our investment will appreciate in value. 2, and more importantly, we plan to work closely with their team in areas that augment our own initiatives in the seafood space, including enhancing our fish care sustainability standard and other aquaculture offerings going forward.

[Speaker 2]

On the subject of investments and again speaking to our optimism about the business prospects moving going forward, We accelerated our share repurchase program in the Q1, buying back 89,450 shares of Where Food Comes From stock at a cost of $1,200,000 Over the past 5 quarters, we have repurchased nearly 400,000 shares, reducing our share count by approximately 7%. Your management team, myself and the Board believe our shares represent an excellent value at these levels, and we expect to continue these buybacks as long as our cash flow is supported. So with that, thanks again for joining us on the call today. And with that, I'll open the call to questions.

[Operator]

Operator? Thank you. We will now be conducting a question and answer session. If there are no questions at this time, I'd like to turn the floor back over for any further or closing comments.

[Speaker 2]

Hey, Kevin, could you repull one more time to make sure there's no questions? Thank you. Yes.

[Operator]

We do have a question from Chris Brown, a Private Investor. Your line is now live.

[Speaker 2]

Thank you very much. Just was wondering if you could give a little bit more color on how you guys think the ADT regulations play out over the next couple of years. Is that something that's gradual? Is it big? And then I was wondering if you have an idea of like what kind of market share you guys have In the bigger picture of United States cattle verification.

[Speaker 2]

Sure. I'll answer the second question first. Today, we verified just under 2,500,000 cattle, which is just at about a little bit under 10% of the cattle which are slaughtered in the U. S. Every year.

[Speaker 2]

So we have it at about just a little bit under 10%. ADT is going through a process, as I mentioned, this has been a long term program offered by the USDA. This change specifically, Chris, is the transition from metal clip tags to electronic identification tags. The ruling was set to begin January 1, 2023 or to sunset basically in this new rule to start to move forward with the EIDs. We're currently in a comment period, so we're still receiving comments from the industry.

[Speaker 2]

But yes, we anticipate that it will be a gradual move. But as I mentioned, with only 2,500,000 cattle that we This year, we see this as a real tailwind for us and tags and radio frequency identification in the cattle industry moving forward over the next couple of years. So yes, we see it coming in gradually. It won't happen all at once, but in the next 18 to 24 months, we see it moving in that direction. Thank you very much.

[Speaker 2]

Appreciate your time today. I'll turn the floor back over for

[Operator]

any further or closing comments.

[Speaker 2]

Thanks, Kevin. And one clarification, Chris, on that question. Leanne Just pointed out to me that there's roughly $2,500,000 so about 10% of the cattle industry is verified. We have our percentage of

[Operator]

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.