SOURCE: Where Food Comes From

Where Food Comes From

November 01, 2017 07:00 ET

Where Food Comes From, Inc. Reports 2017 Third Quarter Financial Results

CASTLE ROCK, CO--(Marketwired - Nov 1, 2017) - Where Food Comes From, Inc. (OTCQB: WFCF)

Q3 revenue up 42% year over year to $4.7 million from $3.3 million on strength of China reopening its markets to US beef exports and solid performance by all operating units

Q3 Net income up 29% to $290,200 from $225,000

Q3 adjusted EBITDA up 64% to $743,900 from $454,100

YTD cash generated from operations of $1.6 million

Where Food Comes From, Inc. (WFCF) (d.b.a. IMI Global, Inc.) (OTCQB: WFCF), the most trusted resource for independent, third-party verification of food production practices in North America, today announced its 2017 third quarter and nine-month financial results.

"As anticipated, the reopening of Chinese markets to US beef imports resulted in a spike in verification activity and related tag sales for US beef producers eager to qualify their cattle for export to China," said John Saunders, Chairman and CEO. "In addition to performing required source and age verifications, we are also providing natural and/or non-hormone treated cattle verifications for producers to ensure their products pass spot checks that China is conducting for banned substances. We expect this trend to continue driving double digit verification revenue growth in coming quarters as more packers and producers come on board to take advantage of premiums available through beef shipments to China, the world's second largest but fastest growing consumer of beef.

"From a broader perspective, Where Food Comes From continues to be a leader in developing and implementing innovative verification programs," Saunders added. "In the third quarter, we were selected as exclusive third-party certifier of Ben and Jerry's Caring Dairy Standards and Certified American Grown Flowers. In addition, we leveraged our strengths in animal welfare to win business with the Center for Canine Welfare, which oversees a new program setting rigorous standards for dog breeders nationwide. Our leadership in these areas underscores our ability to react quickly and develop programs that meet the requirements of new standards as they evolve."

Third Quarter Results
Third quarter revenue increased 42% to $4.7 million from $3.3 million in the same quarter last year. The primary growth drivers were verification and certification services, which increased 24% to $3.7 million from $3.0 million year over year, and product sales (cattle RFID tags), which grew by 81% to $687,200 from $380,400. The growth in these categories reflected the positive impact from China reopening its markets to US beef imports as well as continued benefits of services bundling. In addition, the Company reported revenue in two new categories -- software license, maintenance and support, and consulting services -- of $243,200 and $131,400, respectively, versus no revenue in those segments in the year-ago third quarter. These new reporting categories were added as a result of the December 2016 acquisition of SureHarvest.

Gross profit in the third quarter increased 43% year over year to $2.3 million from $1.6 million. Gross margin increased slightly to 48.4% from 47.9% year over year. Selling, general and administrative expense increased 49% to $1.8 million from $1.2 million year over year due to increased sales and marketing expense; and higher public company costs.

The Company reported third quarter net income attributable to Where Food Comes From, Inc. of $290,200, or $0.01 per share, a 29% increase over $225,000, or $0.01 per share, a year ago. Adjusted EBITDA increased 64% year over year to $743,900 from $454,100.

Nine Month Results
Revenue for the first nine months of 2017 increased 32% to $11.3 million from $8.6 million in the same period last year. Revenue mix included verification and certification services, up 18% to $9.2 million from $7.7 million year over year; product revenue up 43% to $1.2 million from $856,000; and software license, maintenance and support, and consulting services contributing $532,700 and $399,100, respectively, versus no revenue in those categories in the prior year.

Gross profit in the first nine months of 2017 increased 30% to $5.3 million from $4.1 million a year ago. Gross margin was 47.2%, down slightly from 48.0% in the same period last year. Selling, general and administrative expense increased 47% to $5.0 million from $3.4 million last year due to expansion activities, including increased headcount, payroll and bonuses based on improved performance; higher sales and marketing costs; and higher public company costs, including ongoing implementation of new accounting standards.

Net income attributable to Where Food Comes From, Inc. in the first nine months declined 3% to $467,900, or $0.02 per share, versus $481,900, or $0.02 per share, in 2016. Adjusted EBITDA was $1.5 million, up 45% from $1.0 million in 2016.

The Company generated $1.6 million in net cash from operations through the first nine months of 2017, up 29% year over year from $1.2 million.

Balance Sheet
The Company's cash, cash equivalents and short-term investments balance at September 30, 2017, increased 41% to $4.6 million from $3.2 million at 2016 year-end. Working capital was $3.9 million and the current ratio was 2.4:1.

Conference Call
The Company will conduct a conference call today at 10:00 a.m. Mountain Time.

Dial in:
Domestic Toll Free: 1-877-407-8289
International: 1-201-689-8341
Conference ID: 13672819

Phone replay:
A telephone replay of the conference call will be available through November 15, 2017, as follows:
Domestic Toll Free: 1-877-660-6853
International: 1-201-612-7415
Conference Code: 13672819

About Where Food Comes From, Inc.
Where Food Comes From, Inc. (d.b.a. IMI Global) is America's trusted resource for third party verification of food production practices. The Company supports more than 15,000 farmers, ranchers, breeders, 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. In addition, the Company's Where Food Comes From® retail and restaurant labeling program utilizes the verification of product attributes to connect consumers to the sources of the food they purchase through product labeling and web-based information sharing and education. Visit www.wherefoodcomesfrom.com for additional information. 

*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 ability to react quickly and develop programs that meet the requirements of new standards; the Company's ability to continue producing financial results similar to those described in this press release; ability to continue momentum in verifications for beef exports to China and drive double digit verification revenue growth; ability to continue to expand its capabilities; and demand for, and impact and efficacy of, the Company's products and services on the marketplace, 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 third quarter 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.

   
Where Food Comes From, Inc.  
Statements of Income  
(Unaudited)  
    Three Months Ended   Nine Months Ended  
    September 30,   September 30,  
    2017     2016   2017     2016  
                               
Revenues                              
  Verification and certification services   $ 3,672,587     $ 2,963,853   $ 9,152,520     $ 7,733,613  
  Product sales     687,235       380,393     1,226,141       855,986  
  Software license, maintenance and support     243,186       -     532,684       -  
  Consulting service     131,427       -     399,120       -  
    Total revenue     4,734,435       3,344,246     11,310,465       8,589,599  
Costs of revenue                              
  Labor and other costs of services     1,890,888       1,522,203     4,860,857       3,973,299  
  Cost of Products     410,309       220,599     743,308       490,162  
  Costs of software license,                              
    maintenance and support services     141,902       -     362,139       -  
    Total costs of revenue     2,443,099       1,742,802     5,966,304       4,463,461  
Gross profit     2,291,336       1,601,444     5,344,161       4,126,138  
Selling, general and administrative expenses     1,841,597       1,239,834     5,023,446       3,412,211  
Income from operations     449,739       361,610     320,715       713,927  
Other expense (income):                              
  Interest expense     287       649     603       1,347  
  Other expense (income), net     (1,691 )     1,008     (10,989 )     (2,623 )
Income before income taxes     451,143       359,953     331,101       715,203  
Income tax expense     199,000       135,000     150,000       264,950  
Net income     252,143       224,953     181,101       450,253  
Net loss attributable to                              
  non-controlling interest     38,049       -     286,841       31,605  
Net income attributable to Where Food                              
  Comes From, Inc.   $ 290,192     $ 224,953   $ 467,942     $ 481,858  
Net income per share:                      
  Basic   $ 0.01     $ 0.01   $ 0.02     $ 0.02  
  Diluted   $ 0.01     $ 0.01   $ 0.02     $ 0.02  
Weighted average number of common                              
  shares outstanding:                              
Basic     24,705,934       23,772,967     24,673,080       23,817,980  
Diluted     24,886,147       23,929,011     24,834,931       23,969,134  
                               
 
Where Food Comes From, Inc.
Calculation of Adjusted EBITDA*
(Unaudited)
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2017   2016   2017   2016
                         
Net Income attributable to WFCF   $ 290,192   $ 224,953   $ 467,942   $ 481,858
Adjustments to EBITDA:                        
  Interest expense     287     649     603     1,347
  Income tax expense     199,000     135,000     150,000     264,950
  Depreciation and amortization     213,237     65,904     634,152     199,460
EBITDA*     702,716     426,506     1,252,697     947,615
Adjustments:                        
  Stock-based compensation     41,167     27,630     130,637     84,457
  Cost of acquisition     -     -     117,944     -
Adjusted EBITDA*   $ 743,883   $ 454,136   $ 1,501,278   $ 1,032,072
                         

*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  
   
    September 30,     December 31,  
    2017     2016  
    (Unaudited)        
ASSETS                
Current Assets:                
  Cash and cash equivalents   $ 3,809,867     $ 2,489,985  
  Accounts receivable, net     1,911,275       1,344,646  
  Short-term investments     740,739       733,104  
  Prepaid expenses and other current assets     381,261       203,744  
    Total current assets     6,843,142       4,771,479  
Property and equipment, net     1,122,594       1,229,350  
Intangible and other assets, net     4,076,860       4,228,228  
Goodwill     2,652,250       2,652,250  
Deferred tax assets, net     157,560       -  
Total assets   $ 14,852,406     $ 12,881,307  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable   $ 719,026     $ 333,784  
  Accrued expenses and other current liabilities     1,326,091       480,047  
  Customer deposits and deferred revenue     849,285       524,396  
  Current portion of notes payable     8,525       -  
  Current portion of capital lease obligations     7,477       4,067  
    Total current liabilities     2,910,404       1,342,294  
Capital lease obligations, net of current portion     27,320       15,735  
Notes payable, net     45,640       -  
Lease incentive obligation     149,898       158,025  
Deferred tax liabilities     -       49,440  
Total liabilities     3,133,262       1,565,494  
Contingently redeemable non-controlling interest     1,601,294       1,888,135  
Stockholders' equity:                
  Common stock     24,964       24,890  
  Additional paid-in capital     10,314,549       10,052,597  
  Treasury stock     (564,688 )     (524,892 )
Retained earnings (accumulated deficit)     343,025       (124,917 )
Total Equity     10,117,850       9,427,678  
Total liabilities and stockholders' equity   $ 14,852,406     $ 12,881,307  

Contact Information

  • Company Contacts:

    John Saunders
    Chief Executive Officer
    303-895-3002

    Jay Pfeiffer
    Pfeiffer High Investor Relations, Inc.
    303-393-7044