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Where Food Comes From, Inc. Reports 2019 Second Quarter and Six-Month Financial Results

Second Quarter Highlights – 2019 vs. 2018             

  • Revenue up 10% to $4.9 million from $4.4 million
     
  • Net income attributable to WFCF up 104% to $361,100 from $176,800
     
  • Adjusted EBITDA up 39% to $824,500 from $593,400

Six-Month Highlights – 2019 vs. 2018

  • Revenue up 10% to $8.8 million from $8.1 million
     
  • Net income attributable to WFCF up 3% to $218,000 from $212,300
     
  • Adjusted EBITDA down 4% to $906,300 million from $948,300 million
     
  • Company generates $­­­1.4 million in cash from operations, up 23% year over year

CASTLE ROCK, Colo., Aug. 13, 2019 (GLOBE NEWSWIRE) -- Where Food Comes From, Inc. (WFCF) (WFCF), the most trusted resource for independent, third-party verification of food production practices in North America, today announced its 2019 second quarter and six month financial results.

“We’re pleased with our financial performance in the second quarter,” said John Saunders, Chairman and CEO.  “All four operating segments delivered profitable growth in the quarter, with total net income more than doubling year over year and adjusted EBITDA up 39%.  We generated $1.4 million in net cash from operations through the first half of 2019, up 23% year over year. We also strengthened our balance sheet year to date, with working capital up 9% to $2.9 million, and cash, cash equivalents and investments up 44% to $2.9 million compared to 2018 year-end balances.

“We continue to add new customers across all business lines and remain aggressive in introducing and advancing new verification standards to address growing consumer demand for transparency in the agricultural supply chain,” Saunders added.  “These activities include the recent launch of our new Black Angus Verified Beef program, which late in the second quarter saw initial throughput of calves verified to multiple standards under our bundling program.  We’re also seeing good progress around our hemp initiative.  As exclusive provider of verification services for the US Hemp Authority™ Certified standard, we are working with an increasing number of growers and processors.  In addition, we are now actively engaging with manufacturers and retailers of hemp-based products who are seeking additional credibility through third-party verification.  Overall, we like our positioning as the most diverse provider of verification solutions to the food and agriculture industry and believe that macro trends continue to support our strategic objectives and set us up to extend our track record of profitable growth.”

Second Quarter Results
Revenue in the second quarter of 2019 increased 10% to $4.9 million from $4.4 million in the same quarter last year.  All four of the Company’s revenue streams generated year-over-year increases, including:

  • Verification and certification services, up 7% to $3.7 million from $3.5 million.
  • Product revenue, up 28% to $635,300 from $496,300.
  • Software license, maintenance, and support, up 14% to $299,900 from $263,300.
  • Software-related consulting services, up 23% to $209,800 from $170,900.         

Gross profit in the second quarter increased 4% year over year to $2.1 million from $2.0 million.  Gross margin declined to 42.7% from 45.3% year over year. The decrease was attributable to additional fixed labor costs related to acquisitions completed in the latter half of 2018.

Sales, general and administrative expense declined 5% in the second quarter to $1,685,200 from $1,770,500 in the same quarter last year.  The decline was due to lower year-over-year marketing expenditures, which offset a $56,000 increase in depreciation and amortization expense.

Operating income increased 67% in the second quarter to $403,200 from $241,300 in the same quarter last year.

Net income attributable to Where Food Comes From, Inc. in the second quarter increased 104% to $361,100, or $0.01 per share, from net income of $176,800, or $0.01 per share, in the same quarter last year.

Adjusted EBITDA in the second quarter increased 39% to $824,500 from $593,400 in the same quarter last year.

Six Month Results
Total revenue in the six-month period ended June 30, 2019, increased 10% to $8.8 million from $8.1 million in the prior year.  All four revenue streams showed year-over-year growth, including:

  • Verification and certification services, up 4% to $6.6 million from $6.3 million.
  • Product revenue, up 50% to $1.3 million from $850,000.
  • Software license, maintenance, and support, up 8% to $595,000 from $550,800.
  • Software-related consulting services, up 18% to $416,500 from $354,200.

Gross profit in the first half was flat at approximately $3.7 million. Gross margin was down year over year to 42.5% from 46.4% due largely to the impact of competitive pricing programs for volume ear tag purchasers as well as to assumption of additional fixed labor costs related to two acquisitions made in the second and third quarters of 2018.

Sales, general and administrative expense increased 5% year over year to $3.7 million from $3.5 million due primarily to higher expense incurred in the first quarter of 2019 related to year-end audit services and staff training programs and to an approximately $44,000 increase in depreciation and amortization year over year.

Operating income was down 62% year over year to $102,600 from $268,100.

Net income attributable to Where Food Comes From, Inc. increased 3% year over year to $218,000, or $0.01 per share, from $212,300, or $0.01 per share, in the same period last year.

Adjusted EBITDA declined 4% year over year to $906,300 from $948,300 due primarily to competitive pricing programs for volume ear tag purchasers, higher expenses incurred related to year-end audit services and staff training programs and an increase in depreciation and amortization associated with acquisitions made in the latter half of 2018.

The Company generated $1.4 million in net cash from operations through the first half of 2019, up 23% from $1.1 million in the first half of 2018.

The cash, cash equivalents, and short- and long-term investments balance at June 30, 2019, increased to $2.9 million from $2.0 million at 2018 year-end.  The Company had $2.9 million in working capital at June 30, 2019, up from $2.7 million at 2018 year-end.

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

Call-in numbers for the conference call:
Domestic Toll Free: 1-877-407-8289
International: 1-201-689-8341
Conference Code: 13693018

Phone replay:
A telephone replay of the conference call will be available through August 27, 2019, as follows:
Domestic Toll Free: 1-877-660-6853
International: 1-201-612-7415
Conference Code: 13693018

About Where Food Comes From, Inc.
Where Food Comes From, Inc. is America’s trusted resource for third party verification of food production practices.  Through proprietary technology and patented business processes, the Company supports more than 15,000 farmers, ranchers, vineyards, wineries, processors, retailers, distributors, trade associations, consumer brands and restaurants with a wide variety of value-added services. Through its IMI Global, International Certification Services, Validus Verification Services, SureHarvest, A Bee Organic and Sterling Solutions units, Where Food Comes From solutions are used to verify food claims, optimize production practices and enable food supply chains with analytics and data driven insights. In addition, the Company’s Where Food Comes From® retail and restaurant labeling program uses web-based customer education tools to connect consumers to the sources of the food they purchase, increasing meaningful consumer engagement for our clients. 

*Note on non-GAAP Financial Measures
This press release and the accompanying tables include a discussion of EBITDA and Adjusted EBITDA, which are non-GAAP financial measures provided as a complement to the results provided in accordance with generally accepted accounting principles ("GAAP"). The term "EBITDA" refers to a financial measure that we define as earnings (net income or loss) plus or minus net interest plus taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation and, when appropriate, other items that management does not utilize in assessing WFCF’s operating performance (as further described in the attached financial schedules). None of these non-GAAP financial measures are recognized terms under GAAP and do not purport to be an alternative to net income as an indicator of operating performance or any other GAAP measure. We have reconciled Adjusted EBITDA to GAAP net income in the Consolidated Statements of Income table at the end of this release.  We intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting.

CAUTIONARY STATEMENT
This news release contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, based on current expectations, estimates and projections that are subject to risk.  Forward-looking statements are inherently uncertain, and actual events could differ materially from the Company’s predictions.  Important factors that could cause actual events to vary from predictions include those discussed in our SEC filings.  Specifically, statements in this news release about industry leadership and demand for, and impact and efficacy of, the Company’s products and services on the marketplace; ability to continue posting positive financial results; 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 second quarter and six-month period are not necessarily indicative of future results.  Readers should not place undue reliance on these forward-looking statements.  The Company assumes no obligation to update its forward-looking statements to reflect new information or developments.  For a more extensive discussion of the Company’s business, please refer to the Company’s SEC filings at www.sec.gov.

Company Contacts:

John Saunders
Chief Executive Officer
303-895-3002

Jay Pfeiffer
Pfeiffer High Investor Relations, Inc.
303-880-9000
Where Food Comes From, Inc.
Statements of Income (Unaudited)

Where Food Comes From, Inc.              
Statements of Income (unaudited)              
                     
        Three months ended
June 30,
  Six months ended
June 30,
         2019     2018     2019     2018 
Revenues:              
  Verification and certification service revenue $  3,743,241   $   3,507,757   $   6,554,935   $   6,303,951
  Product sales   635,333     496,312     1,276,391     850,206
  Software license, maintenance and support services revenue   299,934     263,316     594,963     550,760
  Software-related consulting service revenue   209,751     170,923     416,510     354,193
    Total revenues   4,888,259     4,438,308     8,842,799     8,059,110
Costs of revenues:              
  Costs of verification and certification services   2,097,274     1,850,555     3,659,364     3,301,164
  Costs of products   398,073     319,970     841,258     545,945
  Costs of software license, maintenance and support services   161,610     168,511     315,613     305,945
  Costs of software-related consulting services   142,900     87,546     272,436     163,007
    Total costs of revenues   2,799,857     2,426,582     5,088,671     4,316,061
  Gross profit   2,088,402     2,011,726     3,754,128     3,743,049
Selling, general and administrative expenses    1,685,188     1,770,468     3,651,527     3,474,942
Income from operations   403,214     241,258     102,601     268,107
Other expense (income):              
  Dividend income from Progressive Beef   (30,000)     -      (60,000)     - 
  Other income, net   (2,471)     (5,122)     (5,167)     (8,040)
  Gain on sale of assets   -      -      (1,000)     - 
  Interest expense   2,142     1,315     5,189     2,394
Income before income taxes   433,543     245,065     163,579     273,753
Income tax expense    129,089     80,000     46,089     88,000
  Net income    304,454     165,065     117,490     185,753
Net loss attributable to non-controlling interest   56,635     11,774     100,470     26,570
  Net income attributable to Where Food Comes From, Inc. $   361,089   $   176,839   $   217,960   $   212,323
                     
Per share - net income attributable to Where Food Comes From, Inc.:            
  Basic $   0.01   $   0.01   $   0.01   $   0.01
  Diluted $   0.01   $   0.01   $   0.01   $   0.01
                     
Weighted average number of common shares outstanding:              
  Basic   24,708,923     24,718,430     24,833,002     24,683,264
  Diluted   24,908,174     24,896,195     25,032,253     24,871,523


Where Food Comes From, Inc.              
Calculation of Adjusted EBITDA*              
(Unaudited)              
        Three months ended
June 30,
  Six months ended
June 30,
         2019     2018     2019     2018 
                     
Net income attributable to Where Food Comes From, Inc. $   361,089   $   176,839   $   217,960   $   212,323
Adjustments to EBITDA:              
  Interest expense   2,142     1,315     5,189     2,394
  Income tax expense   129,089     80,000     46,089     88,000
  Depreciation and amortization   285,108     229,105     545,227     501,605
EBITDA*   777,428     487,259     814,465     804,322
Adjustments:              
  Stock-based compensation   47,095     42,119     91,798     80,021
  Cost of acquisitions   -      63,984     -      63,984
ADJUSTED EBITDA* $   824,523   $   593,362   $   906,263   $   948,327


*Use of Non-GAAP Financial Measures:  Non-GAAP results are presented only as a supplement to the financial statements and for use within management's discussion and analysis based on U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information is provided to enhance the reader's understanding of the Company's financial performance, but non-GAAP measures should not be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of the most directly comparable GAAP measures to non-GAAP measures are provided herein.

All of the items included in the reconciliation from net income to EBITDA and from EBITDA to Adjusted EBITDA are either (i) non-cash items (e.g., depreciation, amortization of purchased intangibles, stock-based compensation, etc.) or (ii) items that management does not consider to be useful in assessing the Company's ongoing operating performance (e.g., M&A costs, income taxes, gain on sale of investments, loss on disposal of assets, etc.). In the case of the non-cash items, management believes that investors can better assess the Company's operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect the Company's ability to generate free cash flow or invest in its business.

We use, and we believe investors benefit from the presentation of, EBITDA and Adjusted EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company's operating performance without regard to items such as interest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.

Because not all companies use identical calculations, the Company's presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, these measures can still be useful in evaluating the Company's performance against its peer companies because management believes the measures provide users with valuable insight into key components of GAAP financial disclosures. 

Where Food Comes From, Inc.  
Balance Sheets  
               
   June 30,     December 31,   
     2019         2018     
Assets  (Unaudited)       
Current assets:        
  Cash and cash equivalents $   2,600,399     $   1,482,391    
  Accounts receivable, net of allowance     2,632,370         2,205,162    
  Short-term investments in certificates of deposit     255,514         245,597    
  Prepaid expenses and other current assets     359,869         439,424    
  Total current assets     5,848,152         4,372,574    
Property and equipment, net     1,686,848         1,675,472    
Right-of-use assets     3,321,617         -     
Long-term investments in certificates of deposit     -          252,999    
Investment in Progressive Beef     991,115         991,115    
Intangible and other assets, net     3,547,898         3,852,121    
Goodwill     3,143,734         3,143,734    
Deferred tax assets, net     225,923         175,923    
Total assets $   18,765,287     $   14,463,938    
         
Liabilities and Equity        
Current liabilities:        
  Accounts payable $   741,701     $   533,925    
  Accrued expenses and other current liabilities     829,700         492,601    
  Deferred revenue     1,143,158         654,872    
  Current portion of notes payable      10,492         10,173    
  Current portion of finance lease obligations     8,044         11,309    
  Current portion of operating lease obligations     208,312         -     
  Total current liabilities     2,941,407         1,702,880    
Notes payable, net of current portion     27,728         32,220    
Finance lease obligations, net of current portion     29,671         32,747    
Operating lease obligation, net of current portion     3,594,569         -     
Deferred rent liability     -          119,187    
Lease incentive obligation     -          362,088    
Total liabilities     6,593,375         2,249,122    
         
Commitments and contingencies         
         
         
Contingently redeemable non-controlling interest     1,348,537         1,449,007    
         
Equity:          
  Preferred stock, $0.001 par value; 5,000,000 shares authorized;         
  none issued or outstanding     -          -     
  Common stock, $0.001 par value; 95,000,000 shares authorized;         
  25,473,115 (2019) and 25,473,115 (2018) shares issued, and        
  24,826,150 (2019) and 24,968,256 (2018) shares outstanding     25,473         25,473    
  Additional paid-in-capital     11,123,062         11,031,264    
    Treasury stock of 646,965 (2019) and 504,859 (2018) shares     (1,361,253 )       (1,109,061 )  
  Retained earnings      1,036,093         818,133    
Total equity     10,823,375         10,765,809    
Total liabilities and stockholders' equity $   18,765,287     $   14,463,938