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Where Food Comes From, Inc. Reports 2018 Fourth Quarter and Full Year Financial Results

Full Year Highlights – 2018 vs. 2017

  • Revenue up 15% to $17.8 million from $15.4 million
  • Net income attributable to WFCF up 463% to $800,700 from $142,300
  • Adjusted EBITDA up 51% to $2.3 million from $1.6 million
  • Company generates $­­­1.2 million in cash from operations, up 76% from $0.7 million

Fourth Quarter Highlights – 2018 vs. 2017

  • Revenue up 12% to $4.6 million from $4.1 million
  • Net income attributable to WFCF increases to $211,100 vs. loss of $325,600
  • Adjusted EBITDA up 10-fold to $522,000 from $50,100

CASTLE ROCK, Colo., March 25, 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 2018 fourth quarter and full year financial results.

“2018 was an outstanding year for Where Food Comes From,” said John Saunders, Chairman and CEO.  “We delivered solid financial results for the year, highlighted by revenue up 15% to $17.8 million and net income up 463% to $801,000. We also generated a record $1.2 million in cash from operations for the year.  Our growth was largely attributable to increased verification activity across a range of standards and particularly the area of source verification related to the reopening of China’s beef markets.  Higher beef verification activity drove a 33% increase in product revenue as we sold more than 1.2 million RFID tags in 2018.  We have averaged nearly 39% growth in tag sales over the last two years, and in 2018 tags represented 12.7% of total revenue, up from 11.0% and 10.2% in 2017 and 2016, respectively.  We also saw good growth from our SureHarvest software business, which continues to drive innovation around sustainability in the food and agriculture value chain.  SureHarvest led the integration of our two technology-based acquisitions during the year – including Sow Organic and JVF Consulting – and the SureHarvest team is pursuing a number of initiatives designed to maximize the use of technology across our entire business in order to better serve our customers and drive higher profit margins over the long term.

“Throughout 2018 and continuing into 2019, we have won business with new customers from across the verification spectrum,” Saunders added.  “Our continued success highlights the importance of our uniquely diverse solutions portfolio, which is a critical strength of our Company.  Today, our various business units provide verification services covering virtually all relevant food commodities and addressing many of the major players along the supply chain.   We continue to add new capabilities and solutions and recently entered the Hemp space as the exclusive provider of verification services for new US Hemp Authority™ Certified standard.  Going forward, we are focused on raising consumer and industry awareness of our brands and believe we are well positioned to extend our track record of profitable growth.”

Full Year Results
Total revenue for the year ended December 31, 2018, increased 15% to $17.8 million from $15.4 million in the prior year.  All four revenue segments showed double-digit growth, including:

  • Verification and certification services, up 11% to $13.7 million from $12.3 million.
  • Product revenue, up 33% to $2.3 million from $1.7 million.
  • Software license, maintenance, and support, up 29% to $993,200 from $769,600.
  • Software-related consulting services, up 26% to $800,300 from $634,300.

Gross profit for the year increased 14% to $7.7 million from $6.8 million in the prior year. Gross margin was down slightly year over year at 43.5% from 44.2%.

Net income attributable to Where Food Comes From, Inc. increased 463% year over year to $800,700, or $0.03 per share, from $142,300, or $0.01 per share, in the prior year.

Adjusted EBITDA increased 51% year over year to $2.3 million from $1.6 million.

The Company generated $1.15 million in net cash from operations in 2018, up from $657,000 in 2017.

The cash, cash equivalents, short- and long-term investments balance at December 31, 2018, decreased to $2.0 million from $3.4 million at 2017 year-end due to M&A activity throughout the year, partially offset by increased operating cash flows. The Company had $2.7 million in working capital at 2018 year-end.

Fourth Quarter Results
Revenue in the fourth quarter of 2018 increased 12% to $4.6 million from $4.1 million in the same quarter last year.  Segment revenue highlights included:

  • Verification and certification services, up 11% to $3.5 million from $3.2 million.
  • Product revenue, up 31% to $633,300 from $483,300.
  • Software license, maintenance, and support, down 1% to $233,900 from $236,900.
  • Software-related consulting services, down 7% to $219,600 from $235,200.

Gross profit in the fourth quarter increased 2% year over year to $1.8 million from $1.7 million.  Gross margin declined to 38.2% from 41.7% year over year.

Net income attributable to Where Food Comes From, Inc. in 2018 increased to $211,100, or $0.01 per share, from a loss of $325,600, or $0.01 per share, in the fourth quarter last year.

Adjusted EBITDA for the fourth quarter increased more than 10-fold to $522,000 from $50,100 in the same quarter last year.

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: 13687521

Phone replay:
A telephone replay of the conference call will be available through April 8, 2019, as follows:
Domestic Toll Free: 1-877-660-6853
International: 1-201-612-7415
Conference Code: 13687521

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.

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 for higher profit margins; and expectations to raise consumer and industry awareness of our brands and to extend our track record of profitable growth 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 twelve-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

Jay Pfeiffer
Pfeiffer High Investor Relations, Inc.


Where Food Comes From, Inc.              
Statements of Income (Unaudited)              
          Three months ended December 31,       Year ended ended December 31,
           2018         2017         2018         2017   
Revenues:    (unaudited)           
  Verification and certification service revenue $   3,532,364     $   3,182,675     $   13,743,311     $   12,335,195  
  Product sales     633,262         483,256         2,266,771         1,709,397  
  Software license, maintenance and support services revenue     233,860         236,890         993,161         769,574  
  Software-related consulting service revenue     219,585         235,206         800,316         634,326  
    Total revenues     4,619,071         4,138,027         17,803,559         15,448,492  
Costs of revenues:              
  Costs of verification and certification services     2,165,320         1,880,409         7,564,946         6,808,547  
  Costs of products     403,554         304,439         1,438,648         1,047,747  
  Costs of software license, maintenance and support services     154,859         138,287         644,746         500,426  
  Costs of software-related consulting services     131,158         88,293         411,468         271,012  
    Total costs of revenues     2,854,891         2,411,428         10,059,808         8,627,732  
  Gross profit     1,764,180         1,726,599         7,743,751         6,820,760  
Selling, general and administrative expenses      1,575,237         1,965,132         6,869,198         6,738,578  
Income from operations     188,943         (238,533 )       874,553         82,182  
Other expense (income):              
  Dividend income from Progressive Beef     -          -          (100,000 )       -   
  Other income, net     (2,714 )       (3,589 )       (14,270 )       (14,578 )
  Interest expense     1,082         988         4,837         1,591  
Income before income taxes     190,575         (235,932 )       983,986         95,169  
Income tax expense      52,008         116,225         309,008         266,225  
  Net income      138,567         (352,157 )       674,978         (171,056 )
Net loss attributable to non-controlling interest     72,497         26,529         125,758         313,370  
  Net income attributable to Where Food Comes From, Inc. $   211,064     $   (325,628 )   $   800,736     $   142,314  
Per share - net income attributable to Where Food Comes From, Inc.:            
  Basic $   0.01     $   (0.01 )   $   0.03     $   0.01  
  Diluted $   0.01     $   (0.01 )   $   0.03     $   0.01  
Weighted average number of common shares outstanding:              
  Basic     25,032,068         24,676,083         24,825,933         24,673,912  
  Diluted     25,149,970         24,676,083         24,989,457         24,842,246  


Where Food Comes From, Inc.              
Calculation of Adjusted EBITDA*              
        Three months ended December 31,   Year ended ended December 31,
           2018       2017         2018       2017 
Net income attributable to Where Food Comes From, Inc. $   211,064   $   (325,628 )   $   800,736   $   142,314
Adjustments to EBITDA:              
  Interest expense     1,082       988         4,837       1,591
  Income tax expense      52,008       116,225         309,008       266,225
  Depreciation and amortization     199,638       220,028         942,418       854,180
EBITDA*     463,792       11,613         2,056,999       1,264,310
  Stock-based compensation     35,889       38,496         161,128       169,133
  Cost of acquisitions     22,330       -          119,397       117,944
ADJUSTED EBITDA* $   522,011   $   50,109     $   2,337,524   $   1,551,387
*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  
   December 31,     December 31,   
    2018        2017     
Current assets:        
  Cash and cash equivalents $   1,482,391     $   2,705,778    
  Accounts receivable, net of allowance      2,205,162         1,898,749    
  Short-term investments     245,597         743,206    
  Prepaid expenses and other current assets     439,424         245,073    
  Total current assets     4,372,574         5,592,806    
Property and equipment, net     1,675,472         1,068,087    
Long-term investments in certificates of deposit     252,999         -     
Investment in Progressive Beef     991,115         -     
Intangible and other assets, net     3,852,121         3,948,530    
Goodwill     3,143,734         2,652,250    
Deferred tax assets, net     175,923         79,622    
Total assets $   14,463,938     $   13,341,295    
Liabilities and Equity        
Current liabilities:        
  Accounts payable $   533,925     $   457,307    
  Accrued expenses and other current liabilities     419,619         555,129    
  Customer deposits and deferred revenue     727,854         851,185    
  Current portion of notes payable      10,173         9,446    
  Current portion of capital lease obligations     11,309         7,527    
  Total current liabilities     1,702,880         1,880,594    
Notes payable, net of current portion     32,220         42,452    
Capital lease obligations, net of current portion     32,747         25,419    
Deferred rent liability     119,187         -     
Lease incentive obligation     362,088         147,189    
Total liabilities     2,249,122         2,095,654    
Commitments and contingencies         
Contingently redeemable non-controlling interest     1,449,007         1,574,765    
  Common stock     25,473         24,972    
  Additional paid-in-capital     11,031,264         10,353,037    
  Treasury stock      (1,109,061 )       (724,530 )  
  Retained earnings      818,133         17,397    
Total equity     10,765,809         9,670,876    
Total liabilities and stockholders' equity $   14,463,938     $   13,341,295