Where Food Comes From, Inc. 8-K

 

Exhibit 99.1

 

Where Food Comes From, Inc. Reports 2019 Fourth Quarter and Full Year Financial Results

 

CASTLE ROCK, Colorado – March 5, 2019 – 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 its 2019 fourth quarter and full year financial results.

 

“Where Food Comes From team members executed at a very high level throughout 2019, and that enabled us to deliver double-digit growth in revenue, gross profit, net income, adjusted EBITDA and operating cash flow – all of which reached record highs in 2019,” said John Saunders, Chairman and CEO. “We closed the year with a strong balance sheet that included cash, cash equivalents and investments of $2.9 million, up 46% year over year, despite having paid $1.0 million in cash to purchase the remaining 40% interest in SureHarvest in the fourth quarter. Working capital at year-end was $3.1 million, up from $2.7 million year over year. We have no long-term debt.

 

“Where Food Comes From and its business units are the industry leaders in creating and implementing programs that provide transparency in the food supply chain,” Saunders added. “Our portfolio of verification solutions is by far the largest and most comprehensive in the world, supporting more than 15,000 customers and covering virtually all food commodities and 40-plus verification standards. We are continually adding new programs and services and recently launched our CARE suite of sustainability standards covering beef, poultry and dairy.”

 

Saunders added, “On March 4, 2020, we announced our entry into the seafood space with the acquisition of Postelsia Holdings, a Canada-based provider of environmental and social sustainability programs for the seafood industry. In addition to rounding out our solutions portfolio, Postelsia strengthens our leadership position in the protein space and extends our geographical reach into Asia. Going forward, we will continue to manage our business to emphasize innovation and diversity in our solutions portfolio, superior customer service, and value creation for our shareholders and other stakeholders.”

 

Fourth Quarter Results – 2019 vs. 2018

Revenue in the fourth quarter of 2019 increased 23% to $5.7 million from $4.6 million in the same quarter last year. Revenue mix included:

 

Verification and certification services, up 20% to $4.3 million from $3.5 million.

Product revenue, up 48% to $938,000 from $633,000.

Software license, maintenance, and support (including intercompany sales*), up 30% to $305,000 from $234,000. Software license, maintenance and support (excluding intercompany sales*) up 5% to $245,000 from $234,000.

Software-related consulting services (including intercompany sales*), up 31% to $287,000 from $220,000. Software-related consulting services (excluding intercompany sales*), up 21% to $266,000 from $220,000.

 

*(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-K.)

 

 

 

 

Gross profit in the fourth quarter (excluding intercompany sales*) increased 55% year over year to $2.7 million from $1.8 million. Gross margin increased to 48.1% from 38.2% year over year due primarily to two anomalous factors: lower bonus accrual and the acceleration of GAP audits in the fourth quarter.

 

Selling, general and administrative expense increased 21% in the fourth quarter to $1.9 million from $1.6 million in the same quarter last year due to increased depreciation expense, as well as higher headcount, public company costs and professional fees.

 

Operating income increased 342% in the fourth quarter to $836,000 from $189,000 in the same quarter last year.

 

Net income attributable to Where Food Comes From, Inc. in the fourth quarter increased 178% to $586,000, or $0.02 per share, from net income of $211,000, or $0.01 per share, in the same quarter last year.

 

Adjusted EBITDA in the fourth quarter increased 151% to $1.3 million from $522,000 in the same quarter last year.

 

Full Year Results – 2019 vs. 2018

Total revenue for the year ended December 31, 2019, increased 17% to $20.8 million from $17.8 million in the prior year. Revenue mix included:

 

Verification and certification services, up 13% to $15.6 million from $13.7 million.

Product revenue, up 46% to $3.3 million from $2.3 million.

Software license, maintenance, and support (including intercompany sales*), up 28% to $1.3 million from $993,000. Software license, maintenance and support revenue (excluding intercompany sales*) was $1.1 million, up 7% from $993,000.

Software-related consulting services (including intercompany sales*), up 18% to $948,000 from $800,000. Software-related consulting services (excluding intercompany sales*), up 5% to $843,000 from $800,000.

 

Gross profit for the full year (excluding intercompany sales*) increased 17% to $9.1 million from $7.7 million. Gross margin increased slightly to 43.7% from 43.5%. Gross margins benefitted from increased efficiencies and streamlining of costs of salaries, benefits, insurance and taxes related to two 2018 acquisitions, partially offset by lower product margins due to competitive pricing programs for volume ear tag customers.

 

Selling, general and administrative expense increased 10% year over year to $7.5 million from $6.9 million due to higher headcount and staff training programs, increased public company compliance costs and professional fees related to implementing new accounting standards, higher depreciation and amortization, and increased fixed costs related to two acquisitions in 2018.

 

Operating income increased 78% year over year to $1.6 million from $875,000.

 

Net income attributable to Where Food Comes From, Inc. increased 68% year over year to $1.3 million, or $0.05 per share, from $801,000, or $0.03 per share, in the prior year.

 

Adjusted EBITDA increased 40% year over year to $3.3 million from $2.3 million.

 

 

 

 

The Company generated $2.9 million in net cash from operations in 2019, up 149% from $1.2 million in the prior year.

 

The cash, cash equivalents, and short- and long-term investments balance at December 31, 2019, increased 46% to $2.9 million from $2.0 million at 2018 year-end. The Company had $3.1 million in working capital at December 31, 2019, up from $2.7 million at 2018 year-end.

 

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: 13699267

 

Phone replay: 

A telephone replay of the conference call will be available through March 19, 2020, as follows: 

Domestic Toll Free: 1-877-660-6853 

International: 1-201-612-7415 

Conference Code: 13699267

 

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 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

 

 

 

 

Where Food Comes From, Inc.
Statements of Income

 

   Three months ended December 31,   Year ended December 31, 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)         
Revenues:                
Verification and certification service revenue  $4,250,093   $3,532,364   $15,564,411   $13,743,311 
Product sales   938,136    633,262    3,300,799    2,266,771 
Software license, maintenance and support services revenue   244,764    233,860    1,066,543    993,161 
Software-related consulting service revenue   266,142    219,585    842,663    800,316 
Total revenues   5,699,135    4,619,071    20,774,416    17,803,559 
Costs of revenues:                    
Costs of verification and certification services   2,111,745    2,165,320    8,444,309    7,564,946 
Costs of products   610,727    403,554    2,148,564    1,438,648 
Costs of software license, maintenance and support services   146,183    154,859    615,248    644,746 
Costs of software-related consulting services   92,220    131,158    486,880    411,468 
Total costs of revenues   2,960,875    2,854,891    11,695,001    10,059,808 
Gross profit   2,738,260    1,764,180    9,079,415    7,743,751 
Selling, general and administrative expenses   1,902,485    1,575,237    7,527,044    6,869,198 
Income from operations   835,775    188,943    1,552,371    874,553 
Other expense (income):                    
Dividend income from Progressive Beef   (30,000)       (120,000)   (100,000)
Other income, net   (1,015)   (2,714)   (9,330)   (14,270)
Gain on sale of assets   (8,326)       (9,326)    
Impairment of goodwill   198,000        198,000     
Interest expense   1,289    1,082    10,057    4,837 
Income before income taxes   675,827    190,575    1,482,970    983,986 
Income tax expense   229,910    52,008    460,000    309,008 
Net income   445,917    138,567    1,022,970    674,978 
Net loss attributable to non-controlling interest   140,366    72,497    322,195    125,758 
Net income attributable to Where Food Comes From, Inc.  $586,283   $211,064   $1,345,165   $800,736 
                     
Per share - net income attributable to Where Food Comes From, Inc.:                    
Basic  $0.02   $0.01   $0.05   $0.03 
Diluted  $0.02   $0.01   $0.05   $0.03 
                     
Weighted average number of common shares outstanding:                    
Basic   24,764,621    25,032,068    24,850,409    24,825,933 
Diluted   24,923,788    25,149,970    25,027,247    24,989,457 

 

 

 

Where Food Comes From, Inc.
Calculation of Adjusted EBITDA*
(Unaudited)

 

   Three months ended December 31,   Year ended December 31, 
   2019   2018   2019   2018 
Net income attributable to Where Food Comes From, Inc.  $586,283   $211,064   $1,345,165   $800,736 
Adjustments to EBITDA:                    
Interest expense   1,289    1,082    10,057    4,837 
Income tax expense   229,910    52,008    460,000    309,008 
Depreciation and amortization   257,188    199,638    1,096,460    942,418 
EBITDA*   1,074,670    463,792    2,911,682    2,056,999 
Adjustments:                    
Impairment of goodwill   198,000        198,000     
Stock-based compensation   36,672    35,889    162,405    161,128 
Cost of acquisitions       22,330        119,397 
ADJUSTED EBITDA*  $1,309,342   $522,011   $3,272,087   $2,337,524 

 

*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, 
   2019   2018 
Assets        
Current assets:          
Cash and cash equivalents  $2,637,665   $1,482,391 
Accounts receivable, net of allowance   2,515,244    2,205,162 
Short-term investments in certificates of deposit   258,097    245,597 
Prepaid expenses and other current assets   450,346    439,424 
Total current assets   5,861,352    4,372,574 
Property and equipment, net   1,545,294    1,675,472 
Right-of-use assets   3,268,343     
Long-term investments in certificates of deposit       252,999 
Investment in Progressive Beef   991,115    991,115 
Intangible and other assets, net   3,247,695    3,852,121 
Goodwill   2,945,734    3,143,734 
Deferred tax assets, net   377,928    175,923 
Total assets  $18,237,461   $14,463,938 
           
Liabilities and Equity          
Current liabilities:          
Accounts payable  $1,022,835   $533,925 
Accrued expenses and other current liabilities   673,768    492,601 
Deferred revenue   797,033    654,872 
Current portion of notes payable       10,173 
Current portion of finance lease obligations   8,317    11,309 
Current portion of operating lease obligations   239,519     
Total current liabilities   2,741,472    1,702,880 
Notes payable, net of current portion       32,220 
Finance lease obligations, net of current portion   21,405    32,747 
Operating lease obligation, net of current portion   3,525,462     
Deferred rent liability       119,187 
Lease incentive obligation       362,088 
Total liabilities   6,288,339    2,249,122 
           
Commitments and contingencies          
           
Contingently redeemable non-controlling interest       1,449,007 
           
Equity:          
Common stock   25,802    25,473 
Additional paid-in-capital   11,424,512    11,031,264 
Treasury stock   (1,664,490)   (1,109,061)
Retained earnings   2,163,298    818,133 
Total equity   11,949,122    10,765,809 
Total liabilities and stockholders’ equity  $18,237,461   $14,463,938 

 

 

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