Where Food Comes From, Inc.

Greetings. Welcome to Where Food Comes from First Quarter Earnings Call. At this time, all participants will be in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Jay Pfeiffer, Investor Relations. Jay, you may begin.

Good morning and welcome to Where Food Comes from 2021 first quarter earnings call. Joining me on the call today are John Saunders, CEO, Leanne Saunders, President, and Danette Henning, CFO. 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 as 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 as well as our news releases and website for more information. Today we'll also discuss adjusted EBITDA, a non-GAAP financial measure provided as a complement to GAAP results. Please refer to today's earnings release for important disclosures regarding non-GAAP measures. I'll now turn the call over to John Saunders, Chairman and Chief Executive Officer.

Good morning, and thanks for joining the call today. This morning, we released our first quarter financial results before the market opened. Once again, we were pleased with our overall performance despite the ongoing COVID-19 impact on the economy in general and some of our core customer segments in particular. Our Q1 performance builds on a year in which we held up very well under difficult circumstances, from both a revenue and profit standpoint, delivering results that underscore the resilience of our business model and the flexibility of our personnel who were quick to adapt to new ways of doing business. The success we're enjoying as a company truly is a team effort, and I couldn't be prouder of the people I work with. Turning now to our Q1 financial highlights. Total revenue came in at $4.4 million in Q1, which represents a 14% increase over $3.9 million in the same quarter last year. You'll recall that audit activity in four of our core revenue categories, pork, poultry, eggs, and dairy, was significantly curtailed early last year due to restrictions on outside visitors at more enclosed production facilities that were instituted at the onset of the pandemic. Those restrictions are still in place for the most part, although we've recently seen some instances in which they've loosened up. We are hopeful that at some point in the second half of the year, we'll start returning to normal in this area. In spite of these restrictions, our Q1 verification certification revenue increased 16% year-over-year to $3.3 million from $2.8 million. This was a beef business. which continues to be our largest and most profitable growth driver. As outlined in our press release this morning, our new CARE initiative continues to build momentum across all protein segments, but particularly in beef, where we brought on two anchor processor customers in 2020 and continue to add producer customers at a steady clip in 2021. Recently, we announced that the Heinen's Grocery Store chain became the first retailer to implement where food comes from CARE certified across its beef, pork, and poultry products. CARE, which stands for a community of agriculturalists who respect the earth, directly addresses consumer demand around sustainability. As an aside, CARE's three core pillars, animal care, environmental stewardship, and people and community, also happen to dovetail nicely with emerging ESG and socially responsible investment trends. We are increasingly engaging with investment funds that have taken the time to understand and appreciate that we actually walk the walk in terms of our products and services aligning with the aims of the ESG and SRI movements. Tag sales in Q1 were flat year over year due to one large order slipping into Q2. As you know, tag sales are a leading indicator of revenue growth. As we tag more cattle, we create a compounding effect with additional revenue events occurring as those cattle moved through the supply chain. Net income in the first quarter totaled $1.2 million, with approximately $1 million of that attributable to PPP loan forgiveness. On a normalized basis, net income was approximately $113,000, which represents roughly a $350,000 positive swing over last year's Q1 loss of $241,000. Adjusted EBITDA in the first quarter was a positive $348,000 compared to a negative $44,000 in Q1 last year. We generated $1.2 million in cash from operations in the first quarter, up from $900,000 in the same quarter last year. Our balance sheet is still solid with cash and cash equivalents up 14% year-over-year to $5 million from $4.4 million, and working capital improving to $4.6 million from $4.4 million year-over-year. One last highlight of our first quarter was our uplifting to the NASDAQ capital market, which I know many of our legacy shareholders were eagerly awaiting. This is an important milestone for us as we think it makes our shares more attractive to institutional investors. It likely also enhances our profile with our larger corporate customers. And with that, I'll open the call to questions. Operator?