Where Food Comes From, Inc.

Greetings and welcome to the Where Food Comes From First Quarter Earnings Call. At this time, all participants are in a 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Pfeiffer, Investor Relations. Thank you, Jay. You may begin.

Good morning. and welcome to the Where Food Comes From 2024 First Quarter Earnings Call. Joining me on the call today are CEO John Saunders, President Leanne Saunders, and Chief Financial Officer Danette Henning. 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.

Good morning and thanks for joining the call today. This morning we released our first quarter financial results and we're pleased to report that the renewed momentum we generated in the fourth quarter has carried into 2024. Once again, our core verification services revenue more than offset lower product sales resulting from persistent headwinds in our beef business due to cyclical cattle trends, lingering drought effects, and smaller herd sizes. As we've said before, these headwinds are likely to persist to some extent throughout 2024. But we're hopeful to see improvements starting early next year. The solid growth and verification services coupled with careful management of our cost structure also led to improved profitability year over year. Our ability to continue delivering profitable growth in spite of ongoing challenges in our beef business reflects the strength and advantages of our unique business model. We are far and away the most diversified provider of food claims certifications in the United States. We provide thousands of producers, customers with best-in-class solutions to differentiate and add value to their products. These customers range from small family farms and ranches to large multinational CPGs. In turn, they respond to increasing consumer demand for products that are certified to any number of standards ranging from non-GMO, organic, and gluten-free to a growing number of sustainable-related certifications. Drilling down on our numbers for the quarter, Verification and certification services revenue grew 17 percent to 4.4 million from 3.8 million. Product revenue reflecting smaller herd sizes and fewer source and age verifications was down 25 percent to 7 million, 0.7 million from 1 million. Gross profit increased 9 percent to 2.3 million from 2.1 million year-over-year. Selling, general, and administrative expense increased only slightly to 2.1 million from 2 million. With the increase partially reflecting marketing spend, operating income was 68% higher at $261,000 versus $155,000. Net income in the first quarter was up 47% to $178,000 or $0.03 per diluted share from $121,000 or $0.02 per diluted share in the same quarter last year. You may have noticed that we did not receive a progressive beef dividend in the third quarter. That was strictly a timing issue as the $50,000 dividend was booked in early April. Progressive beef business and our relationship with progressive beef remain solid. Adjusted EBITDA in the first quarter increased 8% to $432,000 from $399,000. Cash provided by operations in the first quarter increased 48% to $0.7 million from $0.5 million. The company bought back 116,072 shares of its common stock during the first quarter at a cost of $1.5 million. That brings to nearly $11 million the total value we've returned to our stockholders over the past 13 quarters when factoring in buybacks and the special dividend. In addition to our commitment to value creation for stockholders and other stakeholders, we remain focused on our business priorities of delivering affordable, effective solutions to our customers through innovative, and strategic investments in technology and complementary businesses. We believe this multi-pronged approach will continue to drive our industry leadership now and into the future. To date, we have closed more than a dozen small acquisitions, all of which are contributing to our success and to the widening mode around our business. The most recent example is our Q4 acquisition of the Upcycled Certified Program from the Upcycled Food Association. I know we mentioned this on our last call, but we recently updated investors with news that upcycling is among the fastest growing certifications for us and the certification industry at large. Upcycled Certified provides consumers a tangible solution to shop sustainably and avoid food waste. Today, there are roughly 100 companies with 531 products certified to the standard, a 110% increase over the 484 products just a few months ago. The top three certification categories are snack foods, pet foods, and beverages. Products like these are responsible for diverting an average of 390,000 tons of food waste annually in 14 countries since the program's launch in 2021. We view Upcycled Certified as one of the most exciting and promising sustainability trends we've seen in a long time, and we think it can become a meaningful component and diversify our revenue mix over time. There are compelling reasons, both financial and environmental, that support our optimism that upcycling is in the early stages of a longer-term growth trend. If you haven't done so already, go back and look at our April 22nd press release on Upcycled Certified and check out some statistics that support that thesis. In closing, I want to reiterate that we believe ours is a resilient, durable, and sustainable business model. one that would be very difficult to replicate and one that is in the early innings of a long-term growth trend. We are consistently strengthening our market position with new revenue streams through organic and inquisitive growth initiatives in order to meet the evolving needs of our customers. So we are very excited about the future of our business, and as always, we appreciate our stockholders, customers, and other stakeholders for their loyalty and support. And with that, I'll turn the call back over to the operator for questions.

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

As a reminder, if you'd like to ask a question, please press star one.

There are no questions at this time. I'd like to hand the floor back over to management for any closing comments.

Once again, we'd like to thank you for all your support and your participation, and we'll talk to you again in three months. Take care.