Full Year 2023 Where Food Comes From Inc Earnings Call

Greetings and welcome to the where food comes from year end 2023 earnings call.

At this time, all participants will be in listen only mode.

<unk> and answer session will follow the formal presentation.

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Please note this conference is being recorded.

At this time I'll turn the conference over to Jay Pfeiffer with Investor Relations.

You may now begin.

Good morning, and welcome to the where food comes from 'twenty to 'twenty three year end earnings call. Joining me on the call today are CEO, John Saunders, President Lee Ann Saunders, Chief Financial Officer Dinesh Sandy.

During this call we'll make forward looking statements based on current expectations estimates and projections that are subject to risks.

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. They will also discuss adjusted EBITDA a non-GAAP financial measure provides is a complement to our 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 John Please go ahead.

Well good morning, and thanks for joining the call today.

As reported in our news release. This morning, we delivered a strong fourth quarter and as a result, we're able to offset the impact of your long headwinds and report increased revenue and profitability for the full year as well.

As we have discussed on previous calls, we and our customers have faced inflationary pressures over the past year or so and we've also been navigating challenging cyclical cattle trends that have resulted in smaller herd sizes.

These issues have impacted both revenue and profitability throughout the year. So again, we feel very good about our strong fourth quarter performance that enabled us to surpass your results on both the top and bottom lines.

Total revenue in the fourth quarter increased 10% to $6 7 million from $6 1 million in the same quarter last year. Our verification certification revenue was up 17% in the quarter to $5 5 million from $4 7 million.

And product revenue worked its way back to a flat point 9 million. So again Q4 showed significant revenue and earnings growth year over year and was also a nice rebound from Q3, when total revenue dipped 4% year over year.

Gross profit in the fourth quarter was up 8% to 3 million from $2 8 million SG&A expense was flat at $2 1 million, reflecting our continued focus on managing overhead costs.

Net income in Q4 increased by 58% to 776000 or 14 cents per diluted share compared to net income of 490000 or eight cents per diluted share in Q4 of last year.

This solid increase in profitability was due to a combination of a flat SG&A higher operating income and a 70% increase in the progressive beef dividend year over year.

Adjusted EBITDA in the fourth quarter increased 31% to $1 3 million from $1 million and finally in Q4, the company bought back more than a million of its common stock were moving now there's 76109 shares from the float.

Turning to the full year results total revenue for 2020 three increased slightly to $25 1 million from $24 8 million in the prior year.

Well that was a nominal percentage increase we're still happy to be in positive territory, given the headwinds I referenced earlier in.

In addition, you may recall that in 2022 we booked a nonrecurring point 9 million order that skewed our 2022 revenue higher so on an apples to apples basis revenue would've increased in the range of 5%. Despite some significant macro challenges.

Revenue mix for the full year included verification services up 10% to $19 4 million from $17 6 million in product revenue down 8% to 4 million from $4 4 million.

Gross profit for the full year was flat at $10 5 million.

Selling general and administrative expense was also flat at $7 8 million op.

Operating income was flat at $2 7 million net income for the year increased 8% to $2 2 million or 39 cents per diluted share compared to net income of 2 million or 33 cents per.

For diluted share in the prior year.

Adjusted EBITDA for the year was flat at $3 8 million in the company generated $2 8 million in cash from operations in 2023 compared to $2 7 million in 2022 the.

Cash and cash equivalents balance at December 31, 'twenty twenty-three declined $2 6 million from $4 4 million and 20 to 2022 year end due primarily to the Companys investment in its share repurchase program in 2023, the company bought back more than $3.9 million of its shares for.

The full year the company earned $320000 in dividend income from progressive beef, a 28% increase over $250000 dividend in the prior year.

Okay.

Building such relationships with industry partners is a key element of our growth strategy to expand our business mix with valuable programs and capabilities that give our customers more options to add value to their products.

We were very active in this area throughout 2023, and I'd like to take a minute to recap some highlights.

In the first quarter long term customer certified Piedmontese beef became the first brand to be certified to the Paleo flex, which is a relatively a new standard from the Paleo diet that is exclusively administered by where our food comes from and the second quarter. We were named exclusive third party verified for the beef friendly farming.

Case in a program that helps farmers and ranchers protect critical pollinators through implementation of regenerative policies within their operations.

Also in the second quarter, we invested in Blue trade supplier privately held seafood traceability company that helps north American shellfish operators optimize their businesses.

Blue trade since a nice complement to our fish care sustainability standard, which helps seafood producers adhere to higher standards of care for seafood products employees and the environment.

In October we announced another important milestone in our Aqua culture initiative with the acquisition of Smart Kratz from the James Beard Foundation, a program administered by our <unk> division that promotes transparency and sustainability and seafood.

Smart catch has tremendous potential for expansion into other areas of the seafood supply chain, including first foodservice institutions, retailers' seafood distributors suppliers and producers around the world.

And finally, just before the end of 2023 we acquired the Upcycled certified program from the Upcycled Food Association.

We are very excited about the potential for this program to become a meaningful component of our revenue mix over time.

To recap Upcycled started filing is the world's first and largest provider certification for Upcycled food and it's one of the fastest growing certification seals in the food industry.

Providing customers consumers of tangible solution to shop sustainably and avoid food waste. There are currently 93 companies with more than 480 products certified to the standard including leader consumer packaged goods companies, such as Dell Mauney and carry ingredients.

These products are responsible for diverting an average of 390000 tons of food waste annually since the program's launch less than three years ago.

The acquisition comes at a time when upcycling is gaining relevance in popularity and it puts where food comes from and are positioned to capitalize on growing consumer demand for products that contain upcycled food ingredients.

As the exclusive certification body for the standards since early 2021 and has the most diverse food verification company in the country with more than 17000 customers.

We are ideally suited to take up a upcycle certified to the next level of growth. Our long term objective is to make upcycled certified a ubiquitous standard and a meaningful component of our overall revenue mix.

Before opening the call for questions I'd like to recognize the significant efforts of all where food comes from employees in our operational leaders.

Matt Doug Kathryn the node, then Kelly Mindy Laura Sarah Gen.

Darren Christina Susan Simon Eric Cory and another Laura.

And our board of Directors Graham Atom, Tom Pete and Mike.

So what has been one of our most challenging years 'twenty to 'twenty three is been difficult year for many people involved with production agriculture, and our teams complete commitment to helping farmers and ranchers through difficult times as one of the things that makes me most proud of all we have accomplished.

As you all know we run a very tight ship here. So that means our team produced a lot more last year, using less which translates into a mountain of hard work.

I'd also like to call it the members of our executive team specifically.

Jay Pfeiffer has been our head of Investor Relations since the day before no kidding, we went public 17 years ago.

He has been a mentor and a friend to me and as I'm sure. He is to many of you on the call today.

In that time, we have never had to retract any of our releases or announcements, which is almost unbelievable and a testament to the attention to detail that Jan bodies.

Our newest member of the team and keep Chief Technology Officer, Jason Franco when Jason came to where food comes from about five years ago through an acquisition, we were struggling to fully integrate technology into our various verification systems.

Jason and his growing team are the sticky glue that helps us scale or a business, which is literally as fragmented as the food we see in our grocery store aisles.

He has some new and very exciting things that he will be introducing through 'twenty 'twenty four so be on the lookout.

Yeah.

Dan Henry our CFO has been one of our most critical assets since stage, Jay Li Yan and I were able to finally convince her to come on board. She has closed on it leaves 15 full on exit acquisitions involving cash stock that taxes, iPhone cases, cattle bitcoin and even a small house them.

Dine in North Dakota.

All while literally doing almost all the work herself. Most recently she handled our closing on the Upcycled certification standard in which she did the lion's share of negotiating the terms of the deal all while closing out your IND activities with our S. E C auditors.

She is a CFO like no other and that she also participate some multiple operational based on activities related to many of our tech operations again, all while making sure. We are fully reporting every quarter and this year, specifically closing our year end exactly 45 days from year end truly amazing.

Finally [laughter].

Our C O O and president.

Lyanne Saunders.

Lyanne more than anyone deserves credit for our success, specifically was last year, but also over the long term. She leaves the operations of all divisions.

And it's constantly adapting adapting to adverse market conditions and creating opportunities from challenges.

Yeah.

Excuse me.

Yeah.

Specifically she recognized back in 2021 that the U S cattle industry was facing strong headwinds and began to adjust our resources into our other divisions like Validus and where food comes from organic which were both experiencing changes to their industries, which create new opportunities for growth.

<unk>.

This is the reason.

We had such a strong fourth quarter and positive year with an earnings per share of 39 cents.

She has been [laughter] she's been doing this for one or two.

20 years, it gets better at it every day, she even came up with the name of the company.

Imagine doing all this for that long and never being able to get away from me boss even on the weekends.

As the CEO of this company and lifelong military historian I can tell you that I'm truly honored to lead such a dedicated and passionate team.

Into this battle.

And with that I'll open the call to questions.

Thank you well now be conducting a question and answer session.

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One moment, please while we poll for questions and once again that is star one thank you.

Thank you and our first question is from the line of Ross a sockets with R. I S. Advisors. Please proceed with your questions.

Hey, John Congrats on uncertainty everything you've accomplished at the company definitely tried the emotion of your voice and you're done.

A tremendous job over time.

You know I I I'd love to maybe dive a little bit deeper on you know what led to it.

Kind of the inflection of growth this quarter and then just you know kind of bigger picture like what are you. What are your aspiration you've been at the company for a long time, you've grown this business to a $25 million business. How do you think about your future and your legacy of this company.

Okay.

Ravi Thanks for the question and I I feel just like we got started yesterday.

And it's exciting to me to to go through obviously, you didn't talk about all of the.

The unbelievable people that we will get to work with the the inflection point. This last fourth quarter was a there was a couple of major new trends that were coming one was prop 12.

We've seen a lot of growth in our dairy auditing both of which are run through the Validus Division and then organic is going through some some significant changes related to the way that producers and certification companies have to comply we think creating an opportunity for us is a certification.

One company to them.

<unk> attract new new customers because the complexity is going to get it's gonna get worse in the sense that it's going to be more difficult for producers to comply based on some of the new regulation. So both of those were had been building for quite a while but we started to experience them.

Difficult Lee in the fourth quarter, and we expect both those trends to continue over the year.

As I've said in the you know we've got so many new standards and new programs. We continue to be highly focused on the U S cattle industry because it is it is the largest.

Our species and commodity that we work with them. So it's it's very critical to our business, but it's been a very difficult time, but its something thats relevant relatively well known that there's a catalog cycle that the U S goes through about every seven or eight years that.

You know, it's if you if you.

Wait it out there'll be good opportunities and we and we see that moving forward as well.

Big aspiration Rafi is to get our products in front of consumers and to become a well known consumer brand.

And I think with some of the stuff that I talked about with Jason Some new individuals that we have coming into the company.

We're going to we're going to really take what we've built as a foundation with producers and expand that to consumers and I've I've threatened many people over the years that I was gonna do a Super Bowl AD, which is which isn't just we have we have much better ways I believe to get in front of consumers.

But we have I believe is the core of what we've been working to build for a long time and that is a certification which represents the major categories that retailers and foodservice organizations are looking for where they could potentially adopt.

Aware food comes from logo on their package or where food comes from care logo on their package and that is that's where our entire focus is now to move the company into a much more mainstream consumer branded.

Product.

And on that point is it is the opportunity set and more with the retail or are you or is there opportunity with restaurants as well, but I know you've you've kind of dabbled in that over the years.

Both both we think they they are definitely go together, we've had a great response to the smart catch program, which I mentioned as its a continuation of the relationship with James Beard. So that's a that's a great way for us to get out in front of people that problem with restaurants since they don't typically.

We take a high volume and they have a various sporadic customer base. So it's so it's difficult to you have to work with their suppliers who are in the food service realm, which is which is a much different beast than dealing specifically with restaurants, but on the retail level, we continue to.

Really.

You know just the companies that we've talked about over the years or are the same retailers that we're working with today and just trying to expand so.

I would say foodservice leads to retail, but you put the retailers really where you begin to make an impact relative to the value proposition that we can provide.

Thanks, John and congrats again.

Thank you.

Okay.

Thank you.

I like to ask a question at this time today, you May press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Pause a moment all we poll for questions. Thank you.

Thank you at this time I'll now turn the call over to Mr. John contract for closing remarks.

Well again, thank you all for your support and we'll look forward to talking again soon have a great day.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation and have a wonderful day.