Earnings Labs

Where Food Comes From, Inc. (WFCF)

Q1 2015 Earnings Call· Tue, May 5, 2015

$12.30

-1.13%

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Transcript

Operator

Operator

Greetings and welcome to the Where Food Comes From First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the conference over to Mr. Jay Pfeiffer of Investor Relations. Thank you, Mr. Pfeiffer, you may now begin.

Jay Pfeiffer

Analyst

Good morning and welcome to Where Food Comes From 2015 first quarter earnings call. During the course of this call, we'll be making forward-looking statements based on current expectations, estimates and projections that are subject to risk. Statements about future revenue, expenses, profitability, cash, growth strategy, new customer wins, 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 about the company. It is the company’s policy not to provide specific guidance with respect to future revenue and earnings expectations or new customer wins. I’ll now turn the call over to John Saunders, Chairman and Chief Executive Officer.

John Saunders

Analyst

Good morning and thanks for joining us today. As you saw from our news release this morning Where Food Comes From continue to deliver solid year-over-year revenue growth and improved profitability. Keep in mind, the first quarter is typically one of our too slower quarters, so we’re especially pleased with the growth we achieved on both our top, bottom-lines in the period. In the first quarter, total revenue increased 46% to $2.1 million from $1.4 million that growth reflected good progress in all three components of our revenues mix and I’d like to spend a little time on each one of those segments to give you a better understanding of what is driving our growth. Verification services revenue increased 41% to $1.8 million from $1.3 million, this increase was comprised of both organic and M&A growth. On the organic side, we’re adding new customers for a variety of reasons including proliferation of non-GMO certification demands, increased organic food certification, expansion of whole foods gap program, the growing impact of the USDAs animal disease traceability program and the important pilot project we are working on in Canada with McDonald’s. In addition on the M&A side we’ve brought some new - on some new customers with our Sterling Solutions acquisition. Product revenue comprises of cattle identification ear tag has increased 107% nearly 280,000 from 135,000. Just as we did in the fourth quarter, the USDA’s ADT mandate played a big role in this growth. We are just scratching the surface with ADT which has been phased in over the next four or five years when different segments for the beef supply chain will be coming into compliance with animal identification and traceability requirements. Thus far in the early stages of the program, the enforcement is focused primarily on dairy cattle due to…

Operator

Operator

Thank you. [Operator Instructions]. And our first question is from Marc Robins with Catalyst Research. Please go ahead.

Marc Robins

Analyst

Hey, thank you, John. That’s a very impressive first quarter given the seasonality of your business, so congratulations. That’s very nice to see.

John Saunders

Analyst

Thanks Marc, appreciate it.

Marc Robins

Analyst

Hey, I am a little behind [Indiscernible] here, so John, so give me a hand if wouldn’t mind it. What happened to the meat supplier at Heinen’s where there was just retail labeling [Indiscernible]?

John Saunders

Analyst

The primary supplier for Heinen’s was a company that we help them identify out at California that was a long-term customer of ours and last spring due to a number of reasons they sold that brand, not the plan, but they sold that brand to - and the suppliers that participated to a competitive company and that company had other customers for the beef. So Heinen’s found themselves in a situation where they - that their supplier had was transferred to another retailer. And in the process and over the last year, we’ve been helping them to identify a replacement, which they’ve done, but because of the requirements of the program and the relationship that we have with Heinen’s and the way that they are promoting our program in the store, we felt it was better to not label the product and its entirety as opposed to potentially not having product that we could verify 100%. So that’s what we are waiting to get back to.

Marc Robins

Analyst

And that pops two interesting questions. What - did you hear from Heinen’s as to what the response was regarding their customers and the fact that they didn’t have the Where Food Comes From, good housekeeping seal of approval on their meat products? And then the second question is the new owner of that brand, have they become familiar with your product and could they become a customer?

John Saunders

Analyst

Those are both great questions, I’ve got Leann here in the office and she is going to text that, okay Marc?

Marc Robins

Analyst

Okay.

Leann Saunders

Analyst

Good morning, Marc.

Marc Robins

Analyst

Hey, good morning, Leann.

Leann Saunders

Analyst

So to answer your question, particularly, yes, I think from all indications from the Heinen’s team in that has become kind of a share branding initiative, but Where Food Comes From that they wanted to quickly get back on it as soon as possible. We are actually in the process of running some consumer market research to really understand from a quantitative perspective, the impacts at the consumer level, but from a qualitative perspective, they said, they wanted to get back on the product as soon as possible, because that is just become so important so they’re branding to their consumers. On the second question, yes, it does offer opportunity to extend the branding initiative out to other potential brands to carry the Where Food Comes From label and so that’s what we are working on right now Marc.

Marc Robins

Analyst

It just seems to me like you might, you should be, will say busy, given the announcements made by the various restaurants or meat producers, I guess Chipotle and the non-GMO and so forth, I would kind of think that your phone just not doesn’t stop ringing?

John Saunders

Analyst

Marc, I’m just working my fingers to the phone here Marc.

Marc Robins

Analyst

Hey, from Leann I would believe that, from you I don’t know.

John Saunders

Analyst

Just a lots of laugh going on over in the whole call so.

Marc Robins

Analyst

Yeah, hey listen that was a very good quarter, congratulations that’s great. Thank you.

John Saunders

Analyst

Thanks.

Operator

Operator

Thank you. [Operator Instructions] Thank you. The next question is from Marc Robins from Catalyst Research. Please go ahead.

Marc Robins

Analyst

I guess that the three of us laughing. This margin that you have, the gross margin, is there any chance of that kind of gross margin could continue as we go into the second, third and fourth quarters or is there going to be changes internal to the activity of the business that might swing that one way or the other?

John Saunders

Analyst

I think, it will be similar, I don’t think we’ll see the same kind of increases again, I think it’s just a bigger mix of our revenue is the cattle ear tags that we’re selling and it’s become more not extremely profitable, but much more profitable than it was in the past, so we are excited about the growth there, but I think it will be pretty consistent over the year.

Marc Robins

Analyst

Yeah, that’s great. Okay, hey, thanks ever so much, I appreciate it.

John Saunders

Analyst

You bet, Marc.

Operator

Operator

[Operator Instructions]. And it appears we have no further questions at this time. I would like to now turn it back over to Mr. Saunders for any additional or closing remarks.

John Saunders

Analyst

Once again, I want to thank everybody for the participation, looks like we had a great call. A lot of people that we have – we’ve talked here in the last year or so, those of you are that coming tomorrow look forwarding to seeing you at the Shareholder Meeting here in [Indiscernible]. Have a great day.

Operator

Operator

Thank you. Ladies and gentlemen, this does conclude today’s conference. [Operator Instruction]. Thank you for calling. Good-bye.