GlobeNewswire Inc | Aug 13, 2020 08:30AM EDT

August 13, 2020

Second Quarter Highlights 2020 vs. 2019

-- Revenue down 10% to $4.4 million from $4.9 million, reflecting impact of COVID-19 restrictions on on-site auditing activity -- Gross margin increased to 47.6% from 42.7% -- Net income attributable to WFCF down 3% to $351,000 from $361,000 -- Adjusted EBITDA down 5% to $782,000 from $824,000

Six-Month Highlights 2020 vs. 2019

-- Revenue down 6% to $8.3 million from $8.8 million -- Gross margin increased to 44.5% from 42.5% -- Net income attributable to WFCF down 50% to $110,000 from $218,000 -- Adjusted EBITDA down 20% to $728,000 from $907,000 -- Cash generated from operations up 27% to $1.7 million from $1.4 million

CASTLE ROCK, Colo., Aug. 13, 2020 (GLOBE NEWSWIRE) -- 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 2020 second quarter and six-month financial results.

We are very pleased with our overall performance in light of the continuing impact of COVID-19 on our business, said John Saunders, chairman and CEO. Although auditing activity with pork, poultry, dairy and egg customers was down significantly due to their restrictions on outside visitation in more enclosed environments, our beef verification business was strong in the quarter due to less stringent visitation restrictions on cattle ranches, which are more remote, outdoor operations with fewer employees. And despite widespread slowdowns and shutdowns at beef processing facilities, demand for animals we verified to standards such as source, NHTC, natural and CARE remained consistent. Product sales were also strong in the quarter, up 25% year over year. We continued to generate positive cash flows from operations in the second quarter and have strengthened our balance sheet year-to-date with a 65% increase in cash and short-term investments.

Im proud of the effort put forth by our entire team in responding to the unique challenges presented by the pandemic in the first half of 2020, Saunders added. These challenges have carried into the second half of the year and we believe well continue to meet them in innovative ways that keep our business moving forward. Im also pleased to report good initial traction of our Where Food Comes From CARE suite of sustainability standards launched earlier this year particularly our BeefCARE program, which has been adopted by two major food processing companies to verify sustainable production practices on millions of acres of domestic cattle grazing land.

Second Quarter Results 2020 vs. 2019Revenue in the second quarter ended June 30, 2020, decreased 10% to $4.4 million from $4.9 million in the same quarter last year. Lower revenue was attributed to fewer on-site audits conducted primarily for poultry, pork, dairy and egg customers. Revenue mix included:

-- Verification and certification services, down 17% to $3.1 million from $3.7 million. -- Product revenue, up 25% to $796,000 from $635,000. -- Software license, maintenance, and support (excluding intercompany sales), down 34% to $237,000 from $300,000. -- Software-related consulting services (excluding intercompany sales), up 15% to $275,000 from $210,000.

Gross profit in the second quarter was flat year over year at $2.1 million. Gross margin increased to 47.6% from 42.7%.

Selling, general and administrative expense decreased 3% in the second quarter to $1.6 million from $1.7 million in the same quarter last year.

Operating income increased 16% in the second quarter to $469,000 from $403,000 in the same quarter last year.

Net income attributable to Where Food Comes From, Inc. in the second quarter decreased 3% to $351,000, or $0.01 per share, from net income of $361,000, or $0.01 per share, in the same quarter last year.

Adjusted EBITDA in the second quarter decreased 5% to $782,000 from $824,000 in the same quarter last year.

Six-Month Results 2020 vs. 2019Total revenue for the six-month period ended June 30, 2020, decreased 6% to $8.3 million from $8.8 million in the same period last year. Revenue mix included:

-- Verification and certification services, down 10% to $5.9 million from $6.6 million. -- Product revenue, up 19% to $1.5 million from $1.3 million. -- Software license, maintenance, and support (excluding intercompany sales), down 31% to $380,000 from $595,000. -- Software-related consulting services (excluding intercompany sales), up 16% to $516,000 from $417,000.

Gross profit for the six-month period decreased slightly to $3.7 million from $3.8 million. Gross margin increased to 44.5% from 42.5%.

Selling, general and administrative expense decreased 2% year over year to $3.6 million from $3.7 million.

Operating income increased 12% year over year to $115,000 from $103,000.

Net income attributable to Where Food Comes From, Inc. decreased 50% year over year to $110,000, or less than $0.01 per share, from $218,000, or $0.01 per share, in the prior year.

Adjusted EBITDA decreased 20% year over year to $728,000 from $907,000.

The Company generated $1.7 million in net cash from operations in the first six months of 2020, up 27% from $1.4 million in the same period last year.

The cash, cash equivalents and short-term investments balance at June 30, 2020, increased 65% to $4.8 million from $2.9 million at 2019 year-end. The Company had $3.4 million in working capital at June 30, 2020, up from $3.1 million at 2019 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: 1-877-407-8289International: 1-201-689-8341Conference Code: 13707128

Phone replay:A telephone replay of the conference call will be available through September 13, 2020, as follows:Domestic Toll Free: 1-877-660-6853International: 1-201-612-7415Conference Code: 13707128

About Where Food Comes From, Inc.Where Food Comes From, Inc. is Americas 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 Companys 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 WFCFs 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 STATEMENTThis 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 Companys 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 Companys products and services on the marketplace; ability to continue posting positive financial results; and ability to continue meeting challenges and moving the business forward 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 second quarter and six-month period 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 Companys business, please refer to the Companys SEC filings at www.sec.gov.

Company Contacts:

John SaundersChief Executive Officer303-895-3002

Jay PfeifferPfeiffer High Investor Relations, Inc.303-880-9000

Where Food Comes From, Inc.Statements of Income (unaudited) Three months ended June 30, Six months ended June 30,(Amounts inthousands, except 2020 2019 2020 2019 per share amounts)Revenues: Verification and certification $ 3,108 $ 3,743 $ 5,911 $ 6,555 service revenue Product sales 796 635 1,521 1,276 Software license, maintenance and 237 300 380 595 support services revenue Software-related consulting 275 210 516 417 service revenue Total 4,416 4,888 8,328 8,843 revenuesCosts of revenues: Costs of verification and 1,516 2,097 3,050 3,659 certification services Costs of 501 398 1,003 841 products Costs of software license, 109 162 255 316 maintenance and support services Costs of software-related 190 143 310 273 consulting services Total costs 2,316 2,800 4,618 5,089 of revenues Gross profit 2,100 2,088 3,710 3,754 Selling, generaland administrative 1,631 1,685 3,595 3,651 expensesIncome from 469 403 115 103 operationsOther expense (income): Dividend income from Progressive (30 ) (30 ) (60 ) (60 ) Beef Other income, (2 ) (2 ) (4 ) (5 ) net Loss / (Gain) on foreign currency 2 - (1 ) - exchange Gain on sale of - - - (1 ) assets Interest expense 3 2 5 5 Income before 496 433 175 164 income taxesIncome tax expense 145 129 65 46 Net income 351 304 110 118 Net incomeattributable to - 57 - 100 non-controllinginterest Net income attributable to $ 351 $ 361 $ 110 $ 218 Where Food Comes From, Inc. Per share - net incomeattributable to Where Food Comes From, Inc.: Basic $ 0.01 $ 0.01 $ * $ 0.01 Diluted $ 0.01 $ 0.01 $ * $ 0.01 * less than $0.01 per shareWeighted averagenumber of common shares outstanding: Basic 24,874 24,709 24,910 24,833 Diluted 25,029 24,908 25,082 25,032

Where Food Comes From, Inc.Calculation of Adjusted EBITDA*(Unaudited) Three months ended June Six months ended June 30, 30,(Amounts in thousands) 2020 2019 2020 2019 Net income attributableto Where Food Comes $ 351 $ 361 $ 110 $ 218From, Inc.Adjustments to EBITDA: Interest expense 3 2 5 5 Income tax expense 145 129 65 46 Depreciation and 244 285 478 546 amortizationEBITDA* 743 777 658 815Adjustments: Stock-based 24 47 55 92 compensation Cost of acquisitions 15 - 15 -ADJUSTED EBITDA* $ 782 $ 824 $ 728 $ 907 *Use of Non-GAAP Financial Measures: Non-GAAP results are presented only asa supplement to the financial statements and for use within management'sdiscussion and analysis based on U.S. generally accepted accounting principles(GAAP). The non-GAAP financial information is provided to enhance the reader'sunderstanding of the Company's financial performance, but non-GAAP measuresshould not be considered in isolation or as a substitute for financialmeasures calculated in accordance with GAAP. Reconciliations of the mostdirectly comparable GAAP measures to non-GAAP measures are provided herein.

All of the items included in the reconciliation from net income to EBITDA andfrom 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 inassessing the Company's ongoing operating performance (e.g., M&A costs, incometaxes, gain on sale of investments, loss on disposal of assets, etc.). In thecase of the non-cash items, management believes that investors can betterassess the Company's operating performance if the measures are presentedwithout such items because, unlike cash expenses, these adjustments do notaffect the Company's ability to generate free cash flow or invest in itsbusiness.

We use, and we believe investors benefit from the presentation of, EBITDA andAdjusted EBITDA in evaluating our operating performance because it provides usand our investors with an additional tool to compare our operating performanceon a consistent basis by removing the impact of certain items that managementbelieves do not directly reflect our core operations. We believe that EBITDAis useful to investors and other external users of our financial statements inevaluating our operating performance because EBITDA is widely used byinvestors to measure a company's operating performance without regard to itemssuch as interest expense, taxes, and depreciation and amortization, which canvary substantially from company to company depending upon accounting methodsand book value of assets, capital structure and the method by which assetswere acquired.

Because not all companies use identical calculations, the Company'spresentation of non-GAAP financial measures may not be comparable to othersimilarly titled measures of other companies. However, these measures canstill be useful in evaluating the Company's performance against its peercompanies because management believes the measures provide users with valuableinsight into key components of GAAP financial disclosures.

Where Food Comes From, Inc.Balance Sheets June 30, December 31,(Amounts in thousands, except per share 2020 2019 amounts)Assets (Unaudited) Current assets: Cash and cash equivalents $ 4,517 $ 2,638 Accounts receivable, net of allowance 1,770 2,515 Short-term investments in certificates 261 258 of deposit Prepaid expenses and other current 351 450 assets Total current assets 6,899 5,861 Property and equipment, net 1,697 1,545 Operating lease right-of-use assets 3,139 3,268 Investment in Progressive Beef 991 991 Intangible and other assets, net 3,258 3,248 Goodwill 2,946 2,946 Deferred tax assets, net 349 378 Total assets $ 19,279 $ 18,237 Liabilities and Equity Current liabilities: Accounts payable $ 780 $ 1,023 Accrued expenses and other current 740 674 liabilities Deferred revenue 1,206 797 Current portion of long term debt 465 - Current portion of finance lease 10 8 obligations Current portion of operating lease 254 239 obligations Total current liabilities 3,455 2,741 Long term debt, net of current portion 565 - Finance lease obligations, net of current 16 21 portionOperating lease obligation, net of current 3,395 3,526 portionTotal liabilities 7,431 6,288 Commitments and contingencies Equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding - - Common stock, $0.001 par value; 95,000,000 shares authorized; 25,812 (2020) and 25,802 (2019) shares issued, and 24,839 (2020) and 24,977 26 26 (2019) shares outstanding Additional paid-in-capital 11,483 11,425 Treasury stock of 973 (2020) and 825 (1,934 ) (1,665 ) (2019) shares Retained earnings 2,273 2,163 Total equity 11,848 11,949 Total liabilities and stockholders' equity $ 19,279 $ 18,237