• Total Revenue: Increased 4% to $6.4 million from $6.1 million year over year.
• Verification and Certification Services Revenue: Grew 10% to $5.3 million from $4.8 million.
• Product Revenue: Declined 13% to $0.8 million from $0.9 million.
• Professional Services Revenue: Declined to $0.3 million from $0.4 million.
• Gross Profit: Increased to $2.7 million from $2.5 million.
• Selling, General, and Administrative Expense: Increased to $2.1 million from $1.8 million.
• Operating Income: Declined to $0.6 million from $0.7 million.
• Net Income: Declined 8% to $489,000 from $532,000.
• Diluted EPS: Remained at $0.09 per share.
• Adjusted EBITDA: Decreased 8% to $0.8 million from $0.9 million.
• Share Buyback: Repurchased 33,347 shares at a cost of $389,000 in the second quarter.
• Six-Month Total Revenue: Increased 5% to $12 million from $11.4 million.
• Six-Month Net Income: Increased slightly to $667,000 or $0.12 per diluted share from $653,000 or $0.11 per diluted share.
• Cash from Operations: Generated $1.9 million through six months compared to $1.3 million in the prior year.
• Cash and Cash Equivalents: Balance at midyear was $2.6 million.
• Six-Month Share Buyback: Repurchased 149,419 shares, including 69,218 shares as part of the ongoing buyback program.

• Warning! GuruFocus has detected 6 Warning Signs with VXRT.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Total revenue in the second quarter increased by 4% to $6.4 million, driven by a 10% increase in verification and certification services.
• Gross profit in the second quarter rose to $2.7 million from $2.5 million, indicating improved profitability.
• The company generated $1.9 million in cash from operations through the first six months, up from $1.3 million in the same period last year.
• The Upcycled Certified program has emerged as one of the fastest-growing certification standards, with significant potential for future growth.
• The company continues to expand its product and services portfolio, strengthening its business and providing multiple revenue streams.

Negative Points

• Product revenue declined by 13% to $0.8 million, reflecting ongoing challenges in RFID tag sales due to smaller herd sizes.
• Professional services revenue also decreased to $0.3 million from $0.4 million year over year.
• Selling, general, and administrative expenses increased to $2.1 million from $1.8 million, impacting overall profitability.
• Operating income declined to $0.6 million from $0.7 million, leading to an 8% decrease in net income.
• Adjusted EBITDA in the second quarter was 8% lower at $0.8 million compared to $0.9 million in the previous year.

Q & A Highlights

Q: How is the USDA's mandate on RFID tags impacting your business, and what are your plans to adapt to this new environment? A: Jay Pfeiffer, Manager - Investor Relations, explained that the final rule was implemented this spring, and they have seen impacts such as transitioning existing customers to 840 identification devices. The company has adapted by allowing producers to bring government-subsidized tags into their system for a fee, anticipating that government funding will eventually dry up, leading producers to purchase tags directly from them. This transition is expected to take three to five years, providing opportunities for more producers to join their verification programs.

Q: Can you elaborate on the impact of smaller herd sizes on your business? A: John Saunders, CEO, noted that smaller herd sizes have led to a decline in RFID tag sales, impacting product revenue. However, the company has managed to offset this with growth in verification and certification services, which increased by 10% year over year. They expect the beef verification business to bounce back as herd sizes normalize.

Q: What are the emerging revenue streams for Where Food Comes From Inc? A: John Saunders highlighted two emerging revenue streams: the Upcycled Certified program and biosecurity services. The Upcycled Certified program, which focuses on using nutritional food ingredients that would otherwise go to waste, is gaining traction with major food producers and retailers. The biosecurity business leverages their expertise in traceability systems and animal welfare audits to offer services that reduce the risk of infectious disease transmission.

Q: How is the company managing increased SG&A expenses? A: John Saunders mentioned that SG&A expenses increased due to higher marketing, personnel, and travel costs. Despite these challenges, the company continues to grow its top line profitably and generate strong cash flows. They are navigating a competitive labor market, which impacts both gross profit and SG&A levels.

Q: What is the company's strategy for share buybacks? A: John Saunders stated that the company continued its share buyback program, repurchasing 33,347 shares in the second quarter at a cost of $389,000. They believe buybacks at current price levels are a good investment and a way to return value to stockholders regularly.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.