Where Food Comes From Inc (WFCF) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the IMI Global 2007 year-end earnings call. During today's presentation all parties will be in a listen-only mode and following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today Wednesday, March 26 of 2008.

I would like to turn the conference over to Jay Pfeiffer. Please go ahead, sir.

Good morning, and welcome to IMI Global's 2007 financial results conference call. During the course of this call, we will be making forward-looking statements based on our current expectations, estimates and projections that are subject to risks, specifically our statements about future revenue, expenses, cash, the Company's growth strategy, market acceptance of the Company's products and services and potential growth and profitability are forward-looking statements. Listeners should not place undue reliance on these statements. 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.

I will now turn the call over to John Saunders, Chief Executive Officer.

Thanks, Jay, and good morning, everyone. Joining us for the first time this morning is our new Chief Financial Officer, Dannette Boyd. I wanted to formally welcome her to the Company and make a quick introduction before proceeding as usual with the presentation of financial and operational highlights.

As we announced about a week ago, Dannette has joined the Company as the successor to Mark McGregor who retired as IMI's CFO to pursue other business and personal interests. Mark was instrumental in guiding us through our first year as a publicly held company, and we also want to thank him for his valuable contribution and guidance. Dannette brings IMI Global a strong and varied background in finance and accounting. Her most recent assignment was Controller of Einstein Noah Restaurant Group where she managed a staff of 25 and was deeply involved in all financial aspects of the business including helping the company complete its recent $90 million public offering.

Her background helping small- and medium-sized companies achieve their growth objectives is ideally suited to her new role here at IMI Global. With that, I will turn the call over to Dannette and bring a brief review of our financial results. Dannette?

Thank you, John. Good morning, everyone. During my recap, I will be rounding to simplify the presentation. For specific numbers, please refer to our news releases.

IMI Global reported record revenue of $2.3 million in 2007, up 50% over revenue of $1.5 million in 2006. Demand remained particularly strong for our USVerified Solutions where revenue grew by 71% to $1.3 million from $735,000 in the prior year. We also reported strong growth, 31% year-over-year in what we now refer to as our network business, which includes our most prominently -- which includes most prominently our CattleNetwork.com advertising business and our CattleStore.com online retail operation. On a combined basis, total network revenue grew to $1 million from $805,000 in 2006. We think this change in how we report revenue will give a clearer picture of our revenue mix.

Gross profit increased 77% in 2007 to $1.3 million or 58% of revenue as compared with gross profit of $758,000 or 49% of revenue in 2006. The reason for this sharp increase is that our topline continues to show good growth while our fixed cost of operations remain fairly stable. We expect this trend to continue in the foreseeable future and as John mentioned in the news release this morning, this bodes well for our goal of transitioning to overall profitability in 2008.

The Company remains highly focused on managing its selling, general and administrative expenses throughout the year, and we achieved a 10% decrease in this category to $2 million from $2.3 million a year ago. The decrease reflected a reduction of $312,000 in non-cash stock-based compensation expense. The combination of lower expenses and improved gross margins enabled us to cut our net loss by 51% to $760,000 or $0.04 per share from $1.6 million or $0.08 per share in 2006. The $760,000 net loss included $41,000 in non-cash stock-based compensation.

Revenue in the fourth quarter increased 50% to $689,000 from $460,000 in the fourth quarter last year. Sequentially revenue was up 11% over third-quarter revenue of $618,000. As usual, the growth was driven primarily by strength in our USVerified Solutions and CattleNetwork, CattleStore businesses.

Gross profit in the fourth quarter grew by 86% to $423,000 or 61% of revenue from $227,000 or 49% of revenue in Q4 a year ago. As I previously mentioned, our cost structure is relatively fixed so incremental increases in revenue, particularly in our higher revenue business areas, goes straight to gross profit.

SG&A in the fourth quarter improved by 27% to $484,000 from $665,000. We achieved an 84% reduction in net loss in Q4 to $71,000 or less than $0.01 per share from $442,000 or $0.02 per share in the same quarter last year. The net loss of $71,000 included $4000 in non-cash costs associated with stock-based compensation.

I'll be happy to answer any questions you might have in the Q&A session following John's remarks. With that, I will turn it over to John.

Thanks, Dannette. As you have just heard, we continue to head in the right direction in terms of both topline growth and bottom-line improvement. Demand for our solutions remains strong and our prospects for continued growth in our core verification business along with the transition to profitable operations are very good.

Throughout 2007, we emphasized controlling costs without sacrificing growth. We have done that. Q4 was our fourth consecutive quarter of reduced year-over-year net loss and our fourth consecutive quarter in 2007 of year-over-year revenue increase. While our growth has been strong at both our verification and network businesses, we are increasingly optimistic about prospects for our USVerified Solutions portfolio to emerge as the dominant force in the industry. One capable of achieving accelerated growth in light of enormous changes in the meat industry, not to mention toughening export regulations, radically changing consumer preferences and demand and other factors.

Moreover, the USVerified Brand continues to gain in popularity as measured by our fast-growing customer base and provide us with tremendous leverage as measured by the number of high-quality new business opportunities we are seeing in areas such as labeling, cobranding and partnering.

Let me provide you with a couple of examples of what I am talking about. On the customer front, we continued to add new producer customers at a healthy clip in 2007 and have done a great job of retaining existing customers. Just yesterday, we announced the Western Video Market cattle auction selected IMI Global as a preferred partner for source and age verification. Western is the nation's second-largest video auction, selling about 500,000 cattle annually from 15 western states. The addition of Western gives IMI Global the two largest video auctions in the nation, which combined handle approximately 75% of all video auction cattle.

You may recall that in the fourth quarter we also announced that Superior Livestock, the nation's largest video auction, private-labeled our USVerified Brand as Superior verified and 30% of all eligible cattle went through the program. As you know, age and source verification is not only required for export beef, but is an excellent way for sellers to earn premium prices for domestic beef. With Superior and Western both in the fold, we now have access to more than two million cattle per year.

Other fourth-quarter developments that we touched on in our last conference call included a co-branding arrangement with the American Charolais Association and a partnership with Humane Farm Animal Care to promote that USDA's premise registration initiative. Both of these arrangements were essentially made possible by IMI Global's reputation as an industry innovator and leader with influence with livestock organizations ranging from cattle ranches, feed yards, sale barns, packers and state departments of agriculture.

More recently, we introduced Simply Natural Beef as the first approved label under the USDA's Never, Ever 3 program. Our Simply Natural Beef offering is designed to clarify natural claims on beef products and to assure consumers the products branded Simply Natural Beef have no added growth hormones, no antibiotics and no animal byproducts in the feed excluding milk and milk proteins. We think our selection as the USDA's first approved program is a strong testament to IMI Global's continued industry position as a long-standing professional relationship with the USDA.

In summary, we believe we have an excellent potential to leverage our USVerified Solutions portfolio along with our growing customer base and strong industry reputation into other high-growth areas of our industry. Moving forward in 2008, we intend to devote more resources to this area.

Before I open the call to questions, I would like to make a quick comment on the stock buyback program we announced early in the first quarter. To reiterate what we said at that time, management and the Board of Directors believe our shares represent an excellent value of current trading levels. Our intention is to make open market purchases from time to time at prices we believe to be advantageous to the Company and our shareholders. IMI Global has demonstrated solid, steady growth as a public company and foresees continued growth and progress in 2008 as we role out new products and services and continue to expand our core offerings.

We continue to be a leader and an aggressive innovator in an exciting growth industry. For a variety of reasons, our share price has not reflected our revenue growth in improving bottom line. And this has created an opportunity for the Company to buy stock at very attractive levels. To date we have purchased a small number of shares and intend to continue making selected purchases as appropriate.

I want to thank you for joining the call today and for supporting IMI Global. We look forward to updating you on our progress in our next conference call. Operator, you can open the call to questions.

(OPERATOR INSTRUCTIONS) [Robert Bauscher], [Bauscher Capital].

Congratulations to all involved for the strong performance in '07 and particularly the fourth quarter. John, I would like to ask what do you see are the key strategies you need to execute on for sustaining this growth and attaining some consistent profitability?

Thanks for the call, Robert. It is good to have you on today. Well, I think as I mentioned in the call today and have continued to reiterate over the past several calls, I think continuing to grow our core verification business, which is primarily consisting of large cow/calf operations and feed yards, and we currently work with all major packers in the US both beef and pork.

I think our long-term objective continues to be to get our brands in front of consumers and to create a pull-through mechanism that will allow our supply base to more accurately communicate the marketing claims that are being made on their agricultural products. So the more that we are able to connect that loop, Robert, that being between the producers of agricultural commodities and consumers and our ability to provide that link through our brand names, will be what really enables us to have strong growth and I believe exponential growth.

Thank you, John.

(OPERATOR INSTRUCTIONS) [Joe Lind], [Lind Investments].

Congratulations on your performance. That's really encouraging. I just had a quick question regarding your company and the position you are in. It seems like you guys have excellent exposure and a good reputation in this industry. Do you see any opportunities for acquisitions or do you see yourself possibly as a target?

Great question, Joe. I will take this one and maybe if Dannette wants to chime in, she can as well. I had a guy tell me one time that in the business world you are either an acquirer or an acquiree, so I think as a business strategy, we continue to look at ourselves as both a potential acquirer or partnerer and I would say as we become more successful, more profitable and continue to gain exposure, especially in the investment community, that we could be a potential acquisition target. That is not a part of our short-term strategy today.

Again, we remain very, very focused on controlling our expenses, Joe, and making sure that we are growing our topline and moving into profitability this year that really will position us to have a lot of different opportunities, some of which could be acquisitions and we will see exactly what that turns out to be. But again, we're very focused on being profitable right now.

Thank you, and good luck.

[Justin Onhell], a private investor.

John, wanted to tap you on your thoughts about the consolidation in the packing industry and what the ramifications for IMI will be if the Brazilian companies are able to acquire the companies that they are chasing now?

Great question, Justin. Obviously we've been following the JBS acquisition promenade they've been going on over the past several months. We currently work not only with Swift, but also with National and Smithfield. I think as you talk to people, Justin, around the industry you get two definite different perspectives. I believe that both of those perspectives are positive for IMI Global. One is the reality with JBS is that they are very focused on markets that traditionally domestic packers would not have been. And the primary one, and the one that we unfortunately didn't talk very much about in this call but we've seen tremendous growth has been the European Union and the non-hormone treated program for both beef and pork.

Well, JBS as a Brazilian company has already made those contacts and those relationships to access those markets. So I believe that them consolidating their position in the US will probably fuel the growth of export markets, both to the EU and to the Pacific Rim. As you know also, Justin, I'm sure the Brazilian situation today with their foot and mouth situation and the subsequent closing of the EU market, I believe is probably part of -- now this pure conjecture -- I would say is at least part of JBS's decision to invest so heavily in the US packing industry.

Furthermore, and this is the second part of the answer, it appears today that especially if the acquisition of National goes through, we have an excellent working relationship with National Beef. It appears that the individuals from within that group are scheduled to be the core management team of JBS's US division. And if that occurs, and that is the case again that is a positive for IMI Global as we have those relationships and I believe will again position us just to have the right context to further get our services embedded within the JBS umbrella because of the people that we are already working with.

Thank you, John.

Thanks for the question, Justin.

Thank you. And there are no further questions at this time. I will turn it back to Mr. Saunders for any closing remarks.

Once again I would like to thank you all for your continued support. And hopefully from the call today you are able to understand our enthusiasm and our excitement about the future. I think those of you that have been supporting us over the long-term realize where I think we all see the future of our business and the future of the industry that we are involved with. And we continue to value the strong shareholder support that we've got, and we really appreciate you guys getting on the call.

So with that, I will end the call today and again very much appreciate all of your time.

Thank you. Ladies and gentlemen, that does conclude the IMI Global 2007 year-end earnings conference call. We would like to thank you for your participation and for using ACT Teleconferencing. You may now disconnect.