Where Food Comes From Inc (WFCF) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the IMI Global second-quarter 2008 results conference call.

During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Tuesday, July 29, 2008.

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

Good morning and welcome to IMI Global's 2008 second-quarter financial results conference call.

During the course of this call, we will be making forward-looking statements based on current expectations, estimates and projections that are subject to risk. 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 Web site for more information about the Company.

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

Thanks, Jay. This morning, we announced financial results that included our first profitable quarter as a public company. Transitioning to profitability has been a key objective for the entire IMI Global team since inception, and we are proud to have achieved this objective without sacrificing our top line, which continues to grow at an impressive clip.

You are also probably aware that, subsequent to the end of the second quarter, we sold three online businesses to Vance Publishing. This was a strategic move designed to improve our financial strength and refocus us on our core verification solutions, which are key to our future in that they offer the greatest potential for sustainable long-term and profitable growth.

I will get into this transaction in more detail in a few minutes, but first Dannette Boyd, our CFO, will provide a quick recap of our second-quarter and six-month financial highlights.

Good morning, everyone.

As John mentioned, IMI Global's transition to profitability in the second quarter ended June 30, 2008 -- the Company reported net income of $43,000 or less than $0.01 per basic and diluted share, compared to a net loss of $210,000 or $0.01 loss per basic and diluted share in the same quarter last year. The profit was achieved through a combination of steadily increasing revenue and a stable expense base.

Revenue in the second quarter increased 53% to $808,000 from $530,000 in the second quarter a year ago. Once again, demand for our USVerified solution was the primary driver. Specifically, we achieved an 84% increase in verification revenue to $612,000, or 76% of total revenue, from $333,000 in the second quarter last year.

Our total expense base, which includes our cost of revenue and SG&A line items, amounted to $752,000 in the second quarter, versus $733,000 in the same quarter last year. In other words, we added less than $20,000 in total expense year-over-year, an increase of less than about 3%, while our revenue increased nearly $280,000 over the same period, which is an increase of 53%.

Our transition to profitability in the second quarter lead to a $518,000 positive swing on the bottom line through six months. Net loss year to date was just $18,000 or less than $0.01 per basic share, basic and diluted share, compared with a net loss of $500,000 or a $0.03 loss per basic and diluted share in the same period last year. Again, the improvement was due to a 53% jump in revenues to $1.5 million from $1 million in conjunction with a modest 2.5% increase in overall expenses.

As John mentioned a moment ago, the divestiture of three of our online businesses had several advantages, one of which was strengthening our financial position. Part of the proceeds of the sale was used to retire a $350,000 note associated with CattleNetwork and provide working capital to support our future growth. While the note appears in the second-quarter financial statements contained in our news release this morning, it will drop off in the third-quarter balance sheet.

With that, I will turn the call over to John.

Thank you, Dannette.

Again, our transition to profitability is a key milestone in the evolution of IMI Global. It's one thing to grow the topline as we have but it's another thing to do it in a profitable manner. We now have in place a lean but very productive infrastructure, including personnel and systems, that can continue to leverage revenue growth without adding significantly to our cost structure. Under our current operating plan, any material growth in our cost structure moving forward would be warranted only by significant revenue growth.

I to take a moment and thank all of our employees for supporting our objectives. I would also like to thank our loyal shareholders would have provided us tremendous support through our transition to profitability. We believe profitable growth is best and the fastest way to build shareholder value.

The second important step we've taken recently to build value is our divestiture of CattleNetwork, CattleStore and AgNetwork, all of which were sold early in the third quarter to Vance Publishing. While these online businesses are all high-quality enterprises and were important to us in what I will call our formative years, our verification and identification solutions have progressed to the point that we felt the Company would best be served by focusing more resources and attention on them.

The transaction with Vance, which closed early in the third quarter, was valued at a little bit over $2 million and included $800,000 in cash and $1.3 million in prepaid advertising credits in Vance's many publications, including magazines, Web sites, and news letters that cater to the markets we serve publications, including Drover's, Pork, Bovine Veterinarian, and Dairy Herd Management, all of which are very successful and highly popular publications with wide circulation to potential IMI customers.

We've also been engaged by Vance under a separate agreement to provide network maintenance and support for the Web sites, and further, are in discussions with Vance regarding other Web site businesses we manage and/or are developing.

The net effect of this transaction is this. Vance Publishing has acquired excellent businesses that they are well-equipped to build into much larger enterprises that can enhance Vance's reputation as an innovative leader in agricultural media. At the same time, IMI Global has strengthened its financial position, eliminated its long-term debt, and aligned itself in a three-year marketing partnership with an industry powerhouse that has the ability to help us attract new customers for our verification solutions and build that segment of our business on an accelerated basis.

Our verification solutions include our flagship USVerified offering, which has been driving tremendous revenue growth and which most of you are well acquainted with. In addition, more recently, we became the exclusive worldwide marketing partner for Born & Raised in the USA, a labeling program ideally suited to help producers, packers and retailers comply with the fast-approaching September of 2008 deadline for compliance with Country of Origin Labeling proscribed by the 2008 Farm Bill. Our partner in this project has registered trademarks on the distinctive American flag logo that reads "Born & Raised in the USA" with separate versions for beef, pork, poultry, lamb, fish and game. As we discussed in our previous conference call, this label is currently being used on a voluntary basis in certain retail stores as a means of promoting domestic meat products but soon will carry much more weight as a mandated confirmation of Country of Origin.

We believe IMI Global's strong customer relationships involving third-party verification, combined with Born & Raised in the USA as a distinctive logo and head-start in the business, give us an excellent chance to establish this brand as the industry standard. We intend to market these solutions aggressively under our 1.3 prepaid advertising arrangement with Vance and have absolutely no reason to believe we won't be successful in attracting new customers and further building our top line.

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.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). [Steve Vatke], [Vatke] Capital Partners.

John, congratulations on a great quarter, also on the sale to Vance. It's fantastic.

I wanted to ask you sort of two questions. One is, you did file an 8-K on Born & Raised in the USA relative to Tyson Foods, so I thought maybe you could give us a little bit of color there. Also, in your earnings release, you talked about potentially being able to use the same sort of Born & Raised in the USA, relative to fruits and vegetables, and with the latest salmonella craze and when they took the tomatoes out of the marketplace for I guess almost a month and then they decided or determined that it was peppers, potentially from Mexico, it would seem to me that there is a huge potential market if you could use that concept in the fruits and vegetable area. So maybe you could give us a little color on these two issues.

Sure, sure. With regards to your first question, Steve, as you mentioned, we did file an 8-K last week. Let me start by saying that we believe and our primary objective with Born & Raised is to make Tyson a customer of Born & Raised and bigger customer of IMI Global. That being said, we feel very strongly that the marks that were issued were both legally issued and are fully enforceable. The marks were in commerce for five years prior to this petition for cancellation that was filed by Tyson. At this point, we've filed a motion to cancel that cancellation.

We are in the process in all of those relationships -- or the motions are pending in front of the patent and trademark office. To be quite frank with you, we anticipated that we would get a challenge from a third party. We've felt very strongly that, again, the marks are defendable and Tyson's motion to cancel that mark was something that we anticipated, but again, we are very excited about the defense of that.

To lead into your second comment -- or second question about fruits and vegetables, very much so -- we believe that the Born & Raised in the USA marks will effectively transfer to not only fruits and vegetables but nuts, herbs, all different forms of agriculture. We are very excited about the potential to expand Born & Raised into other markets.

So with this initial test of the marks, we are, again, very excited about our position and we look forward to addressing the market and continuing to market the Born & Raised program.

(Operator Instructions). Ken Maciora, Empire Relations Group.

Your line is open at this time. Please go ahead with your question.

(Operator Instructions). There are no further questions in the queue at this time. I will turn it back to management for any closing remarks.

Once again, we would like to thank you for your support of IMI Global. We look forward to addressing our plan as we move forward. Thank you very much.

Thank you. Ladies and gentlemen, this does conclude the IMI Global second-quarter 2008 results conference call. If you would like to listen to a replay of today's conference, you can dial 800-405-2236 or 303-590-3000, and enter access code 11117695#. (Operator repeats instructions).

Thank you for your participation. You may now disconnect.