Greetings. Welcome to the Where Food Comes From Second 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] Please note that the conference is being recorded.

I will now turn the conference over to your host Jay Pfeiffer with Investor Relations. You may begin. .

Good morning and welcome to the Where Food Comes From second quarter earnings call. Joining me on the call today are John Saunders, CEO; and Leann Saunders, President. During this call, we'll make forward-looking statements based on current expectations estimates and projections that are subject to risk.

Statements about current and future financial performance, growth strategy, customers, 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.

Today, we'll also discuss adjusted EBITDA, a non-GAAP financial measure provided as a complement to GAAP results. Please refer to today's earnings release for important disclosures regarding the non-GAAP measures. I'll now turn the call over to John Saunders, Chairman and Chief Executive Officer. .

Good morning, and thanks for joining the call today. This morning we released our second quarter financial results before the market opened. These results reflected what we hope is the beginning of the return to normalcy as a lot of the restrictions put in place due to the COVID pandemic began to lift.

That said, the recent surge in COVID Delta variant and the government's evolving response to that surge reminds us that the timetable for business as usual is still up in the air.

You'll recall that in 2020 as the pandemic gained momentum many of our customers for pork, poultry, egg and dairy audits and to a lesser extent organic audits were forced to limit third-party visits to their operations due to government-mandated social distancing restrictions.

With the approval of standard-setting bodies under unprecedented conditions, we responded to that challenge by transitioning to remote audits using various video technologies that allowed us to complete a limited amount of work for these customers, and generate a modest amount of revenue against what is typically a more meaningful component of our revenue mix.

Fast forward to the second quarter this year as restrictions began to ease, we began to resume on-site audits.

This resulted in a sharp increase in revenue at our Validus and Where Food Comes From organic units that coupled with other solid performance by our IMI Global beef unit drove a 16% year-over-year increase in revenue to $5.1 million from $4.4 million. For the six months revenue was up 15% to $9.6 million from $8.3 million.

While we are certainly happy to see a resumption of these delayed audits, it is important to note that the revenue derived from these verification categories is lower margin than our core beef business, and that impacted our consolidated margins for both Q2 and the six-month period.

Margins were also impacted by an increase in travel expense related to the resumption in on-site audits and higher compensation costs due to new hires and accrual of bonuses that we didn't have a year ago, when revenue was down due to the pandemic.

So on the cost side, there was a lot going on in Q2, but I think it's important to dig into the detail when margins swing like they did this quarter, so our investors can put such swings into context.

As a general statement, once we return to normal conditions, we expect margins to become more predictable and to steadily improve, as we scale our business. Net income in the second quarter was $202,000 or $0.03 per share, down from $351,000 or $0.06 per share.

This was partially due to all the things I just mentioned in terms of margin pressure as well as to an approximate $100,000 increase in SG&A related to growth in headcount and compensation expense plus higher public company costs related to our April NASDAQ uplisting. Net income through six months was $1.4 million, up from $110,000.

But remember $1 million of the $1.4 million stemmed from forgiveness of our PPP loan in the first quarter. Absent that $1 million in other income net income was still up approximately three times year-over-year. Adjusted EBITDA in Q2 was down 32% year-over-year to $535,000, but up 22% to $889,000 for the six-month period.

We generated $1.6 million in net cash from operations year-to-date nearly equaling the $1.7 million in the year-ago six-month period. Our cash and cash equivalents balance grew to $5.3 million from $4.4 million year-over-year and working capital increased to $4.9 million from $4.4 million. News since our last earnings call.

In April, we finalized our uplisting to the NASDAQ capital market. This uplisting was intended to raise our profile in the broader investment community and make us eligible for investment by institutional investors and ETFs that were previously unable to invest in our shares, due to restrictions on buying unlisted stocks.

Since the uplisting was completed we've experienced a noticeable uptick in unsolicited interest from institutional investors and expect that to continue to grow as we grow our business. More recently we announced a special dividend of $0.15 per share with an aggregate value of $914,000.

Since that announcement, we've had some questions about why now? And are we going to be on an income stock? As to why now? The Board has been considering it for quite a while. We have, what I believe is, an unusual shareholder base in terms of loyalty and longevity. Many of our shareholders have been in the stock for 10 or 15 years.

A number of our largest shareholders were original investors in our business either prior to or near the time we went public. I believe we are a rare microcap company that actually has shareholders who take the time to show up in person for annual meetings during non-pandemic years.

With all this in mind and because of the recent timing of our uplisting to NASDAQ, the Board decided that now would be a good time to distribute some cash to shareholders. I think it's also important to point out that our balance sheet was strong enough to support this dividend.

We used just 18% of our $5 million cash and cash equivalents balance at the end of the first quarter to pay the dividend and we believe our remaining cash balance is more than sufficient to support growth initiatives and maintain a healthy balance sheet. As to the second question, are we now an income stock? The answer is no.

Hence, the designation special dividend. To be clear, we view Where Food Comes From as a growth company that is in the very early innings of the game. We understand that our legacy and new investors buy microcaps, primarily for the promise they hold of growing into small caps and mid-caps. Accordingly, we intend to reinvest in growth initiatives.

This is not to say the Board will not authorize another special dividend at some future date. We are focused on returning value to shareholders and stock price appreciation is just one way of doing that a special dividend is another. Our stock buyback program which last year totaled $1.37 million in purchases is another.

Over the past 15 months, we have remained focused on managing our business through the pandemic, pursuing customer base growth and retention initiatives and maintaining a strong balance sheet, which I'll remind you is still debt free.

We are laser-focused on delivering profitable and sustainable growth for our stockholders and we are excited about prospects for doing so.

In closing I want to again thank the Where Food Comes From team for their outstanding effort this year under very challenging circumstances and our shareholders and other stakeholders for their continued confidence and support. With that, I'll turn the -- open the call to questions.

So, operator?.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Terry Thompson, a private investor..

John, congratulations on the quarter, and I want to thank you personally for the special dividend that we spoke about that very generally and briefly the last time we spoke face-to-face at our last in-person meeting. And I'd mentioned that to a few people and they kind of pooh-poohed it. And now, I can call them back and tell them I told you so.

So, I just want to thank you very much, you all are doing a fantastic job there. And I think you weathered the disruptions in this last year 1.5 years and the economy extremely well. And I just feel privileged to be a long time stockholder with you all, and look forward to bigger and brighter things in the future.

Thank you so much to you and everybody there, and thanks a lot..

Well, thank you very much Terry. Not exactly sure about the conversation, but I really, really appreciate the sentiment. And as I mentioned, we've been very, very fortunate to have the group of shareholders that we've had and the commitment over the long-term. And so, thank you very much..

Thank you. Take care, and I hope we're able to get back to in-person shareholder meetings. I really enjoy those. Take care, and God bless everyone there. Thank you, sir. .

[Operator Instructions] At this time, there are no more questions. We have reached the end of the question-and-answer session, and I will now turn the call over to John Saunders for closing remarks..

Well, once again thanks everybody for joining the call and we'll talk to you in three months..

This concludes today's meeting. Thank you for your participation. You may disconnect your lines at this time..