Where Food Comes From, Inc. Q3 FY2025 earnings call

• Strength in service offerings offset smaller herd impacts on core beef-related verification. Total revenue declined slightly by $92,000 year-over-year.
• Verification and certification segment saw growth in pork, dairy, egg verifications and various certification activities. Bundling services contributed to revenue growth and gross margin. Customer retention rates above 90% aided revenue stability.
• Hardware sales down due to lower tag volumes, but value-added tags helped. Gross margins stable, SG&A expense declined, resulting in operating income of $575,000 vs $608,000 prior year. Net income grew to $1.1 million.
• Balance sheet strong with $4.8 million cash, no debt. Stock buybacks: retired 116,547 shares YTD.
• Included in Time Magazine's America's Growth Leaders 2026 ranking.
• Focus on innovation in services like labeling program and upcoming new services to expand market portfolio.

Total revenue in the third quarter was $7 million. The verification and certification segment grew by 1% to $5.6 million, contributing approximately 80% of total revenue. Hardware sales declined to $1.2 million from $1.3 million year-over-year due to lower tag volumes, but was partially offset by growing demand for value-added tags sold at higher price points.

• Cattle prices starting to build herd, but border closure and screwworm issues impact short-term. Anticipate market trends and consumer demand driving growth in dairy, poultry, organic certification segments.
• View beef as a long-term play while focusing on growing other segments like dairy, poultry, and organic certification which are growing rapidly.

• Headwinds from tariffs, inflation, wage inflation, and smaller herd sizes affecting verification and hardware revenue.
• Border closure with Mexico impacting beef supply.
• Screwworm issue hindering herd building.
• Trade negotiations and EU restrictions posing challenges to demand.

Q: Had a quick question with regard to the herd size and product revenue long term. When do you think you'll see a material pickup in product revenue relative to herd size growing? Is the beef and cattle futures prices high enough to get the demand up there in a year or 2?

A: John Saunders and Leann Saunders responded, mentioning cattle prices starting to build herd but facing border closure with Mexico and screwworm issues; anticipating another year and then supply increase but uncertainties in trade and EU restrictions.

Q: Following up on that question, under the assumption that kind of the beef verification is kind of stable and not growing particularly fast in the next year or so, what are the other businesses and programs that you're most excited about that you think will be kind of growers in the next year or 2? And then the second question is kind of a little bit capital structure. Are you thinking of yourselves as a growth company? Or can we think about more of kind of a stable cash-generating business going forward? I know you've done some dividends in the past, et cetera. How do you think about the balance sheet, the buildup of cash and what you do with it?

A: John Saunders answered, stating excitement about growth in dairy, poultry, organic certification due to consumer trends; mentioned sale of Progressive Beef improved capital structure, focus on growth areas, new AI initiatives, and SEO investment; considers the company a growth company and willing to use capital for growth if opportunities arise