Company Overview
Where Food Comes From, Inc. (WFCF) is a leading provider of independent, third-party verification services for the food and agriculture industry in North America. The company’s mission is to ensure transparency and authenticity in food production practices, catering to the growing consumer demand for responsibly sourced and sustainable products.
Founded in 1996 and headquartered in Castle Rock, Colorado, Where Food Comes From has evolved into a comprehensive solution for farmers, ranchers, food producers, and retailers. The company’s diverse suite of services includes on-site audits, desk audits, and technology-enabled traceability platforms that verify a wide range of claims, such as organic, non-GMO, humane handling, and more. WFCF estimates it supports over 17,500 farmers, ranchers, vineyards, and other food producers through its verification and consulting services.
History and Evolution
The company was initially incorporated in Colorado as a subchapter C corporation in 2006 under the name Integrated Management Information, Inc. d.b.a. IMI Global. In 2012, the company changed its name to Where Food Comes From, Inc. to better reflect its mission of being a trusted resource for third-party verification of food production practices. This change coincided with the company’s expansion beyond its initial focus on source and age verification services for the beef industry, which had been driven by the need for increased transparency following the discovery of mad cow disease in the United States.
Over time, Where Food Comes From has expanded its reach to cover a broader range of food groups and over 50 different programs and organizations, making it a trusted resource for the entire agricultural ecosystem. This growth has been achieved both organically and through strategic acquisitions of other companies. In 2014, the company launched its Where Food Comes From Source Verified retail and restaurant labeling program, which utilizes the verification of product attributes to connect consumers directly to the source of the food they purchase.
Revenue Model
The company’s revenue model is primarily driven by its verification and certification services, which account for approximately 80% of total revenue. Product sales, primarily related to the sale of livestock identification tags, contribute an additional 15% to the top line. The remaining 5% comes from the company’s professional services segment, which provides a range of consulting, data analysis, and technology solutions to support its core verification business.
Financials
From a financial perspective, Where Food Comes From has demonstrated resilience and consistent growth. In 2023, the company generated $25.14 million in revenue and $2.15 million in net income, reflecting a net profit margin of 8.5%. Operating cash flow for 2023 was $2.82 million, with free cash flow of $2.67 million.
For the most recent quarter (Q3 2024), WFCF reported revenue of $7.11 million, a 1.5% increase year-over-year. This growth was driven by a 2.4% increase in verification and certification services revenue to $5.49 million, and a 9.0% rise in product sales to $1.33 million. However, net income for the quarter declined by 32.0% to $492,000, primarily due to higher fixed costs and lower operating margins. Operating cash flow for the quarter was $912,000, with free cash flow of $873,000.
For the first nine months of 2024, WFCF reported total revenue of $18.4 million, a 4% increase compared to the same period last year. Verification and certification services revenue grew by 9% to $15.2 million, while product revenue declined by 8% to $2.9 million. Professional services revenue was $1 million, compared to $1.3 million in the prior year period. Gross profit for the nine-month period increased by 3% to $7.8 million, while operating income declined by 18% to $1.5 million. Net income decreased by 16% to $1.2 million or $0.21 per diluted share, compared to $1.4 million or $0.24 per diluted share in the prior year period. Adjusted EBITDA was $2.1 million, compared to $2.5 million in the prior year period.
Liquidity
The company’s balance sheet remains robust, with a current ratio of 1.42 and a quick ratio of 1.21. WFCF has no long-term debt, resulting in a debt-to-equity ratio of 0. As of the most recent reporting period, the company had $2.76 million in cash and an available credit line of $75,080 through a revolving credit facility. This facility, which matures in April 2025, has an interest rate of Wall Street Journal prime rate plus 1.5% and is currently undrawn.
Where Food Comes From’s free cash flow has been consistently positive, providing the company with the flexibility to invest in strategic priorities and return capital to shareholders. One area of focus for the company has been its share repurchase program. In 2023, Where Food Comes From repurchased 312,000 shares of its common stock at an average price of $12.68 per share, underscoring management’s confidence in the long-term outlook and commitment to enhancing shareholder value.
Growth Strategy
The company’s growth strategy has been a combination of organic initiatives and strategic acquisitions. In recent years, Where Food Comes From has expanded its capabilities through the acquisition of companies like SureHarvest and Postelsia, which have bolstered its professional services offerings and technology-enabled solutions.
Future Outlook
Looking ahead, Where Food Comes From is well-positioned to capitalize on the increasing consumer demand for transparency and sustainability in the food supply chain. The food verification industry has seen steady growth, with a compound annual growth rate (CAGR) of approximately 7.9% over the past five years, driven by rising consumer demand for transparency.
The company’s recent efforts to strengthen its organic certification services, in response to the USDA’s Strengthening Organic Enforcement (SOE) rule, have further solidified its industry-leading position. This new rule is expected to increase demand for WFCF’s organic certification and traceability services.
Additionally, the USDA’s new animal disease traceability (ADT) program, which requires electronic RFID tags for certain classes of cattle, presents a significant growth opportunity for Where Food Comes From. The company estimates that this could lead to an additional 10 million head of cattle being RFID tagged in the next year, with the potential for another 90 million cattle becoming eligible for WFCF’s value-added programs over the next decade. This development significantly expands the company’s addressable market.
While the company’s beef-related business has faced some temporary headwinds due to the cyclical nature of the industry, Where Food Comes From’s diversified revenue streams and strong execution have enabled it to maintain consistent financial performance. The company has been able to weather these challenges and continue to grow its business by diversifying its service offerings and focusing on innovation and customer service.
Segment Performance
Verification and Certification Segment
This segment is WFCF’s core business, providing third-party verification and certification services for food producers and brands. For the three months ended September 30, 2024, verification and certification service revenue was $5.49 million, an increase of 2.4% compared to the same period in 2023. For the nine months ended September 30, 2024, this revenue stream grew by 8.8% year-over-year to $15.17 million. This growth was driven by new customer additions and expanded services for existing customers.
Product sales, primarily consisting of cattle identification ear tags, were $1.33 million for the three months ended September 30, 2024, a slight increase of $0.1 million compared to the prior year period. However, for the nine months ended September 30, 2024, product sales decreased by $0.25 million to $2.88 million, attributed to the smaller beef cow herd size due to the industry’s contraction phase in the typical 10-year cattle cycle.
Segment costs of revenues were $4.13 million and $10.57 million for the three and nine month periods ended September 30, 2024, respectively, representing increases of 8.7% and 7.1% compared to the same periods in the prior year. Gross margin for the verification and certification segment was 39.4% and 41.4% for the three and nine month periods, respectively, down slightly from the prior year due to higher product costs.
Other operating expenses for this segment increased by $0.3 million and $0.6 million for the three and nine month periods, respectively, as the company expanded its marketing efforts both domestically and internationally. Despite the higher costs, the verification and certification segment remained WFCF’s primary profit driver, contributing operating income of $593,000 and $1.45 million for the three and nine month periods ended September 30, 2024.
Professional Services Segment
This segment provides a range of professional consulting, data analysis, reporting, and technology solutions. Professional services revenue was $292,000 for the three months ended September 30, 2024, a decrease of $139,000 compared to the prior year period. For the nine months ended September 30, 2024, professional services revenue declined $300,000 to $1.03 million. These decreases were attributed to realigning employee tasks to focus on more profitable areas.
Costs of revenues for the professional services segment were $204,000 and $748,000 for the three and nine month periods, respectively, down from $341,000 and $1.03 million in the prior year periods. This resulted in improved gross margins of 30.1% and 27.4% for the three and nine month periods, up from 20.9% and 22.6% in the comparable 2023 periods.
The professional services segment contributed operating income of $15,000 and $7,000 for the three and nine month periods ended September 30, 2024, respectively, as the company optimized the cost structure of this business.
Where Food Comes From’s ability to navigate industry challenges, coupled with its strategic initiatives and industry-leading position, make it a compelling investment proposition for investors seeking exposure to the rapidly evolving food and agriculture sector. The company’s focus on product integrity and transparency in the food supply chain continues to be a key competitive advantage as it pursues growth opportunities in the expanding market for food verification and traceability services.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.