Where Food Comes From, Inc. Q3 FY2024 earnings call

• Total revenue in Q3 was $7.1M vs $7M prior year. Verification and cert services up 2% to $5.5M, product revenue up 9% to $1.3M, pro services down to $0.3M.
• Gross profit in Q3 was $2.8M vs $2.9M. SG&A increased 13% to $2.2M due to higher marketing, personnel, travel costs. Net income down 32% to $0.5M. Adjusted EBITDA down 29% to $0.8M.
• Nine-month total revenue $9.1M, up 4%. Gross profit $7.8M, up 3%. SG&A up 10% to $6.3M. Operating income down 18% to $1.5M. Net income down 16% to $1.2M.
• Beef business is largest revenue generator but facing headwinds; diverse non-beef services mix compensating.
• USDA ADT program: Final rule on animal disease traceability with requirement for electronic RFID tags for certain cattle. Short-term positive impact with new tag customers, but subsidies have limitations. Long-term potential with up to 10M additional cattle tagged over next year and 90M eligible for value-added programs over 10 years.
• USDA SOE rule: Strengthens organic enforcement with new record keeping, traceability audits, etc. Organic business has strength with SOW Organic technology platform addressing SOE requirements.

Total revenue in Q3 increased to $7.1 million from $7 million. Verification and certification services saw a 2% increase to $5.5 million from $5.4 million. Product revenue rose 9% to $1.3 million from $1.2 million. Professional services revenue declined to $0.3 million from $0.4 million. For nine-month results, total revenue was $9.1 million, up 4%. Verification and certification services were $15.2 million, up 9%. Product revenue was $2.9 million, down 8%. Professional services revenue was $1 million compared to $1.3 million.

• Headwinds in beef verification business continuing due to herd downsizing and drought.
• Sustainability of USDA subsidies for RFID tags is uncertain, including federal funding availability and potential tax implications for ranchers.
• Subsidies limit ranchers to one-dimensional tags instead of more versatile customizable tags provided by the company.