Where Food Comes From, Inc. (WFCF) Earnings Call Transcript

Greetings, and welcome to Where Food Comes Third Quarter 2026 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Jay Pfeiffer, Director of Investor Relations. Thank you. You may begin.

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. I'll now turn the call over to John Saunders.

Hello, and thank you for joining the call this morning. We were pleased to report strong financial results in our news release issued before the market opened. Total revenue in the third quarter increased 4% to $7.3 million. That increase included 6% growth in our core verification and certification segment which is benefiting from strong demand for multiple services across our solutions portfolio. As highlighted in our press release, we are seeing resurgent demand in our beef related business despite continued pressure resulting from smaller bird sizes and fewer cattle moving through the system. The primary drivers of this growth are new standards we have developed internally to address emerging producer and consumer trends that are changing the way shoppers make decisions about animal protein purchases. Recently, Rays well certified has enjoyed strong market uptake and has begun to make a meaningful contribution to revenue. Introduced in January of this year, RaiseWell was adopted a month later by Whole Foods market as a recognized animal welfare standard. As with our CARE program, RaiseWell was expanded to include other proteins. And in October, we announced that Whole Foods had extended the standard to cover its poultry, pork and land supplies. We view Whole Foods as a strategically important relationship due to its size, 540 stores and millions of retail customers as well as its reputation as a pioneer in sustainability and human handling practices along with increased transparency into claims their food suppliers make. There are currently 347,000 head of cattle approved under the RaiseWell standard, and we are adding to that number almost daily. Today, 368 cattle ranchers are RaiseWell approved across 26 states. We also count 52 backgrounds, 31 finishing locations and 4 processes among our growing list of customers. As we have recently begun onboarding poultry operations and processors as we expand our focus to other proteins. The beef industry today is characterized by high record prices, record low herd sizes and strong consumer demand for beef products. So it may seem counterintuitive that ranchers continue to invest in various certifications available to them. But that's exactly what is happening. Based on direct customer feedback and video sale data, ranchers are capturing premiums of $100 per head for cattle that have been third-party verified to 1 or more of our standards. So with the growth of our new offerings and in the belief that recovery of the cattle supply cycle is on the horizon, we remain bullish on the long-term prospects for our beef related business. As we've been emphasizing for some time, our work over the past 10 years to expand our solutions portfolio beyond animal proteins has been paying off for us in the form of new revenue streams that reduce our reliance on legacy verification solutions and reduce risks associated with limited product portfolio. Our organic certification business is particularly experienced strong growth this year. We now cover more than 1,500 organic operations, an increase of over 94 customers through the first 9 months of 2026. These customers represent more than 1 million organic acres of land. New customer wins this year include fledgling organic food makers and more than 30 established operations that transferred to us from other certification bodies. The feedback we're getting from these operations highlight the responsiveness and timeliness of our service team and the advantages of our bundling program that combines organic with other certifications in a single audit experience. Our so organic online tool think TurboTax foot as an annual qualification process for organic certification is also cited as a key factor in our customers choosing us for this work. The improvement we have made -- the improvement we have made in gross margins is a great parameter of our success in this area. In the third quarter, overall gross margin increased by 380 basis points to 42.1% from 38.3%. That included margin gains in both our certification business and product sales category. During 9 months, gross margins improved to 40.5% from 38.9%. We're also pleased to note that sales, general and administrative expense in the third quarter was flat year-over-year, and for the 9-month period, actually declined by 3% or nearly $200,000. . Operating income in the third quarter increased 68% to $1 million from $600,000. Through 9 months, operating income was up 52% to $1.9 million from $1.3 million. These increases are the direct result of higher revenue in conjunction with effective cost control measures. As we noted last quarter, due to anomalous items below the operating income line involving digital asset valuation swings and a 2025 asset divestiture, we believe income from operations is really the most attractive measure of our profitability. Based on our solid profitability and strong cash generation, we continued our stock repurchase program in the third quarter, buying back 21,170 shares. That raised year-to-date buybacks to 10,651 shares, an increase to $17.5 million, the total value we have returned to shareholders since our buyback plan was initiated. And with that, thank you again for joining the call today, and I'll open the call to questions. Operator?

[Operator Instructions] Mr. Saunders, it seems there are no questions at this time. I'll turn the floor back to you for final comments. .

Thank you all for joining the call today. We had a great quarter. We look forward to talking to you after the first of the year. Take care.

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