Form 8-K - Current report

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 8, 2024

 

WHERE FOOD COMES FROM, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Colorado		001-40314		43-1802805
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

202 6th Street, Suite 400
Castle Rock, Colorado		80104
(Address of Principal Executive Offices)		(Zip Code)

 

[phone]

(Registrant’s Telephone Number, Including Area Code)

 

Not applicable

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value		WFCF		The NASDAQ Stock Market LLC

 

 

 

 

 

Item 2.02

Results of Operations and Financial Condition

 

Reference is made to the Where Food Comes From, Inc. (the “Company”) press release on August 8, 2024 and conference call transcript, attached hereto as Exhibits 99.1 and 99.2, respectively, and incorporated by reference herein (including, without limitation, the information set forth in the cautionary statement contained in the press release and conference call transcript), relating to the Company’s financial results for the three and six month period ended June 30, 2024.

 

Item 9.01

Financial Statements and Exhibits

 

(d)

Exhibits

 

	Exhibit No.		Description
	99.1		Press Release issued and dated August 8, 2024
	99.2		Transcript for August 8, 2024 conference call
	104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	WHERE FOOD COMES FROM, INC.
	(Registrant)
	By:	/s/ Dannette Henning
Date: August 12, 2024		Dannette Henning
		Chief Financial Officer

 

 

Exhibit 99.1

 

Where Food Comes From, Inc. Reports 2024 Second Quarter and Six-Month Financial Results

 

Second Quarter Highlights – 2024 vs. 2023

 

	●	Verification and certification revenue up 10% to $5.3 million from $4.8 million
	●	Product sales decline 13% to $0.8 million from $0.9 million
	●	Total revenue up 4% to $6.4 million from $6.1 million
	●	Net income down 8% to $489,000 from $532,000
	●	Diluted EPS flat at $0.09
	●	Adjusted EBITDA of $844,000 vs. $917,000
	●	Company buys back 33,347 shares of stock in second quarter

 

Six Month Highlights – 2024 vs. 2023

 

	●	Verification and certification revenue up 13% to $9.7 million from $8.6 million
	●	Product sales decline 19% to $1.6 million from $1.9 million
	●	Total revenue up 5% to $12.0 million from $11.4 million
	●	Net income increases 2% to $667,000 from $653,000
	●	Diluted EPS of $0.12 vs. $0.11
	●	Adjusted EBITDA essentially flat at $1.3 million
	●	Cash generated from operations increased to $1.9 million from $1.3 million
	●	Cash & cash equivalents of $2.60 million vs. $2.64 million at December 31 year-end
	●	Year-to-date stock buybacks and private repurchases total 149,419 shares

 

CASTLE ROCK, Colo., Aug. 08, 2024 (GLOBE NEWSWIRE) — Where Food Comes From, Inc. (WFCF) (Nasdaq: WFCF), the most trusted resource for independent, third-party verification of food production practices in North America, today announced financial results for its second quarter and six months ended June 30, 2024.

 

“Despite ongoing inflationary effects and cyclical herd contraction that have impacted our beef-related services, we continued to profitably grow our business for both the second quarter and year-to-date period,” said John Saunders, chairman and CEO. “Our ability to successfully navigate these temporary challenges is attributable to a versatile business model that incorporates the industry’s most diversified services portfolio. Over the first half of 2024 our new Upcycled Food Certification initiative has emerged as one of our fastest growing standards. We’ve also seen growing demand for our biosecurity offerings as we help to position customers and the industry to manage potential animal disease outbreaks.

 

“We are the recognized leader in advocating for transparency and safety in the food supply chain and now audit to nearly 60 different standards – far and away the most of any food certification body,” Saunders added. “This diversification not only reduces our risk during challenging times for other service offerings, but it widens the moat around our business and positions us for accelerated growth once headwinds related to inflation and cyclical cattle trends subside.”

 

Second Quarter Results – 2024 vs. 2023
Total revenue in the second quarter ended June 30, 2024, increased 4% to $6.4 million from $6.1 million.

 

Revenue mix:

 

	●	Verification and certification services, up 10% to $5.3 million from $4.8 million.
	●	Product revenue declined 13% to $0.8 million from $0.9 million.
	●	Professional services revenue of $0.3 million vs. $0.4 million.

 

Gross profit in the second quarter increased to $2.7 million from $2.5 million.

 

 

 

Selling, general and administrative expense increased to $2.1 million from $1.8 million, reflecting increased costs related to marketing, personnel and travel.

 

Operating income declined to $0.6 million from $0.7 million.

 

Net income declined 8% to $489,000, or $0.09 per diluted share, from $532,000, or $0.09 per diluted share.

 

Adjusted EBITDA in the second quarter was 8% lower at $0.8 million vs. $0.9 million.

 

The Company bought back 33,347 shares of its common stock in the second quarter at a cost of $389,000.

 

Six Month Results – 2024 vs. 2023
Total revenue for the six months ended June 30, 2024, increased 5% to $12.0 million from $11.4 million in the prior year.

 

Revenue mix:

 

	●	Verification and certification services, up 13% to $9.7 million from $8.6 million.
	●	Product revenue, down 19% to $1.6 million from $1.9 million.
	●	Professional services revenue of $0.7 million compared to $0.9 million.

 

Gross profit at mid-year was $5.0 million, up 7% from $4.6 million a year ago.

 

Selling, general and administrative expense increased 8% to $4.1 million from $3.8 million due primarily to the aforementioned increases in marketing, personnel and travel expenses.

 

Operating income was essentially flat at $0.8 million.

 

Net income through six months increased slightly to $667,000, or $0.12 per diluted share, compared to net income of $653,000, or $0.11 per diluted share, in the prior year period.

 

Adjusted EBITDA was essentially flat at $1.3 million.

 

The Company generated $1.9 million in cash from operations through six months compared to $1.3 million in the same period last year.

 

The cash and cash equivalents balance at June 30, 2024, was $2.60 million vs. $2.64 million at December 31 year-end.

 

Through the first six months of 2024 the Company bought back 149,419 shares of its stock.

 

The Company will conduct a conference call today at 10:00 a.m. Mountain Time.

 

Call-in numbers for the conference call:
Domestic Toll Free: 1-877-407-8289
International: 1-201-689-8341
Conference Code: 13748244

 

Phone replay:
A telephone replay of the conference call will be available through August 22, 2024, as follows:
Domestic Toll Free: 1-877-660-6853
International: 1-201-612-7415
Conference Code: 13748244

 

 

 

About Where Food Comes From, Inc.

 

Where Food Comes From, Inc. is America’s trusted resource for third party verification of food production practices. Through proprietary technology and patented business processes, the Company estimates that it supports more than 17,500 farmers, ranchers, vineyards, wineries, processors, retailers, distributors, trade associations, consumer brands and restaurants with a wide variety of value-added services. Through its IMI Global, Validus Verification Services, SureHarvest, WFCF Organic, and Postelsia units, Where Food Comes From solutions are used to verify food claims, optimize production practices and enable food supply chains with analytics and data driven insights. In addition, the Company’s Where Food Comes From® retail and restaurant labeling program uses web-based customer education tools to connect consumers to the sources of the food they purchase, increasing meaningful consumer engagement for our clients.

 

*Note on non-GAAP Financial Measures

 

This press release and the accompanying tables include a discussion of EBITDA and Adjusted EBITDA, which are non-GAAP financial measures provided as a complement to the results provided in accordance with generally accepted accounting principles (“GAAP”). The term “EBITDA” refers to a financial measure that we define as earnings (net income or loss) plus or minus net interest plus taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation and, when appropriate, other items that management does not utilize in assessing WFCF’s operating performance (as further described in the attached financial schedules). None of these non-GAAP financial measures are recognized terms under GAAP and do not purport to be an alternative to net income as an indicator of operating performance or any other GAAP measure. We have reconciled Adjusted EBITDA to GAAP net income in the Consolidated Statements of Income table at the end of this release. We intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting.

 

CAUTIONARY STATEMENT

 

This news release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, based on current expectations, estimates and projections that are subject to risk. Forward-looking statements are inherently uncertain, and actual events could differ materially from the Company’s predictions. Important factors that could cause actual events to vary from predictions include those discussed in our SEC filings. Specifically, statements in this news release about industry leadership, expectations for offsetting industry headwinds, ability to continue expanding on the solutions set, widening the competitive moat and providing customers with convenience and price advantages, and demand for, and impact and efficacy of, the Company’s products and services on the marketplace are forward-looking statements that are subject to a variety of factors, including availability of capital, personnel and other resources; competition; governmental regulation of the agricultural industry; the market for beef and other commodities; and other factors. Financial results and the Company’s pace of stock buybacks are not necessarily indicative of future results. Readers should not place undue reliance on these forward-looking statements. The Company assumes no obligation to update its forward-looking statements to reflect new information or developments. For a more extensive discussion of the Company’s business, please refer to the Company’s SEC filings at www.sec.gov.

 

Company Contacts:

 

John Saunders
Chief Executive Officer
303-895-3002

 

Jay Pfeiffer
Director, Investor Relations
303-880-9000
[e-mail]

 

 

 

Where Food Comes From, Inc.

Statements of Operations (Unaudited)

 

 

		Three months ended June 30,								Six months ended June 30,
(Amounts in thousands, except per share amounts)		2024				2023				2024				2023
Revenues:
Verification and certification service revenue		$	5,252			$	4,779			$	9,686			$	8,585
Product sales			819				938				1,552				1,909
Professional services			324				409				739				899
Total revenues			6,395				6,126				11,977				11,393
Costs of revenues:
Costs of verification and certification services			3,028				2,736				5,543				4,932
Costs of products			469				555				903				1,123
Costs of professional services			240				329				544				689
Total costs of revenues			3,737				3,620				6,990				6,744
Gross profit			2,658				2,506				4,987				4,649
Selling, general and administrative expenses			2,075				1,833				4,143				3,821
Income from operations			583				673				844				828
Other income/(expense):
Dividend income from Progressive Beef			100				50				100				100
Gain on disposal of assets			-				5				-				5
Loss on foreign currency exchange			(2	)			(2	)			(4	)			(4	)
Other income, net			7				11				14				20
Interest expense			(1	)			(1	)			(2	)			(2	)
Income before income taxes			687				736				952				947
Income tax expense			198				204				285				294
Net income		$	489			$	532			$	667			$	653
Per share - net income:
Basic		$	0.09			$	0.09			$	0.12			$	0.12
Diluted		$	0.09			$	0.09			$	0.12			$	0.11
Weighted average number of common shares outstanding:
Basic			5,371				5,670				5,426				5,693
Diluted			5,388				5,735				5,444				5,760

 

 

 

Where Food Comes From, Inc.

Calculation of Adjusted EBITDA*

(Unaudited)

 

		Three months ended June 30,								Six months ended June 30,
(Amounts in thousands)		2024				2023				2024				2023
Net income		$	489			$	532			$	667			$	653
Adjustments to EBITDA:
Interest expense			1				1				2				2
Income tax expense			198				204				285				294
Depreciation and amortization			156				163				311				335
EBITDA*			844				900				1,265				1,284
Adjustments:
Stock-based compensation			-				17				11				32
Cost of acquisitions			-				-				-				-
ADJUSTED EBITDA*		$	844			$	917			$	1,276			$	1,316

 

*Use of Non-GAAP Financial Measures: Non-GAAP results are presented only as a supplement to the financial statements and for use within management’s discussion and analysis based on U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information is provided to enhance the reader’s understanding of the Company’s financial performance, but non-GAAP measures should not be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of the most directly comparable GAAP measures to non-GAAP measures are provided herein.

 

All of the items included in the reconciliation from net income to EBITDA and from EBITDA to Adjusted EBITDA are either (i) non-cash items (e.g., depreciation, amortization of purchased intangibles, stock-based compensation, etc.) or (ii) items that management does not consider to be useful in assessing the Company’s ongoing operating performance (e.g., M&A costs, income taxes, gain on sale of investments, loss on disposal of assets, etc.). In the case of the non-cash items, management believes that investors can better assess the Company’s operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect the Company’s ability to generate free cash flow or invest in its business.

 

We use, and we believe investors benefit from the presentation of, EBITDA and Adjusted EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.

 

Because not all companies use identical calculations, the Company’s presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, these measures can still be useful in evaluating the Company’s performance against its peer companies because management believes the measures provide users with valuable insight into key components of GAAP financial disclosures.

 

 

 

Where Food Comes From, Inc.

Balance Sheets

 

		June 30,				December 31,
(Amounts in thousands, except per share amounts)		2024				2022
Assets			(Unaudited)				(Audited)
Current assets:
Cash and cash equivalents		$	2,600			$	2,641
Accounts receivable, net of allowance			2,221				2,128
Inventory			1,164				1,109
Prepaid expenses and other current assets			1,048				335
Total current assets			7,033				6,213
Property and equipment, net			791				844
Right-of-use assets, net			2,220				2,296
Equity investments			1,191				1,191
Intangible and other assets, net			2,127				2,303
Goodwill, net			2,946				2,946
Deferred tax assets, net			477				493
Total assets		$	16,785			$	16,286
Liabilities and Equity
Current liabilities:
Accounts payable		$	695			$	567
Accrued expenses and other current liabilities			1,353				615
Deferred revenue			2,338				1,485
Current portion of finance lease obligations			14				14
Current portion of operating lease obligations			329				298
Total current liabilities			4,729				2,979
Finance lease obligations, net of current portion			33				41
Operating lease obligation, net of current portion			2,337				2,447
Total liabilities			7,099				5,467
Commitments and contingencies
Equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; none issued or outstanding			-				-
Common stock, $0.001 par value; 95,000 shares authorized; 6,446 (2024) and 6,516 (2023) shares issued, and 5,363 (2024) and 5,503 (2023) shares outstanding			7				7
Additional paid-in-capital			11,348				12,290
Treasury stock of 1,083 (2024) and 1,014 (2023) shares			(12,077	)			(11,219	)
Retained earnings			10,408				9,741
Total equity			9,686				10,819
Total liabilities and stockholders’ equity		$	16,785			$	16,286

 

 

Exhibit 99.2

 

Where Food Comes From, Inc.

2024 Second Quarter Conference Call

Call date: Thursday August 8, 2024

Call time: 10:00 a.m. Mountain Time

 

Jay Pfeiffer – Investor Relations

 

Good morning and welcome to the Where Food Comes From 2024 second quarter earnings call.

 

Joining me on the call today are CEO John Saunders, President Leann Saunders, and Chief Financial Officer Dannette Henning.

 

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 non-GAAP measures.

 

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

 

John Saunders

 

Good morning and thanks for joining the call today.

 

Total revenue in the second quarter increased 4% to $6.4 million from $6.1 million.

 

That included a 10% increase in verification and certification services, which grew to $5.3 million from $4.8 million year over year.

 

Product revenue declined 13% to $0.8 million from $0.9 million, reflecting a trend that began last year when the impact of cyclical cattle trends resulting in smaller herd sizes began manifesting in lower volumes of RFID tag sales.

 

Professional services revenue also declined – to $0.3 million from $0.4 million year over year.

 

Gross profit in the second quarter increased to $2.7 million from $2.5 million.

 

Selling, general and administrative expense increased to $2.1 million from $1.8 million, reflecting increased costs related to marketing, personnel and travel. On the subject of personnel costs, we continue to navigate a tight, competitive labor market that is impacting us at both the gross profit and SG&A levels.

 

The higher SG&A more than offset improved gross profit and resulted in a decline in operating income to $0.6 million from $0.7 million.

 

That, in turn, led to an 8% decline in net income to $489,000 from $532,000. Diluted EPS remained at 9 cents per share.

 

Adjusted EBITDA in the second quarter was 8% lower at $0.8 million vs. $0.9 million.

 

And finally, we continued our share buyback program in the second quarter, repurchasing 33,347 shares of stock at a cost of $389,000.

 

 

 

Turning to six month results…

 

Total revenue through six months increased 5% to $12.0 million from $11.4 million in the prior year.

 

Revenue mix included:

 

Verification and certification services, up 13% to $9.7 million from $8.6 million.

 

Product revenue, down 19% to $1.6 million from $1.9 million.

 

And professional services revenue of $0.7 million compared to $0.9 million.

 

Gross profit at mid-year was $5.0 million, up 7% from $4.6 million a year ago.

 

Due to reasons previously mentioned, SG&A expense increased 8% to $4.1 million from $3.8 million.

 

Operating income was essentially flat at $0.8 million.

Net income through six months increased slightly to $667,000, or $0.12 per diluted share, compared to net income of $653,000, or $0.11 per diluted share, in the prior year period.

Adjusted EBITDA was essentially flat at $1.3 million.

 

The Company generated $1.9 million in cash from operations through six months compared to $1.3 million in the same period last year.

 

Our cash and cash equivalents balance at mid-year was $2.6 million, which was down just slightly from the December 31 year-end cash balance.

 

Through the first six months of 2024 we bought back 149,419 shares of stock – a total that included 69,218 shares as part of our ongoing buyback program and another 80,201 shares in a single private purchase. We continue to believe that buybacks at these prices levels are a good investment for the Company and great way to return value to our stockholders on a regular basis.

 

Given the ongoing headwinds in our beef business in the form of smaller herd sizes, we are overall pleased with our financial results for both the quarter and six-month period. We are consistently growing our top line – and doing so in a profitable manner while generating strong cash flows.

 

Years ago, we committed to building the industry’s most comprehensive solutions portfolio as a means of better serving our customers with a one-stop-shop approach that simplifies their vendor structure and affords them favorable pricing through our bundling program. At the same time, our broad solutions set gives us multiple revenue streams that have enabled us to grow overall revenue when one or more of our business lines comes under pressure. In this case our beef business, which traditionally has dominated our revenue mix, is facing temporary challenges that underscore the value of our diversified model.

 

Today I’d like to highlight two specific examples of how we continue to advance this strategy.

 

The first is Upcycled Certified, which as you may know is a standard we acquired in Q4 last year after serving as the exclusive certification body since the program’s inception in 2021.

 

Upcycled food – which is the use of nutritional food ingredients that would otherwise go to waste – is an up-and-coming national consumer trend, and we’re pleased to announce that Upcycled Certified has recently emerged as one of the fastest growing certification standards in our portfolio. Given the early momentum of this trend – and the compelling economic and environmental arguments in favor of it – we think our Upcycled business has the potential to become a very meaningful contributor to growth over the long term.

 

 

 

What began as a modest program that attracted smaller niche players has blossomed into an international program that includes major food producers and retailers. In July, Walmart rolled out a new line of upcycled sauces as a continuation of its ‘bettergoods’ product launch in April – Walmart’s largest private label food brand launch in 20 years.

 

So, we think the upcycled trend has its best growth ahead of it, and here are a few data points to support that.

 

●	An estimated 40% of food grown annually in the US goes unsold or uneaten. ReFED, a leading food waste research organization, estimates that 80 million tons of food that is wasted annually in the U.S. with a financial loss of $310 billion.
●	A Future Market Insights report estimates the value of the upcycled food industry to be more than $46 billion and growing.
●	Over the last three years upcycling consistently topped food trends lists, including Food Tank, Kroger, Forbes and Whole Foods Market.
●	An Innova Market Insights survey showed 62% of consumers are willing to pay more for a product that fights food waste.
●	A Hartman Group survey showed 70% of consumers had increased intent to buy Upcycle Certified® foods when the seal was displayed on packaging.
●	According to Project Drawdown, decreasing food waste is the number one solution to reducing the need for land and resources used to produce food as well as the greenhouse gases released in the process.

 

The second example of emerging revenue streams for us is our biosecurity business. Over the years, our work in building traceability systems and conducting on-ranch animal welfare audits has made biosecurity services a logical next step service offering for us.

 

Whether its avian influenza, swine flu, hoof-and-mouth disease, mad cow disease, e-coli, or even Covid-type issues involving farm, ranch and dairy workers, the agricultural industry and the USDA are constantly working to prevent potentially catastrophic outbreaks that disrupt operations and supply chains and put the public at risk.

 

Where Food Comes From has a massive amount of expertise in this area, and we have developed a variety programs and standards to reduce risks of infectious disease transmission among livestock, workers and customers.

 

For example:

 

	●	Our Secure Food Supply plans help beef, dairy, pork, poultry and egg operations prepare before an outbreak to limit exposure of animals and accelerate re-entry into commercial operations after an outbreak.
	●	Our On-Farm Security Reviews verify site-specific compliance to a stringent set of on-farm biosecurity procedures.
	●	Our SQF (Safe Quality Food) on-farm audit program is a rigorous food safety program designed to meet industry, customer and regulatory requirements from the farm to retail stores.

 

These are just three of eight programs that address the risks associated with animal disease outbreak. In the aggregate, they serve to protect our customers and strengthen their relationships with the USDA and state-level animal health officials in order to build resilience into the agricultural community and protect consumers.

 

 

 

So, hopefully that gives you a little insight into how our strategy of constantly expanding our product and services portfolio is strengthening our business. At the same time, I want to emphasize that beef verification remains a core strength for us, and we fully expect it to bounce back as herd sizes normalize. When that happens, we believe we’ll be positioned to accelerate revenue growth and profits.

 

And, with that, I’ll thank you again for joining the call today and open the call to questions.

 

Question and Answer Session:

 

Question 1: Chris Brown, Oake Financial

 

Thank you very much. Back in – I think it was about the end of 2022, you talked about the USDA’s intention to mandate the RFID tags associated with the ADT program. It’s my understanding that the final rule passed this spring and implementation is happening this fall. I was wondering, three kind of general questions: 1) How it’s impacting your business to-date? 2) What you are kind of doing internally to take advantage or adapt to that new environment and 3) Then kind of how you see it playing out over the next year or so? Thank you.

 

John Saunders

 

Great question. You are correct, the final rule came into play this spring, and this fall is when the implementation will begin. We have already seen a lot of the impacts of this, Chris. Some of them have been related to transition of existing customers to use what we call 840 identification devices, which are compliant on a country code and compliant with ADT. So, we have had a strong migration of a lot of our customers to the 840 tags, as we call them. So, probably the only real impact that we have seen so far, and this has been compounding with the smaller herd sizes, is that there has been a great deal of subsidizing of tags to the industry. So, either through animal health officials or through other government or state affiliations, producers are able to get tags for free.

 

As I am sure have seen, in lieu of or in spite of the fact that the ruling has come into place, our tag revenue continues to stay flat or to decline a little bit. And that is relative to two things, as we talked about. One is the decline in the herd sizes. But also, the government is giving quite a few tags away to producers, which is why you also see our verification revenue continuing to increase.

 

So, the way that we have been adjusting to it, Chris, is we have been preparing for a wave of free tags that were going to go into the industry, where we are actually charging those ranchers and farmers for those tags. They were going to have an opportunity to get those tags for free. So, what we are allowing our producers to do is to bring those tags into our system for a fee, and we are maintaining those tags in the system. It does create more work for us, so we have had to adapt some of our technology to make sure that it was easy for producers to get their tags if they weren’t coming directly from us into the system.

 

The way it affects us long-term is, I believe is most of the programs like it happened with the organic program several decades ago, where there was a lot of opportunity for government-subsidized funding that would go to states or counties or universities, where they could implement their own organic certification program. And over the years, what we have seen is a consolidation in almost all of those programs that were funded initially, are no longer funded. So, I think our belief is that there will be a point when this funding dries up. And these producers that have come into the program and now are required to use electronic identification tags, will have to go somewhere to get them. So, it will probably be at least a 3-year to 5-year process of all of these new producers, which are converting to electronic tags, which is, again, great for us because that gives us more opportunity, more producers are able to become part of our verification programs while we are losing out on some of that tag revenue.

 

So all-in-all, the program has been, I think a good success, and it’s gone in line with the way that we thought. And we have a whole bunch of new producers that are really excited about getting involved. So, it’s been an overall positive, but it is something that we have had to prepare for, for quite a while.

 

Operator

 

Thank you. There are no further questions at this time. I would like to turn the floor back over to John for any closing remarks.

 

John Saunders

 

Once again, I want to thank you for your time and your support, and we look forward to talking to you in three months. Have a great day.

 

Operator

 

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

 

Cover	Aug. 08, 2024
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Aug. 08, 2024
Entity File Number	001-40314
Entity Registrant Name	WHERE FOOD COMES FROM, INC.
Entity Central Index Key	0001360565
Entity Tax Identification Number	43-1802805
Entity Incorporation, State or Country Code	CO
Entity Address, Address Line One	202 6th Street
Entity Address, Address Line Two	Suite 400
Entity Address, City or Town	Castle Rock
Entity Address, State or Province	CO
Entity Address, Postal Zip Code	80104
City Area Code	(303)
Local Phone Number	895-3002
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, $0.001 par value
Trading Symbol	WFCF
Security Exchange Name	NASDAQ
Entity Information, Former Legal or Registered Name	Not applicable

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