Q1 2025 Where Food Comes From Inc Earnings Call

Operator: Greetings, and welcome to the Where Food Comes From first quarter earnings. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Greetings and welcome to the Westwood comes from first quarter earnings call.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

So unless you require operator assistance. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

Jay Pfeiffer: It is now my pleasure to introduce your host, Jay Pfeiffer of Investor Relations. Please go ahead.

The History to Introduce Your Host, Jay Pfeiffer of Investor Relations. Please go ahead.

Jay Pfeiffer: Good morning and welcome to the Where Food Comes From 2025 first quarter earnings call.

Jay Pfeiffer: Joining me on the call today are CEO John Saunders, President Leanne Saunders and Chief Financial Officer Danette Henning. During this call, we'll make forward-looking statements based on current expectations, estimates, and projections that are subject to risk. Statements about 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.

Jay Pfeiffer: We encourage you to review our publicly filed documents as well as our news releases and website for more information.

John Saunders: I'll now turn the call over to John Saunders. Good morning, and thanks for joining the call today. The headwinds we reported for most of the last year carried into the first quarter of 2025 and resulted in an approximate 6% year-over-year decline in total revenue for the period. The majority of that decline came in our verification and certification services segment, where revenue was $252,000 lower than in Q1 last year. A reflection of fewer cattle moving through the system due to a combination of cyclical herd size reduction and the impact of severe drought conditions in certain cattle producing regions.

John Saunders: Lower volumes mean fewer initial taggings and fewer opportunities to earn right to ship and other fees as cattle move through the supply chain. As a reminder, our beef verification business represents roughly 50% of our revenue mix, so disruption in this segment can have an outsized impact on overall results. Again, I want to emphasize that we view herd size reduction as a cyclical and therefore relatively temporary situation that is expected to swing back in the other direction at some point in the future. Also note that beef prices have never been higher than they are today. Driven by a combination of herd shrinkage, tight supplies, strong consumer demand, and trade issues that began emerging in the first quarter, as a result, ranchers are having no problem finding buyers for their cattle.

Speaker Change: Lower volumes means fewer initial tagging and fewer opportunities to earn right to ship and other fees as cattle move it through the supply chain as a reminder, our beef verification business represents roughly 50% of our revenue mix. So disruption in this segment can have an outsized impact on the overall results.

Speaker Change: Again, I want to emphasize that we view herd size reduction as a cyclical and therefore relatively temporary situation that is expected to swing back in the other direction at some point in the future.

Speaker Change: Also note the beef prices have never been higher than they are today.

Speaker Change: Driven by a combination of heard shrinkage tight supply is strong consumer demand and trade issues that began emerging in the first quarter. As a result ranchers are having no problems finding buyers for their cattle and it's possible that some may become less motivated to engage with us for certain verifications, although thus far.

John Saunders: And it's possible that some may become less motivated to engage with us for certain verifications, although thus far, our customer retention rates, always in the high 90 percent range, are holding steady. During the first quarter, we also experienced disruptions in our poultry and dairy cow verification businesses due to avian influenza outbreaks that have resulted in high mortality rates at many of our poultry customer operations. Some of this impact has been offset by increased demand for our biosecurity services that help producers prevent and or contain disease outbreaks. The good news is, despite all the factors I just cited, revenue declined by less than 6% and gross margins remained fairly stable at 41.6%.

Speaker Change: Our customer retention rates always in the high 90% range are holding steady.

Speaker Change: During the first quarter, we also experienced disruptions in our poultry and dairy cow verification businesses due to the avian influenza outbreaks that have resulted in high mortality rates at many of our poultry customer operations.

Speaker Change: Some of this impact has been offset by increased demand for our bio security services that help producers prevent <unk> contain disease outbreaks.

Speaker Change: The good news is despite all the factors I just cited revenue declined by less than 6% and gross margins remained fairly stable at 41, 6%.

John Saunders: We attribute this to our disciplined approach to cost management that also extends to our SG&A line, which was flat year-over-year at $2.1 million. Net income in the quarter was $31,000 or $0.01 per diluted share compared to $178,000 or $0.03 per diluted share in the same quarter last year. More than half of the decline consisted of a $76,000 non-cash charge on digital assets in the first quarter. So on an adjusted basis, we are satisfied with our bottom line given the myriad of headwinds we're experiencing. We also continue to buy back shares in the first quarter, a total of 31,345,000 shares at a cost of $383,000.

Speaker Change: We attribute this to our disciplined approach to cost management that also extends to our SG&A line, which was flat year over year at $2 1 million.

Speaker Change: Net income in the quarter was 31000 or one cent per diluted share compared to 178000 or three cents per diluted share in the same quarter last year more.

Speaker Change: More than half of the decline consisted of a 76000 noncash charge on digital assets in the first quarter. So on an adjusted basis, we are satisfied with our bottom line given the myriad of headwinds we're experiencing.

Speaker Change: We also continue to buy back shares in the first quarter. A total of 31340 5000 shares at a cost of $383000.

John Saunders: By the way, the digital assets I just referred involved the modest, yet thus very profitable on paper, investment in Bitcoin that we made a few years ago when it was a rarity for public companies to buy cryptocurrencies.

Speaker Change: By the way the digital asset assets I, just referred involved the modest yeah. It does very profitable on paper investment in bitcoin that we made a few a few years ago. When it was a rarity for public companies to buy a crypto currencies.

John Saunders: We did not mention this in our news release this morning because Yahoo Finance, where some investors get their stock quotes and news, has a policy of not publishing news releases that mention the word Bitcoin or numerous other cryptocurrency related terms. We discovered Yahoo's policy last quarter when our Q4 earnings release didn't appear on Yahoo Finance due to our reference to the $345,000 gain in fair market value of our Bitcoin holding. Interestingly, about three weeks ago, a Yahoo Finance article referenced a Bitwise report indicating Bitcoin purchases by public companies surged 16% in the first quarter of 2025, and that 79 publicly traded companies now own approximately 688,000 Bitcoin, valued at $57 billion.

We did not mention this in our news release this morning, because Yahoo, finance, where some investors get their stock quotes and news has a policy of not publishing news releases that mentioned the word bitcoin are numerous other crypto currency related.

Speaker Change: <unk>.

Speaker Change: We discovered yahoos policy last quarter, one of our Q4 earnings release didn't appear on Yahoo, finance due to our reference to the $345000 gain in fair market value of our bitcoin holding.

Speaker Change: Interestingly about three weeks ago, a Yahoo finance article referenced a bit why his report, indicating bitcoin purchases by public companies surged, 16% in the first quarter of 2025, and that's 79 publicly traded company is now own approximately 688.

Speaker Change: Thousand bitcoin valued at 57 billion.

John Saunders: But back to our first quarter, as we discussed on our last earnings call, lower beef verification activity and this quarter lower poultry verification activity as well is being partially offset by growth and other aspects of our business. One of those is our Upcycled Certified Program, the world's first and largest certification standard for upcycled food and one of the fastest growing certification seals in the food industry. Upcycling enables producers to reduce food waste and lower their carbon footprint and affords environmentally conscious consumers a tangible solution to shop sustainably for eco-friendly products. It is an international trend with 14 countries now participating in an effort to reduce an estimated $1 trillion in global food waste.

Speaker Change: But back to our first quarter as we discussed on our last earnings call lower beef verification activity and this quarter lower poultry verification activity as well as being partially offset by growth in other aspects of our business.

Speaker Change: One of those is our Upcycled certified program, the world's first and largest certification standard for Upcycled food and one of the fastest growing certification seals in the food industry.

Speaker Change: <unk> enables producers to reduce food waste and lower their carbon footprint and affords environmentally conscious consumers a tangible solution to shop sustainably for eco friendly products.

Speaker Change: It is an international trend with 14 countries now participating in an effort to reduce an estimated one trillion dollars in global food waste, but.

John Saunders: The current global food market for upcycling is $46 billion and is expected to grow to nearly $75 billion by 2029. Upcycled Certified, an exclusive, wholly-owned offering of Where Food Comes From, continues to be our fastest-growing service offering, with total certifications having grown 70% year-over-year in 2024 and accelerating to 10% growth in just the first quarter of this year. Today we are conducting certifications for 111 companies and 628 products. with customers ranging from start-up food, beverage, and pet food makers to established CPGs such as Del Monte and Carry Ingredients. And again, Upcycled Certified is a great fit for our bundling strategies since Upcycled Certified customers often contract for organic and non-GMO product certification.

Speaker Change: Current global food market for Upcycling is 46 billion and is expected to grow to nearly 75 billion by 2029.

Speaker Change: Upcycled certified and exclusive wholly owned offering of where food comes from continues to be our fastest growing sort of food service offering with total surf certifications, having grown 70% year over year in 'twenty, 'twenty, four and accelerating to 10% growth in just the first quarter of this year.

Speaker Change: Today, we are conducting certifications for 111 companies and 628 products with customers ranging from startups food beverage and pet food makers to establish CPG, such as del Monte and carry ingredients.

Speaker Change: And again Upcycled certified as a great fit for our bundling strategy since Upcycled certified customers often contract for organic and non GMO products certifications.

John Saunders: Another exciting growth business for us that we haven't talked about in a while is our fee-based retail labeling program for protein products. You might recall that our initial customer for this program, the Heinen's Grocery Store in the Midwest, helped us pioneer the concept of connecting producers directly with consumers who want to know more about where, how, and by whom their food is produced. We have been targeting mass market and high-end regional retailers who want to strengthen and enhance their relationship with shoppers by partnering with a third party, which is us, to tell the story behind the products they offer.

Speaker Change: Another exciting growth business for us that we haven't talked about in a while is our fee based retail labeling program for protein products you.

Speaker Change: You might recall that our initial customer for this program the Hines grocery store in the Midwest helped us pioneered the concept of connecting producers directly with consumers, who want to know more about where how and by whom their food is produced.

Speaker Change: We have been targeting mass market and high end regional retailers, who want to strengthen and enhance their relationship with shoppers by partnering with a third party, which is us to tell the story behind the products they offer.

John Saunders: Today we are pleased to announce the addition of two prominent retailers to our program that will display our CARES Certified Labeling on products in their beef case. One of the retailers will also display Where Food Comes From stores verified and non-hormone treated labeling on their products. The initial launch with these two customers will include approximately 20 stores with the expectation of adding another 111 locations during the current year. Depending on the success of the 2025 rollout, there is potential for hundreds of additional stores from one of these customers.

Today, we are pleased to announce the addition of two prominent retailers through our program that will just display our care certified labeling.

Speaker Change: And products in their beef case.

Speaker Change: One of the retailers will also display where food comes from source verified and non hormone treated labeling on their products.

Speaker Change: The initial launch with these two customers will include approximately 20 stores with the expectation of adding another 111 locations during the current year.

Speaker Change: Depending on the success of the 2025 rollout there is potential for hundreds of additional stores from one of these customers.

John Saunders: The CARES Certified Program is a Comprehensive Sustainability Certification that supports producers, processors, and retailers in meeting growing consumer expectations for responsibly sourced products. Care standards are tailored to reflect the unique characteristics of each operation considering regional climate, natural resources, production methods, workforce practices, and community engagement. In addition to adding to our licensing revenue stream, these new customer programs will add visibility and enhance the brands of Where Food Comes From among tens of thousands of retail consumers.

Speaker Change: The carrier certified program is a comprehensive sustainability certification that supports producers processors and retailers and meeting growing consumer expectations for responsibly sourced products.

Speaker Change: Our standards are tailored to reflect the unique characteristics of each operation considering regional climate natural resources production methods workforce practices and community engagement.

In addition to adding to our licensing revenue stream. These new customer programs will add visibility and enhance the brands of where food comes from among tens of thousands of retail consumers.

Operator: So with that, I'll open the call to questions. Operator. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question You may press star two if you would like to remove your question from the For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, all right, folks.

Speaker Change: So with that I'll I'll open the call to questions operator.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen would you like to ask a question. Please press star one on your telephone keypad.

Speaker Change: And our confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press star two or do you feel like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys one.

Speaker Change: One moment, please all for questions.

Speaker Change: Okay.

Speaker Change: Yes.

John Saunders: There are no questions at this time, and I'll hand the call back to John Saunders. Well, thank you all for your participation and support and we'll talk to you again soon.

Speaker Change: There are no questions at this time.

Speaker Change: I'll hand, the call back to John Saunders for closing remarks.

John Saunders: Well. Thank you all for your participation and support and we'll talk to you again soon.

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

John Saunders: This concludes today's conference you may disconnect your lines at this time.

John Saunders: Thank you for your participation.

John Saunders: Yeah.

John Saunders: Yes.

John Saunders: [music].

John Saunders: Okay.

John Saunders: [music].

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