Where Food Comes From Reports Solid Q2 Earnings

Where Food Comes From Inc. WFCF reported mixed financial performance in second-quarter 2024. The company managed to increase its revenues despite challenging market conditions, driven by its diversified services portfolio. However, inflationary effects and cyclical herd contraction in the beef sector presented significant headwinds.

CEO John Saunders emphasized the company's strategic focus on diversification and new initiatives. The Upcycled Food Certification initiative emerged as one of the fastest-growing standards, reflecting a robust demand in the market. Additionally, biosecurity offerings saw increased demand as the company assisted customers in managing potential animal disease outbreaks.

The increased costs in marketing, personnel, and travel, while elevating SG&A expenses, were part of strategic investments to support long-term growth. Despite these investments, the company maintained profitability, although with slight declines in operating income and net income.

Q2 Results

Where Food Comes From reported second-quarter 2024 earnings per diluted share of 9 cents, which remained unchanged from the year-ago quarter.

Total quarterly revenues of $6.4 million increased 4% from $6.1 million in the prior-year quarter.

The quarterly results were mainly due to stronger contributions from verification and certification services, although declining revenues in the product sales and professional services segments negatively impacted the company's overall performance.

Segment Performance

Verification and Certification Services: This segment witnessed a significant performance boost, with revenue increasing 10% in the second quarter of 2024 to $5.3 million, up from $4.8 million in the prior-year quarter. This growth was attributed to strong demand for WFCF's diverse certification standards, including the new Upcycled Food Certification initiative and growing biosecurity offerings.

Product Sales: This segment experienced a decline, with revenue declining 13% in the second quarter of 2024 to $0.8 million from $0.9 million in the prior-year quarter. The decline in this segment was due to lower demand for certain product lines, influenced by ongoing market conditions.

Professional Services: This segment also faced a downturn, with revenue decreasing to $0.3 million in the second quarter of 2024 from $0.4 million in the prior-year quarter, reflecting reduced demand for these services.

Performance Metrics

Gross profit increased to $2.7 million, up from $2.5 million in the year-ago period, benefiting from higher revenues. Operating income declined to $0.6 million from $0.7 million in second-quarter 2023.

Net income fell 8% to $0.49 million compared with $0.53 million in the second quarter of 2023. Adjusted EBITDA declined 8% to $0.8 million from $0.9 million in the prior year.

Costs Analysis

Total cost of revenues increased to $3.7 million in the second quarter of 2024 from $3.6 million in the year-ago quarter. This was due to higher costs of verification and certification services, which rose to $3.0 million from $2.7 million.

Selling, general, and administrative expenses rose 16.7% to $2.1 million due to increased costs related to marketing, personnel, and travel.

Cash & Debt

The company's balance sheet remained strong, with a cash and cash equivalents balance of $2.6 million as of Jun 30, 2024, slightly down from $2.64 million at the end of 2023.

Current liabilities rose significantly to $4.7 million from $3 million in the year-ago quarter, driven by an increase in accrued expenses and other current liabilities, and deferred revenue, which rose to $2.3 million from $1.5 million.

Other Developments

During the second quarter of 2024, WFCF repurchased 33,347 shares of its common stock at a cost of $389,000, bringing the total year-to-date repurchases to 149,419 shares. This share buyback program reflects the company's commitment to returning value to shareholders and managing its capital efficiently.

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