8-K
Where Food Comes From, Inc. (WFCF)
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): November 4, 2021
WHERE
FOOD COMES FROM, INC.
(Exact Name of Registrant as Specified in its Charter)
| Colorado | 001-40314 | 43-1802805 |
|---|---|---|
| (State<br>or Other Jurisdiction<br><br> <br>of<br> Incorporation) | (Commission<br><br> <br>File<br> Number) | (I.R.S.<br> Employer <br><br> Identification No.) |
| 202 6^th^ Street, Suite 400 | ||
| --- | --- | |
| Castle Rock, Colorado | 80104 | |
| (Address<br> of Principal Executive Offices) | (Zip<br> Code) |
(303)895-3002
(Registrant’s Telephone Number, Including Area Code)
Notapplicable
(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<br> communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting<br> material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement<br> communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement<br> 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<br> of each class | Trading<br> Symbol(s) | Name<br> of each exchange on which registered |
|---|---|---|
| Common<br> Stock, $0.001 par value | WFCF | OTC<br> Markets Group |
| Item 2.02 | Results of Operations and Financial Condition | |
| --- | --- |
Reference is made to the Where Food Comes From, Inc. (the “Company”) press release on November 4, 2021 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 third quarter period ended September 30, 2021.
| Item 9.01 | Financial Statements and Exhibits |
|---|---|
| (d) | Exhibits |
| --- | --- |
| Exhibit<br><br> No. | Description |
| --- | --- |
| 99.1 | Press Release issued and dated November 4, 2021 |
| 99.2 | Transcript for November 4, 2021 conference call |
| 104 | Cover Page Interactive Data<br>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.<br><br> <br>(Registrant) | ||
|---|---|---|
| By: | /s/ Dannette Henning | |
| Date:<br> November 8, 2021 | Dannette<br> Henning | |
| Chief<br> Financial Officer |
Exhibit99.1
WhereFood Comes From, Inc. Reports 2021 Third Quarter and Nine-Month Financial Results
CASTLE ROCK, Colo., Nov. 04, 2021 (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 its 2021 third quarter and nine-month financial results.
“We carried our revenue growth momentum into the third quarter as demand for beef verifications remained strong and our pork, poultry, dairy and egg verification customers continued to re-open their facilities and resume verification activity that was suspended in 2020 due to the pandemic,” said John Saunders, Chairman and CEO. “We also achieved double digit growth in net income and adjusted EBITDA while continuing to generate solid cash flows and build our cash and cash equivalents balance – the latter despite returning more than $900,000 in cash to investors in the form of a special dividend in the third quarter. We are optimistic about prospects for continued profitable growth and solid cash flow generation in the fourth quarter and beyond.”
ThirdQuarter Results – 2021 vs. 2020
Revenue in the third quarter ended September 30, 2021, was up 6% year over year to $6.5 million from $6.2 million. The increase reflected growth of the Company’s verification and certification business.
Revenue mix included:
| ● | Verification<br> and certification services, up 9% to $4.7 million from $4.3 million. |
|---|---|
| ● | Product<br> revenue, flat at $1.4 million. |
| ● | Software<br> and related consulting revenue, nearly flat at $0.5 million. |
Gross profit in the third quarter increased to $2.9 million from $2.8 million in the same period last year. Gross margin was nearly flat at 44.7% versus 44.6%.
Selling, general and administrative expense was essentially flat at $1.8 million.
Operating income increased to $1.1 million from $1.0 million in the same quarter last year.
Net income was $0.9 million, or $0.14 per diluted share, up from net income of $0.7 million, or $0.12 per diluted share, in the same quarter last year.
Adjusted EBITDA in the third quarter increased 18% year over year to $1.5 million from $1.3 million.
Nine-MonthResults – 2021 vs. 2020
Total revenue for the nine-month period ended September 30, 2021, increased 11% to $16.1 million from $14.5 million in the prior year. The increase was due to growing demand for beef verifications and related tag sales as well as resumption beginning in the second quarter of certain audits that had been delayed due to COVID-19 restrictions.
Revenue mix included:
| ● | Verification<br> and certification services, up 14% to $11.7 million from $10.2 million. |
|---|---|
| ● | Product<br> revenue, up 7% to $3.1 million from $2.9 million. |
| ● | Software<br> and related consulting revenue (excluding intercompany sales), flat at $1.4 million. |
Gross profit for the first nine months of 2021 increased to $6.8 million from $6.5 million. Gross margin decreased to 42.2% from 44.6% due to higher compensation costs and a change in revenue mix due to the resumption of audit activity in certain lower-margin verification categories.
Selling, general and administrative expense decreased slightly year over year to $5.3 million from $5.4 million.
Operating income increased 41% year over year to $1.5 million from $1.1 million.
Net income through nine months, inclusive of $1.0 million in PPP loan forgiveness that occurred in the first quarter, increased 164% to $2.2 million, or $0.36 per diluted share, compared to net income of $0.8 million, or $0.13 per diluted share, in the same period last year.
Adjusted EBITDA increased 20% to $2.4 million from $2.0 million last year.
The Company generated $3.0 million in net cash from operations in the nine-month period, up 39% year-over-year from $2.2 million.
The cash and cash equivalents balance on September 30, 2021, increased 29% to $5.6 million from $4.4 million at 2020 year-end. The Company had $5.0 million in working capital on September 30, 2021, up 15% from $4.4 million at 2020 year-end.
ThirdQuarter Earnings Call
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: 13724524
Phone replay:
A telephone replay of the conference call will be available through November 25, 2021, as follows:
Domestic Toll Free: 1-877-660-6853
International: 1-201-612-7415
Conference Code: 13724524
AboutWhere 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 supports more than 15,000 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 (previously known as International Certification Services and A Bee Organic), Postelsia and Sterling Solutions 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.
*Noteon 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.
CAUTIONARYSTATEMENT
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 and demand for, and impact and efficacy of, the Company’s products and services on the marketplace; and ability to continue driving additional growth and profitability in the fourth quarter and beyond 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 for 2021 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
Pfeiffer High Investor Relations, Inc.
303-880-9000
Where Food Comes From, Inc.
Balance Sheets
| December 31, | |||||
|---|---|---|---|---|---|
| (Amounts in thousands, except per share amounts) | 2020 | ||||
| (Unaudited) | |||||
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | 5,642 | $ | 4,374 | ||
| Accounts receivable, net of allowance | 2,328 | 2,508 | |||
| Inventory | 870 | - | |||
| Prepaid expenses and other current assets | 284 | 592 | |||
| Total current assets | 9,124 | 7,474 | |||
| Property and equipment, net | 1,484 | 1,616 | |||
| Operating lease right-of-use assets, net | 2,844 | 3,030 | |||
| Investment in Progressive Beef | 991 | 991 | |||
| Intangible and other assets, net | 2,675 | 2,948 | |||
| Goodwill | 2,946 | 2,946 | |||
| Deferred tax assets, net | 451 | 443 | |||
| Total assets | 20,515 | $ | 19,448 | ||
| Liabilities and Equity | |||||
| Current liabilities: | |||||
| Accounts payable | 896 | $ | 649 | ||
| Accrued expenses and other current liabilities | 1,346 | 599 | |||
| Deferred revenue | 1,564 | 1,132 | |||
| Current portion of long term debt | - | 463 | |||
| Current portion of finance lease obligations | 12 | 13 | |||
| Current portion of operating lease obligations | 302 | 268 | |||
| Total current liabilities | 4,120 | 3,124 | |||
| Long term debt, net of current portion | - | 572 | |||
| Finance lease obligations, net of current portion | 22 | 31 | |||
| Operating lease obligation, net of current portion | 3,050 | 3,257 | |||
| Total liabilities | 7,192 | 6,984 | |||
| 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; 6,485 (2021) and 6,456 (2020) shares issued, and 6,097 (2021) and<br> 6,118 (2020) shares outstanding | 6 | 6 | |||
| Additional paid-in-capital | 11,879 | 11,612 | |||
| Treasury stock of 389 (2021) and 338 (2020) shares | (3,415 | ) | (2,702 | ) | |
| Retained earnings | 4,853 | 3,548 | |||
| Total equity | 13,323 | 12,464 | |||
| Total liabilities and stockholders’ equity | 20,515 | $ | 19,448 |
All values are in US Dollars.
WhereFood Comes From, Inc.
Statementsof Income (unaudited)
| Three months ended<br><br> <br>September 30, | Nine months ended<br><br> <br>September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||
| Revenues: | ||||||||||||
| Verification and certification service revenue | $ | 4,701 | $ | 4,307 | $ | 11,659 | $ | 10,218 | ||||
| Product sales | 1,383 | 1,362 | 3,071 | 2,883 | ||||||||
| Software and related consulting revenue | 461 | 528 | 1,396 | 1,424 | ||||||||
| Total revenues | 6,545 | 6,197 | 16,126 | 14,525 | ||||||||
| Costs of revenues: | ||||||||||||
| Costs of verification and certification services | 2,438 | 2,233 | 6,363 | 5,283 | ||||||||
| Costs of products | 864 | 866 | 1,969 | 1,869 | ||||||||
| Costs of software and related consulting | 315 | 336 | 995 | 901 | ||||||||
| Total costs of revenues | 3,617 | 3,435 | 9,327 | 8,053 | ||||||||
| Gross profit | 2,928 | 2,762 | 6,799 | 6,472 | ||||||||
| Selling, general and administrative expenses | 1,790 | 1,806 | 5,290 | 5,401 | ||||||||
| Income from operations | 1,138 | 956 | 1,509 | 1,071 | ||||||||
| Other income/(expense): | ||||||||||||
| Dividend income from Progressive Beef | 30 | 30 | 90 | 90 | ||||||||
| Other income, net | - | 2 | 1 | 6 | ||||||||
| Loss on foreign currency exchange | (2 | ) | (2 | ) | (9 | ) | (1 | ) | ||||
| Interest expense | (1 | ) | (4 | ) | (5 | ) | (9 | ) | ||||
| Gain on sale of assets | 19 | 9 | 19 | |||||||||
| Loan forgiveness from Paycheck Protection Program | - | - | 1,037 | - | ||||||||
| Income before income taxes | 1,165 | 1,001 | 2,632 | 1,176 | ||||||||
| Income tax expense | 298 | 271 | 413 | 336 | ||||||||
| Net income | $ | 867 | $ | 730 | $ | 2,219 | $ | 840 | ||||
| Per share - net income: | ||||||||||||
| Basic | $ | 0.14 | $ | 0.12 | $ | 0.36 | $ | 0.14 | ||||
| Diluted | $ | 0.14 | $ | 0.12 | $ | 0.36 | $ | 0.13 | ||||
| Weighted average number of common shares outstanding: | ||||||||||||
| Basic | 6,094 | 6,187 | 6,146 | 6,215 | ||||||||
| Diluted | 6,157 | 6,224 | 6,207 | 6,254 |
WhereFood Comes From, Inc.
Calculationof Adjusted EBITDA*
(Unaudited)
| Three months ended September 30, | Nine months ended<br><br> <br>September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | 2021 | 2020 | 2021 | 2020 | |||||
| Net income | $ | 867 | $ | 730 | $ | 2,219 | $ | 840 | |
| Adjustments to EBITDA: | |||||||||
| Interest expense | 1 | 4 | 5 | 9 | |||||
| Income tax expense | 298 | 271 | 413 | 336 | |||||
| Depreciation and amortization | 200 | 257 | 601 | 736 | |||||
| EBITDA* | 1,366 | 1,262 | 3,238 | 1,921 | |||||
| Adjustments: | |||||||||
| Loan forgiveness | - | - | (1,037 | ) | - | ||||
| Stock-based compensation | 168 | 25 | 222 | 80 | |||||
| Cost of acquisitions | - | 15 | - | 15 | |||||
| ADJUSTED EBITDA* | $ | 1,534 | $ | 1,302 | $ | 2,423 | $ | 2,016 |
*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.
Exhibit99.2
WhereFood Comes From, Inc.
2021Third Quarter Conference Call
Call date: Thursday November 4, 2021
Call time: 10:00 a.m. Mountain Time
JayPfeiffer – Investor Relations
Good morning and welcome to the Where Food Comes From 2021 third quarter earnings call.
Joining me on the call today are CEO John Saunders, President Leann Saunders and CFO 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.
JohnSaunders – Chief Executive Officer
Good morning and thanks for joining the call today.
This morning we released our third quarter financial results before the market opened. Those results reflect a continuation of the normalization of our industry that we first began to see in the second quarter.
Specifically, customers for our pork, poultry, egg and diary verification services continued to open their facilities to third party visitation, which was severely curtailed in 2020 due to the pandemic. We’re still not back to pre-pandemic levels but we’re getting there.
The resumption of these delayed audits contributed to an increase in revenue in the quarter – although because these audit categories are typically less profitable than our beef audits, the margin pressure we experienced in the second quarter carried into the third quarter. The good news is, our bottom line was much improved on a year over year basis, and we think we’re well positioned to sustain our revenue growth and profit momentum going forward.
To the numbers:
Revenue in the third quarter and nine-month period increased 6% and 11%, respectively, on a year over year basis.
Net income in Q3 grew 19% to $900,000, or 14 cents per share, compared to net income of $700,000, or 12 cents per share, in the same quarter last year.
Net income through nine months grew 164% to $2.2 million from $800,000, although you’ll recall that approximately $1.0 million of the $2.2 million profit resulted from forgiveness of our PPP loan in the first quarter of this year. Not counting the impact of PPP loan forgiveness, net income was still up double digits.
EPS year to date was 36 cents, up from 13 cents
As I mentioned earlier, gross margins have been impacted by the resumption of lower-margin verification activity and, to a lesser extent, the accrual of performance bonuses that we suspended a year ago when revenue was under pressure during the height of the pandemic. In addition, we have made several new hires in the areas of sales and personnel management that contributed to higher costs year over year. Despite this, our SG&A line actually decreased slightly in Q3 and was lower by approximately $111,000 in the year-to-date period as we continued to look for ways to operate more efficiently.
Adjusted EBITDA in Q3 increased 18% to $1.5 million while our nine-month adjusted EBITDA was 20% higher year over year at $2.4 million.
We generated $3.0 million in net cash from operations year to date – a 39% increase from $2.2 million a year ago.
Working capital increased 15% to $5.0 million from $4.4 million.
Our cash and cash equivalents balance grew to $5.6 million from $4.4 million at 2020 year-end despite the fact that we paid out more than $900,000 in the form of a one-time special dividend to our stockholders in the third quarter. We also continued to repurchase shares under our share buyback program in the quarter, and year-to-date have taken 50,000 shares off the market at a cost of more than $700,000.
These efforts to return value to stockholders underscore the confidence we have in our business, both now and into the future. The steady emergence from pandemic restrictions, combined with continued momentum in our beef business – driven in part by growing popularity of our CARE Certified offering – have strengthened our industry leadership position while positioning us to extend our track record of revenue and profit growth, and strong cash generation.
Switching gears, I want to say a few words about our up-listing to Nasdaq that occurred in April of this year. You’ll recall that up-listing was intended to raise our profile in the investment community and make us eligible for investment by funds that are prohibited from buying shares of companies that are not traded on a major exchange. Following the up-listing, we experienced a significant increase in interest from this new class of investor with the total number of institutions up several fold over the last six months. Among our new investors are the Vanguard Total Stock Market Index Fund, the iShares Microcap ETF, the Fidelity Microcap Index Fund, Blackrock and several others.
In closing, I want to again thank Where Food Comes From employees at all levels of our business for the outstanding effort they put forth each and every day. Our employees are the backbone of our business and deserve enormous credit for the positive results Where Food Comes From has been able to deliver over the years. I also want to thank our customers and shareholders for their continued confidence and support.
And with that, I’ll open the call to questions. Operator…
Questionand Answer Session:
Question1: Eddie Reilly with EF Hutton
Hi, guys. Thanks for taking my question. I was just wondering if you could shed some more light on what you’re seeing from the rebound in the pork, poultry, dairy and egg verification services. Is there any seasonality typically in these audits?
JohnSaunders
Yes, that’s a good question, Eddie. We do see some seasonality in those audits. The biggest factor that we’ve been dealing with over the last – through the pandemic - is really how we’re going to continue to make sure that we keep up with those audits as they become available. Most of those facilities are contained. So it was very difficult to get our third-party auditors on site. So it’s more of a delay that we’ve been dealing with. Most of those are confined operations. So we really don’t see the same type of yearly cyclical behavior where we’re outside on our beef audits and other species that are not contained in facilities. So we probably won’t see that as much. It’s more just in those areas where we continue to see less restrictions about sending third-party people on site, but it really shouldn’t have too much impact on the timing of the year.
EddieReilly
Got you. Okay, great. And have you guys worked with any of the certifications to maybe try and gain access better to those types of audits lately? Or is that something that I’m trying to get in?
JohnSaunders
Yes, I’ll let Leann answer the bulk of that question, but we are in constant communication and trying to get that done, but go ahead, Leann.
LeannSaunders
Yes, so that was – as soon as the pandemic hit and we had restrictions going on site, our teams began working with the different standard setting bodies if they weren’t our own standards to work with them to develop the ability to do remote audits. And some of those auditing schemes take a long time to work through. So, as John mentioned, that then pushed back those cycles, maybe six months to seven months before we could get some of those things in place. But yes, we did immediately begin working with all those bodies.
EddieReilly
Okay, great. And just on the CARE program side, how many farms have you been able to sign on in the quarter?
JohnSaunders
I’ll get the specifics back to you, but I know that we’re over 500 approved ranches today. So at the same time last year, we were at just under a 100. So whatever that would be, we’ve increased four times, five times where we were last year at the same time.
EddieReilly
Awesome. That’s great. I think that just about does it for me. Thank you, guys. Appreciate it. Congrats, John.
JohnSaunders
Thanks, Eddie.
Question2: Chris Brown, Private Investor
Thank you. I have two questions, actually. My first one, there has been a lot of discussion in the news about climate change, et cetera, and I know beef production in particular has been mentioned. How do you guys look at that? And have you seen any impact of that? And how are you going to deal with it as you think about it from a corporate perspective?
JohnSaunders
Yes. Well, that’s a great question, Chris. And that really was a big part of the impetus for us launching the CARE program. We saw and felt a lot of that pressure specifically on beef and being targeted as one of the large culprits related to climate change. And if you look and I’m sure you’ve done the research, if you look at a lot of the current data that’s coming out, even from individuals as high as Secretary Vilsack, that the current administration and I think across the board looks at agriculture and specifically cattle ranching and carbon sequestration associated with cattle ranching are one of the big opportunities to combat the climate issue that we’re dealing with. So we feel very fortunate. In fact, it’s probably one of the most important key parts of our strategy right now to be working within the beef supply infrastructure to not only quantify, but to verify, and then to be able to communicate to the customers to those consuming those beef products, the nature of how much positive impact those beef producers are having on the environment. So it’s a great question and it really is one of our critical control points that we’re looking at moving forward of our successful – again launch of CARE and how we’re taking that to a much broader community.
ChrisBrown
Great. So hopefully, it’s a wind at the back instead of a wind in your face.
JohnSaunders
Yes, very much so. And we’ve been preparing for it for quite a while.
ChrisBrown
Good. Okay. So my second question is a little bit broader. As you look at kind of the one to three year timeframe for your overall business, what parts of the business will most of the growth come from? Just – and not necessarily in like kind of a zero to one year timeframe, kind of a one to three year, where do you see your growth coming from most of it?
JohnSaunders
Yes, another great question. Just kind of go back to the beef portion of our business. Today, beef represents a little bit in excess of 60% of our overall business. So, all of the other species that we work within pork and dairy and poultry, almonds, wine combined don’t necessarily equal the opportunity that we see in beef. A lot of that is because of the climate change pressure that the beef industry is experiencing. Another area is alternative meats and the pressure that they’re specifically putting on beef and really targeting beef whether it’s beyond burger or others that are looking at replacing beef as a primary protein source. So long and short when you combine that with the continued pressure that China, which continues to take more and more of our beef product, our real strong focus over the next definitely one to three years is beef specifically and the opportunity for us to grow that.
One thing related to our financials that maybe hasn’t been as clearly explained is that our hardware revenue, which is the second largest category of revenue. Our radio identified radio frequency tags that goes specifically just in cattle. So when you look at the hardware category of our revenue that is entirely a beef category. We don’t put identification tags in other species, just in cattle. For a lot of different reasons that I won’t get into right now, but that is the majority of that business. So when you look at that combined with the revenue associated with the verification, with the audits that we’re doing beef is far and away our biggest protein category that we work with. It’s also the one that I think is most targeted right now for several reasons that I just mentioned.
So one to three years, we’re really going to focus heavily on the beef industry and driving our CARE program and the sustainability message across all of those supply chains. Some of which I’ve talked about in the past, like Costco, McDonalds, Walmart, all of those major retailers and brands are trying to address this issue as well. So we see CARE and we see our certification and the supply chains that we work with really being a big part of how they’re going to be able to answer those questions, so beef, beef, beef.
ChrisBrown
Thank you very much guys. Appreciate your time today.
JohnSaunders
You bet.
Question3: Raphi Savitz with RYS Advisors
Hi, guys. How many – and you may have answered this already, and I apologize. But how many ranches you guys have on the beef side? And how many of those are currently utilizing your tags?
JohnSaunders
Yes, we work with over 15,000 farms and ranchers. And again, as I just mentioned, over half of those are specifically beef. So the number is probably close to 8,000 to 9,000.
RaphiSavitz
And how many of those are utilizing your tags? I guess I’m trying to get a sense of – have you already fairly penetrated your auditing base? Or is that very underpenetrated at this point?
JohnSaunders
No, that’s a good question. So each one of them are required to use our radio frequency tags, so that’s kind of the foundational level of our verification that we have to source verify the cattle. The verification opportunity then builds from that. So we have additional programs that go from natural to non-hormone all the way up through organic and non-GMOs. So what we’re doing within those 8,000 to 9,000 ranches that are specifically beef focused is migrating them from just a source verification to additional higher level verification. So, we’re selling them up and we’re bundling those opportunities. So another way to think about it is that 8,000 of our ranches are doing at a minimum source verification where they’re putting in the tags and probably I would say maybe 2,000 of them are doing higher level verification. So we have a lot of run room, a lot of growth opportunity just within those producers to continue to sell them more services, but at a minimum, they’re all buying our identification tags.
RaphiSavitz
Got it. Okay. And I guess in terms of the – kind of the 6% growth you guys saw on kind of the auditing side this quarter, I mean do you think that’s kind of in line with industry growth or kind of above or below that?
JohnSaunders
I would say that is the industry growth. That is what we saw and we’re the vast majority of that. So I think it’s – they’re almost one in the same. There was a couple factors this quarter I think to look at. One is the third quarter of last year was exceptionally good. So when we were 3, 4, 5 months into the pandemic, I don’t know if you remember this Raphi, but we had a lot of conversations about how our beef producers were very, very strong and they continued to verify and stick with their programs, even in the face of the pressure that we were seeing. So I think that’s one thing that you need to consider this quarter of this year is that we’re reflecting against a very, very good quarter that was phenomenal at the time last year.
I also think there’s some concerns as we’ve seen just with some of these new variants that we don’t know coming into the winter months, what that’s going to mean related to just retail pressure and are – I’m sure you’re seeing the same things that we’re seeing about products not being in grocery stores. So, we’re getting back into a little hesitancy that we saw last year not really knowing what’s going to happen in the next couple months. So I think that’s also part of the reason that we didn’t necessarily see the same growth this quarter that we saw last year that people are just still concerned. So we’re going through that, but all in all it couldn’t have been much better quarter for us as we looked at again demand from our international customers. And then just to go back to the original questions that we got that the beef industry really sees a lot of pressure right now, but it also sees a lot of opportunity and we think we’re a critical part of that. So I’m very pleased with the third quarter. We’ll see over the next couple quarters if we have more of that pressure – sorry go ahead.
RaphiSavitz
Thank you. I was on the site today or yesterday and I saw kind of some new marketing collateral for the SureHarvest products. And I guess I’d love to just get an update on kind of what your thoughts are on kind of the software opportunity for you guys, both kind of in SureHarvest existing markets and then what’s the larger software opportunity for Where Food Comes From?
JohnSaunders
Yes, again a great question. We’ve put a lot of emphasis on our Beef Passport product, which again is obviously a big part of our beef offering. The other area that’s been really, really encouraging and Leann mentioned it a little bit earlier. One of the – probably the most prominent standard setting body that we work with that we’ve been communicating with is the National Organics Program, so the USDA organic. And as I’ve mentioned, I think a couple times I think you were on Raphi, we’ve been working on a platform called SOW organic, which is a way to digitize the organic platform in the OSP related to it. So we’ve spent the last two years really perfecting that product. And as you may have seen through your research, we also rebranded our Where Food Comes From Organic system, which SureHarvest provides all of the technology related to how we’re digitizing that platform.
So I’m really excited about what’s going to happen within NOP and organic over the next 12 to 24 months and SureHarvest is a big part of that. One thing that we’ve changed a little bit and I think I’ve mentioned this on a previous call is we’re really focusing our software solutions on internal customer development. SureHarvest is servicing Where Food Comes From Organic as opposed to other potential certification bodies which is something that we’ve really spent a lot of time creating. And then as we look forward and we’re really trying to understand the retail market related to organic, which I’m sure you’ve seen is literally exploding around the world as a certification opportunity and really a program. We’re offering what we call sustainability dashboards to large retailers and large food companies that are trying to really understand their supply.
We rarely work with a customer that does 100% of their supply in a verified mode, so there’s a portion of their product that is going through these intensified supply chains. And for them to be able to know exactly what’s going on within their supplies structure at any time is very critical. And more importantly or as importantly for us, it makes us very sticky with those large brands to have that information and to be such a critical part of how they’re really answering the same consumer questions that that I think everybody is seeing right now. Just wanting to understand more about their food, where it comes from, the values of the people that produced it. So we’re – we see ourselves really being able to offer a new service in a very, very beneficial service to these large food companies that really haven’t had access to that information in the past.
RaphiSavitz
Perfect. Thank you.
Question4: Eddie Reilly with EF Hutton
Hi guys. Just one more from me. Regarding the legislation around the USDA requirement for RFID tags where cattle moved interstate. I know there is some pushback earlier this year about that, but this seems like a matter of when, not if this will happen. And I was wondering if you see that as more of an opportunity or a threat in terms of more competitors offering RFID tags. And just kind of want your general thoughts on that.
JohnSaunders
Yes, yes. That continues to be a big issue for us. And I would say that in short, it’s a big opportunity for us. Interstate commerce related to cattle, there – cattle are traveling across state lines every day. And so our ability to work with state veterinarians to address that interstate commerce part of the equation is really critical. We – there are times when it’s difficult to know exactly how it’s all going to play out, but we’re very confident that the producers that we work with and then our relationship with not only the feedyards and the packers, but then again the state vets, the ones that are in charge of the animal health issues really puts us in a unique spot. So we’re encouraged by that ruling. It’s not a compulsory program at this point, so it’s kind of on a state by state basis. So as it’s rolling out, it’s hard for us to really predict what that’s going to look like. But again, we feel pretty confident that it’s going to be a pretty big plus for us.
EddieReilly
Okay, great. Thank you.
Thank you. At this time, I’ll turn the call back over to John Saunders for closing remarks.
JohnSaunders
Thanks again. We’ll look forward to talking to you at the end of the year. Everybody have a great holiday season.
Operator
This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.