Where Food Comes From (WFCF) Q3 2026 earnings review
Where Food Comes From's audit sales grow, but prepayments shrink
Where Food Comes From, which certifies how farms produce food, grew through new programmes while its beef work stayed weak. Newer standards such as RaiseWell, an animal-welfare label that Whole Foods uses, lifted revenue from audits and certifications 6%. Gross margin reached 42%, and operating income climbed 68%. Chief executive John Saunders credited new customers and cost cuts for the gain.
| Total revenue | $7.3M +4% from a year ago |
|---|---|
| Gross margin | 42.1% 38.3% a year ago |
| Money customers prepaid for audits | $1.6M −20% from a year ago |
| Company outlook | None issued |
⚖️ Verdict: 🟢 Bullish
The story got better because newer certifications, not a cattle recovery, drove the growth. Sales of ear tags, which follow the size of the beef herd, held steady. One caution: money customers pay in advance for audits sat 20% below a year ago.
The question now is why customers prepaid so much less this year. Either fewer audits lie ahead, or customers now pay closer to the audit date. The year-end balance and fourth-quarter audit revenue, due early next year, will tell.
🐂 Bull Case
New Animal Welfare Labels Lift Audit Revenue
Where Food Comes From earns most of its money from audits that check how food is raised. Beef work makes up about half of revenue, chief executive John Saunders said last quarter. Because the cattle herd keeps shrinking, the Colorado group built its own standards, such as RaiseWell, a label for humane animal care.
Whole Foods Market, a grocery chain with 540 stores, adopted RaiseWell in February and extended it to poultry, pork and lamb in October. The label now covers 347,000 head of cattle and "has begun to make a meaningful contribution to revenue", Saunders said. Organic certification also gained more than 94 customers this year.
This matters because audit revenue grew 6.1%, its fastest pace in five quarters, while the herd kept shrinking. So the new standards now do more than replace lost beef work. But the certifier still does not split beef from other revenue, so readers cannot see what RaiseWell adds on its own.
What to watch: fourth-quarter audit revenue, due early next year, against a base that a packing-plant closure weakened. Growth that holds near this quarter's pace would show the new labels can carry the business until the herd recovers.
Lower Costs Lift Gross Margin to 42%
Where Food Comes From kept more of each dollar it earned. Gross margin, the share of revenue left after the direct cost of audits and ear tags, reached 42.1% from 38.3%. "These increases are the direct result of higher revenue in conjunction with effective cost control measures," chief executive John Saunders said.
- Cost of ear tags: down 1.8 percentage points of revenue
- Cost of running audits, mostly staff pay and insurance: down 1.3 percentage points
- Overhead, the selling and office costs: down 1.2 percentage points
Most of the gain came from direct costs. Tag margin reached 43.8% from 35.0%, because market conditions gave the certifier "more pricing leverage with suppliers", the company's filing said. Saunders's claim holds for this quarter, because overhead stayed flat while revenue rose 4%.
This matters because cheaper tags and new audit customers can last, while cuts to trade shows and marketing can reverse. Legal and professional fees also more than doubled, to $257,000, so the overhead savings have limits.
What to watch: fourth-quarter gross margin, when audit work slows for the season. A margin well above last year's 35.9% would show the savings outlast the busy months.
🐻 Bear Case
Customers Prepay a Fifth Less Than Last Year
Customers often pay Where Food Comes From before an audit takes place. That money sits on the books as deferred revenue, and the filing says it turns into revenue within a year. Chief executive John Saunders spoke of "accelerating revenue" this quarter, a claim that needs a growing stock of prepaid work behind it.
That stock kept shrinking instead. So far this year, customers paid $3.08 million in advance, and the certifier turned $3.01 million of prepaid work into revenue.
- Deferred revenue on September 30: $1.62 million, against $2.03 million a year earlier
- Change from a year ago: down 20.2%, after down 20.4% at the end of June
- Same gap a year earlier: down 5.5%
This matters because prepaid work is the main forward measure the certifier reports. Audit revenue still grew, so the drop has not yet hurt sales. But neither the release nor the call explained a decline that has now lasted five quarters.
What to watch: the year-end deferred revenue balance, due early next year. Another fall would mean less prepaid work enters 2027, while the cattle herd may still be small.
Smaller Cattle Herd Still Holds Back Beef Work
Beef work makes up about half of revenue, chief executive John Saunders said last quarter, so the size of the US cattle herd matters. The US beef cow herd has shrunk to 27.6 million head from 28.9 million, according to government figures in the company's filing.
Ear tags, which ranchers buy to identify cattle, held at $1.2 million in sales after a 9.6% fall a year earlier. Beef packers stay "reluctant to incur additional costs of verification" while cattle cost so much, the filing said.
Saunders reported "resurgent demand" for beef services. But the filing still sees "signs of further contraction" in the cattle industry, so one steady quarter does not mark a turn in the cycle.
What to watch: the US Department of Agriculture's January herd count, due early next year. A count above this January's would be the first sign that ranchers are rebuilding herds.
Unpaid Payroll Costs Lift Operating Cash Flow
Cash from operations, the money the business brings in before investment, reached $2.78 million so far this year, against $2.31 million. Much of the gain came from bills the certifier owes but has not yet paid.
- Accrued payroll, wages and benefits owed to staff: $1.56 million, against $442,000 in December
- Receivables, money customers still owe: up 12.8% from a year ago, against revenue up 4.4%
- Cash from operations without the larger rise in accrued costs: down 15% by our math
This matters because the company must pay that payroll later, so part of this year's cash gain will reverse. Its quarterly filing does not say what the payroll accruals cover.
What to watch: accrued payroll on the year-end balance sheet, due early next year. A fall toward December's level would cut the full-year cash gain.
Risks this quarter didn't answer
Four standing risks got no clear answer this quarter, and no investor asked a question on the call to press for one.
- Deals paid with new shares: last quarter the certifier registered to sell new stock for acquisitions. Deals could add growth, but it named none; the first deal and its funding will show the cost to holders.
- Bitcoin: its seven bitcoins gained $175,000 in value, about 15% of pre-tax profit; only a change in the holding would end these swings in net income.
- Screwworm, a livestock parasite: none of the materials mention it this quarter; a US outbreak would stop cattle movement and the audits that depend on it.
- A thin investor following: nobody asked a question on the call; regular analyst questions would show wider attention.
💲 Other KPIs
Consulting and data work fell 15% from a year ago, to $218,000. Revenue from these professional services has now shrunk in most recent quarters. The filing calls the work project-based and not recurring. It earned only $59,000 of gross profit, so the decline barely touches earnings.
Buybacks cut the diluted share count 5.9% from a year ago. The certifier bought back 21,170 shares in the quarter, about a third as many as a year earlier. So far this year, buyback spending matches last year's, at about $1.4 million.
Cash climbed 39% since December, to $4.43 million. The balance still sits 7% below a year ago, when money from selling its Progressive Beef stake had just arrived. Buybacks used about half of this year's cash from operations, and the group carries only small lease debts.
❓ Key Questions
How much revenue comes from beef today?
Saunders has said beef makes up about half of revenue, but the company does not split it out. Without that figure, readers cannot tell how fast RaiseWell, organic and other programmes grow on their own.
Why do customers prepay a fifth less than last year?
Deferred revenue has trailed the year-ago level for five quarters. Management has not said whether billing timing, a lost programme or last year's packing-plant closure explains the drop.
How much revenue does each RaiseWell animal bring in?
A revenue figure per enrolled head, and the share from customers new to the company, would show whether the label adds new spending or relabels existing beef audits.
What do the higher payroll accruals cover?
Payroll the company owes but has not yet paid more than tripled since December. Readers need to know when that cash goes out and what it pays for.
Would acquisitions be paid for with new shares?
Last quarter the company registered to sell new stock and said it would look for acquisitions again. This quarter it named no deal, so the size and funding of any purchase remain unknown.