"Where Food Comes From" (WFCF) might sound like a simple question asked at the dinner table, but for investors, it represents a company with a captivating story. WFCF is the behind-the-scenes powerhouse, diligently verifying a wide range of food products, from organic broccoli to Non-GMO Project Verified potato chips. Their most recent earnings call, however, unveils a potentially revolutionary development that seems to be slipping under the radar: the Upcycled Certified program.

While analysts are understandably fixated on the challenges WFCF's beef business is facing due to the cyclical nature of cattle trends, an intriguing shift is occurring in their certification segment. Q1 2024 saw a significant 17% year-over-year surge in revenue from verification and certification services, hitting $4.4 million. Moreover, the company is strategically positioning the Upcycled Certified program as a possible pillar for future expansion.

Let's explore why this seemingly niche certification could be the key to unlocking enduring value for WFCF.

The food industry is grappling with a colossal issue: food waste. A staggering one-third of all food produced globally goes to waste, ending up in landfills and contributing substantially to greenhouse gas emissions. Consumers, growing increasingly conscious of their environmental impact, are seeking sustainable solutions. This is where Upcycled Certification steps in. This distinctive program confirms that products utilize ingredients that would have otherwise gone to waste, effectively transforming potential environmental hazards into appealing, marketable commodities.

WFCF's Q1 2024 earnings transcript underscores the swift rise of Upcycled Certification. In just a few months, they've witnessed a 110% surge in certified products, leaping from 484 to 531, spanning diverse sectors such as snack foods, pet foods, and beverages. This diversification is vital, as it shields WFCF from the volatility of the beef market.

But here's where the theory becomes truly fascinating: could Upcycled Certification not only diversify WFCF's revenue but also potentially counterbalance the effects of the cattle cycle?

Let's consider some figures. In 2023, WFCF's product revenue, largely tethered to the beef industry, endured a 25% dip in Q1, settling at $0.7 million. While verification services are presently outpacing this decline, the beef business constitutes a significant portion of their portfolio.

Should Upcycled Certification maintain its explosive growth trajectory, it could evolve into a multi-million dollar revenue stream within a few years. Envision a scenario where Upcycled Certified products attain even a fraction of the market penetration seen with other well-known certifications like Non-GMO Project Verified or USDA Organic. The potential is vast.

Moreover, Upcycled Certification aligns with a potent consumer trend: the yearning for tangible, impactful ways to minimize waste. It's not merely about feeling virtuous; it's about enacting measurable change. This profoundly resonates with millennials and Gen Z, the demographics propelling the demand for sustainable products.

WFCF Revenue Breakdown (Q1 2023 vs. Q1 2024)

WFCF is ideally situated to leverage this trend. They already possess a vast network exceeding 17,000 clients, ranging from modest family farms to substantial consumer packaged goods companies. This pre-existing infrastructure facilitates the smooth integration of Upcycled Certification into their existing verification services, generating a robust cross-selling prospect.

While the cattle cycle will invariably sway WFCF's performance, the Upcycled Certified program presents a compelling counter-narrative. It embodies a long-term growth avenue with the potential to not only diversify revenue but also mitigate the cyclical swings of the beef business. If WFCF can successfully utilize its current network and tap into the escalating consumer demand for upcycled goods, this "secret weapon" could propel the company to the forefront of the sustainable food movement.

"Fun Fact: In 2013, Where Food Comes From acquired IMI Global, Inc., a company that employs RFID tags to trace individual cattle from birth to harvest. This acquisition underscores the company's early grasp of technology's importance in the food verification realm, a strategy that continues to fuel their growth today."