Good morning, and welcome to the Where Food Comes From 2022 Third Quarter Earnings Call. Joining me on the call today are CEO, John Saunders; and Chief Financial Officer, 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 opportunities, 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 news release for important disclosures regarding non-GAAP measures. I'll now turn the call over to John Saunders.

Well, good morning, and thanks for joining the call today. This morning, we announced results for our third quarter ended September 30, 2022, and are pleased to say we delivered another quarter of profitable growth. Revenue in the third quarter increased 11% year-over-year to $7.3 million from $6.5 million. The increase included a typically solid performance by our verification and certification business, and a nice rebound in product sales. Specifically, verification and certification services grew by 10% to $5.2 million from $4.7 million in the third quarter last year. Product revenue in the form of tag sales increased 15% year-over-year to $1.6 million from $1.4 million as drought conditions in the U.S. negatively impacted tag sales in the second quarter began to abate. Software and related consulting revenue was up slightly at $508,000 from $461,000. Selling, general, and administrative expense increased to $2.1 million from $1.8 million year-over-year, primarily reflecting higher personnel costs in what continues to be a very competitive labor market. Net income decreased 9% year-over-year to $785,000 or $0.13 per basic and diluted share from $867,000 or $0.14 per basic and diluted share. Adjusted EBITDA in the third quarter was down 13% year-over-year to $1.3 million from $1.5 million. Turning to nine months results, total revenue increased 16% to $18.8 million from $16.1 million in the same period last year. We had solid growth in all three revenue segments. Verification and certification services were up 11% to $12.9 million from $11.7 million. Product revenue was also up 13% to $3.5 million from $3.1 million. And software and related consulting revenue increased 69% year-over-year to $2.4 million from $1.4 million due primarily to the execution of a large project with a Japanese government entity in Q1 this year. Selling, general, and administrative expense increased 8% year-over-year to $5.7 million from $5.3 million, with most of that increase incurring in the third quarter of this year. Net income through the first nine months was $1.5 million or $0.25 per basic and diluted share compared to net income of $2.2 million or $0.36 per basic and diluted share in the same period last year. But remember, the year-ago nine-month period included other income in the form of $1 million in PPP loan forgiveness. So on an apples-to-apples basis, we still delivered very good profit growth. Adjusted EBITDA through nine months increased 16% year-over-year to $2.8 million from $2.4 million. Cash generated from operations was flat year-over-year at $3 million. Our cash and cash equivalents balance for nine months increased 11% to $6 million from $5.4 million at 2021 year-end. In the third quarter, the company bought back 108,733 shares of its common stock that raised our year-to-date buyback total to 202,783 shares. Given our strong cash position and consistent cash generation, we expect to continue buying back shares in the foreseeable future. In our earnings release this morning, we referenced some interesting growth opportunities we're pursuing, and I'd like to spend a few minutes on that subject. As you may know, our verification and certification portfolio is already the largest and most diverse in the food verification space, but we are constantly looking for ways to expand on that competitive advantage. Right now, we are focused on two emerging corporate and consumer movements, one of which is ESG, which stands for environmental, social, and governance. While we and a growing number of our customers are already deeply involved in the sustainability movement through our CARE program, there are additional opportunities out there as large companies are rolling out other climate and sustainability initiatives in order to remain competitive. The Federal Government is now heavily involved in funding some of these programs, a pertinent example for us being the USDA Climate-Smart Grant, which has allocated $2.8 billion to fund more than 70 projects in the agricultural space. We have recently engaged with customers in three initial projects that will include participation by our certification and verification teams as well as our Share Harvest unit in a consulting role. I'm not prepared to quantify these programs in terms of dollar value at this early stage, but we expect these revenue opportunities to grow over time and deliver solid profit margins. The second opportunity we're pursuing is in aquaculture. In recent months, we've reported to you progress we've made with a couple of programs. The large consulting project promoting Japanese seafood in the United States that we completed in Q1, and the recent launch of our FishCARE initiative and approval of Premier Trout farmer, processor, and distributor Riverence Provisions as our first producer for the standard. Right now, we're exploring ways to expand FishCARE internationally. We are investigating various processes and protocols for programs in Vietnam, Thailand, Malaysia, Indonesia, and the Philippines, where much of the seafood consumed worldwide is sourced. We're also exploring our options for bringing on sales and auditing personnel. As with most of our business lines, it takes time, sometimes years, to build programs and consistent revenue streams, and aquaculture is no different. In fact, in some ways, it is more difficult to develop and deploy solutions than in other food categories because, among other things, so much of the world's seafood is sourced in Asia and South America. And because the supply chain is so fragmented and diverse, and also because seafood farming creates unique challenges we don't face with land farming and ranching operations. So revenue related to our aquaculture programs has and will continue to be lumpy in the near term. But we think we're certainly moving in the right direction. Before I open it up to questions, I wanted to let you know that the Where Food Comes From team will be traveling to New York on January 5 to ring NASDAQ's closing bell. This is a nice milestone for the company that provides a fair amount of exposure for our company and our stock. So with that, operator, I'll open the call to questions.

Our first question comes from Edward Reily with EF Hutton.

Are the companies implementing ESG, climate, and sustainability initiatives already customers of Where Food Comes From, or are you aiming to attract new customers through these efforts?

Excellent question, Eddie. It's both. A significant number of our current customers are, I think, continually being asked questions about their supply chains and the sustainability of those supply chains. So it puts us in a very good position as we have visibility through those supply chains to begin to answer some of those questions and to be able to provide verifiable data, especially if they're public companies and they're under the same pressure that we find ourselves under as a public company. So really, the genesis for everything was about two years ago when we had our first interaction with an ESG brokerage firm that wanted us to answer some of those questions. And I think it brought on an awareness for us that this was something that was much bigger than us as a small public company that a lot of these companies were probably going to be looking for the same type of clarity and verification capabilities. Do we think there's other customers out there? Of course. I think there's a lot of potential customers for us. The other thing is it diversifies our contact within those companies. So we typically work within procurement and quality control. But as this is primarily a financial and something that the CFO typically would be involved with on behalf of these companies, it's a new opportunity for us to connect with these companies, and I think, to become more sticky.

Okay. Great. And then on the SG&A costs and hiring personnel costs, is this solely reflecting an increase in wages? Or are you doing additional hiring? And if so, wondering in what areas you're hiring for?

The two main areas I mentioned are ESG and aquaculture. Right now, we have to offer higher compensation to attract good talent compared to the past. While we are committed to compensating well, we also want to keep rewarding our employees for their achievements. In the current job market, it's challenging; we might receive a handful of resumes, make an offer, and find it difficult to finalize the hiring since many candidates are countering with requests for higher pay. It seems that fewer people are interested in working in an office setting anymore, as there is a shift toward remote work. This trend is something we will need to address, and the diversification of our workforce is increasing our costs due to having remote offices in various places. It's simply the reality we are facing, and to attract talent in this environment, we must adopt a more aggressive approach.

Okay. And then I'm wondering about how you guys have navigated the current inflationary environment, just with regard to the pricing of the services and products that you guys offer.

Another great question. We recently held an extensive meeting to discuss the rising costs of fuel, particularly as our auditors need to travel to various locations. We aim to consolidate those audits and minimize expenses as much as we can. However, airfare has increased by 25% to 30%, and we all recognize that fuel costs have risen. This has led to challenging discussions with clients. Overall, we are facing at least a 25% to 50% increase in input costs. Getting our personnel to the locations remains our top priority, and the rising expenses for fuel, vehicles, accommodation, and flights are consistently on the rise.

Our next question comes from Raphi Savitz with RYS Advisors.

John, regarding legislation, do you see anything that could significantly affect either the verification or your Tag business, or both?

Good question. I would say, yes. There are developments happening. I wouldn't strictly label the $2.8 million grants announced by the USDA as regulatory. However, a significant goal of this grant is to establish guidelines concerning greenhouse gas emissions and carbon credits, specifically to create a way to measure what sequestration and the impact of carbon on the climate truly are, along with how agriculture influences that. As a result of these grants, new regulations are likely to emerge defining what it means to be carbon-neutral, carbon-free, or climate-smart, which aligns with the grants' objectives of promoting smarter practices concerning the climate and how they will be measured. Additionally, while it may not be strictly regulatory, there are international trade barriers that stem from the use or absence of certain technologies. We are engaged in prolonged negotiations with countries like Taiwan, which also have geopolitical implications regarding technology use in the United States. There are numerous factors at play, which I wouldn’t necessarily classify as regulatory, but they will clarify many technical aspects of our operations for the next five to ten years.

Got it. And today, in terms of your 10% or 11% growth, I mean, how much of that would you say is driven by landing new customers versus selling kind of incremental products or solutions to existing customers?

Each year, we aim to identify major customers that can benefit from our services across different divisions. If we can successfully target one to two, or possibly three new customers annually, it significantly enhances our business. For instance, Riverence was a key new customer last year. Ultimately, we anticipate a potential opportunity ranging from $50,000 to $100,000 with these customers, which opens doors to collaborate with larger firms. It's important to note that, especially in aquaculture, our sales pipeline can span three to five years. When we first engage with a company, they often have their own business challenges, and only after some time do they express interest in our verification services. This process can take up to three years. Therefore, acquiring a few new customers can have a significant impact. Our top priority remains customer retention; once we secure a customer, we work diligently to maintain that relationship. We invest considerable time into ensuring that we continue providing the verification services they received previously while also exploring new service bundles and creating additional value. Our customer relationships typically operate on an annual basis, with a verification conducted each year at a specific point in time, after which we reassess what the upcoming year will involve.

Got it. And I guess along those lines, I think we've talked about on previous calls how some of these verifications can really kind of impact or may drive an uplift with the end consumer, you and I, when we go shopping a restaurant, should we go to a grocery store. I guess any updates there in terms of any studies you may have done, that the industry has done? Or I know you've also experimented with your own kind of verification. Anything new on that front?

One thing to highlight is our partnership with Heinen’s, which we don't discuss often, but they have been a crucial customer for us over the years as they verify all their proteins. Riverence was our first FishCARE customer, and they also supply to Heinen’s. Connecting this to your question about taking our aquaculture verification to consumers, we do this through existing retail partnerships. We have been collaborating with Heinen’s for over 15 years, and they remain a satisfied customer. They have around 26 stores, which is much smaller compared to many other retailers we engage with, who typically operate several hundred locations nationwide. Although we are on a different level with Heinen’s, they play a key role in helping us connect with consumers and understand their needs. Every day, we are having conversations with various retailers about what consumers are asking for. It’s a matter of whether consumers will demand these verifications widely, rather than just a vocal minority. As we focus on sustainability, consumers seek assurance that there is no greenwashing happening, which allows us to showcase the value of verification and provide consumers with confidence that this is not just a temporary trend or marketing gimmick. It is fundamental to the business to discuss sourcing and supply chains more transparently.

Got it. And just one last one for me. I guess from a kind of an industry penetration standpoint, how well penetrated would you say the beef industry is at this point in terms of verification kind of and/or other opportunities? And how would you contrast that with maybe some of the other opportunities you're looking at, such as aquaculture?

The largest penetration we have is in the beef industry, with 25 million animals marketed and harvested annually in the United States. Last year, we verified around 2.5 million of them, which puts us at about 10% of the current U.S. beef industry. When I visit a grocery store, I notice that 80% to 90% of the meat products are what I would classify as commodity items. These products lack detailed information on labels regarding factors like whether they are grass-fed or humanely treated. In contrast, about 10% of the meat selection offers verified products with price differentiation. I believe this 10% figure applies not only to beef but to other industries as well. The U.S. consumer landscape has evolved with many options available for various food products, and it ultimately hinges on whether consumers are willing to pay more for them. Currently, around 10% of consumers fall into that category.

Our next question comes from the line of Chris Brown, private investor.

So over the last three years, you have done a really nice job managing through COVID. As you look forward three years, how do you think about your natural organic growth rate compared to some of the new opportunities you discussed on the call, considering the next three years instead of looking back?

Thank you for the question, Chris. I’ve mentioned that I have two daughters; one is a college sophomore and the other is a high school senior. Their shopping habits differ significantly from mine, and we now have various unique products at home, like oat milk. To address your question, I may not fully understand the ongoing transformation, but there is definitely a movement towards a clearer understanding and greater transparency about our food and its origins. Sustainability is a key aspect, as discussed previously regarding ESG, and it involves considering various factors in the supply chain, including nutrition, taste, production methods, and the fair compensation of those involved in food production. These inquiries are increasingly being raised by a diverse group of consumers, including my mother, who has health concerns and is looking for clean labels and clarity about her food sources. I want to be prepared to meet that demand. If consumers are willing to pay more for these products, we will be in a position to provide them. I believe we will likely continue on our current trajectory, although the COVID pandemic has shifted perspectives significantly. However, I do not anticipate a drastic change where everyone suddenly agrees to buy organic food at much higher prices.

Right. That's fair. I appreciate that. And then the second question was on your repurchase program. It seems like you guys are kind of comfortable with your kind of cash flows, etc. Is that a strategic repurchase? Or is it a consistent repurchase? And can you give just a little color on how that program works?

The primary use of our capital has always been for acquisitions and M&A activities, which remain a key focus for us as we move forward. However, we sometimes face delays in finding suitable opportunities. In those cases, we look for the next best use of cash, such as seeking strategic partnerships or marketing opportunities to expand. Following that, we prioritize stock buybacks as a way to utilize our cash. While acquisitions are our top strategic priority, we consider alternative uses when opportunities are not available.

Our next question comes from the line of John Tate, private investor.

Yes. Congrats on another quarter, chugging along, doing what you do. I appreciate being a responsible steward of capital. A question for you today is, can you speak at all to how competitive the market is for verification in the ESG and sustainability space where you're competing for that USDA grant money?

We honestly can't think of another ESG company that is trying to do what we're doing right now, except for BDO, which is working in different industries. On the food side, I don't believe we have any real competitors because no one else has the experience we possess, and this just hit the market. We've realized there may be an opportunity for us to expand into a new area. We understand that we won't become a major accounting firm; that's not our goal. Our aim is to provide strong credential verification. If a company like Walmart needs to report on ESG within its supply chains, we may only be able to provide a snapshot of that. It’s impossible to fully quantify everything involved. We expect to be part of the process over the next few years, developing that out. Aquaculture is a mature market where most auditing and verification is conducted by NGOs and larger organizations, which typically provide a rating that might indicate whether certain seafood, like lobsters from Maine or Blue Fin Tuna, is sustainable. This isn't what we consider place-based verification, which is more specific to our work in aquaculture. There are companies doing aquaculture verification, but it differs from our approach, placing us in a unique position. A significant amount of seafood is produced outside the United States, but we see opportunities with domestically produced seafood, like trout, Gulf shrimp, catfish, and tilapia. We believe there’s great potential in this area, especially on the ESG side, where we don’t see anyone really competing with us.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Saunders for any final comments.

Thanks, everybody, for joining the call today. Great questions. Appreciate all the thoughts, and we'll talk to you in a few months.

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