Q2 2024 Where Food Comes From Inc Earnings Call

August 8, 2024

John Saunders: You of Our Diversified Model. Today I'd like to highlight two specific examples of how we continue to advance this strategy. The first is Upcycle Certified, which, as you may know, is a standard we acquired in Q4 last year after serving as the exclusive certification by since the program's inception in 2021. Upcycle Food, which is the use of nutritional food ingredients that would otherwise go to waste, for those of you that are old enough to remember, we call them leftovers, is an up-and-coming national consumer trend, and we're pleased to announce that Upcycle Certified has recently emerged as one of the fastest growing certification standards in our portfolio.

John Saunders: a Diversified Model. Today, I'd like to highlight two specific examples of how we continue to advance this strategy. The first is Upcycled Certified, which as you may know is a standard we acquired in Q4 last year after serving as the exclusive certification body since the program's inception in 2021. Upcycled food, which is the use of nutritional food ingredients that would otherwise go to waste. For those of you that are old enough to remember, we call them leftovers, Upcycling is an up-and-coming national consumer trend, and we're pleased to announce that Upcycled Certified has recently emerged as one of the fastest-growing certification standards in our portfolio.

John Saunders: I'd like to highlight two specific examples of how we continue to advance this strategy. The first is Upcycled Certified, which, as you may know, is a standard we acquired in Q4 last year after serving as the exclusive certification body since the program's inception in 2021. Upcycled food, which is the use of nutritional food ingredients that would otherwise go to waste. For those of you that are old enough to remember, we call them leftovers, is an up-and-coming national consumer trend, and we're pleased to announce that Upcycled Certified has recently emerged as one of the fastest-growing certification standards in our portfolio.

Today I'd like to highlight two specific examples of how we continue to advance this strategy.

John Saunders: The first is Upcycled certified which as you May know is a standard we acquired in Q4 last year after serving as the exclusive certification body since the program's inception in 2020 one.

John Saunders: Upcycled food, which does he use of nutritional food ingredients that what other got otherwise go to waste for those of you that are old enough to remember we call them leftovers is it up and coming national consumer trend and we're pleased to announce that Upcycled certified has recently emerged as one of the fastest growing certification standards in our.

John Saunders: Our portfolio.

John Saunders: Given the early momentum of this trend and the compelling economic environmental arguments in favor of it, we think our upcycled business has potential to become a very meaningful contributed growth over the long term. What began as the modest program attracted smaller niche players has blossomed into an international program that includes major food producers and retailers. In July, Walmart rolled out a new line of upcycled sauces as a continuation of its Better Goods product launch in April. Walmart's largest private label food brand launched in 20 years. So we think the upcycled trend has its best growth ahead of it, and here are a few data points to support that.

John Saunders: Given the early momentum of this trend and the compelling economic environmental arguments in favor of it, we think our upcycled business has the potential to become very meaningful contributor to growth over the long term. What began as a modest program that attracted smaller niche players has blossomed into an international program that includes major food producers and retailers. In July, Walmart rolled out a new line of upcycled sauces as a continuation of its Better Goods product launch in April. Walmart's largest private label food brand launch in 20 years. So we think the upcycle trend has its best growth ahead of it, and here are a few data points to support that.

John Saunders: Given the early momentum of this trend and the compelling economic environmental arguments in favor of it, we think our upcycled business has the potential to become a very meaningful contributor to growth over the long term. What began as a modest program that attracted smaller niche players has blossomed into an international program that includes major food producers and retailers. In July, Walmart rolled out a new line of upcycled sauces as a continuation of its Better Goods product launch in April. It is Walmart's largest private label food brand launched in 20 years. So we think the upcycle trend has its best growth ahead of it, and here are a few data points to support that.

John Saunders: Given the early momentum of this trend and the compelling economic environmental argued mentioned in favor of it we think our upcycled business how's the potential become very meaningful contributor to growth over the long term.

John Saunders: What began as a modest program that attracted smaller niche players has blossomed into an international program that includes major food producers and retailers and July Walmart rolled out a new lineup of recycled sources as a continuation of its better goods product launch in April.

John Saunders: Walmart's largest private label food brand launch in 20 years.

John Saunders: So we think that cycled trend has its best gross best growth ahead of it and here are a few data points to support that.

John Saunders: First, an estimated 40% of food grown annually in the U.S. goes unsold or uneaten. Refed, a leading waste research organization, estimates that 80 million tons of food that is wasted annually in the U.S. with the financial loss of $310 billion. A future market insights report estimates the value of the upcycled food industry to be more than $46 billion and growing. Over the last three years, upcycling consistently top food trend lists include Food Tank, Kroger, Forbes, and Whole Foods Market. And in overmarket insights, surveys showed 62% of consumers are willing to pay more for a product that fights food waste.

John Saunders: First, an estimated 40% of food grown annually in the U.S. goes unsold or uneaten. ReFED, a leading waste research organization, estimates that 80 million tons of food are wasted annually in the U.S. at a financial loss of $310 billion. A Future Market Insights report estimates the value of the upcycled food industry to be more than $46 billion and growing. Over the last three years, upcycling consistently topped food trend lists including FoodTank, Kroger, Forbes, and Whole Foods Market.

John Saunders: First an estimated 40% of food grown annually in the U S goes unsold or I mean.

John Saunders: <unk>, a leading waste research organization estimates that 80 million tons of food that is wasted annually in the U S with a financial loss of $310 billion.

John Saunders: A future market insights report estimates the value of the upcycle food industry to be more than $46 billion and growing.

John Saunders: Over the last three years upcycling consistently top food trend lists, including food tank, Kroger, Forbes and whole foods market.

John Saunders: An Inova Market Insights survey showed 62% of consumers are willing to pay more for a product that fights food. A Hartman Group survey showed 70% of consumers had increased intent to buy Upcycled Certified Foods when the seal was displayed on packaging. And finally, according to Project Drawdown, decreasing food waste is the number one solution to reducing the need for land and resources used to produce food, as well as the greenhouse gases released in the process.

John Saunders: An Inova Market Insights survey showed 62% of consumers are willing to pay more for a product that fights food waste. A Hartman Group survey showed 70% of consumers had an increased intent to buy Upcycled Certified Foods when the seal was displayed on packaging. And finally, according to Project Drawdown, decreasing food waste is the number one solution to reducing the need for land and resources used to produce food, as well as the greenhouse gases released in the process.

John Saunders: And you know if a market insight survey showed 62% of consumers are willing to pay more for a product that fights food waste or.

John Saunders: A Hartman Group survey showed 70% of consumers had increased intent to buy upcycled certified foods when the seal was displayed on packaging. And finally, according to Project Drawdown, decreasing food waste is the number one solution to reducing the need for land and resources used to produce food, as well as the greenhouse gases released in the process.

John Saunders: Heartland group surveyed showed 70% of consumers had increased intent to buy Upcycled certified foods when the seal was displayed on packaging and finally, according to project drawdown decreasing food waste is the number one solution to reducing the need for land and resource since used to produce food.

John Saunders: Well it has the greenhouse gases released in the process.

John Saunders: The second example of emerging revenue streams for us is our biosecurity business. Over the years, our work and building traceability systems and conducting on-range animal welfare audits has made biosecurity services a logical next step serving service offering for us. Whether it's avian influenza, swine flu, foot-and-mouth disease, mad cow disease, equine eye, or even COVID-type issues involving farm, ranch, and dairy workers, the agricultural industry and the USDA are constantly working to prevent potentially catastrophic outbreaks that disrupt operations and supply chains and put the public at risk. Where food comes from has a massive amount of expertise in this area, and we have developed a variety of programs and standards to reduce risks of infectious disease transmission among livestock workers and customers.

John Saunders: The second example of emerging revenue streams for us is our biosecurity business. Over the years, our work in building traceability systems and conducting on-ranch animal welfare audits has made biosecurity services a logical next step service offering for us. Whether it's avian influenza, swine flu, foot-and-mouth disease, mad cow disease, E. coli, or even COVID-type issues involving farm, ranch, and dairy workers, the agricultural industry and the USDA are constantly working to prevent potentially catastrophic outbreaks that disrupt operations and supply chains and put the public at risk.

Speaker Change: The second example of emerging revenue streams for US is our bio security business.

Speaker Change: Over the years, our work in building traceability systems and conducting on ranch animal welfare audits has made bio security services, a logical next step serving.

John Saunders: Service offering for us.

John Saunders: Whether it's avian influenza swine flu foot and mouth disease, Mad cow disease equal I or even cobo type issues involving farm <unk> ranch and dairy workers the agricultural industry in the U S. D are constantly working to prevent potentially catastrophic outbreaks that disrupt disrupt the operations and supply chains.

John Saunders: Put the public at risk.

John Saunders: Where Food Comes From has a massive amount of expertise in this area, and we have developed a variety of programs and standards to reduce risks of infectious disease transmission among livestock workers and customers. For example, our secure food supply plans help beef, dairy, pork, poultry, and egg operations prepare before an outbreak to limit exposure of animals and accelerate re-entry into commercial operations after an outbreak. Our on-farm security reviews verify site-specific compliance with a stringent set of on-farm biosecurity procedures.

John Saunders: Where Food Comes From has a massive amount of expertise in this area, and we have developed a variety of programs and standards to reduce risks of infectious disease transmission among livestock workers and customers. For example, our secure food supply plans help beef, dairy, pork, poultry, and egg operations prepare before an outbreak to limit exposure of animals and accelerate reentry into commercial operations after an outbreak. Our on-farm security reviews verify site-specific compliance to a stringent set of on-farm biosecurity procedures.

Speaker Change: Where food comes from has a massive amount of expertise in this area and we have developed a variety of programs and standards to reduce risks of infectious disease transmission among livestock workers and customers.

John Saunders: For example, our secure food supply plants help beef, dairy, pork, poultry, and egg operations prepare before an outbreak to limit exposure of animals and accelerate reentry into commercial operations after an outbreak. Autoprogram is a rigorous food safety program designed to meet industry customer and regulatory requirements from the farm to retail stores. These are just three of eight programs that address the risks associated with animal disease outbreak. In the aggregate, they serve to protect our customers and strengthen their relationships with the USDA and state-level animal health officials in order to build resilience into the agricultural community and protect consumers.

John Saunders: For example, our secure food supply plans, how beef dairy pork poultry and egg operations prepared before an outbreak to limit exposure of animals and accelerating reentry into commercial operations after an outbreak.

Speaker Change: Our on farm security reviews, verify and site specific clock compliance to a stringent set of unfunded bio security procedures.

John Saunders: And our SQF Safe Quality Food On-Farm Audit Program is a rigorous food safety program designed to meet industry, customer, and regulatory requirements from the farm to retail stores. These are just three of eight programs that address the risks associated with animal disease outbreaks.

Speaker Change: And I'll ask you a safe quality food farm audit program is a rigorous food safety program designed to meet industry customer and regulatory requirements from the farm to retail stores.

John Saunders: These are just three of the eight programs that address the risks associated with animal disease outbreak.

John Saunders: In the aggregate, they serve to protect our customers and strengthen their relationships with the USDA and state-level animal health officials in order to build resilience into the agricultural community and protect its consumers. So hopefully that gives you a little insight into how our strategy of constantly expanding our product and services portfolio is strengthening our business. At the same time, I want to emphasize that our beef verification remains a core strength, and we fully expect it to bounce back as herd size is normalized.

John Saunders: In the aggregate, they serve to protect our customers and strengthen their relationships with USDA and state-level animal health officials in order to build resilience in the agricultural community and protect consumers. So hopefully, that gives you a little insight into how our strategy of constantly expanding our product and services portfolio is strengthening our business. At the same time, I want to emphasize that our beef verification remains a core strength, and we fully expect it to bounce back as herd size is normalized.

John Saunders: In the aggregate they serve to protect our customers and strengthen our relationships with the USDA and state level animal health officials in order to build resilience into the agricultural community and protecting consumers.

John Saunders: So hopefully that gives you a lower insight into our strategy of constantly expanding our product and services portfolio is strengthening our business. At the same time, I want to emphasize that our beef verification remains a core strength for us, and we fully expect it to bounce back as hurt sizes normalize. When that happens, we believe we will be well positioned to accelerate revenue and profits.

John Saunders: So hopefully that gives you a little insight into how our strategy of constantly expanding our product and services portfolio is strengthening our business at the same time I want to emphasize that our beef verification remains a core strength for us and we fully expect it to bounce back as herd sizes normalize when that happens we believe we will be well.

John Saunders: When that happens, we believe we will be well-positioned to accelerate revenue and profit. And with that, I'll thank you all again for joining the call today and open the call to questions. Operator? Thank you. We will now be conducting a question and answer session.

John Saunders: Positioned to accelerate revenue and profits.

Operator: And with that, I'll thank you all again for joining the call today and open the call to questions. Operator.

John Saunders: And with that I'll. Thank you all again for joining the call today and open the call to questions operator.

Operator: Thank you.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2.

Speaker Change: Thank you.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation to indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Speaker Change: Conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Operator: You May press Star two if you would like to remove your question from the queue for.

Operator: <unk> been using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Chris Brown with Oak Financial. Please proceed with your question.

Operator: One moment, please while we poll for questions.

Operator: Thank you.

Operator: Thank you. Our first question comes from the line of Chris Brown with Oak Financial. Please proceed with your question.

Chris Brown: Our first question comes from the line of Chris Brown with Oak Financial. Please proceed with your question. Thank you very much. I think it was about the end of 2022 you talked about the USDA's intention to mandate RFID tags associated with the 82 program. It's my understanding that the final rule past this spring and implementation is happening this fall.

Chris Brown: Thank you very much. Back in, I think it was about the end of 2022, you talked about the USDA's intention to mandate RFID tags associated with the ADT program. It's my understanding that the final rule passed this spring and implementation is happening this fall. I was wondering three kind of general questions, how it's impacting your business to date, what you're kind of doing internally to take advantage of or adapt to that new environment, and then kind of how you see it playing out over the next year or so.

Chris Brown: Thank you very much backend I think it was bought at the end of 'twenty 'twenty. Two you talked about the Usda's intention to Matt mandate RFID tags associated with the ADT program.

Chris Brown: It's my understanding that the final rule passed this spring and implementation is happening. This fall I was wondering free.

Chris Brown: I was wondering three kind of general questions: how it's impacting your business to date, what you're kind of doing internally to take advantage or adapt to that new environment, and then kind of how you see it playing out over the next year or so. Thank you.

Chris Brown: Free kind of general questions, how it's impacting your business to date.

Speaker Change: What you're kind of doing internally to take advantage or adapt to that new environment, and then kind of how you see it playing out over the next year or so.

John Saunders: Thank

Speaker Change: Thank you.

John Saunders: Great question. The year correct, the final rule came into play this spring, and this fall is when the implementation will begin. We've already seen a lot of the impacts of this, Chris. Some of them have been related to the transition of existing customers to use what we call 840 identification devices, which are compliant on a country code and compliant with ADT. We've had a strong migration of a lot of our customers to the 840 tags, as we call them.

John Saunders: Great question. You're correct.

Speaker Change: Great question.

John Saunders:

John Saunders: The final rule came into effect this spring, and this fall is when the implementation will begin. We've already seen a lot of the impacts of this, Chris. Some of them have been related to the transition of existing customers to use what we call 840 identification devices, which are compliant with country codes and compliant with ADT. So we've had a strong migration of a lot of our customers to the 840 tags, as we call them.

Speaker Change: The you're correct. The the final rule came into play this spring and this fall is when the implementation will begin we've already seen a lot of the impacts of this Chris some of them haven't been.

John Saunders: Related to transition of existing customers to use what we call 840 identification devices, which are compliant on a country code and compliant with ADT. So we've had a strong migration of a lot of our customers to the 840 tags as we call them. So.

John Saunders: So probably the only real impact that we've seen so far, and this has been compounding with the smaller herd sizes, is that there's been a great deal of subsidizing of tags to the industry. So either through animal health officials or through other government or state affiliations, producers are able to get tags for free. As I'm sure you've seen, in lieu of or in spite of the fact that the ruling has come into place, our tag revenue continues to stay flat or to decline a little bit. And that is relative to two things, as we talked about.

Speaker Change: Probably the only real impact that we've seen so far and this has been compounding with our with the smaller herd sizes is that theres been a great deal of subsidizing of tags to the industry, so either through animal health officials or through other government or state affiliations.

John Saunders: Probably the only real impact that we've seen so far, and this has been compounding with the smaller herd sizes, is that there's been a great deal of subsidizing of tags to the industry. So either through animal health officials or through other government or state affiliations, producers are able to get tags for free. As you, I'm sure, seen in lieu of or in spite of the fact that the ruling has come into place, our tag revenue continues to stay flat, or to decline a little bit. And that is relative to two things, as we talked about: one is the decline in the herd sizes, but there also that the government is giving quite a few tags away to producers, which is why you also see our verification revenue continuing to increase.

John Saunders: Producers are able to get tags for free.

John Saunders: As you I'm sure have seen them in lieu of or in spite of the fact that the ruling has come into play it's our tag revenue continues to stay.

John Saunders: Stayed flat or to decline a little bit and that is relative to two things as we talked about one is that the decline in the herd sizes. But then also that the government is getting quite a few tax related producers.

John Saunders: One is the decline in herd sizes, but also that the government is giving quite a few tags away to producers, which is why you also see our verification revenue continuing to increase. So the way that we've been adjusting to it, Chris, is we've been preparing for a wave of free tags that we're going to send into the industry where we're actually charging those ranchers and farmers for those tags. They were going to have an opportunity to get those tags for free.

John Saunders: Rich.

Speaker Change: It's why you also see our our verification revenue continuing to increase so the way that we've been adjusting to a Christmas we've been preparing for the for Oh Oh.

John Saunders: So the way that we've been adjusting to a crisis, we've been preparing for a wave of free tags that we're going to go into the industry, where we're actually charging those ranchers and farmers for those tags. They were going to have an opportunity to get those tags for free. So what we're allowing our producers to do is to bring those tags into our system for a fee, and we're maintaining those tags in the system. It does create more work for us, so we've had to adapt some of our technology to make sure that it was easy for producers to get their tags that they weren't coming directly from us into the system.

John Saunders: A wave of free tags that we're going to go into the industry, where we're actually charging those those ranchers.

John Saunders: And farmers for those tags, they were going to have an opportunity to get those tax for free so what we're allowing our producers to do is to bring those tags into our system for a fee and we're maintaining those tags in the system. It does create more work for us. So we've had to adapt some of our technology to make sure that it was.

John Saunders: So what we're allowing our producers to do is to bring those tags into our system for a fee, and we're maintaining those tags in the system. It does create more work for us, so we've had to adapt some of our technology to make sure that it was easy for producers to get their tags if they weren't coming directly from us into the system. The way it affects us long-term is, I believe, as most programs like this do, it happened with the organic program several decades ago, where there was a lot of opportunity for government-subsidized funding that would go to states or counties or universities where they could implement their own organic certification programs.

John Saunders: So what we're allowing our producers to do is to bring those tags into our system for a fee, and we're maintaining those tags in the system. It does create more work for us, so we've had to adapt some of our technology to make sure that it was easy for producers to get their tags if they weren't coming directly from us into the system. The way it affects us long-term is, I believe, as most programs like this have happened with the organic program several decades ago, where there was a lot of opportunity for government-subsidized funding that would go to states or counties or universities where they could implement their own organic certification programs. But over the years, what we've seen is a consolidation, and almost all those programs that were funded initially are no longer funded.

John Saunders: Easy for producers to get it to get their tags, if they weren't coming directly from us into the system.

John Saunders: The way it affects us long-term, as I believe is most of the programs like this, that happened with the organic program several decades ago, where there was a lot of opportunity for government-subsidized funding that would go to states or counties or universities, where they could implement their own organic certification program. And over the years, what we've seen is a consolidation, and almost all those programs that were funded initially are no longer funded. So I think our belief is that there will be a point when this funding dries up, and these producers that have come into the program and now are required to use electronic identification tags will have to go somewhere to get them.

John Saunders: And over the years, what we've seen is a consolidation, and almost all those programs that were funded initially are no longer funded. So I think our belief is that there will be a point when this funding dries up, and these producers that have come into the program and now are required to use electronic identification tags will have to go somewhere to get it. So it'll probably be, you know, at least a three to five year process for all of these new producers, which is, again, great for us because that gives us more opportunity; more producers are able to become part of our verification programs while we're losing out on some of that tag revenue.

John Saunders: The way it affects us long term is I believe is most most of the programs like this would happen with the organic program as several decades ago. When there was a lot of opportunity for for a government subsidized funding that would go to states or counties or universe.

Speaker Change: The city is where they could they could implement their own organic certification program and over the years. What we've seen is a consolidation and almost all those programs that were funded initially are no longer funding. So I think our belief is that there will be a point when this funding dries up and these producers that have had.

John Saunders: So I think our belief is that there will be a point when this funding dries up and these producers that have come into the program and now are required to use electronic identification tags will have to go somewhere to get it. So it's going to be, it'll probably be a, you know, at least a three to five year process of all of these new producers, which are converting to electronic tags, which is again, great for us, because that gives us more opportunity.

John Saunders: Come into the program and now we're required to use electronic identification tax will have to go somewhere to get them. So it's gonna be it'll probably be it you know at least a three to five year process of all of these new producers, which are converting to electronic tags.

John Saunders: So it's going to be at least a three to five-year process of all of these new producers, which are converting to electronic tags, which is, again, great for us because that gives us more opportunity. More producers are able to become part of our verification programs while we're losing out on some of that tag revenue. So all in all, the program has been a good success, and it's gone in line with the way that we thought, and we have a whole bunch of new producers that are really excited about getting involved. So it's been an overall positive, but it is something that we have soon, and we've had to prepare for for quite a while.

John Saunders: Which is again great for us because that gives us more opportunity more producers are able to become part of our verification programs, while we're losing out on some of that tax revenues. So all in all the program has been a I think a good success and it's gone in line with the way that we've thought and when we have a whole bunch of new producers.

John Saunders: More producers are able to become part of our verification programs, but we're losing out on some of that tag revenue. So, all in all, the program has been, I think, a good success and it's gone in line with the way that we thought. And we have a whole bunch of new producers that are really excited about getting involved. So. It's been an overall positive, but it is something that we have to, and we've had to prepare for, for quite a while.

John Saunders: So all in all, the program has been, I think, a good success, and it's gone in line with the way that we thought. And we have a whole bunch of new producers that are really excited about getting involved. It's been an overall positive, but it is something that we have to, and we've had to prepare for, for quite a while.

John Saunders: That are really excited about getting involved so.

John Saunders: It's been a it's been an overall positive but it is something that we have to and we've had to prepare for for quite a while.

John Saunders: Yeah.

John Saunders: Thank you.

Operator: There are no further questions at this time.

Operator: There are no further questions at this time. I'd like to turn the floor back over to John for any closing remarks.

John Saunders: There are no further questions at this time. I'd like to turn the floor back over to John for any closing remarks.

John Saunders: There are no further questions at this time I'd like to turn the floor back over to John for any closing remarks.

John Saunders: Once again, I want to thank you for your time and your support and we'll look forward to talking to you in three months. Have a great day.

John Saunders: Once again, I want to thank you for your time and your support, and we'll look forward to talking to you in three months. Have a great day.

John Saunders: Once again I want to thank you for your time and your support and we'll look forward to talking to you in three months have a great day.

Operator: Have a great day.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Okay.

Operator: Hum.

Operator: [music].

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John Saunders: John Saunders, Where Food Comes From John Saunders, Where Food Comes From John Saunders, Where Food Comes From

Operator: Thank You For Watching and Don't Forget To Subscribe! Thanks for watching!

Operator: Hum.

Operator: Mhm.

Operator: Hum.

Operator: [music].

Speaker Change: Uh huh.

Operator: [music].

John Saunders: Today I'd like to highlight two specific examples of how we continue to advance this strategy. The first is Upcycle Certified, which as you may know is a standard we acquired in Q4 last year after serving as the exclusive certification by since the programs inception in 2021. Upcycle Food, which is the use of nutritional food ingredients that would otherwise go to waste for those of you that are old enough to remember, we call them leftovers, is it up-and-coming national consumer trend and we're pleased to announce that Upcycle Certified has recently emerged as one of the fastest growing certification standards in our portfolio.

John Saunders: Given the early momentum of this trend and the compelling economic environmental arguments in favor of it, we think our upcycled business has potential become very meaningful contributed growth over the long term. What began as the modest program attracted smaller niche players has blossomed into an international program that includes major food producers and retailers. In July, Walmart rolled out a new line of upcycled sauces as a continuation of its Better Goods product launch in April. Walmart's largest private label food brand launched in 20 years.

John Saunders: So we think the upcycled trend has its best growth ahead of it, and here are a few data points to support that. First, an estimated 40% of food grown annually in the U.S, goes unsold or uneaten. Refed a leading waste research organization estimates that 80 million tons of food that is wasted annually in the U.S, with the financial loss of $310 billion. A future market insights report estimates the value of the upcycled food industry to be more than $46 billion in growing.

John Saunders: Over the last three years, upcycling consistently top food trend lists include food tank, croger, Forbes, and Whole Foods market. And in overmarket insights, surveys showed 62% of consumers are willing to pay more for a product that fights food waste. A Hartman Group survey showed 70% of consumers had increased intent to buy upcycled certified foods when the seal was displayed on packaging.

John Saunders: And finally, according to Project Drawdown, decreasing food waste is the number one solution to reducing the need for land and resources used to produce food as well as the greenhouse gases released in the process.

John Saunders: The second example of emerging revenue streams for us is our biosecurity business. Over the years, our work and building traceability systems and conducting on-range animal welfare audits has made biosecurity services a logical next step serving service offering for us. Whether it's avian influenza, swine flu, foot mouth disease, mad cow disease, equal eye, or even COVID type issues involving farm ranch and dairy workers, the agricultural industry and the USDA are constantly working to prevent potentially catastrophic outbreaks that disrupt operations and supply chains and put the public at risk.

John Saunders: Where food comes from has a massive amount of expertise in this area and we have developed a variety of programs and standards to reduce risks of infectious disease transmission among livestock workers and customers. For example, our secure food supply plants help beef, dairy, pork, poultry, and egg operations prepared before an outbreak to limit exposure of animals and accelerate reentry into commercial operations after an outbreak. Autoprogram is a rigorous food safety program designed to meet industry customer and regulatory requirements from the farm to retail stores.

John Saunders: These are just three of eight programs that address the risks associated with animal disease outbreak. In the aggregate, they serve to protect our customers and strengthen their relationships with the USDA and state level animal health officials in order to build resilience into the agricultural community and protect consumers.

John Saunders: So hopefully that gives you a lower insight into our strategy of constantly expanding our product and services portfolio is strengthening our business. At the same time, I want to emphasize that our beef verification remains a core strength for us and we fully expect it to bounce back as hurt sizes normalize. When that happens, we believe we will be well positioned to accelerate revenue and profits.

John Saunders: And with that, I'll thank you all again for joining the call today and open the call to questions operator. Thank you.

Operator: Thank you.

Christopher Brown: Our first question comes from the line of Chris Brown with Oak Financial. Please proceed with your question. Thank you very much. I think it was about the end of 2022 you talked about the USDA's intention to mandate RFID tags associated with the 82 program. It's my understanding that the final rule past this spring and implementation is happening this fall.

John Saunders: I was wondering three kind of general questions, how it's impacting your business to date, what you're kind of doing internally to take advantage or adapt to that new environment, and then kind of how you see it playing out over the next year or so. Thank you. Great question. The year correct, the final rule came into play this spring and this fall is when the implementation will begin. We've already seen a lot of the impacts of this, Chris.

John Saunders: Some of them have been related to transition of existing customers to use what we call 840 identification devices, which are compliant on a country code and compliant with ADT. We've had a strong migration of a lot of our customers to the 840 tags as we call them. Probably the only real impact that we've seen so far, and this has been compounding with the smaller herd sizes, is that there's been a great deal of subsidizing of tags to the industry.

John Saunders: So either through animal health officials or through other government or state affiliations, producers are able to get tags for free. As you, I'm sure seen in lieu of or in spite of the fact that the ruling has come into place, our tag revenue continues to stay flat, or to decline a little bit. And that is relative to two things, as we talked about, one is the decline in the herd sizes, but there also that the government is giving quite a few tags away to producers, which is why you also see our verification revenue continuing to increase.

John Saunders: It does create more work for us, so we've had to adapt some of our technology to make sure that it was easy for producers to get their tags that they weren't coming directly from us into the system.

John Saunders: So I think our belief is that there will be a point when this funding dries up, and these producers that have come into the program and now are required to use electronic identification tags will have to go somewhere to get them. So it's going to be at least a three to five-year process of all of these new producers, which are converting to electronic tags, which is, again, great for us because that gives us more opportunity, more producers are able to become part of our verification programs while we're losing out on some of that tag revenue.

John Saunders: So all in all, the program has been a good success and it's gone in line with the way that we thought, and we have a whole bunch of new producers that are really excited about getting involved. So it's been an overall positive, but it is something that we have soon, and we've had to prepare for for quite a while. Thank you. There are no further questions at this time.

John Saunders: I'd like to turn the floor back over to John for any closing remarks. Once again, I want to thank you for your time and your support, and we'll look forward to talking to you in three months. Have a great day. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. John Saunders, Where Food Comes From John Saunders, Where Food Comes From John Saunders, Where Food Comes From

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