Hello, and welcome to the Where Food Comes From First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Jay Pfeiffer, Investor Relations. Please go ahead, Jay.

Good morning, and welcome to the Where Food Comes From 2023 First Quarter Earnings Call. Joining me on the call today are CEO, John Saunders; President, Leann 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 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.

Good morning, and thanks for joining the call today. This morning, we announced our first quarter financial results for the period ended March 31, 2023. As we detailed in our news release, we encountered a flurry of anomalous circumstances and events in Q1 that negatively impact both revenue and profitability. The good news is in an economic environment where many companies are focusing on layoffs and hammering down costs wherever they can in the face of inflationary pressures and a potential recession, we believe we are faring comparatively well. In fact, we believe the combination of verification industry tailwinds, very sticky customer relationships, our lean operating model and the tremendous value we provide our customers will enable us to continue to weather macro headwinds and profitably grow our business over the long haul. Now to our first quarter results. Revenue in Q1 was $5.3 million, down from $6.2 million in the first quarter last year. But keep in mind, however, that in the year ago first quarter, we booked $850,000 in software and consulting revenue from a one-off consulting contract with a Japanese government agency. So adjusted for that, year-over-year revenue would have been essentially flat, which isn't too bad, given macro headwinds and the impact of a few unrelated events I referenced earlier. Specifically, our verification and certification revenue was flat based on a few things: one, we are still feeling the effects of severe drought conditions that significantly reduced herd sizes last year and had ripple effects this year in the form of fewer cattle for us to verify. This situation of where fewer cattle moving through the system in the current cycle impacts not only the annual on-site audits but also the revenue we derive from right-to-ship fees each time an animal moves to a new location…

[Operator Instructions] If there are no questions at this time, I'd like to turn the floor back over for any further or closing comments.

Kevin, could you re-poll one more time just to make sure there's no questions? Thank you.

[Operator Instructions] We do have a question from Chris Brown, a private investor.

Just was wondering if you could give a little bit more color on how you guys think the ADT regulations play out over the next couple of years. Is that something that's gradual? Is it big? And then I was wondering if you have an idea of like what kind of market share you guys have in the bigger picture of United States cattle verification.

Sure. I'll answer the first -- the second question first. Today, we verified just under 2.5 million cattle, which is just at about a little bit under 10% of the cattle which are slaughtered in the U.S. every year. So we have it at about just a little bit under 10%. ADT is going through a process. As I mentioned, this has been a long-term program offered by the USDA. This change specifically, Chris, is the transition from metal clip tags to electronic identification tags. The ruling was set to begin January 1, 2023, or to sunset basically and this new rule to start to move forward with EIDs. We're currently in a comment period so we're still receiving comments from the industry. But yes, we anticipate that it will be a gradual move. But as I mentioned, with only 2.5 million cattle that we identified this year, we see this as a real tailwind for us in tags and radio frequency identification in the cattle industry moving forward over the next couple of years. So yes, we see it coming in gradually. It won't happen all at once but in the next 18 to 24 months, we see it moving in that direction.

[Operator Instructions] It appears there are no further questions at this time. I'll turn the floor back over for any further or closing comments.

Thanks, Kevin. And one clarification, Chris, on that question. Leann just pointed out to me that there's roughly 2.5 million, so about 10% of the cattle industry is verified. We have our percentage of that as somewhere north of 90% so we feel we have a very strong control position, so just to answer that finally, Chris. Thanks for the question. Thanks, everybody, for participating today, and we'll talk to you again in 3 months. Take care.

That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.