Welcome everyone to Sadot Group Inc.'s Third Quarter 2023 Earnings Call and Webcast. Before we get started, we would like to state that this call may include forward-looking statements pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. To the extent that the information presented on this call discusses financial projections, information or expectations about the business plans, results of operations, products or markets or otherwise make statements about future events, such statements may be forward-looking. Such forward-looking statements can be identified by the use of the words such as should, may, intends, anticipates, believes, estimates, projects, forecasts, expects, plans and proposes. Although management believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. You are urged to carefully review and consider any cautionary statements and other disclosures, including the statements made under the heading Risk Factors and elsewhere in documents that Sadot Group Inc. files from time to time with the SEC. Forward-looking statements speak only as of the date of the document in which they are contained, and Sadot Group Inc. does not undertake any duty to update any forward-looking statements, except as may be required by law. For this call, all numbers disclosed have been rounded to the closest 100,000 and percentages have been rounded to the closest percent. On this call, we will refer to Sadot Group Inc. as Sadot Group or the company. With me on the call today are Sadot Group's Chief Executive Officer, Michael Roper; and Chief Financial Officer, Jennifer Black. We will also have other members of the management team available during the Q&A session. Michael and Jennifer will be presenting prepared remarks related to Sadot Group Inc.'s financials filed on November 14, 2023, and those documents may be found on the company's website newswire fees and on the SEC's website linked from Sadot Group's website at www.sadotgroupinc.com and the upper navigation link labeled Investors. At this point, I would like to turn the call over to Sadot Group Inc.'s CEO, Michael Roper. Michael?

Thanks, Frank. Good morning, everyone, and thank you for joining us today. We'll be reporting the results of our third quarter ending September 30, 2023. But before diving into the Q3 results and key highlights, I'd like to acknowledge that the past quarter has been another important period for Sadot Group Inc. It's worth noting that in the third quarter, on July 26, 2023, we officially marked a significant milestone with the announcement of our corporate name change from Muscle Maker Inc. to Sadot Group Inc. This name change reflects our strategic evolution into a global player in the food supply chain sector. Our shares of common stock began trading on NASDAQ under the ticker symbol, SDOT, that is Sam, David, Ocean, Tom, SDOT, on July 27, 2023, and we are excited about this new chapter in our journey. Our transformation and strategic pivot over the past year has been rapid. We have evolved from a U.S.-centric restaurant business into a truly global food supply chain organization. We've strategically segmented the parent company, Sadot Group Inc. into 3 operating divisions to capitalize on the opportunities presented by the global food market. These 3 operating divisions include: number one, Sadot Agri-Foods; number two, Sadot Farm Operations; and number three, Sadot Food Service Operations, which is in an optimization process, which we'll elaborate on later in this call. To begin, I'd like to give a brief overview of each of these 3 main business divisions. Our first and largest division is Sadot Agri-Foods. This division is our global agri commodity trading group and serves as the company's largest revenue and net income generator since inception. Its global operations include the origination and trading of food and feed products such as soybean meal, wheat, corn and carbon offsets. This division helps supply food…

Thanks, Mike, and thank you to everyone joining us here today. Before I begin, I would like to note that our financial results for the quarter ended September 30, 2023, on Form 10-Q were filed with the SEC yesterday, November 14, along with the press release that same day. With that, I'd like to give an overview of the financials for the third quarter of 2023. As Mike mentioned in his opening comments, our Q3 2023 company-wide revenues increased significantly totaling $182.2 million compared to $2.8 million for Q3 of 2022. This revenue was generated by our 3 business segments or divisions. We use these terms interchangeably. Our first business segment is Sadot Agri-Foods. Of the $182.2 million revenue increase, $179.4 million was primarily due to sales revenue from our Sadot Agri-Foods division which completed 27 transactions in Q3. The average revenue per transaction was $6.6 million with an average cost of goods sold per transaction of $6.5 million. These 27 transactions were completed across 16 different countries. This business segment, which is the largest revenue-generating division of the company today, generated approximately $2.3 million in operating income for Q3. Our second business segment is Sadot Farm Operations. In Q3, we officially completed the acquisition of our Zambia farming assets of roughly 500 -- sorry, 5,000 acres of farmland. We are pleased to report that as part of our farming operations in Zambia, we achieved our first successful harvest of premium grade winter week this past quarter, generating revenue exceeding $500,000. This firm currently has both corn and soybeans planted and we expect these crops to be harvested throughout April and May of 2024. Our third business segment is Sadot Food Services Operations. In Q3, this division generated total revenue of $2.2 million. This consisted of $1.9 million from company-owned…

Thanks for that financial overview, Jennifer. Now allow me to provide an update on our primary revenue-generating division, Sadot Agri-Foods. This month marks the 1-year anniversary of our agreement with Aggia and the new direction and strategic pivot the company has adopted. Despite all the challenges of venturing into a new global business, we are extremely pleased with the continued performance of the Sadot Agri-Foods division. We are also pleased to announce a significant milestone for Sadot Agri-Foods this past quarter. The purchase of our first carbon offset, which we will receive carbon credits to use or trade in the future. This accomplishment not only aligns with our commitment to sustainability, but also marks the strategic expansion of our business into the evolving market of carbon credit trading. By actively participating in this environmentally conscious sector, Sadot Agri-Foods continues to demonstrate its versatility and responsiveness to emerging opportunities. Entering the carbon credit markets now will allow us to establish ourselves in this relatively new and growing market. The credits can be used in the future to lower our carbon footprint as we move toward being carbon-neutral or bundled with our commodity trades, making the stand-alone trades carbon-neutral. In general, trades that include carbon credits could increase our revenue or pricing by 10% or above. The company is very active in finding ways in our business to enhance margins throughout our different verticals. We believe this direction will set us apart and allow us to potentially profit through implementing zero carbon practices and products. Additionally, Sadot Agri-Foods is in advanced discussions about establishing a trading office and new subsidiary in Brazil. The goal in opening an office in Brazil would be to open up new agri commodity trading opportunities originally in South America, aligning perfectly with our growing presence in the…

[Operator Instructions] Please note that for the Q&A portion of this call, we will have Sadot's Chairman of the Board, Kevin Mohan; and Sadot LLC's managing member and Sadot Group Board member, Benjamin Petel joining Michael Roper and Jennifer Black. Before we go on to take questions from analysts, I'd like to turn the mic over to Michael Roper to address some questions which we have received from our stakeholders.

Thanks, Alexa. I appreciate it. So these are some questions that we've received as we talked to investors, as we talked to banks, as we talked to shareholders, whatever it might be. And so we thought it was important to address some of these as a whole to make sure that everyone hears the same answers to these things. So I have 3 questions that we're going to bring up. So the first question is, on the last earnings call, the company communicated they were optimizing the restaurant segment. Can you provide more details on the status of this effort? So yes, so as previously communicated, the company is fully engaged in the restructuring process surrounding each of our legacy restaurant concepts. This restructuring consists of refranchising company-owned units and closing underperforming locations while growing the Pokémoto concept through franchising. We are continuing this restructuring effort with a goal of reducing annualized restaurant operating expenses and overhead while increasing franchise royalty revenue. So since we started this effort, which was back in Q2, we've successfully closed 3 underperforming locations, and we've refranchised 3 Pokémoto locations, and we also have another Pokémoto location that should be converting over to a franchise location in the next 30 days. So basically, over the last 90 days to 120 days, we have closed or sold 6 locations and one more that's pending here. So making a lot of progress in a very short period of time. These efforts actually leave the company with a total of 8 company-owned and operated locations. So we're getting close to our goal of being a franchisor focused on the Pokémoto locations. We currently have 47 total restaurant locations opened today, plus we have over 50 Pokémoto franchise agreements that have been sold and not opened yet. Of those…

We'll take our first question from Remi Smith with Alliance Global Partners.

This is Remi Smith on for Aaron Grey. So my first question is just in terms of your adjusted EBITDA, I just want to clarify the onetime charges you encountered in Q3. They were not added back to your reported loss of $842,000 and if that's the case, I think you might have touched on in the opening remarks, can you just quantify what those onetime charges amounted for in the quarter?

Sure. Let me -- I'm going to turn that over to Jennifer to address that.

Absolutely. So some of the onetime charges that are in the adjusted EBITDA in the 10-Q we filed and are the impairment of goodwill we've got $828,000, impairment of intangible assets of $811 million, and then some items that are not backed out of there, but our onetime would be the onetime hit of when we were closing down a restaurant of the write-off of what's left of those restaurants and getting out of those leases and stuff like that. Those make up an additional amount that is not taken out of the adjusted EBITDA. Does that answer your question?

Yes, it does. That's helpful. And then my second question, or regards to the gross margins for the Agri-Foods business. We saw gross margins at 1.6% this quarter, which remains under pressure. So could you speak to, I guess, the broader market, what you're seeing there is margins fall in the past 2 quarters, the Agri-Foods business. And then do you feel gross margins are, I guess, starting to stabilize kind of at this level of 1.6% and then potential expansion?

Yes. So I'll start a little bit, and then I will turn it over to Benjamin to add to some of that as well. Margins that are out there, as we've talked about in the past, there's a lot of things that influence margins, right? It can be the type of trade you do. It can be the geographies you're in, the product, whatever it might be, right? There's a lot of different areas that are out there that can cause differences in margins. As we get more sophisticated, and I don't know if that's a right word or not, but get more, I guess, diversified and vertically integrated. It's probably a better way of viewing it. That should improve some of our margins as we move forward. And that's what we've been kind of planning and working against to do that. So when you have your own farm, for example, you're able to provide your own input items, you have better margins on your margins for your trades, just as an example, right? I'm being a little oversimplistic there. But those are things that all drive the impact on the margins. And so Benjamin, did you have anything you wanted to kind of add to that?

Thank you, Michael. I think the keyword you touched upon the diversification is the most important part of this because as you see, the -- as to now, we're involved mainly in trading, and we began our involvement in farming, but this is all part of a supply chain that we're building. And being in the supply chain business is owning and controlling the various verticals, be it the farming, the trading, eventually shipping, distribution, storage, et cetera, and all of those contribute both to diversify the operations geographically, product-wise, financially, and all of them are also adding and expected to increase the gross margin as we go along and evolve into these different verticals.

Perfect. Any other questions, Remi?

Yes. Just one last question on my end and it kind of segues in talking about the Sadot Farm. So I know it was only a small revenue contributor for the quarter. But can you, I guess, provide us some margin expectations, especially with the bigger harvest coming up, how we should think about utilizing that verticalization?

Yes. So when we think of a farm, our planned margins -- and again, there's a bunch of things that can influence these things, right? But our planned margins are much larger than what you have in the trade vertical for sure, right? And those can range as high as up to 25% to 35%, that's in there. I do know -- do we have the actual number? Do you have the actual number of how many metric tons and all are planted or acres? We'll look that up real quick. But -- so we generated about $500,000 on the winter week. The planting that we have now is much larger than we had before, and it's some corn and soy, that's in there. And let's find it.

I have it right here. And we plan to add 540 hectares of maize and 314 hectares of soybeans compared to the winter week that we did.

Yes. So those crops are much larger than what the winter week was. And we anticipate the revenue coming from those to be much larger as well. Okay. Benjamin, do you have something to add? You came after me.

No. Yes, I only want to add. As I said before, the way to look at this is, again, each one of these is a stand-alone vertical, but they all combine together to the supply chain. So the farm has its -- has the crop and we'll have the revenue that's coming out of that crop and the different crops throughout the year. But again, this farm also gives us a lot of advantages as far as the holistic supply chain in the form of our ability to trade around these products throughout the year, our ability to create a local hub for other farmers to use our farm as kind of an aggregate place where a lot of these small farmers can aggregate their products, and we can trade and sell those as well. And another important part here is all of the ESG and impact that is revolving around this farm in an area in Zambia, the Mkushi region where we acquired the farm, there's a lot of adjacent farms that are owned by small farm owners that are marginalized and have very limited ability to farm their land. We're creating programs in which we can help them receive all the inputs, be it the seeds, the fertilizers, everything they need to farm and therefore, enhancing the local population we're involved in. So apart from the product itself, which Jennifer and Michael touched upon, again, this combines into the whole supply chain and eventually increasing this farm and other farms potentially will allow us to further deepen our commitment both in the area and improve the margins for the overall consolidated company.

Perfect. Thanks, Benjamin. Remi, any other questions?

That's it. It's very helpful, especially with all the initiatives you guys have in place.

Perfect. Thanks, Remi. Appreciate it.

We will go ahead and take the next question from Tom Kerr with Zacks. Tom?

Can you hear me?

Tom, yes, we can hear you.

Just a quick follow-up on the margin profile for the Agri-Foods subsidiary that was just discussed. I mean that was a 1.1% net margin at least can you give a time frame next year where we can hit those goals of 3%? I'm assuming you're still thinking this is a 3% net margin business that improves over time. Any color on the time frame for that?

Yes. Look, we know that we have ways to improve the margins, right? I guess this is the way to look at it. We're implementing those ways. Do I have an exact date or quarter when I think it's going to get higher? I don't really have that because we -- there's too many factors or whatever that are involved in there, right? I just think the best way to think of it is we are implementing things to try to improve those margins as best as we can.

Yes, this is Kevin. So as we get more vertically integrated, Tom, I think the way to look at this is that the margins overall are going to improve with every piece of the vertical integration process that we add to. And so I know that -- I don't know if it was on our last call, I think it was the Aaron Grey, the AGP analyst that had asked us. So looking at your numbers, it looks like you guys -- your margins were in line with your competitors without being vertically integrated, can you speak to that? And I think my answer was pretty short and sweet, and that was, look, there's going to be a lot of different opportunities and a lot of different ways that were going to enhance margin and sometimes you get better opportunities than others, right? So in the last time, we were less vertically integrated, but we had a higher margin. We started the vertical integration process, we saw a little drop in the margin, but we expect that to improve. So I think that's the short answer.

All right. And on the restaurant restructuring, I don't know if you mentioned this, but will you be owning any corporate-owned restaurants? Because I think at one time you said you might own one of each, but what's the end game for that in terms of [indiscernible]?

Yes. Our strategy there is really in a perfect world, we wouldn't have any corporately owned and operated locations that we'll be focusing on the franchise side of the equation, right, as we kind of build that and position that in a way that if an opportunity arises, we might be able to divest it in a much better way than it would happen today, right? Because it would be more attractive just in general. But there are a couple of locations that we own on a military base. We don't view those. We're not positive yet if we can actually convert those over to franchise locations. And so in that case, we might have to still on 1 or 2 locations, that would be about it. I mean, our goal is not to have the corporate locations.

And then on the store level profitability for Pokémoto after a certain time frame, I'm assuming it's a reasonably decent margin business, right? It's a store level?

Yes. So yes, we have good margins at store level just as a whole. But I think the better way to look at it is, we become a franchisor, right, into those areas. So franchisee just kind of the general way that it works is they pay a royalty, right? And they pay a royalty of our franchise given cost for 6% under net sales and other gross sales, right? So there are -- that's kind of what feeds in. So if you have a location that's doing $700,000 a year in sales, we'd be generating $40,000 a year in royalties without a lot of corporate overhead attached to it. So it's usually a pretty good profitable type of business to be in.

And I'd like to add to that, Tom, this is Kevin. So as you optimize, as Mike likes to say, the restaurant side of the business, it allows for sort of a seamless integration into companies that primarily focused on the restaurant space. And so I think that's a key element for investors to understand as we go through this optimization process.

Got it. All right. One more quick financial one. The $2.4 million in corporate SG&A, what was in that? I think a general comment in the Q? Or is that a normalized number? Or was there something in there?

Okay. Jennifer, you want that one?

Yes. So there is honestly a lot of different items in there. When we are -- sorry, I'm looking at the number right now. I want to make sure I'm looking at the right one.

You look at the segments 2.479, just seem a little high...

Okay. So a lot of those, you have professional fees, legal fees, there's a lot of expenses in there that relate to doing a corporate name change and doing that conversion into raising funds and doing financing that are -- those are onetime expenses that hit because of those transactions we had in Q3.

Okay. Any comment on what a normalized number is for that corporate SG&A?

I think we'll be able to tell a little bit more now that we're entering into these new verticals. Our -- hopefully, our professional fees and legal fees will start to normalize, and we will be able to give you what it will be in the future. But right now, since we are growing so much, we have a lot of those expenses related to growth that should not be recurring.

Yes, that makes sense. It did seem a little high.

Okay. Well, thanks, Tom. Thanks, Remi. Alexa?

Thank you, everyone. That concludes our Q&A portion of the call. Mr. Roper, any final comments?

Yes. Look, just in conclusion, I would like to express the gratitude and thanks to our shareholders and stakeholders for their support as we go through this pivot, right? I mean there's a lot of things that are happening. There's a lot of change that's out there. I know it can be a little confusing sometimes since it's like here's something new that's kind of we're going to continue to have a lot of new stuff, right, as we keep growing this business. So I just want to thank everybody for their patience in there. At the end of the day, I do want to thank our team. I think we have an exceptional team. What we've achieved so far is really kind of remarkable in our opinion, in my opinion, and I just want to thank the team just as a whole. And so that's about it, I guess, right? We are most excited about what we're building here, and we're moving forward and a lot of great things are happening.

Thank you, Sadot Group. Thank you, analysts. That concludes our call.