Welcome to the Sadot Group, Inc. Q4 Fiscal Year 2023 Earnings Conference Call. Today's call is being recorded and all participants will be in listen-only mode. After management's prepared remarks, we will take questions. At this time, for opening remarks and introductions, I would like to turn the call over to Frank Pogubila, Sadot Group, Inc.'s Investor Relations Contact.

Thank you, Operator, and welcome everyone to Sadot Group, Inc.'s Q4 fiscal earnings 2023 conference 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 makes 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 in Sadot Group, Inc.'s most recently filed Form 10-K 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 thousand and percentages have been rounded to the closest percent. Unless otherwise noted, all numbers disclosed in this report are the amounts attributable to Sadot Group, Inc. and exclude the portion related to non-controlling interests. 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; Chief Financial Officer, Jennifer Black; and Chief Investment Officer and Chairman of the Board of Directors Kevin Mohan. Michael and Jennifer will be presenting prepared remarks related to Sadot Group's financials filed on March 20, 2024, and those documents may be found on the company's website, newswire feeds, and on the SEC's website linked from the Sadot Group's website at www.sadotgroupinc.com under the Investors tab. At this point, I'd like to turn the call over to Sadot Group's CEO, Michael Roper. Michael?

Thanks, Frank. Good morning, everyone, and thank you for joining us today as we present the results of our fourth quarter and full-year earnings ending December 31, 2023. Before diving into Q4 and the 2023 full-year results and highlights, I'd like to acknowledge that it has been a truly transformative first 16 months since Sadot Group refocused and retooled the organization to become an emerging player in the global food supply chain. Beginning with our initial focus on agri-commodity origination and trading, we've embarked on a journey of diversification and growth. Allow me to give you a few headlines before we dive into the specifics. First, our 2023 total company revenue rose to $727 million from $162 million in 2022. Second, our 2023 full-year adjusted EBITDA was slightly positive compared to a $2 million loss year-over-year for 2022. Third, our total assets increased from $27 million in 2022 to $178 million at the end of 2023. And lastly, we are now fully focusing the company on the agri-commodities business as we've made the decision to explore alternatives, including potentially divesting the company of its restaurant operations. So let's jump into the details. I'm pleased to announce that Sadot Group Inc. achieved chop line revenue of $727 million for the full year of 2023. This marks a significant increase over the $162 million generated in 2022, noting that we had only commenced our Sadot Agri-Foods subsidiary operations in November of 2022. To be more precise, the Sadat Agri-Foods division accounted for 98.7% of our total company revenue for 2023. This is an extremely significant point given where we were a year ago, where we are today and where we're heading. So where are we heading? Our vision is to become a global food supply organization focused on origination and trading of…

Thank you, Mike. Before I begin, I'd like to note that our financial results for the year ended December 31, 2023, on Form 10-K were filed with the SEC yesterday, March 20, along with the press release out the same day. With that, I'd like to give an overview of the financials for the fourth quarter of 2023. Our Q4 2023 company-wide revenues increased significantly, totaling $171 million compared to $153 million for Q4 of 2022. The $18 million revenue increase was primarily due to sales revenue from our Sadot Agri-Foods division, which was only partially operational in Q4 of 2022. Sadot Agri-Foods completed 24 transactions in Q4 with the average revenue per transaction of $7.1 million, with the average cost of goods sold of that transaction of $7 million. These 24 transactions were completed across 16 different countries. The company incurred approximately $525,000 in stock-based compensation expense in Q4 2023. These expenses are primarily the result of stock-based performance expenses as part of our consulting management agreement with our consultant, Aggia. Now let me turn to the overall financial picture for the Sadot Group for the full year ending December 31, 2023. For the year ending December 31, 2023, our company-wide revenues significantly increased and totaled $727 million compared to $162 million for the prior year ended December 31, 2022. The $565 million increase is primarily attributed to the commodity sales revenue generated by Sadot Agri-Foods. Our adjusted EBITDA was a positive $89,000 in 2023 as compared to a loss of $2 million in 2022. I would now like to further discuss the financials for our two operating divisions of Sadot Group Inc. As Mike mentioned earlier, the company's main revenue and margin driver is Sadot Agri-Foods, consisting of our origination and trading operations as well as our farming…

Thanks, Jennifer, and thanks for that financial overview. In closing, I want to express my gratitude to all our investors and stakeholders for joining us today and for your continued support. Our 2023 full year earnings call has shed light on a remarkable journey over the past year, showcasing our emergence as a key player in the global food supply chain. We've witnessed positive growth, particularly in our Sadot Agri-Foods division despite facing challenges along the way. Over the past six months, we've implemented our announced strategy to convert all of our corporately owned and operating locations into franchised-owned locations. We believe this strategy will position the division once complete, to potentially divest the restaurants. We believe this approach underscores our commitment to focus on our core operations and driving long-term value for our shareholders. We are currently evaluating additional opportunities in the global farming, trading, processing, shipping and distribution to increase our market share and operational footprint. I'm proud of the resilience and dedication demonstrated by our team whose hard work has propelled us towards amidst a dynamic landscape. As we move forward, we remain steadfast in our strategic vision, explore new opportunities and partnerships to further strengthen our position in the market. Thank you once again for your trust in Sadot Group Inc. We look forward to the exciting journey ahead and delivering continued success for our investors, stakeholders and the communities we serve. With that, please give us a few seconds to open the call for questions.

Before we get to questions from our selected analyst, Michael Roper and Jennifer Black would like to address some questions which we have received from our stakeholders. Also on the call with us is one of Sadot Group's Board members, Benjamin Petel. Mike, Jennifer, the floor is yours.

Okay. Thanks, Alexa. Yeah, we got a few questions that came in previously that we wanted to go over and address before we turn it over to the live questions as well with the analysts. And so I'm going to read the questions and then we'll do the answers and then we'll transition after that. So the first question that we've received is how has adjusted EBITDA calculated? And why should we use this number? So I'm going to let Jennifer answer that one.

Okay, Mike. So we define adjusted EBITDA, and we start with net loss, and then we adjusted for a few things like depreciation, amortization, net interest income and expense, income taxes, impairment expenses, stock-based consulting expenses, other income, change in fair value of stock-based comp, gains on extinguishment, warrant modification expense and gain on fair value measurement. These items are removed. They're either onetime transactions or their non-cash transactions that have impacted our net loss position. We believe that adjusted EBITDA, which is a non-GAAP measure, it's a useful metric for investors to understand and evaluate our operating results and ongoing profitability because they permitted investors to evaluate our recurring profitability from our ongoing operations.

Awesome. Thanks, Jennifer. Let me find the next question here. Here it is. How does the additional trading subsidiaries compete with or affect each other? So we're talking about Sadot LatAm, Brazil, the MENA region those types of things. How do they compete with each other or affect each other. So basically, really the subsidiaries support each other. And our strategy is to establish these different trading offices and the important production and distribution geographies across the world. That will work together to facilitate supply and demand as well as the specific needs of the different locations. So for example, our most recent subsidiary established in Brazil, those actually source commodities for our Dubai office, which in turn may supply in the Asia area. So they're all kind of interacting and they support each other without necessarily being in competition. By expanding our global footprint, this plays a vital role in our overall diversification that allows us to actually mitigate risks and enjoy multiple options rather than just relying on a limited sort of client basis. Again, we're spread out across the world. There's different opportunities that pop up all the time. And don't forget that each one of our individual subsidiaries not only can trade internationally, but also trade domestically as well, right? So LatAm, that's in the central area, they can trade throughout Latin America, Central America, South America, North America. They can trade and move product all over the world as well, just as an example. So there is no real competing against those different areas. Let's see the next question. Why is your cash on hand decreased year-over-year? And again, I'll throw that back towards Jennifer.

All right. Thanks, Mike. So this one, we've made multiple investments since we started our strategic pivot about 16 months ago. I mean you can see this by looking at the increase in the balance sheet. We're investing in business to expand our operations and our business verticals. For example, we purchased the farm in Zambia for cash. We also deployed cash into other various trades with cycles that are throughout the trade process. Many of our trades require capital components and contributions from the company to execute those. And just like Michael was just talking about, we also expanded our trading areas to include Brazil and LatAm. Lastly, we also changed the company name symbol, and we launched a new strategic direction. All of these areas are where capital has been deployed. The decline in cash on hand, it's a deliberate outcome of our strategy shift away from the restaurant business towards the Sadot Agri-Foods division. And the deployed of cash is intrinsic to the company's business model for generating revenue and margins.

Okay. Thanks, Jennifer. Fourth question that we see here is how can the company increase its overall margins? And then more specifically on the actual commodity trades being executed today? So how do we increase margins, basically, right, at the end of the day? So look, I think there's a few things to talk about here. So overall, I think it's important to remember that we are building a business, right? And we are in expansion mode. So it's not an established -- whatever, I don't want to say, senior business, whatever the right word is, right? But it's new, right? And we're building this thing. We're building a very large corporation that's out there. And this takes some upfront expenditures. I may not have an immediate impact on revenues and profits. So for example, okay, it would be the farm in Zambia. The farm is a seasonal component of its operations, meaning there's an upfront expense that the products that you put in, like planned and all that, where it produces incremental later date. Again, we're seeing that in Zambia now as we just started the major harvest of maize and soybeans that will be completed over the next few months. The contract farmers also begin their harvest later, which again brings in revenue throughout the later months. We did incur expenses, not only getting the farm integrated into the overall company, but then also incurred expenses for planting, for example. So again, paying money upfront. Some of these things have a little bit of delay to come in. Now we're in those cycles as we've started our harvest for the farm. Another example will be the Brazil office as we build up the team and infrastructure, you got to spend that money upfront, and then we'll start to…

Yes. Thank you, Mike, Jennifer. We will go ahead and take the first question from our analysts, Aaron Grey with AGP. Do you have any questions, Aaron?

Yeah, great. Thanks for all the detailed prepared remarks and answers the question so far. I'd like to pick off a little bit where you just left off in the last question. Just in terms of commodity trading environment for the quarter, right? So gross margins were down slightly negative or flat based off some of the remarks I heard average $7 million average cost 7. So -- was it one large trade that kind of led to the flat gross margins, and it seems like gross margins for a commodity business have been turned that way for the past couple of quarters now. So I know there can be volatility, but it seems like it might be a little more trading now. So can you speak towards the quarter? Was it more of a one-off sale that really went on margins? Was it was accumulation of all the sales that weighed on it? And just to add on to what you had just previously spoken towards.

Yeah. Okay. All right. Thanks, Aaron. So a couple of pieces there. And I do have Benjamin Petel on the phone, and I'll turn it over to him in a second as well. But you had mentioned -- and yes, it's slim or whatever, right, it's a narrow margin. But you said it was kind of $7 million and $7 million. It's really $7 million -- yes, $7.1 million in revenue and $7 million costs. So it's not quite flat, but it's still -- it's still not where we would want to, ultimately be or whatever, just to clarify that. But so Benjamin, do you want to kind of talk about this?

Sure, hi. Hello, Aaron. Nice to talk to you again. I think in general, looking at the environment we're in right now is that there's a lot of strain or I’d say, volatility in the trading world in general. I think that there's a few factors to that kind of piggybacking on the tension in Ukraine, adding to that the tension in the Middle East and also China, which is, of course, the largest consumer of the world and they've been showing kind of signs of slowing down over the last quarter. But as Michael said, in the throughout is everything that was said here before, I think this is the main thing that the diversification is very important for and that we plan to increase those margins basically getting into different verticals of the supply chain and of different products and different geographies. So certain commodities or certain paths, certain geographies could be down or lower at times. This also depends greatly on the structure of which the trades have been done and the financing as also Michael alluded to. So I think it's a combination of factors, but this is definitely why we're striving and working so hard to put in new and parts of the supply chain, be it geographies, products, financing, et cetera, in order to be able to mitigate and raise these margins.

Awesome. Thanks, Benjamin. Aaron, what else you got, man?

I appreciate the color there, Michael, Benjamin. Second question for me, just the trade financing. Can you speak on the timing when that was finalized? I may have missed this for the color on the timing and then any color in terms of the commodity transactions quarter-to-date in 1Q? We're almost done with the quarter about nine days left. So just in terms of sales and margins, how that might have trended quarter-to-date versus 4Q? Thanks.

Yeah. So I'll talk about the trade financing stuff. So we're always working on trade finance, right, continue to expand things out. And we've got several finalized deals, I guess, is the way you want to look at it, that we have been leveraging so far. It's probably in the -- what's the total you think now in the trade? I'm looking at Jennifer. Yeah, let's call it $15 million to $20 million that we've already got secured, I guess, is the right word that we've been leveraging in some of the trade finance so far. That continues to change, right, meaning grow, right, as we keep moving forward. We're continuing to have different discussions that are out there in regards to that. When you take a look at the total quarter that we're in so far. I don't have numbers that I can share necessarily at this stage, right? But I think it's -- I think you can say it's a pretty typical quarter just in general. But I don't have the actual numbers here in front of me or whatever that we can share without having more details or whatever that are there. What else you got?

Okay. Great. Thanks. All right. All right. So yeah, so I think that's helpful. I guess just kind of bring it all together then except for that taking online here. So in terms of timing and line of sight, so you're talking about now being a typical quarter. How are you seeing in terms of -- are we in a longer-term period of these more compressed margins? Do you think the trade financing is enough to get you in a normalized way? Are you -- do you have the ability to be more nimble and get to some markets that are more favorable? How do we think about the overall balance of top line growth, but also profitable growth for you guys as you look for the longer-term 2024 in the environment out there? So if you could just kind of give a whole stick outlook on that, that would be helpful. Thanks.

Yeah. I think I think we've got -- how do I go through this. So yeah, we are nimble right? We do have the ability to move around to different regions of the world. We actually cover a big chunk of the world now in the biggest markets, right, that are out there, especially with Brazil coming that line. We obviously have the Americas to LatAm, and then we've had the original stuff that was kind of in the MENA region, right? So we do control a lot of the different areas and have access to move between things, right? I think really a better way of looking at it is if there's a certain commodity that's not performing as well, let's say, it's soya, right? We do have the ability to start moving into different areas like vanilla, as an example, right, or peas or whatever it might be, right? So we are able to kind of move around between those types of things. When you look at the typical quarters and things that are there, it's interesting because you do have seasonality. You do have things with trade, finance, all these things kind of tie together and help build this business, right? And you are going to have ups and downs and everything in between that's there. But I know Kevin, I think I wanted to jump in.

Yeah. Aaron, it's Kevin. No, I was just saying, I think that another thing that's really going to be critical for our go forward is to continue to add these trade lines. So I think if you look back at the history of this company, we kind of started off by doing a lot of net offs and back-to-back. And I think that the company is now sort of transitioning to something that's a little bit more traditional. So I think that sort of as we implement that strategy and as we grow that side of the business, we are definitely hoping that things are going to improve.

Yeah. And the other thing to think of too, Aaron, it's not just necessarily the -- we talk about trade financing a lot, right? But we also have supplier credit lines. And that's kind of lump that stuff together when people talk about it, but they are kind of two distinct different areas. And so we are working on a lot of credit lines as well with the different suppliers.

If I could summarize for just one more second?

Yes.

Aaron, I think you used the word nimble, and we usually use the word agile, but I think that's really, the main thing here is to be agile and to be able to seize opportunities that are best -- that are in line with our strategy. And if we see that there's a slowdown in our typical commodity cycles, which are very short term, and our return on equity is usually quite significant. It's just we're dealing here with very large volumes with a very large ticket size, of which there are limited margins to begin with. But there are different products, and there are different geographies, as Michael kind of alluded to, which are things that we are very much involved in examining and in different stages of bringing into the group that will potentially do a lot to increase these margins and also secure different kinds of trades and flows that will make us not depend on one geography, one product, one financing and so on. So I think that Agile is definitely the word and we look forward to diversification and diversifying into these other areas.

Thanks. Well I appreciate the current detail and answers, guys. I’ll jump back in the queue.

Okay. Alexa, do you want to go to the next?

Yes. Thank you, Aaron. We'll move to Tom Kerr with Zacks for questions.

Good morning, guys. Can you hear me?

Yeah, we hear you fine.

Just a couple of clarifications. Most of my questions have been covered but -- one second. Hold on.

Anybody have any jokes they want to tell, while we…?

Sorry about that.

No, problem, Tom.

Somebody said the word Alexa and my Alexa turned on and started talking to me.

That's funny.

Just a clarification on the trade finance, who is it? Or what is it? Is it going to multiple sources? Is it a bank? Is it a private investors? Just kind of what -- who is arranging the trade financing? And what does it qualify how do you qualify for that?

I'll take those on. Do you want to go ahead, Benjamin?

No, no, please, Jennifer, please.

So these -- as you said, these are a bunch of different sources. It's not -- it's not all banks, it's not all -- some of them are either trade companies, some of them are either -- some of them are banks. Some of them are private. It's a combination of all of them that we put together, mainly because we don't want to rely on one source. We want to diversify this just like we diversify everything else. And kind of you don't want to put your eggs in one basket. And so we have -- they're different sources on that. Benjamin, did you want to add to that?

No, I think that basically covers it. Again, it is a very vast kind of term trade finance. And in our line of business, oftentimes, it could also come from the counterparts, either suppliers or customers or so on where you have different terms with them where, in essence, they're providing you with the finance to do the trade depending on the way you negotiate it and the time line and so on. In the banking or institutional world, there are banks that provide their funds that provide. And then there's -- as Jennifer said, there's private or pseudo family offices and so on that also are involved in this business. So we have a blend of some of those at the moment and always looking to find more that fit within our matrix of finance and what we're looking for.

Got it. And the $15 million to $20 million you referenced, that's just the collective number of all those sources you mentioned?

That's correct.

Okay. And back to the margin, just to beat that dead horse for a second. We had talked about 3% margins in that commodity business over time or that's a goal of 3% or better. I know you guys aren't providing guidance, but is there a time frame perhaps, we can look for that 3% goal is 2024, 2025 or any other color on that?

Well, I think, number one -- this is Kevin. I think number one, I think we were 1 to 3 is kind of, I think, what we've historically talked about. But I think that there are a lot of creative ways being the type of company that we are, a smaller company where we've had success in getting much higher margins than that. So sometimes you're going to have fluctuations in the business where you may have some of these higher-margin deals that you can facilitate and then you may have a quarter where you don't make a whole lot, right? So the whole goal is to try to balance those out as the year goes on and as things change, whether it's market fluctuations, weather trade finance opportunities, et cetera.

I'll continue if possible. And just say that I won't -- I'm not going to give a date here, but I think that all the things we've mentioned so far with the entering into new verticals, which allow us to not only hedge or sell against the volatility of the market, but also add margins every step of the way. So if it's just for example, if it's getting into shipping, we're not into shipping right now, that would make a significant difference today already if we had a shipping already in the company, and we're able to mitigate shipping costs and so on and so forth because those are also commoditized, and they also go up and down depending on conditions. So that's what we're trying to do and not rely on the good fortune of the market of, I would say, of the commodity prices and so on. Where we see that it's unreliable, we need to diversify, and we need to open ourselves to new products, new geographies and new verticals that will all form this picture together and we'll hopefully increase the margins to the point we want them to get to.

Great. That's helpful. And last question for me on the restaurant business. Can you kind of give us any more color on where we are in that process? I mean, do you have to wait for those corporate things to be refranchised? Or is there open solution strong interest? I mean, are you guys looking at bids or what inning are we in?

Yeah. Let me -- I'll get with you on. Let me jump in there. So there was always two phases looking at the restaurants, right? And should we divest them or not, right? First phase was take the corporate locations and convert them over to franchise locations, right? That is for all graphical purposes, been complete, okay? We still have a few out there that we're working on, but it's pretty much been complete. And that positions the restaurants -- that it positions the whole overall structure to now go out and investigate and hire somebody to go do this, right? And so we actually hired listed and associates, part of their expertise is selling restaurant chains. We've been doing it for about 40 years. They've been out there for a long time doing this stuff, right? So we have hired them recently. We're also now moving into the second phase, right, which is where we are today. So the first phase is already done a complete. We're now into the second phase of looking to divest these restaurants. From a timing perspective on it. We recently just hired them, right, in the last, call it, last 30 days, 2 weeks, whatever, so where that time frame as we work things out. We are now in the process of creating the data room and all that to be able to put things in there. We do have some people already showing interest. We've had some general discussions that have already started. But I don't have necessarily a time line on it per se, other than it's an important thing for us, and we're working against it pretty quickly.

And I would add something also to that, Tom, and I would say that Lecithin specifically, they are very specific in this particular business sale, and they are intimately knowledgeable about brands specifically. So they are up in the Northeast. They know the brand extremely well. We've known them for a long time. That was actually the firm that we purchased Pokémoto from. And so I know that there was -- I could disclose this. There was a lot of people that were bidding on that when we first bought it. And so it made sense after interviewing several other firms to go with Lecithin, but we're very comfortable with that decision.

Great. That’s all I have for this morning. Thanks.

Okay. All right. I think that's basically it, Alexa, do we have anything else that's out there from an analyst perspective or questions?

That is all. I believe that concludes our Q&A portion of this call. Mr. Roper, any final comments?

Okay. Yeah. Just I just want to thank everybody again as always. We've got a lot of things that are changing in this business. We're growing it. It's pretty exciting. There's we're -- we've obviously started our farm stuff with the harvest in Zambia, which is pretty exciting. I don't know if anybody saw but we had the President of Zambia actually was on our farm this week, doing some press work and some festival activities as well. So getting some high-profile type of visits from people as well that are out there. So very exciting stuff and more to come soon. I appreciate it, everybody.