Welcome to the Sadot Group, Inc. Q2 2024 Earnings Conference Call. Today's call is being recorded and all participants will be in listen-only mode. After management’s prepared remarks, we'll 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.

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 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 Sadot Group, Inc.'s most recently filed Form 10-Q 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, unless under $1 million 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, Sadot or the company. With me on the call today are Sadot Group's Chief Executive Officer, Michael Roper; and Chief Financial Officer, Jennifer Black. Michael and Jennifer will be presenting prepared remarks related to Sadot Group's financials filed on August 13, 2024, and those documents may be found on the company's website, Newswire feeds, and on the SEC's website link from Sadot Group's website at www.sadotgroupinc.com under the Investor tab. At this point, I would like to turn it over to Sadot's CEO, Michael Roper.

Thanks, Frank. Good morning, everyone, and thank you for joining us today as we present the results of our second quarter. I'm extremely proud to announce that Sadot Group reported the best quarter and six-month year-to-date performance in our company's history, delivering significant positive net income and notable improvements in our financial position. This record-breaking performance underscores our resilience and commitment to operational excellence as we execute against our strategic vision. Importantly, we consider ourselves to be in the early stages of our growth strategy as an emerging entity in the almost $2 trillion agri commodities market. We focus on driving change in the company's business model and transitioning the company into a larger player in the global agri commodities market, we believe we are starting to see these efforts reflected in our overall results. For the second quarter, consolidated revenues increased 9% to $175 million, driven by Sadot Agri-Foods. Net income of $2.4 million exceeded the $190,000 we reported in Q2 2023. Additionally, our 2024 year-to-date cumulative net income is a positive $2 million compared to a net loss of $876,000 for the same period in 2023. Jennifer will discuss the financials in further detail shortly. Overall, market conditions in the agri commodity sector started to improve in Q2 following a challenging Q1. Importantly, even though China demand remains a headwind as they focus on domestic production, the company was able to shift to other markets to drive growth, which helped drive the $76 million revenue increase from Q1. Combined with our corporate strategic growth initiatives and strong execution, this significantly contributed to our Q2 results. In addition to the growth potential within the global agri commodity market, we believe several powerful industry trends are converging to support Sadot Group's strategic initiatives and long-term success. First and foremost, the growing global demand for agricultural commodities is expected to be a crucial driver. Rising population, increased urbanization, and evolving dietary preferences are all contributing to heightened consumption of food and feed products worldwide. We believe this dynamic creates a favorable backdrop for companies like Sadot Group that are positioned to efficiently originate trade and distribute essential agri commodities. Secondly, the heightened emphasis on food security and sustainability represents a substantial opportunity for Sadot Group. Governments and international organizations are prioritizing initiatives to ensure stable food supplies and mitigate supply chain risks, areas where our vertically integrated business model, featuring both trading and farming operations, provides distinct advantages. Finally, the ongoing consolidation and diversification trends within the agri commodity sector present exciting inorganic growth opportunities for Sadot Group. As industry players seek to expand their geographic reach, product offerings, and value chain integration, we believe we are well-positioned to capitalize on strategic acquisitions and partnerships that can further strengthen our market position. By proactively aligning our business model and growth initiatives with these powerful industry drivers, Sadot Group is poised to pursue its position as a leading global player in the dynamic and essential agri commodity market. To capture a greater share of this market opportunity, we are strategically expanding our operations into key supply chain verticals, including farming, origination, and trading. Longer-term, we also see significant potential for expansion into other verticals such as shipping, logistics, processing, and distribution. The formation of Sadot Brazil and more recently Sadot Canada are a direct reflection of this strategy. Both of these new subsidiaries complement our existing operating centers in Miami, Singapore, Dubai, and Kyiv. We remain actively engaged in expanding our global platform and continue exploring further regional expansion opportunities. At the beginning of August, we announced the key leadership appointments for our newly formed Canadian operation. I'd like to take this opportunity to welcome both David Hanna as Executive Vice President, General Manager; and Jaime Rueda as Vice President, Head of Feed Ingredients for Sadot Canada to the Sadot team. Their extensive experience and deep knowledge of the agri commodity markets make them invaluable additions to the company. Their combined leadership alongside the professional and dedicated management and team members in Miami, Brazil, and Dubai will be instrumental in advancing Sadot's global growth agenda by working together to expand trade flows globally. Next, let's discuss the farm operations. Our farm operations serve as an integral part of the total food supply chain operation. Importantly, from an agri commodity trading perspective, the farm crop allows the company to trade year-round with the underlying commodity as collateral in case the market turns negative, helping to insulate us from market fluctuations. Increasing our farming capabilities in strategic locations worldwide will continue to be an important focus point for the company, allowing us to expand our trading, food security, and community impact endeavors around these farms. Regarding our legacy restaurant business, we have been actively pursuing the divestiture of these non-core assets to focus on our agri commodity origination, trading, shipping, and farming. The company is engaged with numerous potential buyers resulting in the recently announced sale of SuperFit Foods. This transaction is the first of three restaurant concepts to be sold from our portfolio and is the first step in our overall strategic plan to exit the restaurant business. We expect the divestiture of these non-core assets to drive operational savings and simplification. This will ensure our resources are firmly aligned around the company's highest potential opportunities in the agri commodities market. Regarding Muscle Maker Grill restaurants, we have recently completed the process of converting corporate owned and operated Muscle Maker Grill locations to franchise locations. We believe this concept is now positioned to potentially attract a wider base of interested parties. For Pokémoto, this likely will be the largest transaction of the three concepts; we're in negotiations and detailed discussions with several groups for the sale of our Pokémoto concept, of which there is no guarantee. As the sale of each concept occurs, we expect to reduce G&A expenses, potentially enhancing the bottom line while simultaneously generating cash flow into the business. Now, I'd like to turn the call over to our CFO, Jennifer Black, to review more specifics of the financial performance of the company for the second quarter of 2024.

Thank you, Mike. Before I begin, please note that our financial results for the quarter ending June 30, 2024, on Form 10-Q were filed with the SEC yesterday, August 13, 2024, along with the press release on that same day. Our consolidated revenues increased 9% to $175 million in the second quarter of 2024, compared to $160.6 million for the same quarter in 2023. Our Sadot Agri-Foods segment accounted for the majority of our revenue, contributing $173.3 million in the second quarter as we completed 21 transactions across eight different countries. The farm completed its first full year of harvest, and in Q2, harvested over 2,500 metric tons of maize and 690 metric tons of soy. Our legacy restaurant operations, which are classified as held-for-sale, had $1.7 million of revenue in Q2. SG&A expense of $2.4 million for the quarter increased by over $500,000 versus a year ago, mainly due to the upfront costs associated with the opening and expansion of our Sadot Agri-Foods trading offices, which are integral to our growth strategy. Net income of $2.4 million was a notable improvement from the $190,000 for Q2 2023. EBITDA was $3.2 million, compared to $656,000 in the second quarter of 2023. Now looking at our balance sheet, the company had a cash balance of $10 million and a working capital surplus of $16.1 million, reflecting strengthened financial stability. This compares to a cash balance of $1.2 million and working capital surplus of $13.2 million as of March 31, 2024. It is important to note that as a part of our ongoing strategy, we continually invest our cash back into the Agri-Foods commodity trading business to increase our revenues or to add strategic assets. The company is exposed to market risk primarily related to the volatility in the price of carbon offset units and food and feed commodities. To manage these risks, we entered into forward sales contracts and hedges from time to time. The forward sales contracts are initially measured at fair value, and any changes in fair value are recorded as gain or loss on the fair value remeasurement. The mark-to-market gain on these derivative transactions resulted in income of approximately $3.3 million for the quarter. We are proud to report our best three and six-month performance in the company's history. Significant positive change is occurring across our business, enabling us to deliver improved revenue streams, increased working capital surplus, and higher cash balance. We are continuing to strengthen our balance sheet while also reducing expenses as we divested the restaurant concepts. With that, I'd like to turn the call back over to Michael Roper.

Thanks for the financial overview, Jennifer. In closing, I want to thank all of our investors and stakeholders for your time and continued support of Sadot Group. We're extremely proud of the progress we've made in positioning the company for sustainable long-term growth, and we remain firmly committed to executing our strategic vision. As I've outlined today, we believe the combination of our growth potential in the vast global agri commodity market, our improved financial performance and strong balance sheet, our innovative risk management approach and our experienced leadership team provide us a compelling case for Sadot Group. Supported by powerful industry trends and tailwinds, we believe in our ability to continue driving value for our shareholders. Looking ahead, we'll maintain our disciplined focus on expanding our trading operations, diversifying our geographic footprint, and further integrating our farm assets to create synergies across the supply chain. At the same time, we will judiciously manage costs and capital allocation to enhance profitability and returns. Thank you again for your time, and we look forward to updating you on our continued progress in the months and years ahead. With that, please give us a few moments while we open up the lines for questions.

Thank you, Michael. Before we get to questions from our selected analysts, I believe you have some questions to address, which you received from the stakeholders.

Yes, I do. Everyone, we normally get questions that get submitted to our IR email address. We try to accumulate these and come up with a common theme and address those questions before we open up to the analysts to ensure that we're addressing a lot of the common questions that are out there. So the first question I have is can you elaborate on the potential growth opportunities in the $1.9 trillion global agri commodity market? And what is Sadot Group's strategy to capture a larger share of this market? So the global agri commodity market represents an opportunity for Sadot with an estimated annual value of nearly $2 trillion. It's a big market, right? Our strategy to capture a greater share of this market involves actively expanding our trading operations through strategic initiatives, such as the formation of Sadot Brazil and Sadot Canada that we recently announced. These new entities complement our existing trading hubs and allow us to facilitate trade flows to and from key regions such as North America, Africa, the Black Sea, and Indonesia, etc. By diversifying our geographic presence and expanding our trading capabilities, we aim to position Sadot as a larger player in the global agri commodities market. Now, one of the things I want to talk about is that kind of horizontal expansion, right? We also plan on expanding vertically into additional aspects of the global agri commodity supply chain. We actually see the industry divided into three segments or three components. The first segment is the upstream segment. That kind of represents the origins of the product, kind of like farming in emerging markets. The second segment is midstream, which is really trading logistics and infrastructure. And then there's downstream, right, which is processing capacity in the ingredients and feed industries through different geographies where we can contribute value. Currently, we are operating in the upstream and midstream segments of the market, so there's ample room to expand there within those segments. But as we evolve and grow, our goal is to continue capturing additional capabilities that will allow us to expand vertically and fully integrate our operations. So Jennifer, you want to take the next one?

Sure. The next question we have is, when will Brazil and Canada contribute to the top-line revenue? Brazil is a crucial geography for any company involved in the Agri-Foods supply chain. Our expansion into Brazil through the formation of Sadot Brazil has been a key strategic priority over the past year. The team is building important foundations to support our strategy and goals in this region. Since we reported our first Brazil trade in July, the team has been involved in several other transactions surrounding sesame and are heavily involved with our new Canadian subsidiary as well as other regions lining up future trades. Building these foundations requires a deep understanding and connection with the professionals on the ground. The Sadot Brazil office is establishing relationships with local producers, intermediaries, and end users to grow the company's presence in Brazil, and in the future, allow us to leverage our global distribution network and risk management expertise. Sadot Canada is our most recent addition to our global trading team, led by David Hanna and Jaime Rueda. The team in Canada is currently focused on the Canadian pulses market, building out its origination capabilities, securing financing facilities, and finalizing strategic partnerships to ensure a smooth market entry. The Sadot Canada team is introducing the new entity to the local market, farmers, exporters, and global trading counterparties. Although we cannot provide a specific guarantee, we anticipate that Sadot Canada will begin executing trades in Q4. It's important to note that Sadot Canada's model will focus on smaller container-sized trades, and these types of trades are usually more frequent and have higher margins.

Now, one of the things I want to talk about is that's kind of horizontal expansion, right? And we also plan on expanding vertically into additional aspects of the global agri commodity supply chain. We actually see the industry divided into three segments or three components. The upstream segment kind of represents the origins of the product, like farming, in emerging markets. The second segment is classified as midstream, which is really trading, logistics, and infrastructure. And then there's downstream, which is processing capacity in the ingredients and feed industries through different geographies.

The next question we have is what does July revenue look like? And are you anticipating revenues to remain in the $175 million to $200 million range for Q3? I'm pleased to report that our July 2024 revenue came in at approximately $61 million, continuing the positive momentum we saw in Q2 and an increase of roughly 15% from July 2023. Our team remains focused on executing our strategic growth initiatives, prudently managing our risk, and driving increased value for our shareholders. Mike, do you want to go to the next one?

Yes. I got another question here. Hold on a second. I'm sure I got the right one. So the last question we have here before going live to the analysts is can I provide more details on the divestiture of the restaurant assets? What is the anticipated timeline and expected impact on the company's financials? As you guys know, we are actively pursuing the divestiture of our non-core restaurant assets, which is a key part of our strategic plan that allows us to focus on the agri group commodity business, right? And that's our core business. We want to focus on that instead of worrying about the restaurants. We've already completed the sale of Superfit Foods meal prep service, which we announced a few weeks ago. We are in the early stages of due diligence for the remaining concepts of Muscle Maker Grill restaurants and Pokémoto. I think I mentioned earlier, we've actually got several groups that we're talking to regarding Muscle Maker and Pokémoto in different stages of those discussions. As we complete the sale of each restaurant concept, we do expect to see a reduction in our G&A expenses, which should enhance our bottom line performance. Additionally, the divestitures will generate cash flow that we can reinvest into Sadot Agri-Food operations that will support our growth initiatives. While specific timelines for the remaining divestitures are still being finalized, we are working diligently to complete these transactions and further streamline our business model. The recent SuperFit Foods transaction, along with the sale of the final company-owned Muscle Maker Grill restaurant where we converted into a franchise location and the closing of an underperforming location, all occurred in early Q3 of 2024. With these recent moves, we believe our expenses will reduce by an estimated $400,000 plus per year on an annualized basis as we eliminate the overhead associated with operating these locations. The current and future cash proceeds of roughly about $400,000 from these transactions will be reinvested back into the business. These sales represent the first step in our overall strategic plan to exit the restaurant business. So with that, I think that answers all the questions that we kind of summarized here. So, Operator, do you want to take it over to the analysts on the line?

Yes. Thanks, Michael. I would like to open the call to Aaron Grey with AGP for questions first, please.

Hi, thank you for the questions, and nice improvement in the quarter here. So first one for me, just in terms of the Agri-Foods business, commodity business, I know there can be some volatility there, some nice pickup there sequentially in the quarter. So wanted to get a better line of sight in terms of whether or not you're seeing more line of sight yourselves in terms of the trajectory of where sales can go? Do you believe there will still be some more volatility? I know you're getting more diversified entering new markets. So just some more color in terms of where you think the top-line within that business can go from here? Thank you.

Okay. Thanks, Aaron. A couple of things, and then I'll let Jennifer jump in here as well, but I think to start off, as Jennifer mentioned, we saw July come in at a little over $61 million for the month. So that's a good start to the quarter. We're continuing to build that momentum after the poor performance in Q1, right, which was attributed to the China market more than anything. China has become more stabilized. They are still focusing on their domestic production, but us, as a company, have been pretty resilient to be able to move a lot of the trades and business to other parts of the world. I think that's really key about the future of where we see some of the revenues going as we continue to grow by adding Sadot Brazil and then adding Canada here recently and obviously, hopefully, some more as we move forward. That just gives us more diversification and allows us to move around so we can stabilize some of the fluctuations that you talked to and some of the variations that might happen out there. I think we proved that in Q2 and now beginning at Q3 as well. From a stability standpoint, I think that bodes well for us as we move forward. But like you mentioned, there are always fluctuations out there. But I think we are nimble enough and have a wide enough footprint to start to manage around some of those things.

Okay. I appreciate that color, Michael. And the second one for me, on the gross margin, nice improvement there as well. So on a similar level, are you already seeing some of the benefits of the trade financing that help with the gross margin? Or was that more so just the trades that were made during the quarter that really led to the improvement? So similar question I would ask before, but on the gross margin here is how we should think about the margin profile for the different trades you're making either via products or geographies over the next couple of quarters? Thank you.

Thank you, Aaron. This quarter, the margins we achieved were primarily due to the trades we completed. We haven't yet explored the trade finance aspect in detail, so everything has been accomplished organically. Looking ahead, our strategy for management involves diversification. We are targeting various segments, particularly with the expansion into Brazil and Canada. In Brazil, for instance, we engaged with sesame, and in Canada, we are focusing on pulses, which come in smaller containers. These smaller containers usually yield higher gross margins. Having a broader range of options allows us to allocate funds or resources to areas that we believe can improve margins.

And I think to reiterate, a key point moving forward, as Jennifer mentioned, is the Canadian business model; as we bring that one online, it is oriented towards container-sized orders versus entire cargo ship orders. There's a lot more frequency and a lot more transactions that happen through that. Those do tend to be higher-margin items in general than the containerships as well. As we intermix that in, that should help address some of the margin fluctuations we see with the larger containerships and obviously going into different products as well. We've gone into sesame now, right? So different products, different times of the year, etc., have different margins. Having a wider option base out there bodes well.

In addition, with there always being volatility, we do hedge to mitigate our risk, which always does lower that, too, but it is more secure and safer to hedge those risks.

Understood. Thanks for that color there. I'll go ahead and jump back in the queue.

Great. Thanks, Aaron. I'd like to open the questions for Tom Kerr with Zacks.

Good morning. Can you hear me?

Yes. Thank you.

Just a question about the operating cash flow, which was really strong, I think, over $8 million in the quarter. What were the working capital components that drove that? And do they cycle back and forth where we may not see strong operating cash flow in the second half of the year, could you provide some color on how that works?

No, absolutely. All of these are going to come down to timing, Tom, when payments are received and when they're redeployed. Our strategy has been, and will continue to be, to reinvest our cash into the company, to put that cash to work and generate margin. We don't want to sit on a bunch of cash. I know a lot of people, especially analysts, like us to have cash on the books, but we want to use that cash and generate additional margin. This quarter, yes, we had a high cash balance, which was due to timing of the receipt of payments. We're deploying those back out and trying to earn money and revenue on that cash.

Okay. That makes sense. Going back to the commodity gross margins, I think it was 1.1%, and you kind of discussed this a little bit, but that's not where we want to be, right? Could you publicly talk about long-term goals for gross margin?

Yes, I'm not sure. Look, every month is a higher gross margin, right? There's no question about that. We've talked in the past and continue to look as we move forward in ways to increase the overall profitability of the company, even beyond these trades, right? Everybody keeps focusing on trades. But as we continue to move into the farming aspect and other aspects that are there, if we get into shipping or any other areas, those will help drive some of the margin numbers. As we mentioned about Canada, those smaller trades tend to drive larger margins. As they come online, that should help push that. The reality is, in this industry, it depends on seasonality, the products you have, and the deals you make. Yes, we'd like to see higher margins. We had higher margins in the past, and we've had lower margins in the past. In that 1% to 3% range is where we want to be, where we can achieve that. Again, it depends on the timing of the year and different products happening in the marketplace. I know that doesn't give a distinct answer, but that's probably about as good as I can get.

Got it. That’s helpful.

In addition to that, once we get all these trade finance lines kicked in and going and optimize, it will provide better returns on equity.

Yes, and two more quick ones for me back to the trade financing. You put a number on it last quarter, I think you add up to $26 million availability. Does that continue to increase or change?

It's still basically at that same point. We are working on multiple other trade finance options that could be significantly larger if they come through. We continue to work on that. What's more important is part of it is we've been able to deliver what we delivered with the trade finance lines that we do have. Bringing more of those online, as we move forward, bode well for the future. We have been able to accomplish what we have so far just with what we have today.

And there are other options out there that we are utilizing that are not just trade finance lines. We're looking into supplier credits, insurances, and other options that allow you to tap into resources without actually having trade finance.

Got it. Okay, last one for me is, did I hear you say SuperFit proceeds were $400,000?

No, it was a combination of SuperFit and converting the last Muscle Maker Grill location into a franchise location. The total proceeds from these two were around $400,000. Again, there is nothing significant coming from those, but it's the first step in truly divesting these assets and moving forward. The Muscle Maker Grill restaurants will be larger, and they should be the largest. The major project we are focused on is Pokémoto, which is the largest of the three concepts. Those are still in progress right now.

And just to add on to that, with those sales, we did not take a loss on those.

Great.

Yes.

Got it. That's all I have for today. Thank you.

Thanks, Tom. If there aren't any more questions, that concludes our Q&A portion of the call. Mr. Roper, any final comments?

I just want to thank everybody for being shareholders and going through this adventure with us as we grow this company. A lot of good things in the future are coming up. And as I think you've seen, a lot of good things have happened here in the recent past as well that continue to propel us to become a larger player in the industry. Again, thanks to everybody for their patience, and I appreciate all the questions and cooperation and comments and suggestions. We're doing our best and moving forward.