Welcome to the Sadot Group Inc. Q3 2024 Earnings Conference Call. Today's call is being recorded. 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 mention that this call may include forward-looking statements under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. If the information discussed on this call pertains to financial projections, business plans, operational results, products, markets, or statements about future events, those statements may be forward-looking. Forward-looking statements can be recognized by the use of terms such as should, may, intends, anticipates, believes, estimates, projects, forecasts, expects, plans, and proposes. While management believes that the expectations in these forward-looking statements are based on reasonable assumptions, various risks and uncertainties could cause actual results to differ significantly from those statements. You are encouraged to carefully review and consider any cautionary statements and other disclosures, including those labeled Risk Factors in Sadot Group Inc.'s most recently filed Form 10-Q and other filings with the SEC. Forward-looking statements reflect the date of the document in which they are included, and Sadot Group Inc. does not have any obligation to update these statements, except as required by law. For this call, all figures disclosed have been rounded to the nearest $100,000, and percentages have been rounded to the nearest tenth of a percent unless noted otherwise. All figures in this report are attributable to Sadot Group Inc. and exclude amounts related to noncontrolling interests. During this call, we will refer to Sadot Group Inc. as Sadot Group, Sadot, or the company. Joining me today are Sadot Group's CEO, Michael Roper, and CFO, Jennifer Black. Michael and Jennifer will provide prepared remarks concerning Sadot Group's financials filed on November 12, 2024, which can be found on the company's website, Newswire feeds, and on the SEC's website link from Sadot's site at www.sadotgroupinc.com under the Investor tab. Now, I would like to turn it over to Sadot's CEO, Michael Roper. Michael?

Thanks, Frank, and good morning, everyone. I'm pleased to welcome everyone to today's call, where we'll be discussing our third quarter results for 2024. I'm extremely proud to report positive net income for the second consecutive quarter, marking a milestone achievement for the company. This accomplishment is accompanied by our best 9-month year-to-date performance in our history, underscoring our ongoing efforts to drive growth and profitability. In Q3, we generated consolidated revenues of $201.7 million, a 10.7% increase over the same period last year. However, the vast majority of our revenue, 99.6% of consolidated revenue or $200.9 million, was generated by our core agri commodity group, Sadot Agri-Foods. This division drove an 11.6% revenue increase over the same period last year as we continue to implement and execute against our global expansion strategy. Our net income reached positive $1.2 million for Q3, making Q3 our second consecutive quarter with positive net income. Our Q3 net income of $1.2 million was a substantial improvement from the negative $5.2 million net loss in Q3 2023. This represents an improvement of net income of roughly $6.3 million year-over-year. Our Q3 2024 EBITDA was also positive this quarter at $2.9 million compared to a negative $4.4 million EBITDA in Q3 last year. This represents an improvement of $7.4 million in EBITDA year-over-year. Notably, our year-to-date through Q3 net income stands at $3.3 million, a marked improvement compared to the $6.1 million net loss recorded for the same period in 2023. This achievement represents the highest net income over the first 9 months of any year in our company history. These results demonstrate our ability to operate profitably within a nearly $2 trillion global agri commodities market and reinforces our strategic vision to expand operations into essential agri commodity supply chain verticals, including farming, origination and trading, with further potential for growth into additional areas such as shipping, logistics, processing and distribution. In addition, we want to widen the types of commodities we trade while also expanding into new geographical trade areas. With that, I'm pleased to announce that we recently placed a deposit and are in negotiations on an agricultural property in Indonesia to expand our portfolio of farming assets, and we look forward to sharing further details upon the successful completion of this transaction. Regarding our legacy restaurant brands, we've been strategically divesting these noncore assets to streamline our focus on core operations, and we remain committed to keeping you updated on any developments related to these restaurant asset transactions. We have closed or converted all company-owned and operated restaurant locations into franchise locations, including Superfit Foods. We are now a 100% franchise concept and have been able to reduce some overhead expenses accordingly. With that, I'd like to turn the call over to our CFO, Jennifer Black, to review the company's financial performance for the third quarter of 2024. Jennifer?

Thank you, Mike. Before I begin, please note that our financial results for the quarter ending September 30, 2024, on Form 10-Q were filed with the SEC yesterday, November 12, 2024, along with the press release on that same day. For the third quarter of 2024, consolidated revenues increased by 10.7% to $201.7 million, up from $182.2 million in the same period last year. Our Sadot Agri-Food business accounted for the majority of our revenue, contributing $200.9 million in the third quarter as we completed 24 transactions across 14 different countries. Our legacy restaurant operations, which, as of September 30, are 100% franchise system and classified as held for sale, had $0.8 million of revenue from royalties and company operations in Q3. Q3 2024 net income improved significantly to $1.2 million compared to a $5.2 million net loss in Q3 of 2023. For the third quarter, EBITDA rose to a positive $2.9 million compared to a negative $4.4 million in the prior year period. Basic earnings per share improved to $0.25 per share compared to a negative $1.39 per share in the prior year period, and dilutive earnings per share improved to $0.23 per share compared to a negative $1.39 per share in the prior year period. SG&A expenses were $4.2 million this quarter, an increase of about $0.9 million compared to last year, mainly due to initial investments in the opening and expansion of our Sadot Agri-Food trading offices, a key element of our growth strategy. In addition, there are certain trade-related expenses that we reclassified from cost of goods sold to SG&A starting in Q3 to correctly reflect the operations. Looking at our balance sheet, the company had a cash balance of about $1 million and working surplus of $18.9 million. It's important to note that as a part of our ongoing strategy, we continue to reinvest cash into our Agri-Food commodity trading business to drive revenue growth and acquire strategic assets. The company is exposed to market risk, primarily due to the volatility in prices of food and feed commodities. To manage these risks, we occasionally enter into forward sales contracts and hedges. These forward sales contracts are initially measured at fair value, with any changes in the fair value recorded as a gain or loss from fair value remeasurement. The mark-to-market gain on these derivative transactions contributed approximately $5.5 million in income for this quarter. We are proud to report Q3 was our second consecutive profitable quarter, with significant improvements compared to the previous year. Our Q3 2024 financial results also reflect the best year-to-date 9-month performance in our company's history. We believe positive changes are occurring across our business, which will help us deliver on our goals of enhanced revenue streams, a larger working capital surplus and profitability. With that, I'd like to turn the call back over to Mike.

Thanks, Jennifer. So everyone, where do we go from here? How do we drive growth? So first, we want to continue to diversify into various verticals within the global food supply chain. This can be farms, logistics, processing or wholesaling. Second, we plan on expanding our farm operations into new geographies and leverage the farm assets into our trading operations. Third, we want to expand into new geographies such as our recently announced expansion into Brazil and Canada. And lastly, we want to expand into new commodities themselves. We recently started trading in sesame seeds and lentils, for example. So we want to expand into new commodities. Bottom line is that we believe we've only scratched the surface on growth opportunities within the $1.9 trillion industry. Finally, I want to express my sincere gratitude to all our investors, stakeholders and team members for your time, trust and continued support of Sadot Group. This quarter's achievements underscore the strength of our strategy and commitment to growth, profitability and operational efficiency. We remain focused on advancing our core agri commodity operations, optimizing our asset portfolio and driving long-term value for our shareholders. With that, please give us a few moments while we open up the lines for questions.

Before we get into questions from our selected analysts, Michael Roper would like to address some questions, which we received from our stakeholders. Michael?

Thanks, Alexa. Before we take questions, I want to quickly mention a couple of things. I have Kevin Mohan and Benjamin Petel on the line as well, so everyone knows they're here with us. As we dive into questions sourced from various shareholders, either directly through our IR site or platforms like Stocktwits, we try to summarize them to ensure we address everyone's concerns. However, before we begin, I have an important announcement regarding our revenue. We are pleased to share that our October revenue has been exceptionally strong, totaling $87.9 million for the month. This is a fantastic start to the quarter, and we wanted to convey this information as soon as possible. This announcement is just recent and marked an important development for us. Let me move on to some of the questions. The first one will be addressed by Kevin. Alright, Kevin?

Thank you for the question regarding Canada. I want to provide an update on the progress our new trading division in Canada has made. Since its launch, this division has exceeded our initial expectations, marking an important step forward in our growth strategy. I would like to share a few highlights. To date, the Canada team has facilitated sales of 11 specialty crop commodities, including lentils and pulses. They've established sales with 12 new customer accounts and are moving products to five different countries. Notably, Canada has been involved in approximately $20 million of transactions, both across the country and in collaboration with other divisions of the company. We are very optimistic about the ongoing and increasing success of our Canada trading division as it strengthens our position and contributes to our long-term vision.

Okay. So that was some questions and some updates about Canada. Then I think Jennifer now has some questions to review and some information regarding the Indonesian farmland.

Yes. The question came in is, can you provide some details on the deposit for the new farmland? The company did place a deposit as part of the negotiations for an acquisition of farmland in Indonesia. We are in detailed negotiations. But in general, we're discussing roughly 9,500 acres, which has vanilla plants and coconut trees, but can also produce other crops such as corn. If completed, this transaction would provide Sadot with new niche commodities to trade while potentially leading to improved margins. In addition, the new farm would allow the company to control its commodity supplies in important geographies while being able to trade around the projected yields throughout the year. The new farmland would represent a strong addition to our portfolio, offering both immediate operational value and potential long-term growth.

Okay. Thanks, Jennifer. And hopefully, we'll be able to make some announcements soon about that being all finalized. But again, we have the deposit down, and we are in the final stages of negotiations there. Another question that we had, which I know a lot of people talk about a lot, is what's going on with the sale of the restaurants, right, for both Pokémoto and Muscle Maker? So let me just kind of walk you through that. So regarding the whole potential sale of Pokémoto and Muscle Maker, we're moving forward, and we're advancing steadily, okay? We currently have multiple interested groups in various stages of due diligence, and we anticipate a formal offer coming up here in the near future. To streamline the process and enhance efficiency, we actually prioritized the closure or conversion of all the corporately owned and operated locations and converted those into franchise locations. And as of September 30, we no longer own or operate any corporate restaurants of either Muscle Maker or Pokémoto. And as of September 30, we completed that, right? And the company is now 100% franchise model across all brands, okay? And that was key because that helped us reduce some of our overall costs and actually streamline the process of negotiations. We eliminated some of the confusion out there. It's very straightforward now just being a franchise model that we're selling. This adjustment not only simplifies the sales process, but it's also allowed us to reduce operating expenses overall as the corporate locations transitioned over to franchise ownership, as I had said. Additionally, as part of our sales strategy, we've implemented a more structured due diligence approach with prospective buyers. This process requires potential buyers to complete nearly all of their due diligence prior to submitting a formal letter of intent or an LOI. This approach allows us to close relatively quickly once an LOI is in place, preventing situations where we're kind of locked into exclusive negotiations prematurely. When you go into an LOI, you have a 30- to 60-day exclusivity period. We don't want to do that, right? We want to make sure we get as much of the negotiations and all the due diligence done beforehand. So it's a much shorter process. It ensures we remain open to other interested groups as well until a deal is near certainty, allowing for greater flexibility and reducing the risk of needing to restart the process if a buyer doesn't close, right? We don't want to have a start and stop to the process. So that's a new thing that we've implemented as well. But again, we're moving forward with multiple groups, and they're in various stages of due diligence.

I'd like to open the call to Aaron Grey with AGP with questions.

Thank you for the October numbers. Revenue has increased nicely this quarter, and it appears this trend continued in October with the recent announcement of $88 million. Could you provide some insight on the gross margin, which seems to be around 1% to 1.1%? Are you seeing any signs of margin improvement? What should we be monitoring in terms of geography or sales types to observe more margin enhancement alongside the sales momentum you're experiencing?

Sure. I’ll take this one. The gross margins we're experiencing are consistent with other companies in the bulk commodity trading sector. In the bulk portion, we're seeing what we expect. As we increase our trades with Canada, Brazil, and other areas of the business, there are opportunities to enhance margins. For instance, when trading lentils and pulses in Canada, the trades may be smaller compared to large bulk cargo ships, but they occur much more frequently and have quicker turnover. These trades typically yield higher margins. As Canada increases its trading volume each month and quarter, it should contribute positively to our margin figures. So, one key aspect to monitor is Canada's overall involvement in this process, as it will impact our margins significantly.

Okay. That's helpful there. Second question for me. Just on the Indonesian farm, can you just maybe walk us through again or provide a bit more detail with some of the rationale there? Is it different crops than the Zambia farm? Were you looking to diversify geographically? Just some more color on the rationale with the farm purchase there.

Yes. So a couple of things with the farm, and I'll let others jump in as well, right? First off, we're still in negotiations, right? So I need to be a little bit careful of what we say or whatever on things as we finalize that. But yes, it's different crops that are more specialized. So the area that we're looking at has more niche products, okay, in it than your typical corn and soy and all that stuff. However, they can still do corn and soy in those things as well. So it will be a combination of those different products that are there. But yes, so that's a little bit different than Zambia. It also allows us to have a different geographical area, right, different parts of the world, different needs and different shipping routes and trading partners and everything that are there as well. So that's one of the reasons why we do it. And ultimately, we are still looking at expanding into other areas for farming as well, right? This would just be our second farm that we bring up online. We've already talked in the past some of the advantages of having some of the farm: lets you trade around some of the commodities, lets just do your own supply of your products that are there, lets you kind of control your own destiny to a certain degree with some of those products that are there. So there's a lot of advantages to the farm.

It's all part of the vertical integration process that we've told the Street about. So I think we're going to continue to move that narrative.

Okay. Great. I appreciate that. Last quick one for me. It looks like SG&A increased a bit in the Q. So just what were some of the drivers there? Were there some more things onetime in nature? Or is that the base rate we should expect going forward?

I'll take that one. It's financial related, right? As we continue to expand like in our different geographical areas, we've got to build out these teams. So as a result, there's going to be an increase in SG&A for items like salary, benefit, rent. These costs will always precede the growth as we're building this business. And we expect SG&A to increase as the company grows for those exact reasons.

But there will be some onetime expenses, Jennifer, right?

Yes. I mean there's always onetime expenses. But for the most part, we've got to think about growth and building the personnel and the people to grow the business. And that growth always comes before the revenue does.

I'd like to open the call to Tom Kerr with Zacks for questions.

Can you hear me?

Yes.

Just a quick follow-up on the last SG&A question. I think you mentioned in the presentation, some items were moved from cost of goods sold. Was that something different than what you just mentioned in terms of building out? Or what was the move?

It’s all interconnected. We reclassified certain salaries from cost of goods sold to SG&A because those personnel are now classified as SG&A. We made some adjustments in the business, and we wanted our financials to accurately reflect our operational structure.

Okay. Great. Back to the revenue growth, you mentioned Canada was a good contributor. Was Brazil also a major contributor? Or what else contributed to the growth? Was it different commodities or pricing? Or just give more color on that.

Yes. So, I want to highlight the differences between Brazil and Canada. Canada's model is more trading-focused, and we're seeing positive results from their integration with the overall business, which aids in facilitating trades globally for various products. As we bring on more traders and different divisions, revenue should continue to increase. In contrast, Brazil is taking a different approach. While there is some trading activity, Brazil is concentrating on building relationships and developing infrastructure to efficiently move products from farms to shipping lanes. There are opportunities in those areas that they are focusing on rather than just pure trading. When we look at the recent revenue figures, much of it came from increasing our regular trades as our team expands and develops. Canada played a significant role in this, approximately contributing around $20 million in trades for the quarter, although these trades didn’t all go through Canada directly. As we onboard more traders, we should be able to generate even more revenue.

All right. Sounds good. On a different note, can you provide any more color on the Yorkville debt retirement transaction? Was that just a cash payout? Because I thought there were shares involved.

Yes, I'll take that. Tom, it's Kevin Mohan. Could you repeat your question? You asked about whether there were any additional shares and there were two parts to your question.

I know there was share issuance in the past related to the Yorkville deal. Has that been resolved, or was there a sale, or do they still retain ownership? If you could provide all the details, I apologize.

No problem. Yes. What we did is we did a prepaid advance with them, and then they were selling shares into the market to repay that debt. The last piece of that debt, we actually paid off with cash on hand. And so we have met our obligation with them, and it is my understanding based on my last conversation, which the last conversion was done in September. But the last conversation that I had with Yorkville was that they are flat. So they do not own any stock. We do not owe them any money. And so we're in good shape.

Okay. Last one for me. It looks like it's the middle of November, the restaurant deal closing would likely be a 2025 event. Is that fair to say?

Well, here's what's happening, Tom, on stuff. As I mentioned, we've got multiple groups in various stages of due diligence. We're getting very close to the end with several groups, right, as they go through. We expect to get a formal LOI here shortly, okay? However, one of the things to consider in there is we did give incentives to the group that we talked to about wanting to close before the end of the year, okay? So we gave them some decent incentives to do that. And so they are pushing hard to see if they can complete it by the end of the year.

And I think another important note, too, as Mike mentioned earlier in the call, the process that we're using, Tom, to get people all the way to the end before we get to LOI, I think, is going to help this thing close quickly when the LOI is signed. So I think that's really important. I think if you look back at this company's history, you're going to find that we don't ever announce LOIs. We're not a company that likes to do that. And so we want to make sure that we have concrete deals in place before we make those announcements. So I think it's important for the investors to understand that when we do make the announcement, that's going to be the actual sale and the definitive docs being done.

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

Yes. I just want to thank everybody again for believing in the company and seeing where we're going, understanding our strategy. We do consider ourselves a growth company. And so with that, there's always a lot of announcements and change and things that happen throughout the process. So I appreciate everybody with their questions. I appreciate the patience. I appreciate everybody believing in the company.