Sadot Group Inc. Q3 FY2023 earnings call

Management Statement and Operational Highlights

• Name Change and Strategic Pivot: Changed name from Muscle Maker Inc. to Sadot Group Inc. on July 26, 2023, with shares trading on NASDAQ under SDOT from July 27, 2023. Transformed from U.S.-centric restaurant business to global food supply chain organization.
• Business Divisions: Segmented into three divisions: Sadot Agri-Foods (global agri commodity trading, largest revenue/net income generator), Sadot Farm Operations (started farming in Zambia with first harvest), and Sadot Food Service Operations (undergoing optimization, closing underperforming locations and converting to franchises).
• Q3 Highlights: Total revenue $182.2 million (vs. $2.8 million in Q3 2022); net loss $5.3 million (vs. $1.9 million in Q3 2022); adjusted EBITDA loss $841,000 (vs. $1.4 million loss in Q3 2022). Sadot Agri-Foods completed 27 transactions across 16 countries. Sadot Farm Operations had first harvest in Zambia. Sadot Food Service Operations had $2.2 million revenue with royalty/fee increase.
• Carbon Offsets and Brazil Office: Sadot Agri-Foods purchased first carbon offset, aligning with sustainability. In advanced discussions for a trading office in Brazil to explore agri commodity trading opportunities.

Segment Performance

• Sadot Agri-Foods: Generated $179.5 million in revenue in Q3 2023, with operating income of $2.3 million. It is the largest revenue and net income generator, contributing a significant portion of the $182.2 million total revenue for the quarter.
• Sadot Farm Operations: In Q3, completed acquisition of a 5,000-acre farm in Zambia. Achieved first successful harvest of premium grade winter wheat, generating over $500,000 in revenue. Currently has corn and soybeans planted, expected to be harvested in 2024.
• Sadot Food Service Operations: Generated $2.2 million in revenue in Q3. Consisted of $1.9 million from company-owned and operated locations (decreased due to optimization and closing underperforming locations) and $245,000 in royalties and fees. Franchise royalty and fee revenue increased 44% compared to Q3 2022.

Guidance

• Future Growth: Envision sustainable growth in global presence by diversifying into additional supply chain segments. Involved in negotiations for partnerships with farms, dry bulk shipping vessels, ESG projects, carbon credit trading, and food security contracts.
• Revenue Projection: Year-to-date revenue through Q3 2023 is over $555 million, aiming for continued growth through strategic diversification into various supply chain verticals.

Risks

• Market and Operational Uncertainties: Forward-looking statements subject to risks and uncertainties that could cause actual results to differ. Impact of onetime charges on short-term financials. Risks related to global food market dynamics, margin pressures in Agri-Foods business, and execution of strategic initiatives such as restaurant optimization and expansion into new markets.

Question and Answer

• Q: Quantify onetime charges in Q3? A: Jennifer Black stated onetime charges included impairment of goodwill $828,000, impairment of intangible assets $811,000, and write-offs related to closing restaurants and leases.
• Q: Margins for Agri-Foods business? A: Michael Roper and Benjamin Petel mentioned margins influenced by trade type, geography, product. Diversification and vertical integration (e.g., owning farms) expected to improve margins, with farm operations planned to have margins up to 25%-35%.
• Q: Restaurant restructuring status? A: Michael Roper said they closed 3 underperforming locations, refranchised 3 Pokémoto locations, with 1 more pending. Goal is to be franchisor-focused with 8 company-owned locations left.
• Q: Store level profitability for Pokémoto? A: Michael Roper explained franchisees pay 6% royalty on net sales, resulting in good profitability with low corporate overhead.