Sadot Group Inc. Q4 FY2023 earnings call

• The company refocused on the agri-commodities business, with plans to divest restaurant operations. 2023 total revenue rose to $727 million from $162 million in 2022, and adjusted EBITDA was positive $89,000 compared to a $2 million loss in 2022.
• Expanded trading offices: Added Sadot LatAm in Miami, Florida and Sadot Brazil in São Paulo to existing locations in Singapore and Dubai. Acquired approximately 5,000 acres of farmland in Zambia through a majority-owned subsidiary.
• Engaged in carbon credits by acquiring a contract from a mangrove planting project in Indonesia. Transitioned from monthly to quarterly revenue reporting for Sadot Agri-Foods to better align with margins and profitability.
• Initiated a pilot contract farming program in Zambia to help small farm owners access inputs, engaging ~140 local farmers over ~1,400 hectares.

The company has two main segments. Sadot Agri-Foods was the primary revenue driver in 2023, generating $718 million in revenue, which accounted for 98.7% of the total company revenue of $727 million. It reported $0.3 million in net income. In the fourth quarter of 2023, Sadot Agri-Foods completed 24 transactions with an average revenue per transaction of $7.1 million and an average cost of goods sold of $7 million across 16 different countries. The legacy restaurant operations generated $9.2 million in revenue in 2023, a significant increase from $1.1 million in 2022, but reported a loss of $2.8 million in 2023 compared to a loss of $3.3 million in 2022.

• Focus on accessing trade financing to execute larger agri-commodity trades. Continued expansion of global trading offices. Ongoing harvest in Zambia, with full maize harvest of remaining 513 planted hectares anticipated in 7-8 weeks and soybean harvest beginning ~3 weeks later.

• Volatility in commodity markets affecting margins. Dependence on trade financing for growth. Uncertainty in the timeline and outcome of divesting restaurant operations.

Q: How has adjusted EBITDA calculated? And why should we use this number?

A: We define adjusted EBITDA by starting with net loss and adjusting for items like depreciation, amortization, net interest, income taxes, impairment expenses, etc. It's a useful non-GAAP measure to evaluate recurring profitability from ongoing operations.

Q: How do the additional trading subsidiaries compete with or affect each other?

A: The subsidiaries support each other, established in important production and distribution geographies to facilitate supply and demand. They work together without direct competition, aiding in diversification and risk mitigation.

Q: Why is your cash on hand decreased year-over-year?

A: Due to strategic investments in expanding operations, such as purchasing the farm in Zambia, deploying cash into trades, expanding trading areas, and changing strategic direction. Cash deployment is intrinsic to the new business model for generating revenue and margins.

Q: How can the company increase its overall margins?

A: By diversifying into different commodities (e.g., vanilla, lentils, peas), expanding into new trade areas, leveraging trade financing and supplier credit lines, and being agile to seize opportunities in different geographies and products.

Q: Can you speak on the timing when trade financing was finalized and quarter-to-date in 1Q?

A: We have secured $15 million to $20 million in trade financing and are continuing to work on more. Quarter-to-date in 1Q is a typical quarter, but specific numbers aren't shared yet. The company is agile and diversifying to increase margins.

Q: Can you give more color on the restaurant business divestment process?

A: The first phase of converting corporate locations to franchise locations is complete. We hired listed associates in New York to facilitate divestment of remaining restaurant and meal prep assets. We're in the process of creating a data room and have initial interest, with discussions ongoing but no specific timeline provided.