Q3 2023 Sadot Group Inc Earnings Call

Elections, I would like to turn the call over to Franco Rubeola Sadat group Inc's Investor Relations contact.

Thank you operator, and welcome everyone to Scott Sadat Group Inc's third quarter 2023 earnings 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 1095.

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 make 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 and elsewhere in documents that Sadat 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 Sadat 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 100000 and percentages have been rounded to the closest percent.

On this call we will refer to <unk> Group, Inc. As Sadat group or the company.

With me on the call today are Sadat group's Chief Executive Officer, Michael Roper, and Chief Financial Officer, Jennifer Black.

We will also have other members of the management team available during the Q&A session.

Michael and Jennifer will be presenting prepared remarks related to <unk> Group, Inc. Financials filed on November 14th 2023, and those documents may be found on the company's website newswire fees and on the Sec's website linked from Sadat group's website at Www Dot Sadat Group, Inc. Dot com.

In the upper navigation link labeled investors at this point I would like to turn the call over to <unk> Dot group Inc's CEO, Michael <unk> Michael.

Thanks, Frank Good morning, everyone and thank you for joining US today, we will be reporting the results of our third quarter ending September 32023, but before diving into the Q3 results and key highlights I'd like to acknowledge that the past quarters, but another important period for spar Group Inc.

Worth noting that in the third quarter on July 26, 2023, we officially marked a significant milestone with the announcement of our corporate name change from muscle maker, Inc. To serve that group Inc. This name change reflects our strategic evolution into a global player in the food supply chain sector, our shares of common stock begin trading on Nasdaq.

The ticker symbol SPP Ot that Sam EBIT Ocean, Tom S. D O T. On July 27, 2023, and we are excited about this new chapter in our journey.

Our transformation and strategic pivot over the past year has been rapid we have evolved from a U S centric restaurant business into a truly global food supply chain organization, we've strategically segmented the parent company. So that group Inc. Into three operating divisions to capitalize on the opportunities presented by the global food market.

These three operating divisions include number one.

Got Agra foods number too so that farm operations and number three so that foodservice operations, which is in an optimization process, which we'll elaborate on later in this call.

To begin I'd like to give a brief overview of each of these three main business divisions.

Our first and largest division as Sadat aggregates. This division is our global aggregate model trading group and serves as the company's largest revenue and net income generators since inception.

Global operations include the origination and trading of food and feed products such as soybean meal.

Corn and carbon offsets.

This division help supply food and feed products to various regions of the world and is a strategic component in helping to address food security issues.

Our second business Division as Sadat farm operations, we officially began our farming operations in Q3 on our approximately 5000 acre farm in Zambia. Thus.

This facility cultivates highly sought after and valuable commodities, including soybeans wheat and corn. In addition to attending to high value avocado and mango tree crops.

We expect that Thats farming operations to eventually provide additional leverage to our trading business, while aligning with our strategic objective to create positive impact on our local communities and address the increasing global food security challenges.

Our third business Division.

At Foodservice operations, which operates our three legacy restaurant concepts.

This unit encompasses over 48 fast casual restaurants across the United States, including two international locations.

We also have franchise agreements sold for over 50 locations that are yet to be opened.

Over the past quarter, this divisions, but undergoing a transformation and.

And optimization of which we started closing underperforming restaurant locations and converted locations from corporate operated the franchise locations in order to position the division for potential strategic alternatives in the future.

Let me now discuss some specific Q3 highlights im.

I am pleased to announce that stock Group, Inc. Achieved top line revenue of $182 2 million for Q3, 2023, a significant increase compared to $2 8 million for Q3 2022. This announcement marks the accomplishment of 11 consecutive months since inception about $45 million monthly <unk>.

Revenue for the company.

These revenue numbers are led by our largest operating divisions have got Sadat Agra foods.

Specifically, our Agri Foods division added $179 $5 million in revenue and $2 3 million and operating income in the third quarter as it continues to consistently perform.

In assessing our overall company wide performance, it's important to note that the company encountered a series of one time type of charges, which were realized this quarter with a significant portion linked to the previously announced restructuring of our legacy restaurant brands, our corporate name change to serve that group, Inc, and overall financing strategies.

While these charges did impact this quarter's bottom line. They were one time charges essential for helping to fortify our long term financial strength and growth opportunities for the company.

Overall for the third quarter, we reported a net loss of approximately $5 3 million in contrast, with a net loss of approximately $1 9 million in the previous year ending September 32022 as.

As previously mentioned there were a number of one time charges that significantly impacted our Q3 results. While these charges necessitated short term financial adjustments they are essential steps towards our long term objectives.

What is important to understand is this about aggregates division, which is our main revenue and net income generator continued to perform generating $2 3 million and operating income this.

This division along with the stock Farm operations Division is the strategic direction and future of the company, we will continue to optimize and seek to divest that foodservice operations Division moving forward.

A better way in our opinion to view our quarter operationally as reflected in our adjusted EBITDA, which reported a loss of 841000 for Q3 compared to a $1 4 million loss for the same period last year.

By executing on these corporate strategic initiatives, we believe our adjusted EBITDA performance demonstrates that operationally, we are on track and moving closer to achieving our financial targets. In fact, our 2023 year to date adjusted EBITDA stands at a positive $2 8 million profit a remarkable turnaround from the negative.

$4 $1 million loss in 2022.

This significant improvement highlights our commitment to strengthening our financial position through our expansion into different areas of the global food supply chain.

While some tough strategic decisions were made this past quarter that have in the short term impacted our financial results, we recognize their necessity to potentially provide long term benefits for the overall strength of the company and our valued stakeholders we remain dedicated.

Dedicated to executing our strategic vision and harnessing the opportunities the global food market offers we eagerly anticipate building upon this momentum as we move ahead now.

Now I'd like to turn the call over to our CFO, Jennifer Black to review the financial performance of the company for the third quarter of 2023 Jennifer.

Thanks, Mike and thank you everyone joining us here today.

Before I begin I would like to note that our financial results for the quarter ended September 32023 on Form 10-Q were filed with the FCC yesterday.

Heart pump along with the press release that same day.

With that I'd like to give an overview of the financials for the third quarter of 2023.

As Mike mentioned in his opening comments, our Q3 2023 company wide revenue increase significant.

Totally editorial content compared to $2 for Q3 a tunnel.

This revenue was generated by our three business problems.

Our division.

Terms interchangeably.

Our first business segment is that accurate.

And the $182 2 million breath trace.

<unk> hundred 79.

This was primarily due to sales revenue from Russia that addresses switched.

Which can put 27 transactions in Q3.

The average revenue per transaction was $6 6 million, but the average cost of goods sold transaction at $6 5 million.

These 27 transactions were completed across 16 different countries.

And that segment, which is the largest revenue generating division of the company to.

Generate approximately $2 3 million operating income for Q3.

Our second business segment is set up farm operation.

Q3, we officially completed the acquisition of Zambia final assets of roughly 500, sorry five.

5000 acres of farmland.

Pleased to report that as part of our farming operations with MBS, we achieved our first successful harvest a premium grade winter wheat, this past quarter generate carrying revenue exceeded $500000.

This farm currently has both corn and soybeans planted and we expect these crops the harvest throughout April and May at 504.

Our third business segment is Sudan services operations.

Q3, This division generated.

Total revenue of $2 2 million.

Is that a $1 9 million for company owned and operated locations and 245000 and royalties and fees collected for both.

We will make a grille, Kentucky motto franchise location.

Revenue from company operated locations decreased due to our continued optimization restructuring and closing of our underperforming and non profitable not filmmaker grow restaurant locations, while also executing our strategy to sell and convert corporate allocation.

Where to franchisees.

Franchise royalty and fee revenue increased by 44% compared to the same period in 2022.

The company continues to focus its restaurant business unit strategy on the franchising of touch another concept.

Because of our optimization and restructuring of our restaurant brands. This resulted in several one time charges, which we incurred in Q3 that totaled over $2 million in one time expenses.

Majority of these onetime extended birthrates I'm, taking impairment charges against goodwill and intangible assets of $1 6 billion.

The company incurred approximately $1 1 million in stock based expenses in Q3 of 2023. These expenses are primarily the result of adapting our common stock shares issued to act as consulting fees for the fit out aggregated and Sadat farm operations net income performance.

Let me turn to the overall financial picture of Saddam.

As of September 32023, we had a cash balance of $2 4 million and a working capital surplus of nine months.

The cash decrease in the third quarter of 2023 was due primarily to cash used in operations of $2 3 million.

Our total assets increased in the third quarter by $18 3 million to $90 seven as of September 30 of 2012.

Even with the impairment of the goodwill and intangible assets $1 6 million.

Direct results of optimizing our foodservice business segment.

The increase in total assets is primarily due to $13 7 million increase in accounts receivable Matt.

$6 4 million and prepaid forward on carbon offsets.

$11 7 million increase on property and equipment.

Of which $8 8 million was moved from the deposit on the day would be a farmland upon completion of the farm acquisition.

It is important to remember that we continue to grow our overall revenue increase our working capital surplus and build our balance sheet, all while making significant strategic changes in the company.

With that I'd like to turn the call back over to Mark a rubber.

Thanks for that financial over to Jennifer.

Now allow me to provide an update on our primary revenue generating division. So that aggregates. This month marks the one year anniversary of our agreement with Ikea and the new direction and strategic pivot the company has adopted <unk>.

Despite all the challenges of entering into a new global business. We are extremely pleased with the continued performance of this about Agri Foods Division.

We are also pleased to announce a significant milestone for <unk>. This past quarter. The purchase of our first carbon offset which we will receive carbon credits to use our trade in the future. This accomplishment not only aligns with our commitment to sustainability, but also marks a strategic expansion of our business into the Balkan market of carbon credit trading.

By actively participating in this environmentally conscious sector. So that agri foods continues to demonstrate its versatility and responsiveness to emerging opportunities.

Entering the carbon credit markets now will allow us to establish yourself in this relatively new and growing market.

Credits can be used in the future to lower our carbon footprint as we move towards being carbon neutral are bundled with our commodity trades, making the standalone trades carbon neutral in general trades and include carbon credits could increase our revenue or pricing by 10% or above the company is very active in finding ways in our business to enhance margins throughout our different.

Verticals, we believe this direction will set us apart and allow us to potentially profit through implementing zero carbon practices and products.

Additionally, the Agrifood is in advanced discussions about establishing a trading office in new subsidiary in Brazil. The Golan opening an office in Brazil would be to open up new agro commodity trading opportunities originally in South America aligning perfectly with our growing presence in the global aggregate multi trade market.

Furthermore, we are working on potential opportunities in Indonesia.

Revolving around the country's food security initiatives more on these potential opportunities as they advanced further in discussions.

With a solid balance sheet and a proven track record in trading we are actively exploring trade financing options to date. The majority of our aggregate model trades have been completed without trade financing in place, while we have been able to produce the reported results. We believe we can improve our overall revenues and margins by implementing various types of trade finance options.

This trade financing in our opinion will potentially enable the company to complete more trades within our current trade areas potentially open up more trade opportunities in new markets potentially improve operating margins and potentially allow the company to deploy current capital resources for other growth opportunities.

As a matter of fact I'd like to announce that just last week or so that will Tom subsidiary has obtained its first trade finance line it'll be implementing this facility for their current trades in Q4. This became available near our one year anniversary of milestone that should expand the scope and size of our finance options and we anticipate further lines has been established in the near term.

Turning to our so that farm operations Division in Zambia in October 2023, we initiated our second crop planting encompassing approximately 540 hectares of maize and around 314 hectares of soybeans. This strategic step reaffirms, our commitment to diversify and strengthen our footprint and are critical.

Global agricultural sector and expand to meet the growing needs of global food security.

Moreover, we are actively engaged in a collaborative pilot program with local farmers in Zambia, and which siddhartha is negotiating and bridging the financial and operational gap between small farm owners and large input providers, such as seeds and fertilizers and.

In addition to that is assisting these farmers with improved farming practices and eventually the sale of their products. The pilot program is expected to begin with up to 170 local small farmers and expand this model over time to additional small for farmers, which covers over 3 million hectares in Zambia today.

The acquisition of the farm has substantiated our presence in Zambia and as a result has allowed us to be in advanced discussions with the local government authorities to participate in their food security initiatives as we progress with the execution of this program. We anticipate that it will have a positive impact on the livelihoods of participating farmers enhance the company.

Regional presence and potentially create an additional revenue stream. This reflects our unwavering dedication to ESG and the enhancement of the local communities in which we operate.

Shifting our focus of that foodservice operations, including our legacy restaurant brands, we anticipate that operational adjustments will continue as we transition to a primarily a franchise only model focused around our pokey modal restaurant concept.

This transition while expected to create some additional financial charges as a strategic move that we believe will ultimately strengthen our position by continuing to reduce corporate overhead expenses, while improving the bottom line. Additionally.

Additionally, the streamline our so that food operations maximize efficiency, we are executing a two phase plan.

First closing or selling corporate locations to franchisees to reduce operational and corporate overhead and simultaneously seeking buyers for each brand. This strategy will enable us to concentrate on the downstream supply chain operations, including farms trades shipping and more aligning with our broader corporate objectives.

In summary, our strategic decisions over the past year and specifically this quarter.

And the latest drop foundation for potential future growth.

While we take pride in our accomplishments we believe the real excitement lies in our future and we look forward to sharing information on developments with our valued stakeholders as we reach key milestones.

With that let's open the call to questions.

Thank you, Mike and now please allow us a few moments when we open the lines for selected analysts for questions.

Please note for the Q&A portion of this call. We will have the dots chairman of the board, Kevin Mohan and <unk> Llc's, managing member and Sadat Group Board member Benjamin Patel, joining Michael Roper and Jennifer Black before we go.

I wanted to take questions from analysts I would like to turn the mic over to Michael Ruppert to address some questions, which we have received from our stakeholders.

Thanks, so much I appreciate it. So these are some questions that we've received as we talk to.

Investors as we've talked with banks as we talk to shareholders whatever it might be and so we thought it was important to address some of these as a whole to make sure that everyone. Here is the same.

Answers to these things so I have three questions that we're going to bring up. So the first question is on the last earnings call. The company communicated they were optimizing the restaurant segment can you provide more details on the status of this effort.

So yeah. So youre as previously communicated the company is fully engaged in the restructuring process surrounding each of our legacy restaurant concepts.

This restructuring consists of Refranchising company owned units and closing underperforming locations, while growing the poky modal concept through franchising. We are continuing this restructuring effort with a goal of reducing annualized restaurant operating expenses and overhead while increasing franchise royalty revenue.

So we had since we started this effort which was back in Q2, we successfully closed three underperforming locations and we've re franchised three poky modal locations.

We also have another pokey modal location that shouldn't be converting over to a franchise location. In next 30 days. So basically over the last 90 days to 120 days, we have closed or sold.

Six locations and one more thats pending here, so making a lot of progress in a very short period of time. These efforts actually leaves the company with a total of eight company owned and operated locations. So we're getting close to our goal of being a franchise or focused on the poky modal locations. We currently have 47.

Total restaurant locations open today, plus we have over 50 pokey modal franchise agreements that have been sold and not opened yet.

Those 50 sold locations seven of them are currently under construction. So as we continue to open locations, we sell more locations basically your buffers at around 50, a little over 50 locations today, but we continue to open locations through construction.

Et cetera in parallel to these efforts we are actively examining opportunities to potentially divest this segment in order to free up capital and focus our attention on the core supply chain business. So we are restructuring the restaurant side of the equation positioning ourselves to be able to potentially divest this into the future.

Sure.

So the next question question number two so I was looking over the past year with a strategic pivot focusing on the global food supply chain Theres been a lot of moves the company has made it a very rapid pace can you summarize what is <unk> overall vision.

Alright, so before it before I get too deep into that I want to just kind of give you. Some a few of the macroeconomic factors that are driving the market as a whole Brian. This is a global look at these things right. So let's first start with population growth as you have population growth. There is increased demand in food, obviously right as you have diminishing farmland they have decreased.

<unk> supply, so I have increasing demands and decreasing supplies and leads to global food security issues. Okay, we won't be providing accurate commodities into these distressed regions to help with the global food security issues that are out there and ultimately impact in ESG, which basically means we're going to be implementing sustainable practices and regions, where can actually make a.

A difference right. So that's kind of a global look at things, where it's at but at the end of the day. So that is a relatively new company, we have a wealth of experience, though and thats working to distinguish ourselves in an industry that is populated with some of the largest companies in the world.

So that is utilizing its agility and experience to build a diversified and sustainable global supply chain by leveraging opportunities in developing locations innovative products and practices to potentially realize immense growth opportunities again think of the overall food supply chain and how large that actually as we are building a global aggregate.

Food supply chain company that spans from trading farms shipping warehousing and eventually to processing and distribution.

Our growth strategy involves diversifying into additional verticals of the food supply chain in the world in a way that will complement our existing operations.

Which in turn has the potential to affect revenue and operating results. We believe the decisions and moves the company has made throughout the last year have all been concentrated on building a sustainable global food supply chain business that is well diversified and aligned with the growing demand for food security, we will continue to be opportunistic when strategic options.

Present themselves in support of our vision.

So the last question that I want to kind of bring up and cover.

The question is what does Sadat management see the company looking like in 12 to 18 months.

So overall, we believe the company has undergone a remarkable transformation we are elevating our annual revenue from roughly $10 million a year. When we were a restaurant focused business to over $555 million in revenue year to date through Q2 thousand through Q3 2023 alone. So in three quarters, we've done 505.

<unk> 5 million from doing $10 million annually. When we were focused on restaurants, a huge difference over the next 12 to 18 months, we envision a sustainable growth growth in our global presence by diversifying into additional segments of the supply chain. We plan to do this in a way that will complement our existing operations as well as the potential to affect the <unk>.

Top and bottom lines in a meaningful way we're involved in several negotiations to partner with additional farms drybulk shipping vessels, ESG and impact projects carbon credit trading and utilization food security contracts and others. We have a lot going on and a lot of opportunity. That's out. There. These are all part of our hosting plan to generate value through diverse.

Suffocation and forward looking practices.

So those are the three questions that we want to make sure. We covered so alexia I think it's time to open it up to the various analysts for some and investors for some questions. They may have.

Thanks, Mike We will take our first question from Remy Smith with Alliance Global partners.

Hi, Remi.

Hi, Good morning, this is reminiscent of Thorn for Aaron Grey.

So my first question is just in terms of your adjusted EBITDA I just want to clarify the one time charges you encountered in Q say they were not added back to your reported loss of 842000 and if that's the case I think you might have touched on that in the opening remarks can you just quantify what those onetime charges amounted four in the quarter.

I'm going to turn that over to Jennifer to address that absolutely says some of the onetime charges that are in the adjusted EBITDA and thank you refile and the impairment of goodwill and 828000 impairment of intangible assets of 811, and then some items that are not backed out of there, but our one time would be the one time.

When you are closing down a restaurant at the <unk>.

Right off of what's left of those restaurant and getting out of those leases and stuff like that those makeup and an additional amount that is not taken out of adjusted EBITDA.

That answer your question.

Yes. It does that's helpful. Thank you.

And then on my second question with regards to the gross margins for the Agri food business, we saw gross margins at one 6%.

This quarter, which remains under pressure.

So could you speak to I guess, the broader market and what youre seeing there its margins have fallen in the past two quarters. The agrifood brightness and then do you feel gross margin there I guess starting to stabilize kind of at this level one six.

And then potential expansion.

So I'll start a little bit and then I will turn it over to Benjamin to add to some of that as well.

Margins that are out there as we've talked about in the past there is a lot of things that influence margins right. It can be the type of trade to do it can be the geographies you're in the product whatever it might be right. There's a lot of different areas that are out there that can cause differences in margins as we get more sophisticated and I don't if thats, the right word or not but give more more I guess diversify.

And vertically integrated is probably a better way of viewing it.

That should improve some of our margins as we move forward and that's what we've been kind of planning and working against to do that so when you. When you have the drone farm. For example, you are able to provide your own input items, you'll have better margins on your thing on your your margins for your trades, just as an example, right and being a little oversimplistic there but.

Those are things that all drives the impact on the margins and so Benjamin did you have anything you wanted to kind of add to that.

Yeah.

Thank you Michael.

I think the keyword you touched upon the diversification is the most important part of this because.

As you can see the as to now we're involved mainly in trading and we began our involvement in farming, but this is all part of a <unk>.

Supply chain that we're building and being in the supply chain business is owning and controlling the various verticals be it the farming. The trading eventually shipping distribution storage et cetera, and all of those contribute both to diversify the operations geographically product wise.

Financially and all of them are also adding and expect it to increase the gross margin as we go along and evolve into these different verticals.

Perfect.

Any other questions Remy.

It's really helpful.

One last question on my end that kind of sideways in talking about the set up farm. So I know it was only a small revenue.

Contributor for the quarter for Q, I guess provide us some margin expectations, especially with the bigger harvest coming up now we should think about utilizing that Burger <unk>, yes. So when we think of the farm our planned margins and again Theres a bunch of things that can influence these things right, but our planned margins are much larger than what you have in the tray.

Vertical for sure right and those can range as high as up to 25% to 35%.

That's in there I do know.

We have the equity number do you have the actual number of how many metric.

Metric tons and all other.

<unk>.

Acres will look that up real quick but.

So we generated about $500000 on the winter wheat, the planting that we have now is much larger.

Than we had before and it's some corn and soy.

That's in there and.

<unk>.

Let's fighter.

Okay.

We planted 500 reactors amazed and Brian aren't working actors of soybeans compared to us.

The winter wheat that weekend. So those crops are much larger than what the winter wheat was.

And Hum.

We anticipate the revenue coming from those to be much larger as well.

Okay.

Yes.

You came off mute.

No.

I only wanted to add to that as I said before the way to look at this as again.

Each one of these is a standalone vertical but they all combined together to the supply chain. So the firm has its.

As the crop and we will have the revenue is coming out of that perhaps in the different clubs throughout the year, but again. This farm also gives us a lot of advantages as far as the holistic supply chain in the form of our ability to trade around these products throughout the year, our ability to create a local hub for other.

Farmers to use our firm is kind of an aggregate place where a lot of these small farmers can aggregate their products and we can trade and sell those as well and another important part here is all of the ESG and impact that is revolving around this farm.

And in an area.

In Zambia, Cushing region, where we acquired the farm.

There is a lot of adjacent firms that are owned by small farm owners that are.

Margin wise and have very limited ability to farm their land, we're creating programs in which we can help them receive all the inputs to be at the seeds fertilizers everything they need to farm and therefore enhancing the local population were involved in so apart from the.

The product itself, which Jennifer as Michael touched upon again this combines into the whole supply chain and eventually increasing.

This farm and other firms potentially will allow us to further.

Deepen our commitment both in the area and improve the margins for the overall consolidated comp.

Great.

Perfect. Thanks, Benjamin Remy any other questions.

No that's very helpful, especially with all the initiatives you guys have in place.

Perfect.

Alright, Thanks, Rami I appreciate it.

Thank you everyone and we will go ahead and take the next question from Tom <unk> with Zacks pump.

Good morning, guys can you hear me, yes, we can hear you just a quick follow up on the margin profile for the Agri foods subsidiary and that was just discussed.

That was a one 1% net margin.

Can you give a timeframe.

Next year, where we can hit those goals of 3% Im assuming youre still thinking this is a 3% net margin business that improves over time any color on the timeframe for that.

Yeah look we know that.

<unk>.

Do we have ways to improve the margins right I guess is the way to look at it we're implementing those ways do I have an exact date or quarter. When I think it's going to get higher I don't really have that because we.

There is too many factors or whatever that are involved in there right I just think the best way to think of it as we are implementing things to try to improve those margins as best as we can but as this is Kevin so as we get more vertically integrated Tom I think the way to look at this is that the margins overall are going to improve.

With with every piece of the vertical integration process that we add too and so I know that I don't know if it was on our last call I think it was Aaron grey the AGP unless it had asked US. He is looking at your numbers. It looked like you guys.

Your margins were in line with with your competitors without being vertically integrated you know can you speak to that and I think my answer was was pretty short and sweet and that was look theres going to be a lot of different opportunities and a lot of different ways that we're going to enhance margin and sometimes you get better opportunities than others right. So in the last time, we were less vertically integrated but we had a higher <unk>.

When we started the vertical integration process you saw a little drop in the margin, but we expect that to improve so I think thats the short answer.

Alright. Thanks.

And on the restaurant restructuring I forget if you mentioned this but will you be owning any corporate owned restaurants, because I think at one time, you said you might own one of each but what's the end game for that in terms of our cockpit, yes. Our strategy. There is really if in a perfect world. We wouldn't have any corporately owned and operated locations that we'd be focusing on the <unk>.

<unk> side of the equation right is because we kind of build that in position that in a way that is.

If an opportunity arises we might be able to divest it in a much better way than it would happen today it would be more attractive just in general, but there are a couple of locations.

We own on a military base, we don't we don't view those were not positive yet if we can actually convert those over to franchise locations and so in that case, we might have to.

Still on one or two locations that would be about it I mean, our goal is not to have the corporate locations.

And then on there.

On the store level profitability polka Moto after a certain time frame I'm, assuming it's a <unk>.

Reasonably decent margin business right at the store level. Yeah. So yes, you've got you had good margins at store level, just as a whole, but I think the better way to look at it is as we become a franchise or right and into those areas. So franchisees just kind of a general way that it works is they pay a royalty rate and they pay a royalty of our franchise agreement calls for 6% under net.

Sales.

And then northern gross sales right. So there are that's kind of what feeds and so if you have a location that's doing $700000 a year in sales, we'd be generating $40000 a year in royalties without a lot of corporate overhead attached to it. So it's usually a pretty good profitable type of business to be in and I'd like to add to that Tom This is Kevin.

So as you as you optimize as Mike likes to say the restaurant side of the business.

It allows for sort of a seamless integration into companies that primarily focus on the restaurant space and so I think that's a key element for investors to understand as we go through this optimization process.

Got it alright.

Alright, one more a quick financial one the $2 4 million in corporate SG&A.

What was in that I think it's a general comment in the Q or is that a normalized number or was there something in there.

Jennifer.

Yes, so very.

There is honestly a lot of different items in there.

When we are sorry, I'm looking at the number right now.

I want to make sure I'm looking at the right one.

When you look at the segments to $4 79.

It seemed a little high.

Okay. So a lot of those you have professional fees legal fees. There is a lot of.

<unk> expenses in there that relate to changing our corporate name change and doing that conversion into raising fines and Jane financing that our messages are onetime expenses that hit because of those transactions. We haven't you agree.

Okay.

Any comment on what a normalized number is for the corporate SG&A I think we will be able to mckellen little bit more now that we're entering into these new verticals are.

Hopefully our professional fees and legal fees will start to.

Normalized and we will be able to give you what it will be in the future, but right now since we are growing so much we have a lot of those expenses related to growth next year.

Would not be recurrent.

Yes that makes sense it did seem a little high okay. That's all I've got for today.

Okay, well, thanks, Tom Thanks.

Thanks, Remy Alexa.

Thank you everyone.

That concludes our Q&A portion of the call Mr. Rupp for any final comments.

Yes look just just in conclusion I would like to express.

The gratitude and thanks to our shareholders and stakeholders for their support.

As we go through this COVID-19 right I mean, there's a lot of things that are happening there is a lot of.

Change that's out there and I know it can be a little confusing sometimes it's likely to hear something new that's going to really continue to have a lot of new stuff right as we keep growing this business. So I just want to thank everybody for their patients in there at the end of the day I do want to thank our team I think we have an exceptional team.

You know what we've achieved so far is really kind of remarkable in our opinion my opinion and it's.

I think the thing just as a whole and so that's about as I guess right and Bruce excited about what we're building here and we're moving forward and a lot of great things are happening.

Wonderful thank you for that group.

Alice that concludes our call.

Awesome Thanks for that.