Q3 2024 Sadot Group Inc Earnings Call
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<unk> million net loss in Q3 2023. This represents an improvement of net income of roughly $6 3 million year over year.
Speaker Change: Our Q3 2000 2004 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.
Speaker Change: This achievement represents the highest net income over the first nine months of any year in our company history.
Speaker Change: These results demonstrate our ability to operate profitably within a nearly two trillion dollar global aggregate model these market and reinforces our strategic vision to expand operations into essential aggregate models supply chain verticals, including farming origination and trading and further potential for growth into additional areas such as shipping logistics.
Speaker Change: In distribution and.
Speaker Change: In addition, we want to widen the types of commodities, we trade, while also expanding into new geographical trade areas.
Speaker Change: With that I am 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.
Speaker Change: 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 and two franchise locations, including Super Foods.
Speaker Change: We are now a 100% franchise concept and had been able to reduce some overhead expenses accordingly.
Speaker Change: With that I'd like to turn the call over to our CFO, Jennifer Black to review the Companys financial performance for the third quarter of 2020 for Jennifer.
Jennifer Black: Thank you Mike before I begin please note that our financial results for the quarter ending September 32024, and Form 10-Q were filed with the SEC Yesterday November 12, 2024, along with the press release on that same day.
Jennifer Black: 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.
Jennifer Black: Our Sudan 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.
Jennifer Black: Our legacy restaurant operations, which as of September 30th are 100% franchise system and classified as held for sale.
Jennifer Black: At <unk> 8 million of revenue from royalties and company operations in Q3.
Jennifer Black: Q3, 2024, net income improved significantly to $1 2 million compared to a $5 2 million net loss in Q3 of 2023.
Jennifer Black: For the third quarter EBITDA rose to a positive $2 9 million compared to a negative $4 4 million in the prior year period.
Jennifer Black: Basic earnings per share improved to 25 per share compared to a negative <unk> 39 per share in the prior year period.
And diluted earnings per share improved to 23, 23 cents per share compared to a negative $1.39 per share in the prior year period.
Jennifer Black: SG&A expenses were $4 2 million this quarter, an increase of about <unk>.
Jennifer Black: 9 million compared to last year, mainly due to initial investment in the opening and expansion of our should I aggregated trading officers.
Jennifer Black: Sorry, I key element of our growth strategy. In addition, there are certain trade related expenses that were reclassified from cost of goods sold to SG&A, starting in Q3 to correct correctly reflect the operations.
Jennifer Black: 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 aggregate commodity trading business to drive the revenue growth and acquire strategic assets.
Jennifer Black: 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 for initially measured at fair value with any changes in the fair value recorded as a gain or loss from fair value Remeasurement.
Jennifer Black: The mark to market gain on these derivative transactions contributed approximately $5 5 million of income for this quarter.
Jennifer Black: 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 nine month performance in our company's history. We believe positive changes are occurring across our business, which will help us to live.
We're on our goals of enhanced revenue streams are larger working capital surplus and profitability with that I'd like to turn the call back over to Mike.
Jennifer Black: Jennifer.
Speaker Change: So everyone, where do we go from here, how do we drive growth.
Speaker Change: So first we want to continue to diversify into various verticals within the global food supply chain. This can be farms logistics processing are wholesaling.
Speaker Change: Second we plan on expanding our farm operations into new geographies and leverage the farm assets into our trading operations.
Speaker Change: Third we want to expand into new geographies, such as our recently announced expansion of the Brazil, and Canada, and lastly, we want to expand into new commodities themselves.
Speaker Change: <unk> started trading in Sesame seeds and lentils for example, so we want to expand into new commodities bottom lines and we believe we've only scratched the surface on growth opportunities within the $1 nine trillion dollar industry.
Speaker Change: Finally, I want to express my sincere gratitude to all our investors stakeholders and team members for your time Trust and continued support of Sadat group.
Speaker Change: 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.
Speaker Change: With that please give us a few moments, while we open up the lines for questions.
Speaker Change: Hi.
Speaker Change: Before we get into questions from our selected analysts Michael Roper would like to address some questions, which we receive from our stakeholders Michael.
Thanks, <unk>. So just before we get into questions. A couple of things I wanted to talk through here real quick just everybody knows I do have Kevin Mohammed Benjamin Hotel on the phone as well.
Given this everyone's aware that theyre here in the room with us.
Speaker Change: With Jennifer.
Speaker Change: Before we get into questions and these are questions that come in from different shareholders through different mechanisms either right into the IR site or maybe read them on stock Twits or something we do we do something out there, yes, we do see some of that guys hazard postpaid so.
Speaker Change: In any case, we get some of the questions to try to summarize them up to make sure that we're addressing everybody's concerns before I get into the questions, though right I do want to make a special announcement here and it concerns revenue alright. So before we start with the questions I want to make a special announcement. This is just coming in this morning. So it's just been final.
Speaker Change: Lines, but we are happy to announce that our October revenue was extremely strong coming in at 87 9 million in revenue for the month. Okay. Again, it was $87 9 million for the month of October is a great start to the quarter and we wanted to let everyone know as soon as we could so that was especially once we get it just right off the presses here right that came in.
This morning, so that's.
Speaker Change: That's something new that we shared with you. So let me jump into some of the questions.
Speaker Change: I think the first one we are going to have.
Speaker Change: Going through the first one.
Speaker Change: Covenants okay.
Speaker Change: Lynn.
Speaker Change: Hey, guys. Thank you. So we had a question regarding Canada and somebody had asked can you provide an update on progress being made in Canada. So I want to share. Some early achievements from our new trading division in Canada. Since its recent launch the division has not only met but exceeded our initial expectations. So this is marketing of <unk>.
Speaker Change: It'll forward.
Speaker Change: A pivotal step forward in our growth strategy. So I want to share a couple of highlights with you guys.
Speaker Change: So to date, the Canada team has facilitated sales of 11 specialty crop commodities. These include items such as lentils impulses.
Speaker Change: <unk> initiated sales with 12, new customer accounts moving product to five different countries and most importantly, Canada has been involved in roughly $20 million of transactions across Canada and in collaboration with other company divisions. So we're very optimistic about the continued.
Speaker Change: And growing success of our Canada trading division as it strengthens our foothold and contributes to our long term vision.
Speaker Change: Okay. So that was some questions and some updates about Canada, then I think Jennifer now has.
Jennifer Black: Some questions for him to review and some information regarding the Indonesian Parliament. Yes. The question came in is can you provide some details on the deposit for the new farmland and the company placed a deposit as part of the negotiations for an acquisition of farmland in Indonesia, and we are in detailed negotiations, but in general we're discussing Russell.
9500 acres, which has vanilla plans and coconut trees, but can also produce other crops such as corn. If completed this transaction would provide sadat with new niche commodities to trade, while potentially leading to improved margins. In addition, the new farm would allow the company to control its commodities supplied in important geographies while being.
Jennifer Black: Able to trade around the projected yields throughout the year.
Jennifer Black: A new farm land would represent a strong addition to our portfolio offering about the immediate operational value and potential long term growth.
Speaker Change: Great. Thanks, Jennifer.
Speaker Change: And hopefully we'll be able to make some announcements soon about that being finalized but again, we're in the chemical deposit down and we are in the final stages of negotiations there.
Speaker Change: Another question that we had which I know a lot of people.
Speaker Change: Talk about a lot is what's going on with the sale of the restaurants, ratable pokey Moto and muscle maker.
Speaker Change: So let me just kind of walk you through that so regarding the whole potential sale of pokey Modo in 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 of enhanced efficiency, we actually prioritized.
Speaker Change: The closure of 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 corporately.
Speaker Change: Any corporate restaurants have either muscle maker or polka Moto.
Speaker Change: And as of September 30, we completed that rate. The company is now a 100% franchise model across all brands, Okay and that was key because that helped us reduce some of our overall cost 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.
Speaker Change: This adjustment not only simplifies the sales process was also allowed us to reduce operating expenses overall 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.
Speaker Change: All of their due diligence prior to submitting a formal letter.
Speaker Change: Of intent or in LOI. This approach allows us to closely.
Speaker Change: Could be closed relatively quickly once it otherwise in place preventing situations, where we're kind of locked into exclusive negotiations prematurely, but as you go into an LOI you have a 30 or 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.
Ours remain open to other interested groups as well until a deal a deal with near certainty.
Speaker Change: Allowing for greater flexibility and reducing the risk of medium to restart the process. If a buyer doesn't close right. We don't want to have a start and stop the process. So that's a new.
Speaker Change: The thing that we've implemented as well, but again, we're moving forward with multiple groups.
Speaker Change: And they are in various stages of due diligence.
Speaker Change: With that.
I think Alexa it's time to go to the different analysts that are out there with their questions.
Speaker Change: Let's see thanks, Michael.
I'd like to open the call to Aaron Grey with AGP with questions. Thank you.
Speaker Change: Hi, Aaron.
Speaker Change: Hey, How's it going thanks for your questions.
Speaker Change: And thanks for the the October numbers, so revenue ticked up nicely in the Q. It looks like it continued in October with 88 million you just announced.
Speaker Change: Curious if you could maybe provide some color.
Speaker Change: On the gross margin related it looks like it was.
Speaker Change: About 1% and one 1%. So are you getting better late letter site margin improvement what are some things that we should be watching for Arthur either geographically or types of sales to start to see more margin improvement on the sales momentum that you're getting.
Speaker Change: Sure.
Speaker Change: This windows so the gross margins that we're seeing out there Aaron are really in line.
Speaker Change: With other companies similar to us in the bulk commodity trading business right. So you have the bulk portion, which we're kind of experiencing what we expect in that area right now as we bring on more and more trades with Canada, and Brazil, and other pieces of the business right. There are ways to improve the margins through that so I'll just go use Canada as an example, when.
Speaker Change: We trade and lentils impulses, while Canada has smaller sized trades, okay, theyre not the big giant bulk cargo ships, but there are way more frequent and they turn much quicker. Okay. Those have much higher margins normally with those trades because so as we bring Canada on and they continue to improve or increase their number.
Speaker Change: There are trades every every month every quarter that should help you in driving some of the margin numbers. So I think one of the things to look for is how much Canada gets involved overall.
Speaker Change: Overall, okay with this whole process and so that's what I'd be looking for from a from a margin perspective.
Speaker Change: Okay. That's helpful. There second question from me.
Speaker Change: Just on the Indonesia Farm can you just maybe walk us through again or provide a bit more detail with some of the rational rationale there or is it different crops than the Zambia farm, where you're looking to diversify geographically just some more color on the rationale with the farmer expect thank you.
Speaker Change: 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 what we say or whatever on some things.
Speaker Change: As we finalize that but yes, it's different crops.
Speaker Change: That are more specialized.
Speaker Change: The area that we're looking at.
Speaker Change: You know it has more niche products okay in it.
Speaker Change: Then your typical corn and soy and all that stuff. However, they can still do corn and soy those things as well so it'll be a combination of those different products that are there, but yes. So that's a little bit different in Zambia. It also allows us to have a different geography geographical area right different parts of the world difference.
Meats 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 is just be our second farm that we bring up online I really talk about past some of the advantages of having some of the pharma to trade around some of the commodities do.
Speaker Change: Your own supply of.
Speaker Change: Of your products that are there, but just kind of control your own destiny to a certain degree.
Speaker Change: With some of those products that are there. So there's a lot of advantages to the par. 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.
Speaker Change: Okay, Great I appreciate that last quick one from me.
Speaker Change: With regard to SG&A increase a bit in the Q. So what were some of the drivers there where they sell more things onetime in nature or is that the base rate, we should expect going forward.
Speaker Change: And I'll take that one.
Speaker Change: It's funny, it's all related right.
Speaker Change: We continue to expand like in our different geographical areas. We've got to build out. These teams. So as a result, theres going to be an increase in SG&A for items like salary benefit rent. Yeah. These cost will always perceived the growth as we're building this business and we expect SG&A to increase as the company grows.
Speaker Change: For those exact reasons.
Speaker Change: But there will be some one time expenses Jennifer right.
Speaker Change: I mean, theres always one time 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 you know that.
That growth always comes before the revenue does.
Speaker Change: Okay, great. Thanks for the call I'll go back into the queue.
Speaker Change: Awesome. Thanks, Eric Thanks, Darin I'd like to open the call to Tom Kerr with Zacks your questions.
Tom Kerr: Good morning, guys can you hear me.
Tom Kerr: Just a quick follow up on the 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 for what was the move.
It was it kind of all related.
Speaker Change: There are some items that we did yeah theres some salaries that we reclassified for certain personnel that we ran cost Brad from cost of goods sold to SG&A, because they're truly SG&A people know, it's been some movement and changes in the business and we wanted to make sure that our financials correctly reflected the way our operations were being driven.
Speaker Change: 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 you know was it different commodities or pricing or just more color on that yes.
Speaker Change: Yeah, Okay. So a couple of things there right I want to make a quick distinguishing.
Speaker Change: Comment between Brazil, and Canada, right or different models, basically Canada is coming across as more trading.
Speaker Change: And youre seeing some of the results of them being integrated with the rest of the business right as they help facilitate trades across the world for different things right to be their own products, which is helping other areas as you bring more traders on and were more divisions. Our groups like that youre going to continue to grow revenue through that as well right. So Canada is it's kind of into the trading portion of it Brazil.
Speaker Change: A little bit different Brazil does have some trading okay, but reality is Brazil is building different type of relationships and they're working on different.
Speaker Change: Call it infrastructure throughout Brazil in and agreements with different companies there to be a.
A company that actually.
Speaker Change: Can move products up and down from the farms and everything else out to the shipping lanes and things right and so there's there's some infrastructure areas inside Brazil, where there's opportunities so they're focusing on more of those type of areas and they are pure trades, so a little bit of difference between Brazil, and Canada. When you take a look at the revenue numbers that we just reported a lot of that was.
Speaker Change: Just increasing our overall normal trades as our team continues to grow and our team continues to build but Canada did play a certain portion of that there are probably involved in I'm going to run the number here a little bit call it about $20 million worth of trades.
Speaker Change: Further for the quarter.
Speaker Change: They were involved in right now they didn't all industrially go through Canada, but they were involved with the trade helping facilitate it in and go from there. So like I said as you get more and more traders for lack of better definition of the role involved in the business the more and more revenue you should be able to generate.
Alright sounds good.
Speaker Change: On a different note can you provide any more color on the yorkville debt retirement transaction or was that just the cash pay up because I thought there were shares involved.
Speaker Change: Oh, yes, I'll take that yes.
Speaker Change: Hey, Tom It's Kevin Luo Han I'll take that one.
Speaker Change: So there were if you were talking about was there any additional shares kind of asked two piece could you repeat that question for me.
Speaker Change: Well I know there's share issuance in the past related to the European deal.
Speaker Change: Yes, the debt go away or do they sell or do they still are.
Speaker Change: All of the detail sorry.
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.
Speaker Change: The last piece of that that we actually paid off with cash on hand.
Speaker Change: And so we have.
Speaker Change: 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.
Speaker Change: But the last conversation that I had with York there was that they are flat. So they do not own any stock we did not open any money and so we're in good shape.
Speaker Change: Okay. Thanks last one for me it looks like it's the middle of November the restaurant deal closing would likely be a 2025 of that is that fair to say well here's 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.
Speaker Change: 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're talking to about wanting to close before the end of the year. Okay. So we gave him some decent incentives to do that and so they are pushing hard.
Speaker Change: To see if they can complete it by the end of the year and I think another important though to as Mike mentioned earlier in the call. The process that were using Tom too to get people all the way to the end before we get to LOI I think it is going to help the same close quickly when the LOI are inside so I think that's really important and I think if you look back at this company's history youre going to find that.
Speaker Change: Don't ever announced Lois.
Speaker Change: We're not a company that likes to do that and said we want to make sure that we have concrete deals in place before we make those announcements I think it's important for investors to understand that when we do make the announcement that is going to be the the actual sale and the definitive docs being done.
Speaker Change: Okay.
Speaker Change: Great that makes sense, that's all I have for now thank you.
Speaker Change: Great. Thanks, Tom.
Speaker Change: That concludes our Q&A portion of the call Mr. Robert any final comments.
Yes, I just want to thank everybody again.
Ford for believing in the company and soon we're going to understanding our strategy and we do consider ourselves a growth company and so.
Speaker Change: With that there's always a lot of announcements and change and things that happen throughout the process. So I appreciate everybody.
Speaker Change: Their questions I appreciate the patience IP I appreciate everybody, believing in the company.
Speaker Change: Okay.