Sadot Group Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 21, 2024

There are 8 speakers on the call.

Operator

Welcome to

Speaker 1

the Sadat Group, Inc. Q4 Fiscal Year 2023 Earnings Conference Call. Today's call is being recorded and all participants will be in listen only mode. After management's prepared remarks, we will take questions. At this time, for opening remarks and introductions, I would like to turn the call over to Frank Pobobila, Sadat Group Inc.

Speaker 1

Relations contact.

Speaker 2

Thank you, operator, and welcome, everyone, to Sadat Group Inc. Q4 fiscal earnings 2023 conference 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 1995.

Speaker 2

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 in Sadat Group, Inc. Most recently filed Form 10 ks and elsewhere in documents that Sadat Group, Inc.

Speaker 2

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 1,000 and percentages have been rounded to the closest percent. Unless otherwise noted, all numbers disclosed in this report are the amounts attributable to Sadat Group Inc.

Speaker 2

And exclude the portion related to non controlling interests. On this call, we will refer to Sadat Group Inc. As Sadat Group or the company. With me on the call today are Sadat Group's Chief Executive Officer, Michael Roper Chief Financial Officer, Jennifer Black and Chief Investment Officer and Chairman of the Board of Directors, Kevin Mohan. Michael and Jennifer will be presenting prepared remarks related to Sadat Group's financials filed on March 20, 2024 and those documents may be found on the company's website, Newswire feeds and on the SEC's website linked from the Sadat Group's website at www.sadatgroup8.com under the Investors tab.

Speaker 2

At this point, I'd like to turn the call over to Sadat Group's CEO, Michael Roper. Michael?

Speaker 3

Thanks, Frank. Good morning, everyone, and thank you for joining us today as we present the results of our Q4 and full year earnings ending December 31, 2023. Before diving into Q4 and the 2023 full year results and highlights, I'd like to acknowledge that it has been a truly transformative 1st 16 months since the Dot Group refocused and retooled the organization, become an emerging player in the global food supply chain. Beginning with our initial focus on agri commodity origination and trading, we have embarked on a journey of diversification and growth. Allow me to give you a few headlines before we dive into the specifics.

Speaker 3

First, our 2023 total company revenue rose to $727,000,000 from $162,000,000 in 2022. 2nd, our 2023 full year adjusted EBITDA was slightly positive compared to a $2,000,000 loss year over year for 2022. 3rd, our total assets increased from $27,000,000 in 2022 to $178,000,000 at the end of 2023. And lastly, we are now fully focusing the Company on the agri commodities business as we've made the decision to explore alternatives, including potentially divesting the Company of its restaurant operations. So let's jump into the details.

Speaker 3

I'm pleased to announce that Sadat Group Inc. Achieved top line revenue of $727,000,000 for the full year of 2023. This marks a significant increase over the 100 $62,000,000 generated in 2022, noting that we had only commenced our Sadat AgriFoods subsidiary operations in November of 2022. To be more precise, the Sadat AgriFoods division accounted for 98.7% of our total company revenue for 2023. This is an extremely significant point given where we were a year ago, where we are today and where we're heading.

Speaker 3

So where are we heading? Our vision is to become a global food supply organization focused on origination and trading of agri commodities along with investments that have potential to help improve our trading margins. Aligning to this goal, I can announce that we have formally engaged listed and associates in New York, specialists in the sale of restaurant concepts to facilitate in exploring the divestment of our remaining restaurant and meal prep assets, which have had a material impact on earnings over the past year. With our remaining restaurants still weighing on our P and L for 2023, I am pleased to report that we recorded full year positive adjusted EBITDA of $89,000 for 2023 compared to a $2,000,000 adjusted EBITDA loss for 2022, pretty significant change. The adjustments to EBITDA were a series of non cash items related to the restructuring of our legacy restaurant brands, our corporate name change to the Sadat Group Inc.

Speaker 3

And overall financing strategies among other items. While these charges did impact our bottom line, they were one time charges essential for helping to fortify our long term financial strength and growth opportunities for the company. We anticipate further non cash items to affect our bottom line in the near with respect to our agricultural operations. Focusing on Sadat AgriFoods, the business unit serves as our economic engine, characterized by high dollar volume with narrow margins, which is typical for the agri commodity trading industry. In 2023, Sadat Agri Foods generated $718,000,000 in revenue $9,300,000 in net income for the company.

Speaker 3

You may have noticed that we've transitioned from disclosing monthly revenue numbers to a quarterly reporting cadence to better align revenues with the company's margins and profitability to present a more precise financial overview. It is also important to note that we trade exclusively in agri foods for human and animal consumption, including soy, corn, wheat, oils and oilseeds. The trades typically range in physical size from 130,000 to over 78,000 metric tons or $35,000 to $45,000,000 per trade and we averaged over 20 trades per quarter over the past year. In order to expand our global reach, we've recently increased our trading offices adding Sadat Latam in Miami, Florida and Sadat, Brazil and Sao Paulo, sorry if I mispronounced that Sao Paulo, to our existing locations in Singapore and Dubai. Moreover, we remain open to exploring additional expansion opportunities in the future.

Speaker 3

While expanding our global presence is essential, our growth hinges on access to trade financing capital. The growth of our top line revenues and bottom line margins is directly linked to increasing our access to trade financing, particularly to execute larger trades. With a year of financial reporting behind us, we are now in a better position to potentially access new and larger trade financing facilities. I cannot emphasize how important these trade financing facilities are to our growth. Access to such financing would provide us with the flexibility to pursue more and larger agri commodity trading opportunities, thereby increasing our top line revenue and potentially enhancing our margins and net income.

Speaker 3

In August 2023, the company expanded its footprint in the global food supply chain with the acquisition of approximately 5,000 acres of farmland in the Makushi region of Zambia through our majority owned subsidiary. This strategic move enables us to produce in demand grains and tree crops such as soybean, wheat, corn, mango and avocado, complementing our origination and trading operations to bolster our supply chain resilience and efficiency. Sadat's farm operations not only stand alone as a profit center, but it also serves as an integral part of the total supply chain operation. The farm crop allows the company to trade year round and the underlying commodity as a collateral in case the market turns negative to help insulate the market fluctuations. I'm happy to report that we have recently signed an agreement with the Republic of Zambia's Food Reserve Agency, reaffirming the company's dedication to combating global food security challenges.

Speaker 3

This agreement aims to support the Zambian government's efforts to safeguard national food security and bolster the supply and production of maize, a key staple in the region amidst growing demand. The agreement will facilitate the cultivation of high quality maize. In support of this agreement, we have started our fall harvest of both maize and soybeans and has, as of this recording, delivered over 96 metric tons of maize from 24 hectares with a full maize harvest of the remaining 5 13 planted hectares anticipated to take approximately 7 to 8 weeks to complete. The harvest for more than 348 hectares of soybeans will begin approximately 3 weeks from now and be completed in the mid to late May timeframe. In addition to the Sadat AgriFoods current ongoing harvest, the company has also initiated a pilot program to help small farm owners in the region receive essential farm inputs such as seeds, fertilizers, etcetera.

Speaker 3

The need they need excuse me, that they need in order to plant and farm their land. This contract farming program is in its pilot stage engaging approximately 140 local farmers covering over 1400 hectares. It's estimated that there are close to 3,000,000 hectares, which actually converts to about 7,000,000 acres of land in Zambia alone belonging to small owners that are all in need of help to acquire the inputs needed to farm. The program allows for Sadat AgriFoods to secure the inputs from local suppliers on credit terms, allowing the small farmers to pay for them at a later date with the farm product at time of harvest. The company in turn collects a minimal management fee and increases its presence in the region.

Speaker 3

This initiative marks a significant contribution to local communities and the positive impact we can create as a large international company in rural Africa. Another new and exciting business line we've engaged in is carbon credits. Earlier this year, the company acquired a forward contract for carbon credits from an ongoing mangrove planting project in Indonesia. This move is aligned with Sadat Group's sustainability values and diversifies our product portfolio to open new markets and new opportunities. Carbon credits have become an inseparable part of agriculture and industry across the world, playing a major part in regulating and managing global environmental pollution.

Speaker 3

This asset is also part of the company's vision to potentially offer carbon neutral commodity trades in the future. Overall for 2023, SADAT Group reported a net loss of approximately $7,800,000 in contrast to the net loss of approximately $8,000,000 in the previous year ending December 31, 2022. As previously mentioned, there were a number of one time charges that significantly impacted our results. While these charges necessitated short term financial adjustments, they are essential steps towards our long term objectives. What is important to understand is that our economic engine Sadat AgriFoods continue to perform, generating 9 point $3,000,000 in operating income in 2023, further validating the company's strategic direction to focus on this business moving forward.

Speaker 3

While some tough strategic decisions were made this year that have impacted our financial results, we recognize their necessity in order to potentially impact the long term benefits with the overall strength of the company and our valued stakeholders. We remain dedicated to executing our strategic vision and harnessing the opportunities the global food supply chain presents and we eagerly anticipate building upon this momentum as we move forward. I'd like to turn the call over to our CFO, Jennifer Black, to review the financial performance of the company for the Q4 and full year results for 2023. Jennifer?

Operator

Thank you, Mike. Before I begin, I'd like to note that our financial results for the year ended December 31, 2023 on Form 10 ks were filed with the SEC yesterday, March 20, along with a press release that same day. With that, I'd like to give an overview of the financials for the Q4 of 2023. Our Q4 2023 company wide revenues increased significantly, totaling $171,000,000 compared to $153,000,000 for Q4 of 2022. The $18,000,000 revenue increase was primarily due to sales revenue from our Savat AgriFoods division, which was only partially operational in Q4 of 2022.

Operator

Sadat AgriFoods completed 24 transactions in Q4, with the average revenue per transaction of $7,100,000 with an average cost of goods sold of that transactions of $7,000,000 dollars These 24 transactions were completed across 16 different countries. The company incurred approximately 525,000 in stock based compensation expense in Q4 2023. These expenses are primarily the result of stock based performance expenses as part of our consulting management agreement with our consultant, Agia. Now let me turn to the overall financial picture for the Savant Group for the full year ending December 31, 2023. For the year ending December 31, 2023, our company wide revenues significantly increased and totaled $727,000,000 compared to $162,000,000 for the prior year ended December 31, 2022.

Operator

The $565,000,000 increase is primarily attributed to the commodity sales revenue generated by Sedat AgriFoods. Our adjusted EBITDA was a positive $89,000 in 2023 as compared to a loss of $2,000,000 in 2022. I would now like to further discuss the financials for our 2 operating divisions of Sadat Group, Inc. As Mike mentioned earlier, the company's main revenue and margin driver is Sadat AgriFoods, consisting of our origination and trading operations as well as our farming operations in Zambia. Sadat AgriFoods generated commodity sales revenue of $718,000,000 for the year ended December 31, 2022, as compared to $151,000,000 in 2022.

Operator

The vast majority of the increase was due to its origination in trading operations with the farming operations contributing to a negligible amount. Our SEDOT AgriFoods 2023 net income was $9,300,000 Moving on to the company's legacy restaurant operations consisting of PokeMoto, MuscleMaker Grill and Superfood Foods. The division generated revenue of $9,200,000 for the year ended December 31, 2023, compared to $11,100,000 for the December 31, 2022. This decline in revenue generated was mainly due to the closing and refranchising of our corporately owned restaurant locations. The restaurant division reported a loss of $2,800,000 in 2023 compared to a loss of $3,300,000 in 20 22.

Operator

As of December 31, 2023, we had a cash balance of $1,400,000 compared to a cash balance of $9,900,000 as of December 31, 2022. This decline is a deliberate outcome of our strategic shift away from the restaurant business towards the agri commodity trading sector. Historically, as a restaurant company, there was a limited use for our cash reserves. However, with our new focus, the deployment of cash is intrinsic to our business model for generating revenue and margins. Instead of maintaining large cash balance, our priority now is to actively utilize our cash to drive growth and profitability.

Operator

This strategic approach aligns with our core objective of maximizing returns and creating value for our stakeholders. It is notable that our total assets increased from $27,000,000 in 2022 to $178,000,000 by the close of 2023. This substantial increase is attributed to strategic initiatives such as the acquisition of the farm by our majority owned subsidiary, accounts receivable related to trades and forward sales contracts for future delivery. These developments have significantly fortified our balance sheet, reflecting the strategic investment we've made to bolster our operations. Cash reserves decreased by $8,300,000 it is essential to underscore that our overall asset base rose by 151,000,000 dollars This shift underscores our commitment to deploying capital strategically to enhance our financial position and drive sustainable growth.

Operator

It's important to remember that we continue to grow our overall revenue, increasing 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 Michael Roper.

Speaker 3

Thanks, Jennifer, and thanks for that financial overview. In closing, I want to express my gratitude to all our investors and stakeholders for joining us today and for your continued support. Our 2023 full year earnings call has shed light on our remarkable journey over the past year, showcasing our emergence as a key player in the global food supply chain. We've witnessed positive growth, particularly in our Sadat AgriFoods division, despite facing challenges along the way. Over the past 6 months, we've implemented our announced strategy to convert all of our corporately owned and operated locations into franchised owned locations.

Speaker 3

We believe this strategy will position the division once complete to potentially divest the restaurants. We believe this approach underscores our commitment to focus on our core operations and driving long term value for our shareholders. We are currently evaluating additional opportunities in the global farming, trading, processing, shipping and distribution to increase our market share and operational footprint. I'm proud of the resilience and dedication demonstrated by our team, whose hard work has propelled us towards amidst a dynamic landscape. As we move forward, we remain steadfast in our strategic vision, exploring new opportunities and partnerships to further strengthen our position in the market.

Speaker 3

Thank you once again for your trust in Sadat Group Inc. We look forward to the exciting journey ahead and delivering continued success for our investors, stakeholders and the communities we serve. With that, please give us a few seconds to open the call for questions.

Speaker 1

Before we get to questions from our selected analysts, Michael Roper and Jennifer Black, we'd like to address some questions which we've received from our stakeholders. Also on the call with us is one of Sadat Group's Board members, Benjamin Patel. Mike, Jennifer, the floor is yours.

Speaker 3

Thanks, Alexa. Yes, we got a few questions that came in previously that we wanted to go over and address before we turn it over to the live questions as well with the analysts. And so I'm going to read the questions and then we'll do the answers and then we'll transition after that. So the first question that we've received is how is adjusted EBITDA calculated and why should we use this number? So I'm going to let Jennifer answer that one.

Operator

Okay, Mike. So we define adjusted EBITDA and we start with net loss and then we adjust it for a few things like depreciation, amortization, net interest income and expense, income taxes, impairment expenses, stock based consulting expenses, other incomes, change in fair value of stock based comp, gains on extinguishment, warrant modification expense and gain on We believe that adjusted EBITDA, which is a non GAAP measure, is a useful metric for investors to understand and evaluate our operating results and ongoing profitability because they permit investors to evaluate our recurring profitability from our ongoing operations.

Speaker 3

Awesome. Thanks, Jennifer. Let me find the next question here. Here it is. How does the additional trading subsidiaries compete with or affect each other?

Speaker 3

Okay. So we're talking about Sadat Latam, Brazil, the MENA region, those type of things. How do they compete with each other or affect each other? So basically, really the subsidiaries support each other. And our strategy is to establish these different trading offices and the important production and distribution geographies across the world.

Speaker 3

That will work together to facilitate supply and demand as well as the specific needs of the different locations. So for example, our most recent subsidiary established in Brazil, those actually source commodities for our Dubai office, which in turn may supply the Asia area. They're all kind of interacting and they support each other without necessarily being in competition. By expanding our global footprint, this plays a vital role in our overall diversification that allows us to actually mitigate risks and enjoy multiple options rather than just relying on a limited source or client basis. Again, we're spread out across the world.

Speaker 3

There's different opportunities that pop up all the time. And don't forget that each one of our individual subsidiaries not only can trade internationally, but also trade domestically as well, right. So LATAM that's in the central area, they can trade throughout Latin America, Central America, South America, North America, they can trade and move product all over the world as well, just as an example. So there is no real competing against those different areas. Let's see, the next question, why has your cash on hand decreased year over year?

Speaker 3

And again, I'll throw that back towards Jennifer.

Operator

All right. Thanks, Mike. So this one, we've made multiple investments since we started our strategic pivot about 16 months ago. And you can see this by looking at the increase in the balance sheet. We're investing in business to expand our operations and our business verticals.

Operator

For example, we purchased the farm in Zambia for cash. We also deployed cash into other various trades with cycles that are throughout the trade process. Many of our trades require capital components and contributions from the company to execute those. And just like Mike was just talking about, we also expanded our trading areas to include Brazil and LatAm. Lastly, we also changed the company name, Symbol and we launched a new strategic direction.

Operator

All of these areas are where capital has been deployed. And the decline in cash on hand is a deliberate outcome of our strategy shift away from the restaurant business towards the Sidoti Agri Food division. And the deploy of cash is intrinsic to the company's business model for generating revenue and margins.

Speaker 3

Okay. Thanks, Jennifer. 4th question that we see here is, how can the company increase its overall margins? And then more specifically on the actual commodity trades being executed today. So how do we increase margins basically, right, at the end of the day?

Speaker 3

So look, I think there's a few things to talk about here. So overall, I think it's important to remember that we are building a business, right? And we are in expansion mode. So it's not an established, whatever, I don't want to say senior business, whatever the right word is, right? It's new, right?

Speaker 3

And we're building this thing. We're building a very large corporation that's out there. And this takes some upfront expenditures. It may not have an immediate impact on revenues and profits. So for example, okay, would be the farm in Zambia.

Speaker 3

The farm is a seasonal component of its operations, meaning there's an upfront expense that the products that you put in for like planting and all that where it produces income at a later date. Again, we're seeing that in Zambia now as we just started a major harvest of maize and soybeans that will be completed over the next few months. The contract farmers also begin their harvest later, which again brings in revenue throughout the later months. We did incur expenses, not only in getting the farm integrated into the overall company, but then also incurred expenses for planting, for example. So again, pet pay money upfront, some of these things have a little bit of delay to come in.

Speaker 3

Now we're in those cycles as we've started our harvest for the farm. Another example would be the Brazil office. As we build up the team and infrastructure, you got to spend that money upfront and then we'll start to execute trades. We're getting into that mode where we should start seeing some trades now starting to come through the Brazil office as well. For trade specifically, this can fluctuate depending on the season, the type of commodity, market conditions, shipping costs, etcetera.

Speaker 3

We're in the process of looking to add different types of commodities to our portfolio, such as vanilla, lentils and peas, just again, a little bit of different diversification going in there. In addition, we want to continue to open new trade areas beyond our current MENA, LATAM and Brazil areas. This will all allow us to shift between regions as market conditions fluctuate. So again, we're going to be able to be selling stuff and doing things in Brazil, while maybe the conditions are bad in wherever, right? And so we're going to be able to shift around between all these different areas by expanding in these different roles, which that all combined should help drive some of the margins in the business.

Speaker 3

So I think that was the last of the kind of the pre questions, if you want to say, that we received. So, Alexa, do you want to turn it over to the different analysts?

Speaker 1

Yes. Thank you, Mike. Jennifer, we will go ahead and take the first question from our analyst, Aaron Grey with AGP. Do you have any questions, Aaron?

Speaker 4

Yes, great. Thanks for all the detailed prepared remarks to answer the question so far. I'd like to pick off a little bit where you just left off in the last question. Just in terms of commodity trading environment for the quarter, right? So gross margins were down slightly negative or flat based off some of the remarks I heard, average 7,000,000 dollars average cost 7.

Speaker 4

So was it one large trade that kind of led to the flat gross margins and it seems like gross margins for commodity business have been trending that way for the past couple of quarters now. So I know there can be volatility, but it seems like it might be a little more trend now. So can you speak towards the quarter? Was it more of a one off sale that really went on margins? Was it accumulation of all the sales that weighed on it?

Speaker 4

And just to add that on to what you had just previously spoken towards.

Speaker 3

Yes. Okay. All right. Thanks, Aaron. So a couple of pieces there.

Speaker 3

And I do have Benjamin Patel on the phone, and I'll turn over to him in a second as well. But you had mentioned, and yes, it's slim or whatever, right? It's a narrow margin. But you said, it was kind of $7,000,000 $7,000,000 It's really $7,000,000 7. Yes, dollars 7,100,000 in revenue and 7 $1,000,000 costs.

Speaker 3

So it's not quite flat, but it's still not where we would allow it to ultimately be or whatever, right, just to clarify that. But so Benjamin, do you want to kind of talk about this?

Speaker 5

Sure. Hi. Hello, Aaron. Nice to talk to you again. I think in general, looking at the environment we're in right now is that there's a lot of strain or, I'd say, volatility in the trading world in general.

Speaker 5

I think that there's a few factors to that, kind of piggybacking on the tension in Ukraine, adding to that the tension in the Middle East and also a China, which is, of course, the largest consumer of the world and they've been showing kind of signs of slowing down over the last quarter. But as Michael said in the throughout everything that was said here before, I think this is the main thing that the diversification is very important for and that we plan to increase those margins basically getting into different verticals of the supply chain and of different products and of different geographies. So certain commodities or certain paths, certain geographies could be down or lower at times. This also depends greatly on the structure of which the trades have been done and the financing, as also Michael alluded to. So I think it's a combination of factors, but this is definitely why we're striving and working so hard to put in new and parts of the supply chain, be it geographies, products, financing, etcetera, in order to be able to mitigate and raise these margins.

Speaker 3

Awesome. Thanks, Benjamin. Aaron, what else you got, Matt?

Speaker 4

No, I appreciate the color there, Michael and Benjamin. Second question for me, just the trade financing, can you speak on the timing when that was finalized? I may have missed it. So just further color on the timing. And then any color in terms of the commodity transactions quarter to date in 1Q?

Speaker 4

We're almost done with the quarter, about 9 days left. So just in terms of sales and margins, how that might have trended quarter to date versus 4Q?

Speaker 3

Thanks. Yes. So I'll talk about the trade financing stuff. So we're always working on trade finance, right, continue to expand things out. And we've got several finalized deals, I guess, is the way you want to look at it, that we have been leveraging so far.

Speaker 3

That's probably in the what's the total you think now in the trade I'm looking at Jennifer. Yes, let's call it $15,000,000 to $20,000,000 that we've already got secured, I guess is the right word, that we've been leveraging in some of the trade finance so far. That continues to change, right, meaning grow, right, as we keep moving forward. We're continuing to have different discussions that are out there in regards to that. When you take a look at the total quarter that we're in so far, I don't have the numbers that I can share necessarily at this stage, right.

Speaker 3

But I think it's I think you can say it's a pretty typical quarter just in general. But I don't have the actual numbers here in front of me or whatever that we can share without having more details or whatever that are there. What else you got, man?

Speaker 4

Okay, great. Thanks. All right. So yes, so I think that's helpful. I guess just kind of bring it all together then, especially since we've got Benjamin online here.

Speaker 4

So in terms of timing and line of sight, so you're talking about now being a typical quarter. How are you seeing in terms of are we in a longer term period of these more compressed margins? Do you think the trade financing is enough to get you in a normalized way? Do you have the ability to be more nimble and get to some markets that are more favorable? How do we think about the overall balance of top line growth, but also profitable growth for you guys as we look for the longer term 2024 and the environment out there.

Speaker 4

So if you could just kind of give a holistic outlook look on that, that would be helpful. Thanks.

Speaker 3

Yes. I think we've got how do I go through this? So yes, we are nimble, right? We do have the ability to move around to different regions of the world. We actually cover a big chunk of the world now in the biggest markets, right, that are out there, especially with Brazil coming online.

Speaker 3

And as we obviously have the Americas through LatAm and then we've had the original stuff that was kind of in the MENA region. So we do control a lot of the different areas and have access to move between things. I think really a better way of looking at it is, if there's a certain commodity that's not performing as well, let's say, it's soy, right? We do have the ability to start moving into different areas like vanilla, as an example, right, or peas or whatever it might be, right? So we are able to kind of move around between those type of things.

Speaker 3

When you look at the typical quarters and things that are there, it's interesting because you do have seasonality, you do have things with trade finance, all these things kind of tie together and help build this business, right? And you are going to have ups and downs and everything in between that's there. But here, Kevin, I think wanted to jump in.

Speaker 6

Yes. Hey, Aaron, it's Kevin. No, I was just saying, I think that another thing that's really going to be critical for our go forward to continue to add these trade lines, right? So I think if you look back at the history of this company, we kind of started off by doing a lot of net offs and back to backs. And I think that the company is now sort of transitioning to something that's a little bit more traditional.

Speaker 6

So I think that sort of as we implement that strategy and as we grow that

Speaker 4

side of the business, we are definitely hoping that

Speaker 6

things are going to improve.

Speaker 3

Other thing to think of too, Aaron, it's not just necessarily the we talk about trade financing a lot, right? But we also have supplier credit lines. And that's we kind of lump that stuff together when people talk about it, but they are kind of 2 distinct different areas. And so we are working on a lot of credit lines as well with the different suppliers.

Speaker 5

If I could summarize for just one more sentence. Aaron, I think you used the word nimble, and we usually use the word agile, but I think that's really the main thing here is to be agile and to be able to seize opportunities that are best that are in line with our strategy. And if we see that there's a slowdown in our typical commodity cycles, which are very short term and our return on equity is usually quite significant. It's just we're dealing here with very large volumes with a very large ticket size of which there are limited margins to begin with. But there are different products and there are different geographies, as Michael kind of alluded to, which are things that we are very much involved in examining and in different stages of bringing in to the group that will potentially do a lot to increase these margins and also secure different kinds of trades and flows that will make us not depend on one geography, one product, one financing and so on.

Speaker 5

So I think that agile is definitely the word and we look forward to diversification and diversifying into these other areas.

Speaker 3

Okay.

Speaker 4

Thanks, Bill. Appreciate the color and detail on the answers there, guys. I'll jump back in the queue.

Speaker 3

Okay. Alexa, do you want to go to the next?

Speaker 1

Yes. Thank you, Aaron. We'll move to Tom Kerr with Zacks for questions.

Speaker 7

Good morning, guys. Can you hear me?

Speaker 3

Hi, Tom. Yes, hear you fine.

Speaker 7

Just a couple of clarifications. Most of my questions have been covered, but one second. Hold on.

Speaker 3

Somebody have any jokes they want to say? All right, sorry about that. No problem, Tom.

Speaker 7

Somebody said the word Alexa and my Alexa turned on and started talking to me.

Speaker 3

That's funny.

Speaker 7

Just a clarification on the trade financing. Who is it or what is it? Is it going to be multiple sources? Is it a bank? Is it a private investors?

Speaker 7

Just kind of what is who is arranging the trade financing? And what does it qualify? How do you qualify for that?

Operator

I'll take this one. Do you want to go ahead, Benjamin?

Speaker 5

No, no, please, Jennifer, please. Okay.

Operator

So these as you said, these are a bunch of different sources. It's not we it's not all banks. It's not all some of them are other trade companies, some of them are other some of them are banks, some of them are private. It's a combination of all of them that we put together, mainly because we don't want to rely on one source. We want to diversify this just like we diversify everything else.

Operator

And you kind of want to throw your eggs in one basket. And so we have there are different sources on that. Benjamin, did you want to add to that?

Speaker 5

No, I think that basically covers it. Again, it is a very vast kind of term, trade finance. And in our line of business, oftentimes, it could also come from the counterparts, either suppliers or customers or so on where you have different terms with them where in essence they're providing you with the finance to do the trade depending on the way you negotiate it and the timeline and so on. In the banking or institutional world, there are banks that provide, there are funds that provide. And then there's, as Jennifer said, there's private or pseudo family offices and so on that also are involved in this business.

Speaker 5

So we have a blend of some of those at the moment and always looking to find more that fit within our matrix of finance and what we're looking for.

Speaker 7

Got it. And the $15,000,000 to $20,000,000 you referenced, that's just the collective number of all those sources

Speaker 2

you mentioned? That is correct.

Speaker 7

Okay, got it. And back to the margins, just to beat that dead horse for a second. We had talked about 3% margins in that commodity business over time or that's a goal of 3% or better. And I know you guys aren't providing guidance, but is there a timeframe perhaps we can look for that 3% goal? Is it 2024, 2025 or any other color on that?

Speaker 6

Well, I think number 1, this is Kevin. I think number 1, I think we were 1 to 3 is kind of I think what we've historically talked about. But I think that there are a lot of creative ways being the type of company that we are, a smaller company where we've had success in getting much higher margins than that. So sometimes you're going to have fluctuations in the business where you may have some of these higher margin deals that you can facilitate and then you may have a quarter where you don't make a whole lot, right? So the whole goal is to try to balance those out as the year goes on and as things change, whether it's market fluctuations, whether trade finance opportunities, etcetera?

Speaker 5

I'll continue if possible. And just say that I won't I'm not going to give a date here, but I think that all the things we've mentioned so far with the entering into new verticals, which allow us to not only hedge ourselves against the volatility of the market, but also add margins every step of the way. So if it's just for example, if it's getting into shipping, we're not into shipping right now, that would make a significant difference today already if we had a shipping arm already in the company and we're able to mitigate shipping costs and so on and so forth because those are also commoditized and they also go up and down depending on conditions. So that's what we're trying to do and not rely on the good fortune of the market, if I would say, of the commodity prices and so on, where we see that it's unreliable. We need to diversify and we need to open ourselves to new products, new geographies and new verticals that will all form this picture together and will hopefully increase the margins to the point we want them to get to.

Speaker 7

Great. That's helpful. And last question for me on the restaurant business. Can you kind of give us any more color on where we are in that process? I mean, do you have to wait for those corporate things to be refranchised or is there open strong interest?

Speaker 7

I mean, are you guys looking at bids or what inning are we in?

Speaker 3

Yes. Let me I get what you're going. Let me jump in there. So there was always 2 phases to looking at the restaurants, right? And should we divest them or not, right?

Speaker 3

First phase was take the corporate locations and convert them over to franchise locations, right? That is for all practical purposes been complete, okay? We still have a few out there that we're working on, but it's pretty much been complete. And that positioned the restaurants then and positioned the whole overall structure to now go out and investigate and hire somebody to go do this, right? And so we actually hired Lissitz and Associates who part of their expertise is selling restaurant chains.

Speaker 3

They've been doing it for about 40 years. They've been out there for a long time doing this stuff, right? So we have hired them recently, as we're now moving into the 2nd phase, right, which is where we are today. So the 1st phase has already done a complete, we're now into the 2nd phase of looking to divest these restaurants. From a timing perspective on it, we recently just hired them, right, in the last, call it, last 30 days, 2 weeks, whatever, somewhere that time frame as we work things out.

Speaker 3

We are now in the process of creating the data room and all that to be able to put things in there. We do have some people already showing interest. We've had some general discussions that have already started. But I don't have necessarily a timeline on it per se, other than it's an important thing for us and we're working against it pretty quickly.

Speaker 6

And I would add something also to that, Tom, and I would say that Lisitin specifically, they are very specific in this particular business sale and they are intimately knowledgeable about the brand specifically. So they are up in the Northeast. They know the brand extremely well. We've known them for a long time. That was actually the firm that we purchased, PokeMoto from.

Speaker 6

And so I know that there was I can disclose this. There was a lot of people that were bidding on that when we first bought it. And so it made sense after interviewing several other firms to go with Lissotin, but we're very comfortable with that decision.

Speaker 7

Great. That's all I have for this morning. Thanks. Okay. All right.

Speaker 3

I think that's basically it. Alexa, do we have anything else that's out there from an analyst perspective or questions?

Speaker 1

That is all. I believe that concludes our Q and A portion of this call. Mr. Roper, any final comments? Okay.

Speaker 3

Yes, just I just want to thank everybody again as always. We got a lot of things that are changing in this business. We're growing it. It's pretty exciting. There's we're obviously started our farm stuff with the harvest in Zambia, which is pretty exciting.

Speaker 3

I don't know if anybody saw, but we had the President of Zambia actually was on our farm this week, doing some press work and some festival activities as well. So getting some high profile type of visits from people as well that are out there. So very exciting stuff and more to come soon. I appreciate it everybody.

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Key Takeaways

  • 2023 revenue soared to $727 M from $162 M year-over-year, driven by the Sadat AgriFoods division.
  • Full-year adjusted EBITDA turned positive at $89 K in 2023 versus a $2 M loss in 2022 after one-time restructuring charges.
  • The company reported a net loss of approximately $7.8 M for the full year 2023, despite improvements in its core operations.
  • Sadat Group acquired 5,000 acres of farmland in Zambia and launched a 1,400-hectare contract-farming pilot to bolster its agri commodities supply chain.
  • Secured $15–$20 M in trade financing facilities to support larger agri commodity trades and enable further global expansion.
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Earnings Conference Call
Sadot Group Q4 2023
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