Sadot Group Inc. (SDOT) Q2 2023 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Sadot Group Inc., formerly known as Muscle Maker, Inc., Q2 2023 Earnings Release and Conference Call. Today's call is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Frank Pogubila, Sadot Group Inc.'s Investor Relations contact.

Thank you, operator. And welcome, everyone, to Sadot Group Inc.'s Second 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 1995. To the extent that the information presented on this call discusses financial projections, information or expectations about 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 the Sadot 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 Sadot 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 thousand, and percentages have been rounded to the closest percent. On this call, we will refer to Sadot Group Inc. as Sadot Group or the company. With me on the call today are Sadot Group Inc.'s Chief Executive Officer, Michael Roper; and Chief Financial Officer, Jennifer Black. Michael and Jennifer will be presenting prepared remarks related to Sadot Group's financials filed on August 9, 2023, and those documents may be found on the company's website, Newswire feeds and on the SEC's website linked from the Sadot Group IR pages at [Audio Gap] At this point, I would like to turn the call over to Sadot Group Inc.'s CEO, Michael Roper.

Good afternoon, everyone, and thank you for joining us today. I'm pleased and proud to report that Q2 was a strong continuation of the past two quarters, highlighted with Q2 being our first-ever profitable quarter in the company's history. Let me say that again, highlighted with Q2 being our first-ever profitable quarter in the company's history. But before diving into our second quarter results and key achievements, on July 26, 2023, we made the exciting announcement that Muscle Maker, Inc. has taken a significant step in its journey of becoming a key player in the global food supply chain by deciding to change the company's name to Sadot Group Inc. This name change recognizes the company's evolution of our core business and aligns with our strategic vision as we transform into a truly global agri-food supply chain organization that's focused on sourcing and providing sustainable foods and feeds. The company's common stock began trading on NASDAQ under the ticker symbol SDOT, that's S as in Sam, D as in David, O as in Ocean, T as in Tom. S-D-O-T, SDOT, on Thursday, July 27, 2023, and we could not be prouder. It's been an extremely busy time for our organization over the past quarter and really over the last 8 months since our corporate strategic pivot. As you may recall, in late 2022, we began the transformation from a U.S.-centric restaurant business. And fast forward to today, we've rapidly evolved into a truly global food supply chain organization. I'd like to begin with a brief overview of our rapidly evolving company. As we expand into new verticals within the global food supply chain sector, we have strategically segmented our business into three operating units. Our first business unit is Sadot LLC, which we will refer to as Sadot Agri-Foods. Its global operations include the origination and trading of food and feed products such as soybean meal, wheat and corn. Our second business unit is our Sadot Farm Operations. Pending final government approval, we will close on an approximately 5,000-acre farm in Zambia. The farm produces the same commodities that are in constant demand: soybean, wheat and corn, along with avocado and mango. We've started initial operations through a right-to-use notice and expect to receive final approval on the purchase later this month. Our third business unit is Sadot Food Service Operations, which operates our 3 restaurant concepts. This unit encompasses over 47 fast-casual restaurants. As we'll detail later on the call, we've already started reaping the financial benefits of our global diversification strategy, which exemplifies our strategic approach to expanding into each of our 3 main business units. Now let me discuss some Q2 highlights. I'm pleased to announce that Sadot Group Inc. achieved top line revenue of $160 million for Q2 2023, a significant increase compared to $3 million for Q2 2022. This revenue announcement marks the accomplishment of 8 consecutive months above $45 million in revenue per month for our Sadot Agri-Foods business unit and demonstrates our continued overall performance with total revenues of over $515 million since November 2022 when we began our strategic pivot into the global food supply chain sector. Overall, our second quarter net income was $190,000 in 2023 compared to an approximate $1.8 million net loss in the second quarter of '22. As previously noted, this was the company's first profitable quarter in our history. The $2 million increase in net income is primarily attributable to Sadot Agri-Foods as we continue to execute against our business plan. We see Q2's results, along with other strategic actions, as a foundation for our future growth and diversification within the global food supply chain. I would like to specifically highlight and review our updated working relationship with Aggia LLC FZ, who I will refer to as Aggia. As disclosed in an 8-K filing on November 18, 2022, Sadot Agri-Foods entered into a service agreement engaging Aggia to perform services related to the purchase and sale of physical food commodities. The service agreement allowed Aggia to nominate up to 8 Board members, 1 upon signing the service agreement and an additional 7 nominations upon Sadot Agri-Foods generating specific net income targets: 2 at $3.3 million, 2 more at $6.6 million and the final 3 at $9.9 million. Since its inception and through June 30, 2023, Sadot Agri-Foods has generated over $11.3 million in net income for Sadot Group per U.S. GAAP. As our Agri-Foods unit easily surpassed the third and final threshold of $9.9 million in net income, Aggia nominated and Sadot Group accepted 3 new Board Directors: Mark McKinney, David Errington and Dr. Ahmed Khan. These new Board directors bring industry-specific knowledge and a wealth of experience to the company. With the addition of these 3 Board members, Sadot Group has added all 8 Aggia-nominated Board Directors, as per the terms of our agreement, which brings the total number of Board members to 15. I invite you to read the bios of our directors on our website, sadotgroupinc.com. In addition, in the second quarter, we announced that the company amended the original services agreement with Aggia. The new amendment modifies the formula by which Sadot Group would issue shares of common stock earned by Aggia for net income generated through our Agri-Foods unit from 80% of net income to 40% of net income on an accounting basis. As a result, the quarterly noncash expense related to stock issuances to Aggia was reduced by 50%. Following the amendment, all shares to be earned by Aggia under the agreement have been issued and will retain voting rights, vesting over time using the 40% of net income formula. We believe the agreement with Aggia to be an intelligent and accretive investment in the strategic future of our company. We are confident that Aggia will continue to provide valuable insight and expertise as we grow our global food organization. We are committed to the execution of our strategic vision and to capitalize on the opportunities presented by the global food market. Sadot Group's success this quarter is a testament to the hard work and dedication of our team, and we look forward to building on this momentum as we move forward. Now I'd like to turn the call over to our CFO, Jennifer Black, to review the financial performance of the company for the second quarter of 2023. Jennifer?

Thanks, Mike, and thank you to everyone joining us here today. Before I begin, I'd like to note that our financial results for the quarter ended June 30, 2023, on Form 10-Q were filed with the SEC yesterday, August 9, along with the press release that same day. With that, I'd like to give an overview of the financials for the second quarter of 2023. As Mike mentioned in his opening comments, our Q2 2023 company-wide revenues increased significantly, totaling $160 million compared to $3 million for Q2 of 2022. Of the $160 million in revenue increase, $157 million was primarily due to sales revenue from our Agri-Foods unit, which completed 21 transactions in Q2 with the average revenue per transaction of $7.5 million and the average cost of goods sold per transaction of $7.3 million. These 21 transactions were completed across 10 different countries. Importantly, as Mike mentioned earlier, and we don't want to already forget, the company delivered its first profitable quarter ever. We saw a $2 million increase in net income in Q2 2023 when compared to Q2 2022. Our second quarter net income was $190,000 compared to $1.8 million net loss a year ago. The $2 million improvement in net income is primarily due to Sadot Agri-Foods. Sadot Food Service Operations generated total revenue of $2.8 million. This consisted of $2.5 million from company-owned and operated locations and $240,000 in royalties and fees collected from both Muscle Maker Grill and Pokémoto franchise locations for the quarter ended June 30, 2023. Revenue from company-owned and operated locations decreased due to closing underperforming and nonprofitable Muscle Maker Grill restaurant locations, while the royalty revenue increased by 46% as the company continues to focus its restaurant business unit strategy on franchising the Pokémoto concept. Mike will provide additional details regarding our plan for Sadot Food Service Operations a bit later. The third business unit is our Farm Operations. Since this unit is in its early development, we do not have financial results to share. However, I'd like to take this opportunity to speak to our goals and strategies for the farm. The expansion into farm operation aligns with the Sadot Group's strategic vision of increasing margins through vertical integration. Our acquisition of an almost 5,000-acre farm in Zambia, pending government approval, which is expected in Q3, has the potential to deliver multiple benefits. First, the farm has the potential to provide a steady and reliable supply of grains and tree crops, which are currently experiencing constant demand, yielding higher margin. In addition, the consistent projection of these farm products has the potential to elevate our trading operations with more sophisticated type of trades, along with the associated higher margins. Second, the farm could serve as an asset for collateral, potentially enabling access to credit facilities. This financial leverage could allow the company to pursue further growth opportunities and investments. Lastly, the farm has the potential to provide a fresh source of revenue by operating as a regional hub for smaller farmers. By providing future warehousing and distribution services for their products, the Sadot Group will not only aid these farmers in reaching wider markets, but may also help them optimize their agricultural practices. In conclusion, the strategic decision to vertically integrate through the farm acquisition is expected to yield multiple accretive benefits to Sadot Group. Let me now turn to the overall financial picture for Sadot Group. Even though we had amended the service agreement with Aggia, the issuance of common shares to Aggia for the stock-based consulting agreement was still a significant change in expenses in the second quarter of 2023 compared to the same period in 2022. The stock-based consulting expense of $1.1 million for the quarter ended June 30, 2023, is a result of common stock shares issued as a consulting fee due to Aggia for our Agri-Foods subsidiary net income performance. Based on the service agreement with Aggia, the stock-based consulting fees are now calculated at approximately 40% of the net income generated by the Sadot business unit. As of June 30, 2023, we had a cash balance of $5.1 million and working capital surplus of $7.7 million. The cash decrease in the second quarter of 2023 was due primarily to cash used in operations of $4.2 million. In addition, the company deployed capital into smaller such trades, which tend to generate higher margin. The company has over $7.6 million in net short-term receivables that are due in less than 60 days. With that, I'd like to turn the call back over to Michael Roper.

Thanks for the financial overview, Jennifer. I appreciate it. We're excited to report that our updated diversification strategy and emergence as a global agri-food supply chain organization are yielding positive results. The addition of Sadot Agri-Foods has undeniably generated substantial value for the company. Now I'd like to turn our attention to the Food Service Operations. As we progress on our strategic pivot towards the global food supply chain sector, we announced previously that we'll be restructuring our 3 restaurant subsidiaries. We are reducing restaurant operating expense and overhead as well as working capital demands by closing underperforming restaurant locations while refranchising or selling most of our remaining company-owned locations. We will shift to a franchise royalty-generating model focused on our Pokémoto concept. With 32 units open, 2 more scheduled to open next week and another 58 franchises sold but not yet open, we are seeing significant interest and confidence in Pokémoto. In fact, we just completed the sale of 3 additional Pokémoto franchise locations in Kansas and Oklahoma just last week. Franchisees of our Muscle Maker Grill restaurants will have the option to remain as a Muscle Maker Grill restaurant, convert to Pokémoto or become a dual-branded Pokémoto/Muscle Maker Grill unit. Lastly, we're seeking strategic alternatives for our Superfit Foods concept. So we're making some significant changes inside this restaurant division that will reduce our costs and improve our overall cash flow. These actions will allow us to strengthen our balance sheet and reallocate funds towards growing the agri-food supply chain business, reinforcing our commitment to increasing shareholder value by focusing on our path to profitability, market diversification and a strengthened brand presence. In summary, we are extremely pleased and proud with our performance this quarter. Before I finish, I would like to also note that Sadot Group was recently added to the Russell Microcap Index. We are proud to be added to the Russell Microcap Index as we believe it shows our continued progress and efforts towards becoming a more significant player in the global food supply chain sector. Looking back on the work accomplished to date, we're extremely proud of our achievements, but the real excitement lies in our future. Moreover, we're thrilled to share that in the coming days, weeks and months will be filled with additional exciting news as we continue to grow and shape the future of Sadot Group Inc. Your continued support and engagement are invaluable to us, and we eagerly anticipate sharing our progress and milestones with you. With that, let's open the call to questions from the analysts.

I would like everyone to please note that Kevin Mohan, Chairman of the Board of Sadot Group, is on the call and will be participating in the Q&A portion. We'll take the first question from Aaron Grey with Alliance Global Partners.

Congrats on all the initiatives and strategic actions. First question for me, just on the quarter, I know it's still very early days for Sadot revenues. Still seeing good monthly revenues, above the $45 million each month, but it is down a little bit from the prior quarter. So just from a high-level perspective, if you could provide some commentary on what you're seeing in terms of transactions and size. And I know sometimes it can be a thin-margin business. So are there some times where you're passing up some revenue opportunities just given the lower margins associated with it? And do you think you're getting some credit terms that might offer you greater opportunity for those revenues? So any color in terms of the sales outlook that you're expecting in terms of the size of the monthly revenues and if you think that $50 million monthly revenue is a better run rate going forward or not?

Okay. Thanks, Aaron, and this is Mike. And just before I start, just I apologize to everybody, I am actually at the end of my isolation from COVID. So we are all in different rooms right now. So if we sound like we're talking over each other, I apologize, but I'm having to isolate around that. If you hear me cough and all that, that's me trying to get through it. So I apologize in advance. And Aaron, thanks for your question. You worked in about 9 of them, always 1 question that are in there. But I will -- I'll start addressing some of those. At the beginning, the biggest question, kind of summarizing, I'll be talking about revenue, right, and what's the revenue look like as we move forward on things. And I'd like to look at revenue in a couple of different ways. We've -- revenue can definitely be impacted by the size of the transaction, the type of the transaction, the price of the commodity, all kinds of different things that are in there. And what we have noticed in the last quarter is that really, what drives a lot of the revenue numbers is the price of the commodity itself. So as commodity prices drop in general, your revenue can drop with it and vice versa, okay? Now we're still shipping basically the same tonnage of product. It's just that if corn is $0.10 a ton cheaper than what it was the previous quarter, your revenue could go down. So a little bit is fluctuating through the commodity world like that. You did mention things about margin and what does it look like in the future and kind of what our run rate might be as we're looking out into the next quarters. If I take a look back over the last 8 months, our highest quarter was, call it, $93 million that we reported in revenue. Our lowest was about $46 million -- $45 million, $46 million that we reported, but our average is around $63 million. We kind of view that as that's really where we see things kind of moving forward in the future, right, is to that level. However, that's where we are today not including adding things like new orders or new trades coming in through Latam. If you remember, we announced about a month ago, 1.5 months ago that we started a new venture and called it Sadot Latam, which is Latin America -- the North Americas, right, North Central and South America trade routes. And so those are just starting to come online now. We've actually just initiated our first trade. We'll be talking a little bit more about that in the next week or 2 here, a little more details. But we did just start initiating our first trade through there. So you'll start seeing that layer in on top of the averages that we've been seeing so far. So that, call it, the $60 million on average, and they start layering Latam on top of it, those are some pretty good numbers. You did ask about margins and trades that are out there. And I'll let you know that there are instances where we just pass up on a trade, right? I mean it's very conceivable that -- and I'll use an example, there was one that was out there that was for about $15 million. And at the end of the day, when you looked at it, the margin on it was literally like $20,000. It's just not worth doing it or whatever. It's not worth taking the risks or anything like that. So yes, we do take a look at those type of things in regards to picking up trades. Jennifer, do you want to throw anything in there about margins?

Yes, absolutely. So on the Sadot Agri-Foods, the margins today are solely dependent on the trade business that we're doing right now. Like Mike said, that doesn't include the Sadot Latam that has recently started. It also doesn't include any of the other verticals that we've done. Moving forward, we mentioned before, we're going to incorporate the Zambia farm in there. We will use them to control the originations. We also want to be able to control the destinations and the logistics of all of our trades. And by controlling all manners of those, we'll potentially be able to create more consistent and higher margins across the board. Anything else out there?

That was -- I really appreciate that on the revenue and then some of the margin color there, too. I want to dig a little bit deeper on the margin side. So last quarter, you had spoken to some seasonality in the margins for the Sadot business, it was in the low 2s. We're about 2% again for this quarter. So just wondering, is there still some seasonality in there? And does seasonality then gets stronger in the back half of the year, just to familiarize ourselves with the business, familiarize ourselves a bit? And then speaking towards Latam, with the partnership, anything to think about in terms of the margin of that revenue and the structure of the economics of that partnership that might impact the margins being lower than for the rest of the business?

Yes, let me talk about -- and again, I never know if I pronounce it right, it's Latam, LatAm, Latam. It's L-A-T-A-M, however you want to pronounce that, right? But I'm from Chicago, I say things funny sometimes. But looking at that, look, those are -- those trades are pretty typical trades of what we've been seeing. So they're still going to be in the corn, the wheat, the soy, those type of areas, and basically, some of the sizes as well. The key point about it is it gives us a different hemisphere than what we've been doing before. So if we're in a seasonality issue in one hemisphere, then this can pick up sales in the other hemisphere and vice versa, right? So it helps smooth some of this stuff out from a seasonality perspective. So I expect moving forward that seasonality will start playing a lower, I guess, effect, if you want to say. Not that we're still going to have seasonality in a certain hemisphere, but the other one will start picking up for it, to give you a little bit more consistency as you move forward. Jennifer, you got anything else on that?

No. I mean I think that kind of addresses most of it. And then as we continue to build our trade business and extend into different areas, that will continue to smooth itself out.

Okay. Great. Last one for me, just in terms of optimization of the restaurant business, any color you could provide on timing of some of the initiatives, namely kind of closing of underperforming stores? When you expect to sell some of those owned stores to franchises? And then when you might come to a resolution on those strategic alternatives for Superfit? So just any color on expected timing of those would be helpful.

Okay. Sure. Let me jump in there. So we've already started the initiatives, right? We've already started closing a few locations that were underperforming. We've actually sold one of our locations in the Connecticut market for Pokémoto to a franchisee, and we've gotten discussions with a bunch of other people as well for some of the remaining units there. So we're already in the motion of doing this. And you're starting to see some of those results as Q2 loss in the restaurant group is less than Q1 loss as we're starting to roll through some of these things, right? And so we're aggressively pursuing it. And again, it's a little bit different depending on each location, there will be some locations that we close. I think most of those, there might be one more that's in there that we might just purely close. The rest is going to be trying to convert them over to franchise locations. And like I said, we've already got one of them converted over. We've got discussions with multiple people and others as well. So throughout Q3, you're going to be seeing all those impacts happening and then throughout Q4 as well, right, as we finalize it out. I like to look at it almost from a -- almost a run rate. When you take a look at year-to-date on the restaurant side of the business, we lost, call it, $600,000, a little bit less than that, but let's just round it to $600,000. So if I annualize that, you're over $1 million a year in savings as we convert all these things. Now that's assuming we can execute at 100% of each location that's in there and successfully sell them. So we think there's a pretty good impact on the bottom line just from doing some of this restructuring. And then you have your corporate overhead that's part of it as well, right? You've got -- obviously, as you start doing these things, you don't have to have as much from a corporate perspective, meaning health insurance gets reduced, payroll processing gets reduced and regular insurance gets reduced, those type of things. I'll start falling into the corporate overhead bucket, and you'll see some reductions there as well. And we think that could be as high as an additional $0.5 million to $1 million on top of it. So there should be some pretty good impact on the bottom line as we move forward and allowing us to shift resources more into the Sadot side of the equation. Regarding Superfit, we just started that process, right? And so we have had some inquiries. We're following up on those inquiries right now. I don't have a lot to report there yet other than we are aggressively pursuing that and following up with everybody that's out there. So we have had some pretty decent interest just from making the announcement a couple of weeks ago. So it's looking pretty good from that perspective.

Next question is from Bill Gregozeski with Greenridge Global.

Great quarter. I have kind of a handful of questions about the Farm Operations. For just looking at Zambia, you've given a range of crops. Should we expect this to be kind of a diversified planting farm on an annual basis? And then how should we look at the margins for that? And then also, you mentioned storage and other services you're going to provide to area farmers. What's the CapEx need and timing for that and margins for that?

So let me talk about -- quickly about some of the crops and all that that's there. So we currently have wheat that's planted. We expect to harvest that wheat end of September, beginning of October time frame. That's kind of when the harvest season is. As we mentioned earlier, we don't have the final approval from the government authorities yet. That should happen hopefully any day now. But we do have the right to use, right? And so we're farming it almost like a lease, to a certain degree, I guess. It's probably a bad analogy for it, but we do have the right to be operating that farm. And so we've started those initial operations, so we don't miss the harvest season that's coming up. Now on top of wheat, we also have mangoes. We've got avocados. And we can plant different crops as we move through. And just to be clear, the farm itself, as it is today, is not 100% planted, right? So we're going to be able to increase some of the crops and some of the harvest numbers or whatever that come out of there over time as well, right, as we fully integrate that farm from where it is today. So things are looking up from that perspective. Regarding like margins and all that, I'm going to throw out a rough number. It's really in that like 25% range on those, but that can drastically move or whatever, depending on, obviously, the quality of the harvest and the crop and the commodity prices and everything at that time, right? So -- but you definitely have a lot higher margins there than you do through our normal trading cycle. And that's why when we talk about vertical integration, that's what helps the overall margins of the business, right, as you start incorporating, all the way down to the source, right, the origination side of the equation. And then you can -- so you control the stores. You can control some of the logistics as you -- like in the shipping and those type of things. You can control some of the distribution. You can control, obviously, out of those at the store levels as well, right? So you got the origination, your logistics and the destination type of stuff that you can control that's in there. Did I answer all your questions? Sorry, I want to make sure I didn't miss one.

Yes. Sorry, I asked a lot in there. On the additional services like storage and things for other farmers in the area, what's the plan for CapEx on that? And what you see from revenue margin potential from that business, that service business?

Yes, so a couple of things there. So we're looking at -- one of the advantages of the farm and where it's located is you have other local farms all around you, right? And where we're located is actually really pretty strategic. We've got some really good roads and some railroads and all that stuff that are right there, running either adjacent to our property or through our property, right? And we'll be able to start -- and we've had discussions with some of the local farmers already about warehousing some of their crop, whatever that's in there as well, right? So kind of being a hub or whatever to be able to distribute this stuff. And so we're just in the initial stages on that, right? I don't have a real true -- unless, Jennifer, do you remember -- I don't have a true CapEx number on that yet. Do you have something? I can't remember what was...

It's still too early to discuss right now. We have some numbers, but it's still too early for us to kind of go out and lay out the exact numbers.

If I could jump in, too. This is Kevin Mohan. That's all going to be predicated on the different deals that we have working in those areas. And they can all change based on the size of the farms. And so I think that's information, though, that we will be able to get a little bit more detailed on at another time. We're just probably a little premature at this point.

Okay. And then is this kind of a model you want to replicate for other farms? Or would you look at other things like commodity processing as well?

Yes, I would say this is kind of a model as we look at some of the other farms that are out there, right? I mean we want to kind of be the -- I guess it's a hub-and-spoke kind of model for a certain degree, so you can kind of accumulate different farms around you, not only from purchasing yourself, but then also through some of the different warehousing and distribution like we just talked about. So that's a pretty common structure that's there.

And so you create the consistency in the margins for this business because like Mike mentioned earlier with seasonality, the more verticals that you can integrate into your business, the easier you're able to capture these margins maybe in smaller increments, just if you could kind of achieve those numbers that you've created as far as an expectation.

Okay. All right. And last question, did you guys buy any shares back from the buyback plan?

Yes. So if you don't mind, Mike, I'm going to take that one. Yes, so as far as the stock buyback program, we did implement our stock buyback program. I think it's really important, William, that everybody that's on this call understands that one of the challenges that you have as a public company is that if you have material nonpublic information that's ongoing, and I would use just as one small example of that, the services agreement with Aggia, when you have something that you make a material change on like that, you can't trade on that. And so because of the bulk of what we've had going as far as material nonpublic events that are working on in the background, we've been fairly limited. But I think it's important for the investors to know that we do have the plan in place, and we have every intention of taking advantage of it when the time is right and when we are not in a blackout period.

Next, we have Tom Kerr with Zacks Research.

Just a follow-up question on the overall Sadot business as it pertains to commodity prices. You mentioned that a high commodity price would be higher revenue, but does it affect margins? And I just noticed that rice prices were at 12-year highs. I mean, would something like that be positive, negative or neutral? Because you're just looking at a spread business on margins or profits.

Do you guys want me to take it? Again, we're in different rooms. Jennifer? Kevin?

Sorry, I was on mute. I apologize on that. So it just depends on the trades because when you're doing trades, sometimes you're executing on the contracts now, sometimes you're executing later. Are they locked-in prices? Are you doing longer-term prices? Are you hedging those risks? There's all different types of variables that come into play, and it depends on the type of trade. And just because rice prices are up, it doesn't mean that spread is necessarily there. It can depend on the type of trading situation. Mike, Kevin, do you want to add anything to that?

No, I think that really tried -- sums it up, right? I mean, so you've got...

Yes.

Sorry. Okay. Sorry, jumping on top each other. Yes, so like Jennifer said, it is -- so when people look at just pure revenue, right, I mean remember, there's a lot more tied into it from the margin perspective, right, and how you can drive margin through there. So it's not necessarily linear to the revenue side of the equation, so type of trade, the timing of trade, all that kind of stuff that's in there. So I just want to make sure we're a little bit careful on just focusing on the commodity price up or down, but that's not necessarily what drives the margin.

Got it. Okay, that makes sense. And on the restaurant business, and sorry if I missed this, the -- were the franchisees or your corporate-owned have seen problems with food price inflation or the ability to raise prices to cover that and that big issue of the day?

Yes, so that -- as I'm sure we all know on the call, right, last year, especially, there was a huge increase in food prices, right, across the board, right, retail side, wholesaler side, everything in virtually all commodities and items that were out there. And it also went into paper goods and everything as well. And we have seen, though, recently in the last quarter or so, that has basically stabilized. Now it's really more of certain commodities might be up while certain other ones are down or whatever, right? And so it's -- overall, it's kind of stabilized. And as a matter of fact, when you look at our food cost percentage as a percentage of sales of the restaurants, our food cost, actually, as I know as a percentage, decreased in this quarter versus the previous quarter and the previous year. So we are attacking some of that food stuff. But overall, I would say that the food prices are stable. We did take price increases back in the first quarter and then Q4 of last year as well to offset some of that stuff. So as the prices of the food comes down, it helps us manage that in a lot easier way. We do it through menu management. And like I said, we've also done it through some price increases. So right now, we're not seeing a huge impact or push on food prices going up. It's pretty stable. We aren't planning right now to take a price increase. We are monitoring not only just what we think the consumer can handle because they're getting hit from all angles, obviously, right, with inflation and everything else going on out there, but we're also looking at our competitors to see what they're doing as well. And so we're kind of in a hold mode right now from that perspective. But again, we're not seeing any increases. We're actually seeing a little bit of improvement that's out there. And that's not only just for our corporate stores, but also for the franchisees. One area we are seeing an increase though on, as most can probably imagine, is in the labor side of the equation. So we're having to try to manage through some of that. Luckily enough, our model for the -- at the restaurant level doesn't require a lot of labor. There's not a lot of labor for just running the restaurant. There's not -- because there's no cooking and all the other stuff involved. There's not a lot of labor for training either. So it's becoming more stable, but it is -- there is pressure going up. We just don't have as much of an impact as some other type of concepts may have.

Got it. That's helpful. One more quick one from me on the -- I'm still confused on the stock consulting expense, and there's $1 million in the quarter. Does that maintain the next 2 quarters? Or does that eventually go away? I'm just kind of confused on the timing of that, of how and when it goes away completely.

Do you want me to speak on that, Mike?

Sure, if you want.

Okay. So behind it was 80% of the Sadot Agri-Foods net income, which was reduced now to 40%. That -- what happens then is in the agreement to reduce those shares, they -- we provided those shares -- issued those shares to Aggia, so they have the shares fully issued. Those will vest based off of the percentage of income. So those shares, I believe it's 8 million shares right now, a little over 8 million, will vest quarterly until they are fully earned. Once they are fully earned, then there is the debt component where we can accumulate debt up to roughly $71 million. That expense will not go away until the shares have been fully issued and that debt has been fully utilized as long as we want to continue this agreement. The two parties do.

Got it. And it's just kind of impossible to predict when that will be, right?

It will depend on how fast and how large we grow.

And how much the unit is profitable? Okay.

Yes.

We will take the next question from Ben Klieve with Lake Street Capital Markets.

I had a bunch of questions on your vertical integration strategy, but those have generally been addressed. So I appreciate you calling on me. Congratulations on such a dynamic period, but I think I'm in good shape for now.

Great. Thanks, Ben.

Lastly, we have Rob Goldman with Goldman Small Cap Research.

Nice quarter. Most of my questions have been answered, but just a couple of quick ones regarding your new business in the Americas. Mike, you had mentioned that you just executed your first trade. Congratulations on that. My question with respect to that is, is that a little bit early in the cycle? I probably would have thought maybe your first transaction might not be until the next quarter. So that's certainly a positive. And just one more color on there, if you could provide that as well.

Yes, so a couple of things. One, we initiated the trade. I don't want to say we've -- I don't like to say executed until it's done, right, until all the stuff is done, we've got out of the boats, it's done, it's been delivered and everybody can just say this thing is completely fully done. But yes, it's been initiated, meaning we're loading boats and starting the process. We've got the agreements in place, and we're starting to make that happen. And yes, it is earlier than we kind of thought. Look, it takes a little bit of time to obviously set everything up, right, not only just from a trade perspective, but also just from a corporate governance, operational type of perspective, if you want to say, right? So it is a little bit earlier than we thought, but we're hitting the ground running. And it's all good news of things that are happening out there. So we're pretty pleased with what's been going on there so far and expect more than just, obviously, these initial ones that are coming through. So now it should be relatively consistent as we start moving forward.

Sure. And with respect to that, do you anticipate the category in business, if you will, from that location to be similar to the traditional trading type of business you've been doing? Or might there be more of an emphasis on logistics or shipping?

Yes. I don't know if Jennifer has got any more insight than I do on this. But as far as I like to look at it, it's pretty similar to what we're doing everywhere else, right, meaning the same type of crops, the same type of model that's out there, except now it's in a different hemisphere, right? And we're focusing on the Americas on this one, right? So I don't know if that's answering your question, but that's kind of how I view it.

That concludes our Q&A portion of the call. Mr. Roper, do you have any final comments?

Yes. So let me just -- yes, let me just throw out there a little bit, I do want to express my gratitude and thanks for all the stakeholders and shareholders that have -- are believing in what we're doing and where we're going. We've obviously done a really big pivot in the company and in a very short period of time have made a lot of progress and are moving at a pretty rapid pace being part of this overall global food supply chain, right? And it's a big endeavor. It's not just one facet of the supply chain, it's all of it, right? And so we're getting into the farming side of the equation, obviously. We're already in the trade. We already have the consumer side. And we'll be filling in other pieces in there as well, not only new verticals, but also expanding on existing verticals. And so we get deeper and deeper into that supply chain. So I just want to say thanks for everyone for believing in the company and where we're going. And then I also want to send out a quick thanks to all of our employees and vendors and partners that are out there. Really, they're the ones doing all the work. And it is a saying we have internally that sometimes, we feel like we're drinking out of a firehose because there's a whole bunch going on. And all the employees are putting in extensive hours and efforts and doing everything they can to really make this company something special. So I wanted to thank everybody from there as well. So that's all I had, Alexa. I appreciate it.

Thank you so much, everyone. We will go ahead and conclude today's meeting.

Great. Thanks, everybody.