Sadot Group Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Financial amounts below are in U.S. dollars. Sadot is transitioning from a U.S.-focused restaurant company to a global agri-foods business. In Q1, it classified its entire Sadot Food Services segment as held for sale.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total reported revenue | $107.9 million | $213.0 million |
| Commodity sales | $106.5 million | $210.4 million |
| Gross profit (loss) | $(0.3) million | $4.7 million |
| Operating loss | $(3.5) million | $(1.6) million |
| Net loss | $(0.3) million | $(1.1) million |
| Adjusted EBITDA | $(2.5) million | $2.4 million |
| Operating cash flow | $2.6 million provided | $3.3 million used |
Commodity sales fell 49.4%. Management attributed the decline to lower global staple-commodity prices, seasonality and the largest global consumer being out of the market early in 2024. Despite lower sales, gross results moved from profit to loss; management said cost of goods sold declined broadly in line with sales. The $3.3 million fair-value remeasurement gain on derivatives helped limit the reported net loss; it is not the same as operating profit or cash generated.
At March 31, cash was $1.2 million, working capital was $13.2 million and the current ratio was 1.17. Total assets were $150.5 million and total liabilities were $125.4 million. Notes payable, net, were $3.6 million, all presented as current; the filing also reports $495,000 of cash interest paid during the quarter. Operating cash flow benefited substantially from working-capital movements, including lower accounts receivable, and should not be read as recurring earnings.
Other current assets included $47.2 million of current contract assets, a $6.4 million prepaid carbon-offset forward and a $4.8 million forward-sales derivative. The balance sheet also reports a $46.0 million current contract liability and a $46.0 million non-current contract liability. These substantial balances and their underlying terms are important to understand when assessing liquidity and valuation.
Material changes and notable items
- Sadot Food Services was classified as held for sale. The disposal group had $7.0 million of assets and $3.8 million of liabilities at quarter-end, and reported a $1.1 million pre-tax loss for Q1 versus $0.4 million a year earlier. The filing reports no goodwill or intangible assets outside the held-for-sale classification at March 31.
- Restaurant sales declined 49.7% to $1.2 million, which the company attributed mainly to converting company-owned Pokemoto locations to franchises and closing underperforming locations.
- Stock-based expenses fell to $0.8 million from $3.4 million, primarily reflecting the amended Aggia consulting arrangement, which reduced its stated share of Sadot Agri-Foods net income from 80% to 40%.
- Accounts receivable declined to $23.1 million from $52.9 million, and accounts payable and accrued expenses fell to $23.3 million from $50.2 million. Cash decreased by $0.1 million during the quarter after $2.8 million of net financing outflows, including $4.3 million of debt repayments and $1.5 million of new note proceeds.
- Shares issued and outstanding rose from 40.5 million at year-end to 44.2 million at March 31, largely including shares issued on conversions of notes. The filing reports 54.7 million shares outstanding as of May 15.
Outlook, risks and contingencies
Management said cash on hand, receivables and expected future cash flows from commodity trading, farming and franchise operations should fund operations, anticipated capital expenditures and repayment obligations for the next 12 months. It also disclosed that additional financing may be needed and that financing may not be available on acceptable terms. The company cites a SEPA for up to $25 million, subject to its conditions and limitations; equity issuance under such arrangements may dilute shareholders. The filing provides no specific revenue, earnings or margin guidance.
- The remaining Yorkville convertible-note principal was reported at $2.7 million at March 31. An April 10, 2024 letter agreement, disclosed as a subsequent event, scheduled three $350,000 principal payments for May, June and July, each with an 8% premium and accrued interest, and temporarily suspended specified payment/conversion provisions through August 1, subject to stated terms.
- On January 8, 2024, the company entered a merchant cash advance arrangement: $1.5 million purchase proceeds against $2.055 million of receivables. The company said it intended to repay Cedar in full at closing; the filing text does not clarify whether that repayment had occurred by filing.
- Five largest commodity suppliers accounted for 95% of commodity purchases in Q1, indicating significant supplier concentration. The company also identifies commodity-price, seasonal, weather, transportation, geopolitical, currency and international-market risks.
- Nasdaq had notified the company of a minimum-bid-price deficiency. After quarter-end, Nasdaq approved an additional 180-day compliance period on May 7, 2024; the company must meet the stated conditions to avoid potential delisting.
- Forward commodity and carbon-offset contracts expose results to fair-value changes. The $3.3 million Q1 remeasurement gain was material to reported results. The company had prepaid $6.4 million for carbon units expected to be delivered in 2025–2027.
- After quarter-end, the company terminated its Kuwait Muscle Maker franchise agreement effective May 2, 2024, citing unpaid royalties and other fees. Management states ordinary-course legal matters are not expected to have a material impact; a previously accrued lease judgment was also disclosed.
Important facts for investors to verify
- Whether the planned sale of Sadot Food Services closes, on what terms, and what continuing franchise-related revenue or liabilities remain.
- The recoverability, timing and cash-conversion terms of the large contract-asset and contract-liability balances, as well as the derivative and carbon-offset positions.
- Cash available after scheduled Yorkville payments and any merchant cash advance repayment; distinguish reported working capital from immediately available cash.
- Further share issuance, note conversions, SEPA usage and potential dilution. The filing lists 37.9 million potentially dilutive shares excluded from Q1 diluted loss per share as anti-dilutive.
- Progress toward Nasdaq’s $1.00 minimum-bid-price requirement and the risk of delisting if compliance is not regained.
- Whether commodity trading margins recover and supplier concentration, seasonality and customer-market conditions change.