FAT Brands (FAT) 3 Aug 232023 Q2 Earnings call transcript

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the FAT Brands Inc.

Second Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on mode. Please note that this conference is being recorded today, August 3, 2023.

FAT Co-Chief Chairman Financial Executive Kuick. from Andy the Officer, call and Wiederhorn; Officer the Brands of are Board; Ken On and Chief

remind before which afternoon, These Investors part and additional second earnings everyone not XXXX closed guarantees both of Each them. must second Please This June contain available and begin, details to our on supplement, should will made quarter, in forward-looking statements. website are undue publicly www.fatbrands.com. the refer release the results placed performance, of therefore, available. not that but the forward-looking we today XXXX, quarter earnings are discussion of the of which future upon be reliance company the I XX, section about financial include its statements at

a indicated to differ Actual due does a number results may The these risks from update not forward-looking date. to materially company these statements uncertainties. at and later of undertake forward-looking by those statements

of SEC For recent operating see and a release more detailed today's earnings condition, the risks and financial results could please future filings. impact that discussion

During in can measures useful should substitute evaluating available today's financial performance. discuss will GAAP are in Reconciliations additional its this presentation release. for isolation considered in accordance be or The prepared of as not comparable in results it which be call, information company today's GAAP. to measures, the believes non-GAAP a earnings with

Mr. call the to turn Andy Board. Chairman to like over now would of Wiederhorn, I the

thank on call the everyone, Thank you, us operator, today. and you all joining and for hello,

million the X.X% in to million to to increase increase X% revenue hard to XXXX teams, for grow manufacturing second work a continue year grew quarter a a System-wide facility. second the to our we prior-year and the compared XX% sales increase when Let franchisees a in me restaurant in of $X quarter. and by their royalties our The increase was Total million begin FAT grew Brand. $XXX.X revenues X.X% $XXX.X in from prior in driven company-owned employees by as thanking increase $XXX.X million, revenues quarter. compared our our

Turning to profitability.

to $XX.X retention second-quarter was quarter. a related Our EBITDA million to million included Last million in year's benefit adjusted year's $XX.X EBITDA employee $XX.X last credits. adjusted compared

EBITDA Excluding of $XX.X or XXXX. $X.X this million impact the benefit, million adjusted from increased QX the XX% of in

During the new growth strategy, to units, organic to on our openings quarter, second year-to-date we continued opening our XX bringing XX locations. focus

to already open During XX the units, have over of plan opened. third quarter, which we XX

units, is the in we which For year, full to increase XXXX. a new unit XX% are openings XXX new from open projected

on capitalized bringing We far in brands over next have transaction X,XXX over signed $XX high pipeline as new so XXX XXXX. to adjusted million year, to franchise adjusted to organic pipeline in deleveraging This growth is market be and years. other and Peaks few EBITDA conditions size demand for of factors. the new to our announced, EBITDA, deals sheet. previously Twin the for our take worth estimated subject the naturally bringing our the over locations public timing we our will agreements be plan million for signing $XXX Also, The market. units development this balance in of and total incremental approximately to approximately

count diversified has and Twin industry-leading and unit our XX in restaurant million. also $X and million and of between countries. of the Peaks. of casual states produce across to locations average both Units in grow remain the continued focused Twin now have XXXX, geographically margins. Florida, October very $XX generating interest unit AUVs franchisee with These especially of acquisition our strong million, footprint through X our Since expansion we on in highest see restaurants in around we volumes Peaks $X operates to While portfolio polished of volume continue some concepts, segment

During count X with far. the XXX lodges XXXX, to opened new so open date, unit to bringing lodges XX to we to plan XX

expect count end We year FAT to nearly a unit since in the acquisition. Brands with lodges, XX% increase approximately XXX

the more than to $X mix systemwide from expected increased XX%. to next plans its years, Twin increase growth the to unit Peaks unit today billion. franchise several to double Over XX% and planned XXX The count more to lodges sales than of locations approximately is

growth. our to seeing we consistent brands, shift Let's also where are burger

first the that area over quarter, be locations During opening we'll Fatburger in next the Tampa, which in we the X second Greater opened of a is the X years.

its the open new Additionally, locations within Johnny with enjoyed the X in Alaska. the Peru, multiple we has agreement UAE. the State in years. most to signed the first Texas Great also and locations XX Rockets of American next locations years open brand new to the end with Cookies a The around of debut slated to also XX development in Chile, making year. Arizona, continued in in to throughout coming by India the Orlando to territories, expand new plan globe recently location franchise continues growth locations open the

hit to also pleased the growth brand, date. to have milestone our a for We key are XXXth location

units Texas. in This operating Fatburger with Co-branding open also to a Pretzelmaker opened the Iowa, have in years In in generated Creamery unveil an months, the Cookie a the country out American Cedar strong Rapids, co-branded new open will and XXXX. coming key Kurdistan second of region we be throughout to drive-thru expanding Express Slab deals drive includes objective the locations, important locations. Currently, development we XX and X Fatburger signed spring another on the Region Fatburger Pizza Buffalo's model following first They continues franchised first is leverage Hot the Kurdistan the has X outside to This in deal for strong margins. Great and new already Table of location Iraq. over the there. strategy the will brand, with co-branded Round the right next set co-branded in we summer, XX Marble returns Additionally, location locations the co-branded gate. Stick several XX relocations over Dog our and drive-through unit thanks sales and we and open to to and XX

This first-of-a-kind the is co-branded this that we growth concept. the of anticipate beginning just for

Our of the of is area focus facility. next manufacturing growth our

nationwide from introduction facility of to our pretzel ago. factory our and you Rockets cookie for for rollout and roll namely markets should burger Angeles, Las brands. of is mix complete is X in our Johnny Georgia-based Fatburger. the and To its portfolio, Elevation to at rollout in the our operating in of Vegas of Burger As out several complete now be XX% today drive produces capacity, our manufacturing other believe stage brands capacity business at dough and The know, about the plant, the completed years end cookie of have begun only its offerings our Los early We we've of cookies at up by both XX% XX% growth, brands key summer. and the across

manufacturing During million the over second increase facility our XX% sales, last quarter. generated a $X.X year's in quarter,

are stages in Cafe final rebranding American by the Great We of Chips Cookies. Nestle House to Toll

Great of conversions franchise Cafe have a over Nestle XXXX, stores we expect American XXXX. remaining acquired to Cookies To by Chip the business. in the we complete As converted and to date, late Toll by XX House reminder, May

potential to opportunities record a on our of and strategic turn second us performance. acquisition operating track focus targets, Brand's of proven acquisition growth When sustainability strategic let Now with brands evaluating FAT remains acquisition. profitable pillar, long-term by

other consider our are to And also brands. Twin existing We as or round on increase We're focused with would can EBITDA. Peaks. sports to be our will sandwich categories coffee high-growth and category we into lodge at locations looking acquisitions particularly the and our acquiring that such out capacity continue evaluate portfolio, that finally, concepts manufacturing leverage will converted salad

X was growth to to our increase impactful concepts. operations campaigns her June, our will our FAT Quick division new she at will across marketing sales promotion, we robust and allow drive of to several background our over the that result visibility Jenn strengthened last team and Her brand in President of with develop brand Brands. and a presidents. Prior XX CMO of Johnston unique profitable the the Jenn's Service As leadership promotion years, added

We are to Jenn excited C-suite. to the welcome

the Allison a American of Group. and having serves Franchise the Great of joining previously Allison result spent decade respective at and this of served as Baskin Global leadership Executive Group, Franchise as Marketing Prior Vice President President Brand a Global Marble to Allison Brand brands Robbins Pretzelmaker. various Operations positions. of over at with Creamery years working As brings promotion, and Slab Dunkin' experience in new Cookie, Lowenstein now the XX

to including combination to Operations served time brings Vice recently of with Slab He Given Prior that, that a Great she Vice provide his assume franchise Desert at Hot with Taco role the company's Pear he Yum! experience. the to transformation and at Alison's was through background. the operational American improvement continuous guest Domino's initiatives Pretzelmaker, led focused Brand Pizza, Bell Table at value Senior also David leading. Initiatives Watteburger, restaurants, David Dickey's from Taco. and elevation Bell, operational is Pizza of of expect Dave's and track Chicken. President Barbecue Pizza. of where Cookies, of diverse hired at brands Strategic most to to multi-unit and culture, record of a Marble KFC, Pit great XXX on experience strategic President the brings the as Taco President Hut, her restaurant brands, Foods, Oro He his David Round strong as insights Del elements key from served organization De we

million rate, we is date. of on balance our an and million X% at paid maturity sold $XXX.X is current XX% a securitized of which new Looking a amount sheet. with In principal notes aggregate X% coupon of paid July, $XXX.XX of

We in all of million position we marketable for have which both and healthy available not third-party that securities to consist of sale were bonds bonds or of issued securities cash the that have investors. repurchased, to and but liquidity $XXX.X consisting resale addition yet cash. These are sold of a

share off. to Before and we update a like Brands kicked would just that close, foundation initiative the on an new I FAT

immediate I successfully few congratulate making months Foundation Board Brands like the in. the only FAT First, a to launching for foundation for would an impact

Brand's and was DEI, you Mark's it near Avery locations. over awarded close that President, Under DEI. to foodservice in including grants XX the in global to range What update hospitality his grants is alliance, appointed all areas, organizations on partnership rewarding security, MFHA. hit existing Mark makes supply FAT date, and partnerships a of food to multicultural in also I'm recently Vice addition commitment been leadership more to even home, the wide health, and have pleased Brands Senior and FAT To to mental role. with more. education to nonprofit and chain

sharing to and an our the equity forward have XX partner The inclusion, the council coming more support We in PepsiCo. work on including the diversity, accessibility. consists updates from standing council launched of for of We idea months. at council, IDEA individuals, look

wanted that named I Finally, TODAY. was USA Creamery share celebrated as anniversary by chain top to Marble treat Slab a also its the last dessert and XXth month,

We team are continuing proud of legacy and the this of striving brand for outstanding achievements. the for

for Brand well-positioned opportunities on is the experience. are summary, and superior growth. ahead In an are That we authentic dining brand considerable, for FAT providing built

We dynamic have strong brand coupled cost-effectively capable management platform senior brands. integrating and a seasoned a leadership and team, with seamlessly new of

about growing healthy to joining balance Ken your over with And pipeline hand We on Brands. development sheet. that, will future financial interest you Kuick years would like on to us and for the We updating and talk I you will and many forward today naturally calls. in look fuel our our for highlights to from progress to growth sincerely quarter. it Our FAT our to de-lever appreciate come

second X.X% revenue company-owned Andy. in X.X% increased the a during driven second XX% $XXX.X manufacturing quarter. by from year-ago million, royalties, increase the to restaurant revenues Thanks, and X% quarter decreasing a expenses in from largely in the unchanged revenues our facility. a Cost and increase remained increase X.X% Total in quarter,

During the and primarily recognized which we of of cost credits, restaurant second retention factory $XX.X employee reflected to quarter was revenues. of XXXX, as tax million reduction a

time the that during reasonable fully we be determined $XX employee we entire fourth million until the XXXX, such it reserved credit have of that has been realized. that tax the that we quarter retention year of assurance claimed credits During will the

of portion IRS the of cash this on credits, from reversed received second the During XXXX, million reached representing reserve. of a quarter we that determination and $XX.X the

in expense of this second cost than $XX.X XXXX as restaurant second million the prior decreased second million note reversal quarter and quarter, lower of to being the the from to general year quarter period. cost it's being million lower in of normal adjusted that the is reserve million a in reduction and $XX.X of the in all second EBITDA. quarter administrative reflected XXXX normal in administrative and in Included expense the $XX.X the expenses, resulted For second of And XXXX. of in $X.X the and revenues of important than quarter general

the due an flat million quarter, quarter related to year-ago increase XXXX million fees depreciation restaurant the to million property referenced, tax of just restaurant this year. last to and Excluding the matters. was prior-year $XX.X quarter the $X.X XXXX, million of driven $XX.X to Cost was primarily quarter reversal and company-owned $XX.X quarter over and year professional credits increased to and Advertising to quarter million to relation net net by diluted I $XX.X revenues securitizations. in please $X.XX general quarter. million the expense income of of primarily increase second compared of the of employee in the share on or the for share litigation was amortization quarter compared advertising the the million or in adjusted reserve year net to the expense expense revenue. open $X.X higher from or equipment. quarter, interest or new quarter, at share in a and million as Depreciation the million $X.X that, administrative of in for to certain of $XX.X comprised our expenses the our the diluted $X.X expense million factory increased due on million second million prior expense line retention X.X% Carolyn, second in of in in of Net prior recognized and second per compared with loss million primarily the second a was quarter the year, was loss diluted $X in compared basis, loss to prior-year quarter. advertising $XX.X per per was $X.XX $XX.X diluted quarter And and an questions. and year-ago million vary of $X.XX share in $X.X for was $XX.X And and per $X.XX this prior-year the both Other of in

Instructions] [Operator

The first question Capital. Noble Gomes Joe with from comes

Good afternoon. Congrats quarter. on the

at had the ask I first did were So to the terms in quarter, XX the during you projecting you question you quarter openings the wanted said XX. first of call,

just wanted I there. to what So see happened

come happened the projected the You've kept guide quarter XX% the at in opposed just at what full-year in that as Was XXX. to that million. wondering $XX

the slip XXX into end units, month. and some we'd we'll August, at the and thought had around We we XX July be this quarter by just over end of

very So just mild a slippage.

The quarter other thing quarter that the XX. about the ended on June is

difference. And week so of that of don't June, changing in June of full week some it's a that's there's a into and it why that last the another slipped We year. big see openings in the

in and I was ask, And issues there any Okay. last have the just I that chain year, to got role getting some with equipment think supply some Does slippage? everything. of

but and before, the area like -- issue seen the is manager the just a was managers the plenty it It's again worker, hired thank getting is It's trained. huge at there's always today. the that's more We've It's not feeling a issue. it that line-level of pressure issue. you're which It's also goodness, an at any most not level price. an

me. Pardon

mentioned, that. commendable and of the as of a the job with you is done One goals, up utilization you've getting factory other the

year, opposed going to hired to you last start things One the third parties after as of someone specifically in-house.

that can is little Just wondering as give progressing. if to a you color us how effort

of to to as there's rolling pretzel And just and is initiative. our as as utilization those we're program selling many also that's this coming in we the X-year out selling. across uptick Plus And can. of brands anniversary the and One they're have the many rounding going that X and elements bet; we it. You pipeline strategic rest the restaurants be an year. of well X,XXX-store see else pretzels now, cookies over of new will whatever cookies as

as those a up of bunch open. going to chew that's capacity So restaurants

carefully contracting, In really of cookie in margin mix with our on we're different several balance negotiations groups for third-party producing trying several it's into them. to that we've RFPs terms just about And entered production. pretzel

have very cookie of wholesale the the for margin XX% We and in high margin offer and very brands our we our or can healthy own a the mix. ingredient quality dough is a range pretzel franchisees more the producing that with very, pricing for

And some contracts of margin. of the third-party those manufacturing a some have XX% like

better of So we contracts. capacity it for business when don't more richer, to we or our want a for use up save low-profit can business third-party own

So we're be There about just to them trying of there. out plenty which contracts are into. enter thoughtful we

your debt of a that uses Okay. And on us that color on maybe raised. little the has cash give you been mentioned thoughts the of recent some raise,

You up for redemption. about the mentioned haven't preferreds anything didn't that were

$XX was Or other there's I think that the million intentions off roughly those raised? maybe preferreds? Any on paying do thoughts you for of have left. that cash

Right.

So cash we for of comes the the into that and liquidity a additional along. second well-positioned of of going amount anything year did raise a being have just ton half fair to

that, million our marketable And In balance we the of bonds of intention with. over to it's addition to have we of that bonds sell some now the of can trade certainly $XXX securities year. those

where are at from. publicly point not the in This some holders preferred discussions the that that different of and equity some time. same preferred obligation firms some to bought to brands firms back buy private is are We shareholders, we these private of the we have traded equity preferred with ultimately in a shareholders, are that

a There's for and us. we'll for long we the some them. negotiations redeem the in lot of that that get cash back Alternatively, with preferred bonds, obligated if we're to are liquidity options raise see We'll in We run. different something sell buy done.

capital than less far expense possible, preferred to just is the bond trying position as dividend the cost quickly from reduce that and we're preferred. of so the from And as

So if we're retire we eager to can. that

substantially. And noticed through have Okay. the then going costs litigation release, increased

I X in should we think Andy? Do is down? the Just Have come to of this we roughly they're higher? guess, running of they're your year, start quarters in peak? which they kind a what the Any go expectations XXXX. quarter $X best were going million seen those that first double think to

activity this a billed and certainly of down. tell that that. of and from some to and it's the was things QX Very in balance to some responding into year. We're Yes, in of litigation and the coming hoping motions next year. are during the that hard of got lot if they like There meetings goes built away QX

insurance pursuing are our litigation a reimbursement to that. hope that ultimately significant that amount and claims against We and carriers of expense, for recover of prevail we on

question with comes Alton Capital. The with next Loop Stump

Andy. question. for Thanks Thanks, Great. taking my

ask you Peaks Just first opportunity wanted convert assets you off, to models. the obviously into you, that mentioned I would purchase Twin guess, potentially to

percentage the kind come think build closure in weeks your given number smaller your a there's lot current out players the Just that months of of is pandemic. the have fortunes doors to landscape, of do obviously of coming of, or restaurants? ballpark last Any had course, could been XX as as particular, from own you future having to opposed to what conversions of builds, of

Yes.

that, successfully maybe portfolio. very it and conversions lately. a with we a and it something permitting think to location, years restaurants, takes we answer will permitting it accelerate could the be it directly, of X.X improves, by whole because years it think the you build of these like the opening Twin to done will Then years. it, few very, Peaks but stores if on dramatically focused It's we've get or the almost But meaning X/X in between and new on open I that XX% better. quite so, next bunch second-generation some a convert bunch those the very of find we're chain accelerate to past much improve opening. able we're is the in haven't seen things it of Supply somewhere

on third, that Twin the opportunities, two see to And years. Peaks I conversions pipelines over total a XXX would we to a XXX today so pipeline. eye our in future. those that three XX% or out be X,XXX number have that of see or of and those And the store next I hope that probably would we announce of if near

used back for just early Peaks Great. helpful. Very, through presume I then going goal this, proceeds main obviously plans to public. with that on down the in I that at your of Twin does it to And to want came June Is the ask bulk those debt. go potential if pay it to be go out in XXXX? once very some would point

a develop franchise heavy FAT the be on of and would used maintaining for money would corporate balance to there Peaks Twin additional on the then stores paydown be there stores. Brand Yes, very substantial to company-owned of debt side, still a side,

if answer X-year over taken then landscape, get, of feels back high competitive it. I we're Great. costs that given now and to starting moderate pricing months from cost off a inflation standpoint? of think brands. industry-high had seeing you you guys But different a the bit input we're to your competitive into because like a thing, questions. that a How sure you in different the XX overall to good lot But markets. it And XX do more last last environment. the respond inflation. to hop reason, coming obviously, for be Got But guess just have that the I'm those I'll in queue you're things

brand question very categories. Well, it's even little really it's a by brand an spotty and because interesting within different

bit, tons, the are which continue to come really we're restaurant-level is we done down take seeing commodity And feeling So pressure before. we costs helping price bit, this like little have definitely margins. little but a not at with point a not to

category. can, at and possible, we But LTO or we the best that. across an can We things month-by-month are the in different what best specialize utilize if all is mix to selling terms on of we trying in like the manage menu it to realize quarter-by-quarter the margin basis margin

[ soft, been So thing Polish fast sales casual, have we've ] rallied, seen lumpiness sales some Same have the side. have on where rallied, sales

not summer sports the sports note basketball there ton going football and once again of to then is for like something is there's on the so gets during and going a on. bars, Now

dog that in casual for summer weeks, to landing that going more fights, we're into here dining sports, casual behind we'll those are like and But those very like days UFC couple restaurants should helps that. things So us this alcohol of going get quickly And rocky. because really that football -- also just into the the Twin be watch are people restaurants just category XX% they're and another Peaks.

so getting that into we're about And very the swing of thing. back whole excited

question with Roger The next comes Lipton with Lipton Financial.

Yes. Good afternoon.

Just questions a the sheet on million, and the $XXX to would have the was couple cash Joe follow-up raising what of quarter, Loop. of as this end number, Prior that balance Andy? the gentleman from the on you of

$XX unrestricted million I Ken. end the of do, to Joe, quarter, rate. the it's the approximately. cash Prior at in

but cash receivables ERC the also, there's new additional also raise for Plus credits.

receivables. are those U.S. government So

Okay. where in $XXX see the the do million And financials, we securities? of marketable

Joe, Ken Yes, it's again.

by You us. balance won't by us issued on sheet, and owned so see the was it it

will financial So see you consolidated from perspective, statement it. a not

It also was issued after quarter the end.

correct. That's

issued in was it Yes, July.

it the you event. balance see won't a and it will footnote subsequent quarter, a but as you sheet reference So on see of this

see. I

the everybody, on the the won't the but a of vary it it cash a for out stores interest has all Twin the instance? higher? in to the in must be cost Got builds a what especially know whether or I at changed to much the will ballpark, new to is But size stores larger in Peaks be stores building payable. -- not? Twin it's any If are of a which Are shown great what's show wanted the the renovation. Peaks, it. the And will So It out, through built X, great relative you And or build the up to mall, getting deal netted the in system as footnote. just volumes is depending

the size wherever stores has gotten can. bigger we of the So

As talk unit million million about of seeing outstanding. we of Florida, to million $X volumes store, just they're then store like average talk $X we about where $XX we're and

Peak outdoor sporting means getting days large and That accessibility we that. can on that more to handle the a we opportunity have event of in and wherever to And is the weather Now we build dining part more we're one just do guests. Twin second the of can bar nights, or throughput patios. restaurants,

manage want So In can the build bigger business, want especially to larger a second take the because that business, of casual and really want you if advantage having restaurants. the you build polished throughput, you to restaurants restaurants. we fast-casual build In smaller bar. to you

And to typically, what go Right. great X thinking a as investing I'm a the to if what's am a it franchisee, – Twin where deal. that going it vary Peak acknowledging But about cost build can store? I million

building you're the if estate So the the pay to able real to you buy or on the real $X for might million million build million $X.X real estate. estate, $X and

even out finance get if and then million can million. and take $X.X another your So million, and out you equipment sometime of could then do you you want a $X $X sale-leaseback

might have knock at you So finance make, the going to a it want you really, to on project your million million of year. you're the and make $X $X.X in if end you might day wood,

margin. on depending your So

all operating you're on just good in. discussed. It the state all we depends on So or Florida return, versus difference. that depends but California also it's variables the the big of cash-on-cash a in is very, Texas very a wages

Well, they're expected their voting terms for feet the a returns. lineup with franchisees, of in there's and

vary a outstanding. coming terms it deal if can the are of I financed, returns be wouldn't the weren't but stores these understand to great it stores that in So how

there's year and grow of XXX%. sold. the X and we've XX another already stores that it brand in the XX% this it's Roger, grown amazing, We've units, it's from think to poised grown by original done by XXX end to -- another I years, XXX we already have will

brand and a it's why IPO this again is double So going great to story.

go like concludes Please Wiederhorn to This I sir. with question-and-answer closing invite today's you. Mr. session. proceed statements. ahead, Thank to his would

your I now. want in of this operator. rest to call. interest the you thank call FAT our attending for conference Brands of you, and cancel all can Thank We

very today. That conference audio you. does your the FAT for Brands Thank Thank for much you conclude participation.

day. good You disconnect. Have a may now