FAT Brands Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Fat Brands, Inc. Third Quarter Fiscal 2022 Earnings Conference Call. At this time, all participants have been placed in a listen-only moment. Please note that this conference is being recorded today, October 20, 2022. On the call today from Fat Brands are President and Chief Executive Officer Andy Reederhorn and Chief Financial Officer Ken Kulik. By now, everyone should have access to the earnings release, which can be found on our Investor Relations website, at ir.fatbrands.com in the press release section. Before we begin, I need to remind everyone that part of our discussion today will include four licking statements. These four licking statements are not guarantees of future performance, and therefore undue reliance should not be placed upon them. Actual results may differ materially from those indicated by these four licking statements due to a number of risks and uncertainties. The company does not undertake to update these four licking statements at a later date. For a more detailed discussion of the risks that could impact future operating results and financial condition, please see today's earnings press release and our recent SEC filings. During today's call, the company may discuss non-GAAP financial measures, which it believes can be useful in evaluating its performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in today's earnings release. I would now like to turn the call over to Andy Wiederhorn, President and Chief Executive Officer.

Thank you, Operator, and hello, everyone. We sincerely appreciate you joining us today and for your interest in Fat Brands. This afternoon, we made our third quarter 2022 financial results publicly available. Please refer to the earnings release and our earnings supplement, both of which are available in the Investors section of our website at www.fatbrands.com. Each contained additional details about the third quarter, which closed on September 25, 2022. I would like to start by thanking our entire team who have worked so diligently as we continue to scale this business. It is due to the hard work of our team members, franchisees, and their employees that we move forward with confidence in the long-term opportunities for fab brands. Let me also note that this month we celebrate our five-year anniversary of becoming a publicly traded company on the NASDAQ. I couldn't be prouder of where we are today. Back in 2017, we launched Fat Brands with a goal of becoming a global leader in the restaurant franchising space. What started as just Fat Burger under our ownership 20 years ago has grown to a 17-brand portfolio company with over 2,350 locations and 760 franchisees around the world in over 40 countries. Also, we have more than 325 multi-unit operators operating anywhere from 2 to 75 restaurants. This is truly impressive, and we are just getting started. Now I would like to discuss our recent performance. We reported total revenue of $103.2 million in the third quarter of 2022 compared to $29.8 million in the third quarter of 2021, a 247% increase. The significant increase in revenue was a result of our 2021 acquisitions coupled with ongoing sales recovery from the negative effects of the COVID-19 pandemic in the prior year. Comparable system-wide sales increased 7% year-to-date on a pro forma basis, including all our brands acquired, it's 5% year-to-date. System-wide sales grew to 548.2 million or by 57% when compared to the prior year quarter of 349.8 million. Year-to-date system-wide sales increased to $1,623.9 million. For the full fiscal year 2022, we remain on track to deliver an annual run rate of approximately $400 million of revenue and system-wide sales of over $2.2 billion. Our sales remain resilient in this economic environment due to our diverse portfolio of brands with average checks ranging from approximately $8 to $37. Our top line growth was matched by a strong increase in adjusted EBITDA. Adjusted EBITDA increased to $24.6 million in the third quarter and year-to-date $69.2 million. We expect Q4 adjusted EBITDA will be similar to Q3 for an annualized run rate adjusted EBITDA of approximately $90 to $95 million for fiscal year 2022. At Fat Brands, we continue to execute on a two-pronged growth strategy consisting of organic growth and growth by acquisition. While our acquisition activity has gained significant attention over the last few years, as we've acquired nine brands in a two-year time period, our organic pipeline is equally impressive. During the third quarter, we opened 38 restaurants, bringing our year-to-date openings through tomorrow to over 100 restaurants. We plan to open 25 more restaurants before year end, bringing us to approximately 125 new restaurants this year, a new opening milestone for Fat Prince. Looking to our 2023 restaurant pipeline, we will continue this robust growth as we already have more than 90 additional units under construction and anticipate we will open between 130 and 150 new restaurants in 2023. To further fuel this growth, At the end of August, we hosted our biannual Franchisee Summit in Las Vegas with our franchisees, suppliers, and key stakeholders. This was the first time we hosted an in-person event for our franchisees since the pandemic began, and the first time we held all of our brand partners together in the same place. The energy level and the enthusiasm couldn't have been higher. At the summit, we offered incentives for franchisees to buy additional units and signed over 150 new development deals. We now have agreements in place for over 1,000 new franchise restaurants, which represents 43% unit growth and will provide us with an estimated $60 million in incremental adjusted EBITDA, or approximately 66% adjusted EBITDA growth over the next few years organically. And while the summit was a financial investment by Fab Brands, we expect to see a significant return on this investment, i.e. a substantial increase in royalties due to the number of franchise agreements signed in conjunction with this event. We also made an exciting announcement regarding our community involvement. While we are always looking to make an impact in the areas in which we operate in, we've decided to take this step further and the newly formed FAP Brands Foundation 501C3 organization was announced. The mission of the foundation is to change lives by supporting local causes that uplift and unite FAP Brands communities. We will look to partner with local nonprofits to provide essential programs to help families and communities thrive. We have seeded the foundation with $125,000 for 2022 and $125,000 for 2023, a total of $250,000 to start things off. Our franchise partners, their employees, our corporate employees, and our brand partners can all contribute as well. Fab Brands is covering 100% of the administrative costs of the organization, so 100% of the money goes to the beneficiaries. We look forward to sharing more details on this in the coming weeks. Now, back to our growth pipeline. We are seeing significant franchisee interest across our diverse portfolio of restaurant concepts. In our polished casual segment at Twin Peaks, we plan to open our 95th restaurant by year end with over 100 new Twin Peaks remaining in the pipeline. Next year, we plan to open between 15 and 20 new Twin Peaks with a similar number of new stores opening each year going forward for the foreseeable future. This is a high growth brand with very strong margins and extraordinary average unit volumes. Our newest class of Twin Peaks stores have approximately $6 million in average unit volumes. A significant focus for 2023 is to accelerate the opening of stores in our pipeline as the equipment supply chain calms. The sooner those new stores open, the sooner we receive royalty revenue. In the fast casual burger category, we have deals for over 350 new fat burgers and Johnny Rockets. both domestically and internationally. And speaking of Fatburger, last week we earned the prestigious honor of being ranked the number one fast food burger in the country by Los Angeles Times, beating out 22 other top chains. Our QSR business also has a solid pipeline of more than 400 restaurants, especially at Fazoli's, Round Table Pizza, Great American Cookies, and Marble Slab Creamery. We also continue to play into the synergies and the nature of our portfolio co-branding offerings. Co-branding is a great opportunity for us to drive sales and leverage margins through a combined menu approach. We first started our co-branding strategy back in 2013 with Buffalo's Cafe, launching a fast casual version of the chicken wing chain, Buffalo's Express, co-branded with Thaperton. The growth of this co-branded offering remains strong with over 100 locations worldwide. Similarly, we have seen great success with pairing Great American Cookies and Marble Slab Creamery together with with approximately 225 co-branded units. Most recently, we have diversified our burger and wing co-branded options and debuted Johnny Rockets with a newly created model of hurricane grilling wings named Hurricane Wings. To close out the year, we will also unveil our first tri-branded unit, a fat burger hot dog and a stick, and Buffalo's Express. We are also launching a new initiative to expand into non-traditional venues, including airports, universities, amusement parks, and stadiums. Across our portfolio, we have opened 13 non-traditional locations this year. Looking ahead, we see great value in investing further resources to expand in this area. As we have stated, another important part to our growth lever is our Atlanta-based manufacturing facility, which produces pretzel mix and cookie dough for several of our brands. During the third quarter, our manufacturing facility generated over $7.8 million in sales, and sales of approximately $25 million year-to-date. Our focus continues to be on adding to the goods we currently manufacture for our entire portfolio of brands and selling goods to third-party brands not in our current portfolio. We believe our factory business today is in its early stage of growth and is now operating at about 33% capacity with significant white space to expand. We expect to see an increase in operating utilization from 33% to 38% related to the May acquisition of the Nestle Tollhouse Cafe by Chip franchise business once it's fully integrated into the coming months. We're still in the process of rebranding approximately 55 Nestle Tollhouse Cafe stores to Great American Cookies. Our first rebranded unit opened in August, and we will look to convert several more locations by year end. As a result of this acquisition, we are now able to produce the cookie dough ourselves instead of Nestle franchisees buying dough from a third party. This allows the franchisees to buy the cookie dough at an approximate 20% discount. We're also able to capture the manufacturing revenues which contribute approximately $15 million of our adjusted EBITDA. We continue to evaluate acquisitions that will increase our manufacturing capacity and grow our EBITDA. Now, turning to FAP Brand's second strategic pillar, growth by acquisition. As you know, our main objective this year has been to digest the eight new restaurant brands we acquired in 2021 and capitalize on potential synergies and cost savings as we scale the business. We are extremely impressed with how seamlessly these brands have fit into our portfolio. There's also been significant interest from our franchisees to purchase and develop other fat brands-owned restaurant concepts, in other words, adding second or third brands to their territories. We're always evaluating acquisitions to capitalize on, particularly brands that strategically fit within our current operations that have a proven track record of long-term sustainable and profitable operating performance or that give us the chance to expand our factory business. In other words, we're not looking for turnarounds, but rather growth brands. We are seeing a number of opportunities in the current environment and expect to see more in the coming months and hope to announce some of that activity before the end of the year. Looking at the current landscape, we remain in a period of historically high inflation along with supply chain challenges. However, with 17 brands in our portfolio, we are fortunate to have a strong purchasing power of more than $600 million per year in food, beverage, and paper costs. As a result, we're able to generate savings for our franchise partners of approximately 2% to 3%, which is highly beneficial in this inflationary environment. That said, menu price increases are inevitable in this current environment. We continue to coach our franchisees on the review of the financial metrics in their business so that they can continue to profitably operate and serve their communities. It's about making sure they understand the labor and food costs and to know if they need to raise menu prices. And even though our franchisees have been taking price, we've not seen a notable decline in sales. Looking at our balance sheet, we are actively pursuing the rating and refinancing of our different securitization facilities beginning with our FAT Royalty 2021 and FAT GFG 2021 securitization trusts, which we expect to complete in Q2 of 2023. And while we may not see huge interest expense savings from the ratings process in this current environment, we are picking up a portion of the savings effect in the top-line royalties as prices go up, royalties will go up. Further, the ratings process will create substantial additional liquidity in our bond portfolio, which will help us fuel new acquisitions and growth. Tomorrow, we plan to redeem $43 million, or 1,821,831 shares of our Series B preferred stock at a price per share of $23.69 from one of our private equity counterparties who sold us the Twin Peaks brand in 2021. The redemption of this Series B preferred stock will yield significant cash flow savings for us as our securitization facility, which will fund the transaction, has a lower cost of capital than the preferred share dividend rate. We are actively working with our bankers towards the redemption of another $95 million of Series B preferred stock sometime in the coming two or three quarters. In summary, the opportunities ahead for BAP brands are considerable, and we are well positioned for growth. We have a strong and dynamic brand management platform capable of seamlessly and cost-effectively integrating new brands. We also have a healthy and growing organic development pipeline that will fuel organic growth for many years to come. We look forward to updating you on our progress on future calls. And with that, I would like to hand it over to Ken Kuick to talk about our financial highlights from the quarter. Ken.

Thanks, Andy. The total revenue during the third quarter increased 247% to $103.2 million, reflecting a full quarter of revenue from Global Franchise Group acquired in July of 2021 and revenue from Twin Peaks, Fazoli's, and Native Grill & Wings, all of which were acquired during the fourth quarter of 2021. Additionally, revenue benefited from the ongoing recovery from the negative effects of COVID-19 in the third quarter last year. Costs and expenses increased to $102.2 million in the third quarter, compared to $27.4 million in the year-ago quarter, primarily due to the 2021 acquisitions. Included in costs and expenses General and administrative expense increased to $28.8 million in the third quarter from $10.6 million in the prior year period. And this increase was attributable to the 2021 acquisitions, coupled with an increase in compensation costs, professional fees, and travel, reflecting the significant expansion of the organization. Cost of restaurant and factory revenues increased to $55.3 million in the third quarter of 2022, compared to $7.1 million in the prior year period, primarily related to the 2021 acquisitions, including the operations of the acquired company-owned restaurant locations and our Atlanta-based manufacturing facility. Depreciation and amortization expense increased to $6.9 million in the third quarter from $2.4 million in the year-ago quarter, attributable to the 2021 acquisitions, including depreciation of acquired company-owned restaurants and the amortization of acquired intangible assets. Advertising expense was $11.2 million in the third quarter compared to $5.5 million in the prior year period. These expenses vary in relation to the advertising revenue and reflect advertising expenses related to the 2021 acquisitions, including company-owned restaurant locations, and also the increase in customer activity as the recovery from COVID continues. Other expense for the quarter was $23.9 million compared to $7.2 million in the year-ago quarter, and was primarily comprised of interest expense on our securitizations. Net loss for the quarter was $23.4 million, or $1.42 per diluted share, compared to a net loss of $3.6 million or 26 cents per diluted share in the prior year quarter. And on an as-adjusted basis, our net loss was $16.3 million or 98 cents per diluted share compared to $2.3 million or 16 cents per diluted share in the prior year quarter. And for those that are focused on cash flows, it's worth noting that our $23.4 million net loss for the quarter included $7 million of non-cash depreciation and amortization, $2 million of non-cash share-based comp, $1 million of non-cash lease expense, and $6.9 million of non-recurring litigation expenses. And with that, operator, please open the line for questions.

At this time, we will be conducting a question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate a line in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Our first question comes from the line of Joe Gomez with Noble Capital. Please proceed with your question. Good afternoon, Andy and Ken. Congratulations on a quarter. Thank you, Joe. Thank you.

So looking at, you know, just briefly had a chance to scan through the release and, you know, total revenue for the quarter was up 247%, but cost and expenses were up 273%. Just kind of get a feel from you, you know, when do you think that revenues will start growing, you know, faster than the cost and expenses? When can we start seeing those kind of level out?

Well, I think we're there. There are some reserves that we took in the quarter that, if added back, would show it as a growing revenue number over a growing expense number. And we're just trying to be conservative here for the rest of the year. But we think that – because if you look at the add-backs that Ken just mentioned, plus this bad debt reserve that we reserved for, it's only a couple million dollars of actual – of net loss, it's a cash loss outside of insurance reimbursements or things like that or tax credits. So I think it's pretty narrow now. We're definitely on track to be positive cash flow generating sometime next year net of dividends and everything else. And hopefully by the end of next year, we'll be in a positive net income standpoint. Remember, there's a lot of depreciation there too from company-owned stores, so you have to keep that in mind.

Right, right. Okay. And, you know, talking about the cash flow, can you kind of quantify what the cash flow savings will be from the redemption of the $43 million of the series being preferred?

It's a several million dollars a year. The $43 million, there's a good 10-point savings in there at a minimum, if not more. So that's That's more than $4 million a year in and of itself because the securitization debt issuance is at a lower rate.

Okay.

Thanks for that. And just on the, you know, it sounded like you were saying, you know, Twin Peaks and a number of the other concepts still continue to, you know, seem to be performing well. Are any of the brands or concepts, performing below expectations? If so, what are you doing to try and move the needle in the positive direction? Given what's going on here in the economy, guest counts at the franchisees, are they still remaining relatively healthy?

Business is really good. Not just good, but really good across the system. Not every brand is seeing it as much as another brand. You definitely have variations amongst the different brands in terms of how much they're generating, but we're really seeing to be mid-single digits, positively comping in this environment. We're happy with that. To see traffic solid, we're happy with that. We have a diverse group of brands. We have QSR brands all the way up to polished casual dining brands. So, interestingly, you know, when you get down to the QSR side of things, sometimes it's tied to gas prices. Gas prices go up, people don't drive around and go through the drive-thru. Gas prices come back down, they go to the drive-thru more often. So, we've seen some of that. It's very sensitive and, you know, elastic in that sense. But, you know, look at Twin Peaks where they're generating like 13% same-store sales year-to-date. It's off the charts. And People want to get out. They want to be in restaurants. They want to be in sports bars. It's a good sports season, and we just haven't missed a beat there. The only thing, when we look at revenues being off our expected revenues by a little bit, it's literally because we have a couple stores that couldn't get open in time because either the restaurants are stuck in permitting with state and local authorities or the equipment hasn't been available yet, and so it's going to push the opening in a couple months. These aren't These aren't like long-term misses. These are off by a couple months, and they'll miss year-end and miss the quarter. But business is really strong. I mean, the fact that we have an organic pipeline of now more than 1,000 stores, and we have 90-something stores under construction already for next year, and it's only October, it's really strong franchise demand. So we're just not seeing it in terms of recessionary environment for customers in our restaurants.

Excellent. One more, if I may, and then I'll step aside. So beginning here, the fourth quarter, we had Hurricane Ian come through the southeast. Obviously, you've seen the devastation in Florida. Has that had any significant impact on the operations on any of the stores or locations?

As a matter of fact, it has. Those are up. in Florida, which is not what you'd expect me to say, but like our Fort Myers store, which is the number one Twin Peaks in the, in the fat brand system lost a couple of shingles off the roof and that's it. And so it was immediately back open and operating and serving relief workers and serving locals and sales were significantly higher week over week because of that over the last few weeks. And, you know, the hurricane grill and wings has seen the same thing and we've done donations and, and, and had events in the parking lot to serve the locals and serve the relief workers as well where we've donated food and things like that. So we've not been adversely affected, thank goodness, and our thoughts are to everyone, of course, who was adversely affected, but we fortunately didn't get handed a lot of pain there.

That's great news. Thanks for taking the questions, Andy, Ken, and look forward to continued progress.

Thank you.

Thanks, Joe. Our next question comes from the line of Roger Lipton with Lipton Financial Services. Please proceed with your question.

Yes, hi, Andy and Ken. I was just following up briefly on the point that Joe was talking about in terms of sales concept by concept. It sounds as if you didn't see much trading down within your brands. What insight can you give us in terms of whether customers are trading down in this stagflationary economy. Have you seen that at all?

Well, you know, one of the things, I mean, we have seen, you know, over the summer when gas prices went nuts, we saw some softness in Fezzolis, and then it came right back when prices got back in line again. So, you know, it is a little bit of that's on the QSR end. I mean, that's an average check of $8, and the average check with price increases to some extent went to $9. And, you know, that's a real number for some of those drivers. When gas prices go up by 20% or 30% in the Midwest, that, you know, affects people wanting to go through the drive-thru. 99% of those restaurants have drive-thrus. So those kind of things, you know, matter. But it hasn't stuck. Like, it's bounced right back. And we've just been very fortunate in that regard to not, you know, to not really have that effect. You know, not every brand is growing as much. But you have, I mean, we have Ponderosa and Bonanza, the steakhouses that are up. significantly, you know, big numbers year-to-date, over 9%, and, you know, some of the burger brands just skyrocketing up. So we really haven't felt it like you'd think we would.

Right. Well, of course, the fact that Twin Peaks is your largest single brand, and it's doing just about the best, the rest of the brands are lower ticket, so they'll get their share of the customers in a tough economy, I suppose. Did you say that the manufacturing, the dome manufacturing facility is already running at a $15 million EBITDA run rate?

Yes, it is. Yes, I did, and yes, it is.

Right, at a 33% capacity. Yeah. Aside from the Nestle business, is there anything else on the near-term horizon to use that facility more heavily?

Yeah, so Nestle will take it from 30-something percent to almost 40%. We have several things that we're working on that would be additional manufacturing business for the facility. We'll see if we get those things done, and we'll see about true third-party manufacturing, like manufacturing for others using our plant. We're working on both of those things. It's an interesting environment out there, and so we want to make sure if we're going to buy something that it's it's appropriate for the business and we have all the synergies and it's strategically important to us. And then, you know, just cost of capital. We want to be mindful of that if we're going to make an investment today.

Okay. That's all I've got for the moment. I'll come back to you later. Thank you. Thank you. And as a reminder, if you have any questions, you may press star one on your telephone keypad.

Our next question comes from the line of Greg Fortunoff, a private investor. Please proceed with your question.

Hey, Andy. Hey, Ken. How are you? Good job. Hi, Greg. A couple questions. Ken, maybe just to start with you. Can you talk about balance sheet? How much cash is on the balance sheet at this time?

You know, unreserved or... Yeah, at the end of the quarter, we have about $24 million of non-restricted cash on the balance sheet. Okay. And then added to that is another... 35, almost $40 million of restricted cash. And that is an increase from the second quarter.

Okay. And the total debt, I mean, because obviously you're moving the preferred to debt now. So what is the total debt at this time?

Total debt is, hold on just one second, $977 million face. Okay.

So – and one last thing. I noticed that you have an other expense line that's very large. What is all that? I mean, I know you talked about some things on the call, but it didn't add up to the large number that that was.

Which number is this? This is other – oh, other income and expense, which is $24 million. Yeah, other expense. Yeah, all but $500,000 of that is interest expense, so pretty small non-interest expense piece, so $24 million of that.

Okay. Andy, so a couple for you. So based on the debt level that Ken just said and the EBITDA expected, you're trading like around 9.5, what's called 10 times EBITDA, which is probably about five turns less than other people such as Jack in the Box, other franchise type restaurants. I guess a question for you is like, why do you think we're trading at such a discount and how do we narrow that gap?

Well, I think like I've similar to previous answers, I think that printing the EBITDA for 2022, like we've committed to and hitting that 90 to $95 million run rate really just shows that this acquisition strategy worked and we were able to ring out the synergies and having the more than 60% organic growth opportunity with these additional stores that have been signed up and paid for by franchisees. This isn't aspirational franchise sales. These are already signed paid for deals with schedules for franchisees to open new stores. So I think we can point to that and that naturally delevers us, as you know. So if EBITDA goes from $95 million to $150 something million over the next few years, we naturally deliver on our own, let alone raising some equity. We know that there's float that needs to be increased out there just so that institutional investors can get a bigger stake in the business. And we're definitely in talks with our bankers about doing that. And I think getting the debt rated will help in terms of liquidity in the bonds. And if there's liquidity in the bonds, then long-term costs Cost of capital will decline, and that ratings process is sort of another validation of the brand and the business. We've been rated before. We were rated by DVRS Morningstar in 2020 before the pandemic, and then, of course, decided to issue unrated debt to make the acquisitions in a hurry, and now we're in talks to go back and get rated again. So I think those things will help. Printing EBITDA, the organic growth coming out and demonstrating that, and then the ratings process. speaking about guidance are you like what are you thinking for 23 are you ready to prepare to give some kind of EBITDA guidance or not not yet or what are you thinking well I think that we will you know indicate some sort of range as we you know get through the end of the year but you know it's going to be somewhere you know knock on wood north of where we are today. But we just have to watch the recessionary situation and how fast we can get these new stores open. But we're in really good shape. And so I think with the refinance on the horizon, we'll be able to point to that pretty quickly. There'll also be some other acquisitions, knock on wood, that we can talk to as well. So we'll have to adjust for that on a comparable basis. But we just want to be very strategic about If we're going to invest money in a subsequent acquisition to what we've bought today, how does it strategically help our business? There's a lot of stuff we've said no to over the last six months. However, I think there'll be opportunities in 2023 sort of like we saw during COVID. There are a lot of M&A deals that have not gotten done in the last six months or a year, as you well know. Some of those are opportunities. Some of those are just things we wouldn't touch and we've said no to. We want to have capital ready for that. We want to make sure that the bondholders are supportive and they feel like, you know, we're getting the bonds rated and reissued and those things. And then, you know, I think we'll have a big war chest to take advantage of that.

So earlier in the call, you mentioned that you hope to announce something on the deal front before the end of the year. How would you finance a deal, I guess, prior to getting re-rated and, you know, being able to, to raise that money? What, what are you, what do we use for that?

Yeah, I mean, I'm not going to comment in detail about any pending acquisitions or financings, but we have substantial credit available under our securitization facilities, so we could issue more bonds today to do that. We could issue preferred stock to do that. We could issue common with a $480 million effective shelf. We are subject to baby shelf limitations right now, so we can't use all of that. But there's a bunch of levers we can pull. We can also get, you know, some sellers are willing to take stock back. So there's a lot of ways to If we want to buy something, we have the ability to raise the capital to buy it. That's not a concern of mine. We just want to be very strategic and make sure it's in line with all the other things we just talked about.

Right. Okay. All right, Andy. Thank you. Have a good fourth quarter and travel safely to New York for your meetings.

Thank you. Thank you, Greg. And our next question comes from the line of Roger Lipton with Lipton Financial Services.

Please proceed with your question.

Yes, hi, again, one technical question and one operational question. The $40 million of restricted cash, on what basis is that restricted? It's a pretty large number, and it would be good, obviously, if it were available. Is there any possibility of bringing that up?

No, it's tied up with our securitization facilities as an interest reserve, so don't count on it at all. It just should be used in terms of reducing, if you look at net debt, you would take that out of debt, right, because it's It's like an interest reserve against a debt. Knock on wood, you never touch that. None of our securitization facilities have tripped any covenants, have blown any triggers, anything like that, nor do we anticipate that they will, but that's just the nature of how asset-backed securities are structured.

Okay, well, that's interesting. Twin Peaks, how many of the 15 to 20 locations that would open next year, will any of them be company stores, do you think?

Yes. Yes, there are... Three to five of them that will be company-owned stores depends on if we get to 20 versus 15, but yes, there are a number of them planned and under construction today.

I would imagine you could finance them with some sort of third-party financing since the concept is so profitable. Is that a good assumption?

We have pushed the accelerator hard on organic growth of company-owned Twin Peaks stores, and I think that they'll move from three stores a year to five or more stores a year as we get into 2023. There's an 18-month sort of lead process to find the location, build it, get it through permitting, get the equipment, all that. But we're definitely trying to lean into that because the return on investment is really comparable or as good as anything else we have that we see out there. So we could invest quite a bit of money in that business and see real payback from it, and we plan to do so. So we're very happy with the management team and how they're executing today and opportunities. I think there's also the opportunity to convert locations that were some other concept, but it could be converted into a Twin Peaks just to accelerate growth. That's a big focus strategically for me and for our whole team for 2023 is to accelerate the openings of new stores. And if that means converting existing restaurants, everyone loves second-generation spaces, right? You're not building... The bathrooms, you're not building the grease traps. All those things are already there. They take a long time and are expensive. And so we really want to accelerate franchisee growth and opening pace as well as companies and stores in 2023.

And is there any geographical focus in that regard?

Well, there is. I mean, Twin Peaks has its own focus of states where there are significant development deals in place, whether that's Florida or some of the other states southeast states. So there's definitely a focus. It's not just a shotgun approach. We definitely have deals in different markets. New Mexico's got a big development deal as well. And so that's key. But across the portfolio, that new store opening pipeline of what will be a knock on wood again, 130 to 150 new units in 2023 will be in many different markets. It's not just in one market. But at Twin Peaks, we're going to do company-owned stores. I think it'll be along the East Coast in the mid-Atlantic region. I think it'll be Florida and maybe one other market.

Okay. Thanks very much.

Thank you, Roger. Anyone else have any questions?

Well, we have reached the end of the question-and-answer session. I'll now turn the call back over to Andy Wiederhorn for closed remarks.

Operator, thank you. And I would like to thank all of the listeners and participants for participating. being on our call today and hope that you all have a great evening and thank you very much for your attention.

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.