FAT Brands Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Fat Brands, Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. Please signal for assistance by pressing star and zero. Please note that this conference is being recorded today, October 26, 2023. On the call from Fat Brands are Chairman of the Board, Andy Wiederhorn and Co-Chief Executive Officer and Chief Financial Officer can click. This afternoon, the company made its third quarter 2023 financial results publicly available. Please refer to the earnings release and earnings supplement, both of which are available in the investor section of the company's website at www.fatbrands.com. Each contain additional details about the third quarter which closed on September 24, 2023. But before we begin, I must remind everyone that part of the discussion today will include forward-looking statements. These forward-looking 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 forward-looking statements due to a number of risks and uncertainties. The company does not undertake to update these forward-looking 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 release and recent SEC filings. During today's call, the company will also 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, Chairman of the Board. Please go ahead.

Thank you, Operator. We appreciate everyone joining us this afternoon. First and foremost, I would like to thank our teams, franchisees, and their employees for their unwavering commitment and hard work that have resulted in the continued growth of FapRants. Total revenue grew 6% to $109.4 million in the third quarter of 2023, compared to $103.2 million in the prior year third quarter. The increase was driven by a 4.8% increase in royalties a 2% increase in company-owned restaurant revenues, a 228.5% increase in franchise fees, and an 18.9% increase in revenues from our manufacturing facility. System-wide sales in the third quarter grew to $564.6 million, a 0.8% increase when compared to the prior year quarter. On profitability, third quarter adjusted EBITDA was 21.9 million compared to 24.6 million in last year's third quarter. And just to point out that in last year's third quarter, there were 7.2 million of tax credits. Without those tax credits, it would be a 26% increase on a quarter over quarter, year over year basis. Throughout Q3, we were extremely busy executing on our three strategic pillars. One, growth by acquisition. Two, organic growth. And three, productivity growth for our Georgia-based manufacturing facility. I'll begin with our first strategic pillar, growth through acquisitions. Over the last two years, our growth strategy has been very focused on our organic development as we digested eight new restaurant brands that we acquired throughout 2020 and 2021. We continue to be selective and opportunistic in our acquisition strategies. Under this strategy, we recently purchased Smokey Bones Bar and Fire Grill, a full-service restaurant chain with a sports bar atmosphere, from an affiliate of Sun Capital Partners for $30 million. This was funded from our existing securitization facilities. In 2020, Johnny Rockets was similarly acquired from Sun Capital Partners. Smokey Bones is known for its great barbecue, award-winning ribs, and perfectly seared steaks. Currently, Smokey Bones operates 61 company-owned locations across 16 states. We expect Smoky Bones to increase annual adjusted EBITDA by approximately $10 million. The acquisition marks our expansion into the barbecue segment and bolsters our presence in polished casual dining, which until now has been represented exclusively by our Twin Peaks chain. Smoky Bones currently has the second highest AUVs in our portfolio following Twin Peaks at greater than approximately $3 million. Adding a strong player in the barbecue space, like Smokey Bones, provides our sales team with more development options to offer franchise partners so that they can further their new unit growth. We plan to work hard and hand-in-hand with the Smokey Bones leadership team to grow the concept through our franchising model. And through our re-franchising strategy, we have plans to build Smokey Bones back to the location count it once had, approximately 120 units. Approximately half of the operators in the Fat Brand system are multi-unit franchisees operating anywhere from two to 75 units. And they are hungry to grow their portfolio with brands that have strong AUVs. In fact, a number of franchisees have already expressed interest in acquiring existing Smokey Bones corporate stores as franchises so that they can grow their portfolio of restaurants. Smokey Bones has many prime real estate locations that could provide conversion opportunities for Twin Peaks and our franchise partners. Over time, we plan to selectively convert locations where appropriate which will enhance the growth of the Twin Peaks system. Inclusive of Smokey Bones, the FAT portfolio now consists of 18 distinctive brands with approximately 800 different franchisees who operate more than approximately 2,125 franchise restaurants, in addition to our approximately 180 company-owned stores. Presently, we have a total of 2,300 units operating or under construction, ranking us as approximately the 25th largest restaurant company in the U.S. by unit count. While we have more recently focused on the polished casual segment, we are also looking at other categories to round out our portfolio, such as salad, sandwich, or coffee brands. As we continue to assess potential targets for acquisition, our focus remains on identifying strategic and EBITDA-creative opportunities with brands that have demonstrated long-term sustainability and robust profitability. They also must be scalable and synergistic with our existing platforms. including leveraging our existing manufacturing capacity when possible. On that note, another strategic priority for us is the growth of our Georgia-based manufacturing facility, which provides pretzel mix and cookie dough for several brands. We believe our factory business today is in its early stage of growth, operating at only about 40% to 45% of its capacity. Still, this is up from 33% two years ago. We also have the ability to significantly expand the capacity of the plant. by tapping into our 3.5 acres of excess real estate and the ability to invest in additional equipment that will also enhance capacity. During the third quarter, our manufacturing facility generated $9.3 million in sales, an 18.9% increase over last year's third quarter. To help increase productivity at our manufacturing facility, earlier this year, we strategically introduced cookie offerings throughout our burger portfolio, Fatburger, Johnny Rockets, and Elevation Burger. We see these additions as a way to further build and enhance our dessert programs. We continue to explore opportunities to add cookie offerings at our remaining brands, including our casual dining concepts and fazolis. Now let's take a closer look at our organic growth. Year-to-date, we've opened a total of 107 new units, including 30 that opened in Q3. For all of 2023, we're aiming to open a total of 150 units. Additionally, this year, we have signed franchise development deals for over 200 new locations, bringing our pipeline for new units to over 1,100 signed agreements, on top of the 2,300 restaurants already open. This pipeline of organic growth is estimated to be worth approximately $60 million in incremental increase to adjusted EBITDA, which massively delevers us organically. As mentioned, we are particularly focused on the growth of our polished casual segment, which now consists of our Twin Peaks and Smoky Bones concepts. Twin Peaks is a best-in-class brand that appeals to a broad demographic of customers across the country. The units produce industry-leading AUVs of around $6 million, while some of our highest volume locations in Florida are generating AUVs between $9 and $12 million. They are highly profitable restaurants with an elevated food and beverage program that far surpasses anything else in the category. This year, We've opened 11 new Twin Peaks lodges, bringing our current portfolio to 106 units across 27 states and Mexico, of which more than 70% are franchised. For the remainder of the year, we plan to open five more lodges, ending 2023 with approximately 111 lodges. This is a 34% increase in unit count since Fab Brands acquired the brand in 2021, just two years ago. Over the next several years, Twin Peaks plans to grow its unit count to more than 200 lodges and increase the mix of franchise locations to between 75 and 80%. We currently have over 125 new franchise units signed, paid, and committed to be built in the next five years. As mentioned, we also plan to selectively convert between 30 and 40 of the Smokey Bones units into Twin Peaks, which will help accelerate Twin Peaks growth. These conversions can take as little as nine months compared to the two and a half years needed to build a Twin Peaks from the ground up. The planned unit growth is expected to increase system-wide sales of Twin Peaks to approximately $1 billion. As a result of the concept's industry-leading economics and strong pipeline of profitable growth, as previously announced, we plan to take Twin Peaks public in the future. However, the timing and the size of the transaction will be subject to market conditions and other factors which could include simply a sale or spin out of the brand with proceeds primarily used to pay down debt. Another avenue of growth we are pursuing is non-traditional venues. Our Fatburger location at Six Flags Great Adventure in New Jersey, which opened last year, has exceeded our expectations. As a result, in July, we announced an expansion of this partnership with a new restaurant at Six Flags Fiesta Texas. This is our sixth Fatburger location in Texas with over 40 additional locations planned to open in the state over the next 10 years. Similarly, we opened a co-branded Marble Slab Creamery and Great American Cookies concept in Cook's Children's Hospital in Fort Worth, Texas, and we'll continue to expand that partnership with a second location in their hospital in Prosper, Texas. We also announced a new development deal to bring 20 new franchised Johnny Rockets to Texas over the next decade. The first location is planned to open in 2024 and will triple the chain's footprint in the state. Texas continues to be a key growth market for fat brands and our portfolio overall. As exemplified by the 80-store development deal we signed in the quarter, which includes several Fatburger, Buffalo's Express, and Roundtable pizza locations across the state. Our brands are also expanding internationally. We plan to open 10 new franchised hot dog on the stick locations in Iraq over the next five years, the first unit slated to open next year in 2024. There is also demand in our snack and dessert categories. we signed a deal to open 25 new franchised Pretzel Maker locations in Canada over the next 10 years. In doing so, we are building on Pretzel Maker's existing footprint of over 50 Canadian units, which underscores our dedication to international growth as we continue scaling the brand. This deal comes on the heels of the third quarter's comprehensive rebrand of Pretzel Maker. Pretzel Maker's new look will complement the brand's increased demand for online and to-go orders, while continuing to offer fresh-baked, bite-sized products directly from Pretzel Makers Bakery Case. The new design is also optimized for drive-thru locations. To date, we have opened three drive-thru locations, two of which opened this year. Over the last two years, our Great American Cookie brand has also experienced accelerated growth, opening 80 new locations while entering new states such as Arizona, Oregon, Illinois, and New Mexico. This summer, the brand celebrated its 400th opening, including its first location in Philadelphia, which broadened its East Coast presence and increased brand visibility. Since then, the brand has also opened in the Orlando market and debuted for the first time in the Pacific Northwest. Great American Cookies is now located in 33 states and five countries around the world and continues to find success as a co-branded model with sister brand Marvel Slab Creamery. There are now over 150 co-branded locations worldwide. We are proud to note all three of our QSR snack brands, Great American Cookies, Marvel Slab Creamery, and Pretzel Maker, were named to QSR's Best Franchise Deals list in September, further illustrating the strength of our concepts. Our fast casual brand, Fazoli's, also opened a new location in Orlando, which features a double drive-through lane to meet high traffic demand and a second location in Little Rock, Arkansas. It also received recognition as a top innovator in the fast casual space for delivery from Nation's Restaurant News. Fazoli's continues to see strong demand for delivery post-pandemic. Further underscoring the growth of our brands, we've received a number of press accolades this quarter. 13 of our brands were recognized in Franchise Time's Franchise 400 list. Additionally, Faberger was again mentioned as one of the most iconic and well-loved burgers in Los Angeles by the LA Times. During the quarter, we also bolstered our board of directors by welcoming five new directors, Peter Feinstein, Matthew Green, John Metz, James Ellis, and John Allen. Our board now consists of 14 members. John Allen, Peter Feinstein, and Matthew Green will also serve on our audit committee. We are confident that our new board members' contributions will help us to drive returns for our shareholders. I would also like to share an update on the Fat Brands Foundation. To date, over 35 grants have been awarded to a wide range of nonprofit organizations in areas including food insecurity, mental health, the arts, adults and children with disabilities, STEM, education, and more. What makes it even more rewarding is that the grants hit close to home, all near Fat Brands locations. Further, during Q3, the team at Marble Slab Creamery and Great American Cookies were proud to announce a partnership with March of Dimes to show support and raise money for their NICU support teams during September NICU Awareness Month. To close, there are significant opportunities on the horizon for fat brands, and in summary, we are in a strong position for continued growth. We have a veteran leadership team and a robust management platform, and we possess the capability to seamlessly and cost-effectively integrate new brands. And our pipeline for organic growth is healthy and continually developing, ensuring sustained growth for years to come, which will naturally de-lever our balance sheet. We look forward to updating you on our progress on future calls. We sincerely appreciate you joining us today and for your interest in fat brands. And with that, I would like to hand it over to Ken Kiewik to talk about our financial highlights from the quarter. Ken.

Thanks, Andy.