FAT Brands Inc.

Greetings and welcome to the FAT Brands, Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Kent Kuick, FAT Brands CFO. Please proceed.

Good afternoon, everyone, and thank you for joining the Fat Brands earnings call today. On the call with me today is Andy Wiederhorn, our chairman of the board. This afternoon, we released our first quarter 2025 results. 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 first quarter, which closed on March 30, 2025. Before I 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 we believe can be useful in evaluating our 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'd like to turn the call over now to Andy Wiederhorn, our Chairman of the Board.

Thanks, Ken. Thank you all for joining us today. I'd like to extend my sincere appreciation to our talented team members and franchise partners. Their dedication to FapRans has been instrumental in driving our continued progress, and I'm encouraged by what we are accomplishing together. I also want to take a moment to recognize Rob Rosen and his commitment to FapRans. Rob decided to transition from his co-CEO role to a consulting position at FapRans focused on the debt capital markets. Taylor Wiedehorn has been appointed co-CEO, serving alongside Ken Keough. In addition to serving as chief development officer for the last eight years, Taylor assumed the role a brand CEO for 15 of our concepts in 2023. That, combined with his leadership background, makes him well-equipped to take on this role. As noted last quarter, we began 2025 by spinning off Twin Hospitality Group, Inc., which is now listed separately on NASDAQ under the ticker TWNP. We distributed 5% of Twin Hospitality's Class A stock to shareholders, a $50 million dividend, while retaining the remaining shares. This strategic move allows shareholders to invest directly in Twin Peaks growth, improves market transparency, and provides twin hospitality with access to additional capital for expansion and to reduce leverage through debt repayments. Following this significant milestone, Joe Hummel decided to transition from his position as CEO. We wish him the best as he pursues new opportunities. We have initiated a comprehensive executive search for a new leader who will capitalize on our ambitious development pipeline of over 100 lodges. Twin Peaks' growth trajectory remains strong. In the meantime, Ken Kiewik, CFO of Twin Hospitality Group Inc., will serve as interim CEO, ensuring continuity and strategic advancement during this transition. Following the Twin Hospitality Group bond refinancing in Q4 of last year, we committed to raising between $75 and $100 million of equity in 2025 and using 75% of that, or $75 million, to reduce outstanding debt, at which point Twin Hospitality should be cash flow positive, excluding new corporate store development. We anticipated securing the first one-third of that amount by April. The current volatile market conditions have impacted our near-term ability to do so at a reasonable price. Despite this temporary timing adjustment, we are confident in achieving our full annual equity target raise over the next 12 months. Additionally, per the terms of our November 2024 new twin hospitality indenture, we've temporarily paused FAT's common dividend and started to accrue the FAT Series B preferred dividend pursuant to its terms, at least until we reduce principal on the indenture by the $25 million payment threshold. Additionally, we are now turning our attention to the refinancing of our other three securitization silos, all of which have an anticipated repayment date of July of 2026. We are focused on bringing FAT, which is a high growth business, into a cashflow positive position over the coming quarters, as well as further reducing leverage. We have reduced SG&A by over $5 million a year based upon our 2024 run rate and see further opportunities within the portfolio to reduce costs, which I'll discuss in a few minutes. We look forward to updating you further on future calls. Like last quarter, following this call, we invite you to listen to the Twin Hospitality Group Q1 earnings call at 6 p.m. Eastern Time. The details are contained within their earnings release, also issued this afternoon. Next, let's review our first quarter performance, which Ken will elaborate on shortly. Our total revenue for the quarter was $142 million, reflecting a 6.5% decrease from the $152 million reported in the same period last year. System-wide sales were 571.1 million, down 1.8% compared to the previous year's quarter. We also achieved 11.1 million in adjusted EBITDA compared to 18.2 million in last year's quarter. Domestic system-wide sales outperformed international for the quarter. However, we observed an encouraging rebound in our international locations towards the end of Q1, which gives us confidence moving forward. Across our portfolio, we finished the quarter with strong momentum as same-store sales improved across all brands from February to March. We're excited to build on this positive trajectory as we enter Q2 and progress through the remainder of the year. Our casual dining segment delivered particularly strong results with same-store sales increasing approximately 1.6%, driven by performance at Buffalo's Cafe and Ponderosa and Bonanza locations. Overall, our growth strategy is based upon three fundamental elements. We are expanding our existing brand presence organically with commitments for over 1,000 new locations already in the pipeline. We are evaluating highly strategic acquisitions that would strengthen and broaden our brand portfolio, as well as de-lever our balance sheet. And we're enhancing our production capabilities at our Georgia facility, particularly focusing on scaling our cookie dough and dry mix manufacturing operations. Looking at our organic growth, we've maintained strong momentum. After successfully opening 92 units throughout 2024, we're accelerating our expansion with a target of over 100 new locations this year. making excellent headway with 23 units open in just the first quarter, which is an approximate 37% increase from Q1 of 2024. For Q2, we expect to open an additional 25 units, keeping us firmly on track to achieve our annual expansion goals. We are particularly encouraged by the momentum in our Twin Peaks new store development pipeline. During the first quarter, Twin Peaks opened two new lodges, including the Smokey Bones Conversion in Brandon, Florida, and a new lodge in Algonquin, Illinois. Both new lodges are off to strong starts. Based on our 2025 outlook, we expect measured growth across various brands, including Roundtable Pizza, which delivered a modest yet positive 0.6% positive same-store sales increase in the first quarter. Our digital sales at Roundtable Pizza demonstrate particular strength, climbing 5% sequentially from Q4 to Q1 2025. The 2024 digital integration of our Great American Cookies and Marble Slab Creamery has also yielded strong results. particularly via their new app, with an increase in sales of 8% and an increase in average check size of 17.6%. Our franchise development pipeline remains robust with signed agreements for approximately 1,000 additional locations. Based on our projections, these units could generate around $50 million in incremental annual adjusted EBITDA once operational, which would strengthen our balance sheet and reduce our leverage positions. This consistent development pipeline not only demonstrates the continued appeal of our brands, but also creates a valuable opportunity for our franchise partners. Along with our robust development pipeline, we're enhancing the customer experience in our existing stores. We've launched a new remodeling initiative with the goal to refresh 5% of all stores in 2025, increasing to 10% in 2026. Co-branding continues to be a large part of our growth strategy. We have successfully launched 10 co-branded and tri-branded models to date, demonstrating our commitment to innovate partnerships. In March, we celebrated the debut of our first Roundtable Pizza and Marble Slab Creamery pairing in Oakland, California. This location exemplifies our approach to seamless integration where Marble Slab's ice cream creates a perfect complement to Roundtable Pizza's offering guests a complete dining experience from the main course to desserts. Building on this momentum, we're accelerating our co-branding initiatives throughout 2025. We've already opened a tri-branded location featuring Great American Cookies, Marble Slab Creamery, and Pretzel Maker in the Dallas area. We also opened our first co-branded Great American Cookies and Marble Slab Creamery in Ohio. Additional co-branding plans for 2025 include several new Fatburger, Buffalo's Express, and Hot Dick on a Stick combinations, as well as Fatburger and Round Table Pizza pairings. These strategic combinations not only enhance the guest experience, but also maximize operational efficiency and market presence, positioning us for continued growth. International development continues to be a growth driver as well. During the quarter, Faberger announced a new partnership to open 30 locations across France over the next three years, including five in 2026. Also, more recently, a development agreement was signed with the same established franchise partner to open 10 Buffalo's Cafe fast casual locations in France, with the first three units set to open by 2026. All in all, we have exceeded over 100 new stores sold year-to-date. We continue to expand into non-traditional venues, recently opening a fat burger at Dallas-Fort Worth International Airport's American Airlines Employee Dining Hall, the first restaurant franchise in an employee cafeteria at the airport. This strategic location represents a significant growth opportunity that could be replicated across other airports, as our burgers and fries are ideal for on-the-go dining. Our experienced partners for this location will be valuable as we scale this business model. We are also leaning into value. Zoli's is offering fan favorite pasta dishes for just $3.99 plus unlimited freshly baked signature breadsticks when dining in. A family of four can eat for only $16. At Fatburger, we brought back the much-loved baby fat for only $5.99. While these offers are attractive, it's the comprehensive value we deliver that truly makes a difference and resonates with our guests. Throughout our portfolio, we remain firmly committed to providing exceptional overall value combining premium quality food with an outstanding guest experience. We're excited to announce that later this year, we'll be launching a portfolio-wide guest experience program that will set new industry standards and is specifically designed to cultivate lasting brand loyalty. We continue to strengthen our balance sheet. In April, we amended our Frizzoli securitization, resulting in improved terms that enhance our financial flexibility. The amended terms have extended both the call date and repayment date while relaxing certain covenants providing us with greater operational flexibility for Fazoli's. The new agreement also permits the sale of corporate-owned stores to franchisees, allowing us to re-franchise our 57 company-owned and operated Fazoli's restaurants. Re-franchising Fazoli's, coupled with the spinoff of Twin Hospitality Group, which includes all Twin Peaks and Smoky Bones locations, will significantly reduce our corporate-owned footprint and provide additional overhead savings of approximately $2.5 million per year. If we were to act upon this re-franchising opportunity, we would retain only about 33 hot dog on a stick corporate locations out of our total portfolio of 2,300 locations or 2,125 locations if Twin Peaks and Smokey Bones are excluded. These strategic moves will return us to an almost 100% franchise business model. Now, turning to our growth by acquisition strategy. During 2025, we are committed to unlocking value and reducing our leverage as the cost of capital remains high. We continue to look at highly strategic targets that could help us achieve those goals. Our Georgia production facility represents one of our key strategic advantages, generating impressive financial performance with $8.8 million in first quarter sales and $3.1 million in adjusted EBITDA, resulting in an attractive 35% margin. This second quarter, we expect to execute on a major strategic initiative for our cookie dough manufacturing business, namely a third-party contract with a national restaurant entertainment chain. We look forward to building on this momentum and increasing our utilization beyond the current level of 40 to 45% of production capacity. Our near-term target is reaching 60 to 70% utilization, which would substantially enhance the facility's market value and operational efficiency. While this asset could eventually help decrease debt through strategic divestiture, our immediate focus is capitalizing on the growth runway ahead. The manufacturing operation remains in its early growth stage with significant untapped potential to drive shareholder value as we execute upon our strategy. Before concluding, I'd like to share an update on the FAP Brands Foundation. To date, the foundation has awarded 10 grants in 2025 and has received a record amount of grant requests for both the months of March and April. This speaks to the commitment of the board in driving awareness and visibility of the foundation as it looks to grow its impact across FAP Brands communities. The foundation's dedication to giving back to our communities is also amplified by our Brand Ambassador Program, which was launched last year. To date, over 35% of our 800 franchisees are actively involved in the program. In conclusion, SAP Brands is laser focused on two fronts, debt reduction and leveraging our robust pipeline of growth opportunities. The energy across our team signals strong momentum. We remain dedicated to maximizing shoulder value and will continue updating you on our progress. With that, I'd like to hand it over to Ken to discuss our financial highlights from the first quarter of 2025. Thanks, Andy.