FAT Brands Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Fat Brands Inc. Second Quarter 2025 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. Please note that this conference is being recorded today, July 30, 2025. On the call from Fat Brands are Chairman of the Board, Andy Wiederhorn, and Co-Chief Executive Officer and Chief Financial Officer, Ken Kuick. This afternoon, the company released its second quarter 2025 financial results. Please refer to the earnings release and earnings supplement, both of which are available in the investors section of the company's website at www.fatbrands.com. Each contain additional details about the quarter, which closed on June 29, 2025. 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 Widerhorn, Chairman of the Board. Thank you.

Thank you, Operator, and good afternoon, everyone. Before we begin, I want to address major news that came out yesterday. The U.S. Department of Justice has dropped all charges against me, Saprans, William Amon, and Rebecca Hershinger. I'm grateful to the U.S. Attorney's Office for taking a fresh look at this case and to the Attorney's who worked tirelessly on my behalf and on behalf of the other defendants. I have always maintained my innocence and the innocence of the other defendants. Additionally, I want to alert you that we have reached a settlement with all of the parties in the Delaware derivative cases named Harris 1 and Harris 2 that were filed in 2021 and 2022. And while the settlement is subject to court approval, I'm optimistic that since all parties have reached an agreement, the court will look favorably on the settlement. We will issue a separate press release on this matter once filed with the court very shortly. Now, with that matter behind us, I would like to acknowledge the outstanding work of our team and franchise partners across the FapRans portfolio. Their focus on excellence is driving our momentum, and I couldn't be more optimistic about what lies ahead for FapRans. I am particularly proud to share that we have been recognized on Time and Statista's best midsize company list for the second consecutive year underscoring the strength of our business model and culture. Additionally, 10 of our brands earn spots on Technomic's prestigious top 500 list, with Twin Peaks securing an impressive position in the top 100 largest restaurant chains by annual system sales in the United States. Our global restaurant portfolio now spans approximately 2,300 locations across 49 states and 35 countries, creating a diversified ecosystem that enables us to capture market share across multiple segments and dining occasions. With 80% of our units in domestic markets and 20% in international markets, we've built a balanced geographic footprint supported by more than 730 franchise partners. Over 250 of these franchise partners operate multiple locations ranging from two to 75 units with no single partner representing an outsized portion of our portfolio. Our structure both mitigates concentration risk and positions us for continued expansion. Within this framework, we continue to invest in brand-level leadership that supports long-term growth. In May, Kim Borima joined as CEO, Twin Hospitality Group, and our high-growth, polished casual dining sports bar brand. With over three decades of restaurant industry experience, Kim brings an exceptional track record of scaling concepts, most recently tripling Perry's Pizzeria and Tap House from 10 to 30 units in just two and a half years. His distinguished career includes serving as COO of California Pizza Kitchen and Regional Vice President at Texas Roadhouse, where he oversaw 125 locations across 22 states. In his first two months, Kim has already made significant strides by focusing on three strategic priorities, enhancing operations, improving corporate store restaurant level margins, and driving unit development. With a robust pipeline of approximately 100 new lodges and Kim's proven expertise we are confident in Twin Peaks next chapter of growth. I also want to express our sincere gratitude to Ken Kuick for his exemplary leadership during this transition. Ken continues to serve as Chief Financial Officer of Twin Hospitality Group. Regarding Twin Peaks capital structure, market volatility has extended our original timeline, but we continue to move forward with a planned 75 to $100 million equity raise and we'll provide further updates as appropriate. Following today's call, we invite you to join Twin Hospitality Group's Q2 earnings discussion at 5.15 p.m. Eastern Time with details available in their earnings release published earlier today. We continue to take decisive steps to strengthen our financial position. Our indenture-related dividend pause remains in effect until we reach the $25 million principal reduction threshold, preserving $35 to $40 million annually in cash flow. Plus, we will save at least another $30 million per year with the dismissal of the DOJ cases and the derivative matters. Additionally, we've implemented over $5 million in annual SG&A reductions while identifying another $5 million or so of further cost optimization opportunities. In parallel, we're actively working towards refinancing our three remaining securitization silos well ahead of their July 2026 anticipated repayment date. These combined actions position us to achieve cash flow positive status in the coming quarters while continuing our strategic deleveraging efforts. Turning to our second quarter performance, which Ken will elaborate on shortly, our results of $146.8 million in revenue and $592.2 million in system-wide sales reflect the current challenging operating environment. And despite this, we achieved adjusted EBITDA of $15.7 million in the quarter, which is comparable with last year's quarter. We remain focused on the strategic initiatives that will drive long-term value creation. Domestic system-wide sales outperformed international for the quarter. However, we are seeing encouraging signs internationally, particularly with our fat burger locations in Canada, which represent about one-third of the fat burger system and are benefiting from favorable exchange rate movements. Our diversified portfolio strategy is paying dividends, particularly in our snacks segment, where Great American Cookies and Marble Slab Creamery demonstrate consistent strength. Digital innovation is accelerating this success. Great American Cookies' digital mix now represents 25% of sales, up three percentage points from Q1, with loyalty members spending 40% more than non-members. Roundtable Pizza's digital metrics are equally compelling with 21% loyalty sales growth and 18% higher customer engagement. Looking ahead, our growth strategy remains anchored by three strategic pillars, driving organic expansion through strategic market penetration, evaluating targeted acquisitions to further diversify our brand portfolio, and increasing our manufacturing capacity with an emphasis on cookie dough production and dry mix capabilities. Our organic growth strategy is anchored by a robust development pipeline of approximately 1,000 locations that franchisees have already paid for and committed to open over the next five to seven years. This pipeline continues to expand with 120 new development agreements signed year to date. demonstrating sustained demand across our portfolio and reinforcing our long-term growth outlook. Once operational, these units are expected to generate $50 to $60 million in incremental earnings without the capital costs typically associated with acquiring new brands. Momentum remains strong. In Q2 alone, we opened 18 new locations, including three co-branded Marble Slab Creamery and Great American Cookie stores, as well as three standalone Marble Slab Creamery units. We remain on track to meet our goal of opening 100 new locations in 2025, led by seven high-growth brands, Fatburger, Johnny Rockets, Fazoli's, Roundtable Pizza, Twin Peaks, Marble Slab Creamery, and Great American Cookies. In Florida, we've signed a new development deal with an existing franchisee to open 40 additional Fatburger locations over the next decade, including expansion into the Jacksonville market. This will grow our total presence in the state to approximately 50 Fatburger locations. Since re-entering Florida two years ago after a 20-year absence, Fatburger has seen a strong demand, particularly at our Riverview and Celebration locations, which have exceeded expectations. Additionally, our first restaurant in the Jacksonville area is slated to open later this year, further establishing Fatburger as a key player in Florida's competitive burger market. Roundtable Pizza continues its tech expansion, recently opening in San Marcos with a key franchisee targeting 100 locations in Texas across Fat Brands concepts, including Fatburger, Roundtable Pizza, and Johnny Rockets within the next five years. Our international expansion also continues to gain momentum. Fazoli's recently achieved a significant milestone with its first international location in Calgary, Alberta, the beginning of a 20-unit expansion across Canada over nine years with a franchise partner who already successfully operates Fatburger locations. And we're not just expanding our footprint, we're also enhancing the guest experience through innovation and menu development. At Marble Slab Creamery, what began as a limited test of the Dubai Chocolate Sundae has evolved into a successful rollout across approximately 50 locations, with the indulgent flavor now extended through a year end due to the overwhelming customer response. On the beverage front, Pretzel Maker recently launched Frosted Lemonades, a refreshing twist on their signature beverage that's quickly becoming a customer favorite. Beyond new store development, we are investing in our existing locations through our newly launched store refresh program, which will revitalize 5% of our portfolio this year with plans to double that pace to 10% in 2026. I'm particularly proud that our brands continue to receive prestigious industry recognition. Fat Burger was recently named by Yelp as one of the top 25 burger chains in the U.S., while Fazoli's earned the number 12 spot on the Fast Casual Movers and Shakers 2025 list. a ranking that evaluates growth, reputation, customer sentiment, and sales volume. Additionally, Marble Slab Creamery was once again named to USA Today's 10 best list for best dessert or treat chain. We also continue to advance our balance sheet strengthening initiatives. In April, we successfully amended our Frizzoli securitization, securing improved terms that enhance our financial flexibility. The revised agreement extends both call and repayment dates while easing certain covenant requirements. The new structure also enables the sale of company-operated locations to franchisees, creating an opportunity to re-franchise our entire 57-unit corporate Thizzoli's portfolio, a move that would substantially reduce our corporate-owned footprint while delivering approximately $2.5 million in annual overhead savings. Should we proceed with this re-franchising initiative, we would maintain direct ownership of only about 33 hot dog-on-a-stick corporate locations within our 2,300-unit systems. positioning us to return to nearly a 100% franchised operating model, a structure that optimizes capital efficiency and operational focus. This, of course, excludes Twin Peaks and Smoky Bones, which now operate as a separate public company, despite being consolidated into FATS financials due to our significant ownership percentage. Now, turning to our growth by acquisition strategy, we are prioritizing value creation and deleveraging our balance sheet while navigating the elevated capital cost environment. We remain actively engaged in evaluating strategic opportunities that align with these core objectives and will share updates as appropriate. Our Georgia production facility represents one of our key strategic advantages, generating impressive financial performance with $10.3 million in second quarter sales and $3.8 million in adjusted EBITDA, resulting in an attractive 37% margin. Currently operating at just 45% capacity, our cookie dough manufacturing facility represents significant growth opportunity. With modest capital investment to expand mixing equipment, we can nearly double production capacity. The facility sits on four acres while currently utilizing only half an acre, providing ample room for future expansion. We are also continuing to build out a third-party strategic partnership with the National Restaurant Entertainment Chain to launch the Great American Cookies brand virtually. We look forward to sharing further details on this shortly. Before concluding, I'd like to highlight the meaningful impact of the Fat Brands Foundation, which has awarded 21 grants in 2025. I'm pleased to share that President Jessica Wiederhorn and Director Jen Johnston were recently recognized at the Los Angeles Business Journal's Women's Leadership Symposium and Awards for their leadership and commitment to the foundation. The foundation also recently participated in Twin Peaks Restaurant's annual conference for the first time, surpassing its fundraising goals through donations and a successful raffle. These funds will support nonprofits helping families and communities thrive. As we move forward, we remain confident in the resilience of our brands and the momentum we have built. Our efforts are centered on expanding our core business, enhancing efficiencies across our production facility, and reinforcing our financial foundation through disciplined debt reduction, all of which support our path towards long-term success. With that, I would like to hand it over to Ken to discuss our financial highlights from the second quarter of 2025.

Thanks, Andy. Moving on to our second quarter results, total revenues were $146.8 million, a 3.4% decrease from $152 million in last year's quarter. This was driven by the closure of five underperforming Smokey Bones locations, the temporary closure of one Smokey Bones location for conversion into a Twin Peaks Lodge, and lower same-store sales, partially offset by revenues generated by our new Twin Peaks Lodges. Turning to costs and expenses, general and administrative expense increased $14.8 million to $44.4 million in the quarter from $29.6 million in the year-ago quarter, primarily due to $12.6 million of non-cash share-based compensation expense related to the public listing of Twin Hospitality Group earlier this year. and the recognition of $2.1 million in employee retention tax credits recognized during the second quarter of last year. Costs of restaurant and factory revenues decreased to $98.1 million in the quarter, compared to $100.1 million, primarily driven by the closure of underperforming Smokey Bones locations, the closure of the Smokey Bones location for conversion, and lower same-store sales. partially offset by wage and food cost inflation. Advertising expense varies in relation to advertising revenues and decreased to $11.5 million in the quarter from $14.7 million in the year-ago period. Total other expense net, which consisted primarily of interest expense, was $39.4 million in the quarter compared to $34.8 million in last year's quarter. Net loss attributable to FAP brands was $54.2 million, or $3.17 per diluted share, compared to a net loss of $39.4 million, or $2.43 per diluted share, in the prior year quarter. And on an as-adjusted basis, our net loss attributable to FAP brands was $49 million, or $2.88 per diluted share. compared to $30.9 million or $1.93 per dilutive share in the prior year quarter. And lastly, adjusted EBITDA for the quarter remained flat at $15.7 million. And with that, operator, please open the line for questions.

Thank you. We will now 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 your line is 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. The first question is from Joe Gomez from Noble Capital. Please go ahead.

Good afternoon. Thanks for taking my questions. Hi, Joe.

So congrats on last night's announcement with the DOJ. Related, there was an SEC civil action filed at the same time. Any update on whether that goes away also? And then relatedly, you talked about the elimination of roughly $30 million a year of litigation costs. Are you going to be able to recover any of the past costs from your insurance companies?

So we're hopeful that the SEC investigation or case, civil case, goes away following the DOJ case. But we can't report anything on that or comment anything about that today. With respect to the legal fees, which in total over the last three and a half years are 70-something million dollars, We did file with our insurance company, and there is a settlement that is connected to the derivative case settlement. So we've recovered or we will recover the policy limits of that as part of that settlement.

Okay, great.

Pardon me. And then, you know, one of the – The big variant is, you know, our model was the increase in G&A costs. And, you know, you explained that that was for share-based comp. Is that kind of like a one-quarter event? You know, should we expect G&A costs to go back down? I think they've been running roughly around 25% of revenue.

Yes, it absolutely goes down.

Sorry, Chad.

I'm sorry. I should let you finish. It absolutely goes down. It's a one-time event. Go ahead.

to the Twin Peaks, to the Twin Peaks spinoff. Okay. Just wanted to make sure that I thought so, but I just wanted to just make sure.

You talked about the the manufacturing facility, the new contract. You also talked about that, I think, last quarter. Can you give us a little timing of when you think that might be fully rolled out and we can start to see the benefits of it?

Yeah, so it's in production now. It's not quite fully rolled out. It'll be announced very shortly. Sometime, I expect, in the next 30 to 60 days, it'll be completely out there. And there's sort of different versions of it with different operators, different restaurant companies. And so, you know, I think you'll see an announcement in maybe three weeks or so about it or maybe four, but there's two different paths we're going down to accelerate the manufacturing business. And one is more virtual and one is the direct very large operator, 400 unit operators. So it's going to be, it's really going to be helpful for the factory, for cookie dough production, all of that.

Okay. And one more for me.

So, you know, Cisco reported, you know, they were talking about improved restaurant industry traffic, you know, improved through the quarter for their food service segment. Momentum continued in July. You know, Wingstop reported this morning and they, you know, beat expectations. Just wondering, are you starting to see some of this at your

locations across the chains so it's different in the brand categories and so like the snack brands cookies ice cream pretzels things like that are doing um significantly better uh you're seeing qsr qsr brands be um you know as beaten up as mcdonald's or some of the young brands so uh burger king where you're seeing like fazoli's has had a tougher road here with sales in the last couple of quarters and then on the on the. Paul's casual side is getting better and better and better and so we're optimistic honestly that we get through this consumer confidence push here as we get over the summer and that things will continue to improve, we are seeing things they're off less and less.

Okay, great thanks Andy I appreciate it i'll get back in queue.

Thank you, Joe. Okay. The next question is from Roger Lipton from Lipton Financial Services. Please go ahead.

Yeah. Hi, Andrew. First, congratulations on the legal progress. Thank you. Progress being an understatement, sure. And even though your organization has done an admirable job of not getting too distracted by it, It's got to be a great source of new focus for everybody, I'm sure. Generally, you indicated that you're going to have a working your way to a positive cash flow. Sounds like within three, four, five quarters from now. That's my estimate, not yours. It's a rough guesstimate. But what's the current liquidity situation? You've generally given us a quarterly update on your financial flexibility in terms of in terms of money you can draw upon if necessary, just to bridge this remaining period.

Yeah, we continue to sit on a pile of somewhere between $130 and $150 million of retained notes. Those are bonds that we originally issued that we haven't yet sold. So we've drawn upon those, either financing those or selling those from time to time for liquidity. So that's generally our path for liquidity. We do have things like an ATM in place, in fact, that we can use, but given that we think the stock's undervalued. We haven't done much of that at all. Our focus right now is to, we want to continue to look at G&A and see if there's anywhere else to have savings across all the brands. We've identified 5 million, we put in place, there's another 5 million I think we can get accomplished here between now and the end of the year. And then there is the rapid acceleration of the Smokey Bones portfolio, and that is identifying the store's That are going to be converted and getting them under that conversion process, whether it's with franchise partners or corporate and then also the stores that are not going to be converted and not going to remain open as a smokey bones because the leases might mature. You know, we want to accelerate that we really want that process to be accelerated just wasn't moving at the pace it needed to move at. with the prior management team and that's gonna change here very rapidly under Kim's leadership and we're going to help him do whatever we need to do to do that so that that's not dragging down the Twin Peaks business. And there's some Smokey Bones that are very profitable that we'll keep as Smokey Bones and whether we keep that as a subsidiary of Twin Peaks or not, we'll decide later. But there's plenty of stores that are cash flowing just fine, it's just that the ones that are gonna be converted and are not great as Smokey Bones today, we need to deal with now, we can't wait. I can't emphasize enough the savings on the legal expense and professional side. That's just significant cash. If you take that cash and you take the savings from the dividends that we've temporarily paused, then you're already in the $70 to $75 million a year range. That's a huge savings. There's a few other things we're trying to negotiate. We'll see if we get them.

You talked about... Okay, thank you. And you talked about refreshing 5% of the system. Which brands are the priority in terms of beginning to refresh them?

Well, so these are not company-owned stores, right? These are all franchise locations. I understand. It depends. Just by unit count, you have 400... roundtable pizzas, and then you have 300 or 400 ice cream and 300 or 400 cookie restaurants and so on. It's really diverse. It's spread out. It's not just one brand. It's targeted by brand and by market.

Presumably, you've got enough profitable franchisees who have the capital to do that. It obviously takes money. I would assume you've got an adequate number of prosperous franchisees who can afford to reinvest and refresh their brands.

Yeah, I mean, I think it's like someone we all know who says often you'd like to see interest rates lower, so would we. If interest rates were lower, that's going to accelerate development. It's going to accelerate remodels. And, you know, franchisees are committed. They're continuing to build more stores. They're continuing to buy the rights to build more stores. Um, they're very positive about things in general, but you know, you have different ebbs and flows of the labor market in California or cost of doing business in California. And then the cost of, um, you know, the actual cost of a remodel and the cost of equipment and supplies.

I'm sure that once, um, the, the, the current balance sheet is delevered somewhat, um, you'll have an adequately creative way to step up and give your franchise you some help in terms of financing those, those, uh, innovations because too many brands have ignored that possibility. They've bought back billions of dollars worth of stock to enhance the stock options rather than give their franchisees a little help. I don't picture you doing something more productive for your franchisees. Lastly, which of your brands have the strongest sales trends?

Well, again, you're seeing in the snack brands very positive sales momentum, and then you're actually seeing things improve. Roundtable Pizza has been very strong. I wouldn't say hitting the ball out of the park, but very strong given its competitive landscape and the competitors it's up against. We don't report brand by brand or by segment, so I'm not going to go into the specific numbers of each brand, but You know, where we've seen the most trauma has really been in the QSR space, which is consistent with most other QSR players. And at the other end of the spectrum in sports bars and stuff, there's just an increased consumer sentiment to want to get back into the restaurants. And the summer, of course, is not the greatest sports time. And so we're looking forward to football starting up in August. And away we go into the fall and expect some really good numbers there.

Okay, well, that's all I've got right now. Thank you so much.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Andy Wiederhorn for closing comments.

Thank you, Operator, and I want to thank everyone for joining us and invite you to the Twin Peaks call if you are interested.

This concludes today's call.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.