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.