FAT Brands Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Fat Brands, Inc. Third 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, November 5th, 2025. On the call from Fat Brands, our Chairman and Chief Executive Officer, Andy and Chief Financial Officer Ken Kuick. This afternoon, the company released its third quarter 2025 financial 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 contains additional details about the third quarter which closed on September 28, 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 more detailed discussion of the risk 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 and Chief Executive Officer. Please go ahead.

Good afternoon, everyone, and thank you all for joining us. I'm pleased to be back as Chief Executive Officer of Faprans. With this transition, Ken Kuick is now focusing exclusively on his responsibilities as Chief Financial Officer of both Faprans and Twin Hospitality Group, while Taylor Wiederhorn will continue as our Chief Development Officer. I want to thank Ken and Taylor for their leadership as co-CEOs. They played an instrumental role in navigating the company through an arduous few years of legal matters. I'm excited to continue executing against our key priorities, which I will outline shortly. Before discussing the third quarter results, I'd like to provide an update on the legal matters we discussed during our last earnings call. In late July, the U.S. Department of Justice dismissed all charges against me, Fat Brands, William Amon, and Rebecca Hershinger. I'm grateful to U.S. Treasury's Office for their thorough review and to all legal counsel involved. We have also resolved the Delaware derivative cases known as Harris 1 and Harris 2 filed in 2021 and 2022 relating to our 2020 merger and 2021 recapitalization respectively. As announced in early August, our settlement agreement resolves all claims without any admission of liability or wrongdoing. The settlement includes the recognition of previously adopted corporate governance enhancements by the board, a $10 million insurance payment to the company, and a contribution of 200,000 shares of Twin Hospitality Group by Fog Coater Holdings. We received preliminary approval in September and expect final court approval in December. We are now fully focused on strategic execution and enhancing shareholder value. Turning to Twin Hospitality Group, the business continues to gain momentum under Kim Burima's leadership, who has strengthened both brands operationally and bolstered his executive team. During the quarter, he appointed Ken Brendamill as president of Smokey Bones, hired Rob Churn as chief operating officer of Smokey Bones, promoted Lexi Burns to chief people officer, expanding her role across both Twin Peaks and Smokey Bones, and hired Melissa Fry as chief marketing officer. These strategic leadership additions position Twin Hospitality for further growth and operational excellence. In August, I was honored to assume the role of chairman of Twin Hospitality Group, providing valuable continuity following its successful spin-out earlier this year. My deep understanding of the business and direct involvement in structuring the transaction provide a solid foundation for the company. Finally, I invite you to join Twin Hospitality Group's third quarter earnings discussion at 5.15 Eastern Time today, with details available in the earnings release published earlier today. Turning back to the business, We continue to take decisive actions to strengthen our financial position and sharpen our capital structure. We are advancing plans for a $75 to $100 million equity raise at Twin Peaks to pay down debt and fund new unit development. Our dividend pause remains in effect, preserving $35 to $40 million annually in cash flow. The dismissal of the DOJ case and the resolution of the derivative matters provide at least $30 million a year in additional annual savings. We've already executed more than $10 million of SG&A reductions and continue to look for additional savings. And we are actively negotiating a debt restructuring with our note holders. Together, these actions put us on track to achieve positive cash flow in the coming quarters, reduce our debt, and build a strong foundation for long-term growth. While the restaurant industry continues to face headwinds, we delivered adjusted EBITDA of $13.1 million for the quarter, most encouraging is the momentum we are building in same-store sales performance. We've narrowed our decline to just 3.5% down from 4.2% in the second quarter, representing our strongest quarterly performance so far this year. Notably, our casual dining segment demonstrated particularly strong results with same-store sales growth of 3.9%. Now I would like to provide you with an update on our three strategic pillars. organic expansion through strategic market penetration, targeted acquisitions to diversify our brand portfolio, and manufacturing scale-up, emphasizing cookie dough and dry mix production. First, organic expansion. We opened 13 new locations during the third quarter and 60 locations year-to-date, with a current target of 80 new openings this year. Development remains concentrated within our seven highest-performing brands, Fapriger, Johnny Rockets, Rizzoli's, Roundtable Pizza, Twin Peaks, Marble Slab Creamery, and Great American Cookies. Looking beyond 2025, our development visibility is strong. We secured over 190 franchise development agreements year to date, contributing to approximately 900 committed locations scheduled to open over the next five to seven years. These represent executed contracts with paid franchise fees. The potential earnings impact is quite substantial. Once operational, these units should generate $50 to $60 million in incremental earnings through our asset-light model requiring no acquisition capital or corporate build-out investment. As you know, co-branding remains a key growth driver domestically. In August, we opened our first co-branded roundtable pizza and fatburger location in Rancho Cordova, California. We leveraged more than 3,000 square feet of unused space at an existing roundtable location and added a fatburger, enhancing sales across day parts, particularly lunch. Weekly sales and transactions have doubled. With approximately 50 of these co-branded locations in our development pipeline, we see significant expansion potential across California and beyond. During the third quarter, we opened new Great American Cookies and Marble Slab Creamery locations in Maryville, Tennessee and Sanford, North Carolina. The Sanford opening marks both brands' entry into the Raleigh market. We also opened our first co-branded Fatburger and Buffalo's Express location in Springer, Oklahoma at the high-traffic Arbuckle Travel Center marking Fatburger's debut in the state. Beyond co-branding, we expanded our presence with strategic standalone openings. Roundtable Pizza expanded in Western U.S. footprint with its first Colorado location in Colorado Springs, a milestone opening that sets the stage for additional growth across the state. The brand also added a third location in the Las Vegas market. Hot Dog and a Stick opened at Downtown Commons in Sacramento, a high-traffic shopping center that reinforces the brand's strong California presence. On the international front, Johnny Rockets continues its global expansion, opening seven new locations this year across Iraq, Chile, the UAE, Mexico, and Brazil. Highlights include two openings in Baghdad and new locations in high-traffic destinations such as Cancun's Grand Outlet Riviera Maya and Dubai's Jumeirah District. Additionally, we announced Fatburger's return to Japan through a new franchise agreement that will bring four locations to Okinawa over the next five years. The first restaurant is slated to open before year-end, strategically leveraging Okinawa's robust tourism traffic and U.S. military base presence as a gateway to reestablish Fatburger's footprint in Japan. Along with new unit development, we plan to complete 100 remodels this year, refreshing our brand's presence and enhancing the customer experience across our portfolio. Also, our portfolio digital mix hit a new record high with year-to-date digital sales increasing 19% from Q2 to Q3. Additionally, our brands received several notable awards this quarter, underscoring the strength and recognition of our portfolio. Great American Cookies and Marble Slab Creamery were named to QSR's Best Franchise Deals 2025 list. Hurricane Grill and Wings earned a spot on USA Today's 10 Best Lists for Sports Bars. 12 of our concepts were included in the Franchise Times top 400. Twin Peaks, Round Table Pizza, Johnny Rockets, Fazoli's, Great American Cookies, Fatburger, Marble Slab Creamery, Ponderosa and Bonanza Steakhouses, Pretzel Maker, Native Grill and Wings, and Elevation Burger. And finally, Round Table Pizza was recognized on Yelp's top 25 U.S. pizza chains list. Now, turning to our growth by acquisition strategies. We remain disciplined while preserving flexibility. Strengthening the balance sheet is our near-term priority given current capital costs, but we continue to actively market to monitor the market for opportunities at the right valuation. Our focus is on acquisitions that enhance our core brand or add complementary capabilities without compromising our commitment to deleveraging. Our Georgia production facility continues to perform well, generating $9.6 million in sales and $3.8 million in adjusted EBITDA, a 39.6% margin during the third quarter. Importantly, we are operating at only 45% of capacity with meaningful expansion potential at low incremental cost. In August, we announced a major strategic initiative supporting our manufacturing scale-up goals, a partnership with Virtual Dining Concepts to make Great American Cookies available for delivery from Chuck E. Cheese locations nationwide. The collaboration is already live at over 450 locations, with 500 additional locations targeted through the Virtual Dining Concepts Network by the end of this year. In addition to delivery, we're exploring in-venue cookie sales and co-branded menu opportunities. This partnership represents a transformative step in our manufacturing growth strategy. Leveraging third-party partnerships to significantly increase production volume and drive our Georgia facility towards greater capacity utilization all while maintaining an asset-light business model. Before I turn it over to Ken, I'd like to highlight the meaningful impact of the Fab Brands Foundation, which has awarded 42 grants and provided over $170,000 in funding so far this year. In September, the foundation launched a health and wellness campaign aimed at promoting Fab Brands employee well-being in addition to driving fundraising efforts, the Step Up for Fab Brands Foundation Challenge. The initiative saw tremendous engagement from employees, and reinforced the foundation's role in giving back to the communities we serve. With approximately $12,000 in funds raised from this month's, from the month-long initiative, the foundation was able to help provide 1,000 meals to underprivileged children in Collier County, Florida, equip six schools and 250 students with books and materials to promote fourth grade literacy, and assist families impacted by the Eaton fires in Altadena, California, through the purchase of essential gift cards. Looking ahead, our focus is on execution, driving growth across our brands, strengthening our balance sheet and unlocking the full potential of our platform. We believe these efforts will deliver meaningful value for shareholders, franchise partners and team members alike. With that, let me turn it over to Ken to walk through our financial highlights for the third quarter.

Thanks, Andy. Moving on to our third quarter results, total revenues were $140 million. a 2.3% decrease from $143.4 million in last year's quarter. This was driven primarily by the closure of 11 underperforming Smokey Bones locations as planned, the temporary closure of two Smokey Bones locations for conversion into Twin Peaks Lodges, and lower steam source sales, partially offset by revenues generated by our new Twin Peaks Lodges. Turning to costs and expenses, general and administrative expense increased $8.2 million to $42.7 million in the quarter from $34.5 million in the year-ago quarter, primarily due to a $6.9 million store closure reserve and a $1.4 million non-cash impairment of fixed assets in the third quarter related to the closure of underperforming Smokey Bones locations. and higher non-cash share-based compensation expense related to the public listing of Twin Hospitality Group earlier this year. Cost of restaurant and factory revenues decreased to $94.6 million in the quarter compared to $96.8 million, primarily driven by the closure of underperforming Smokey Bones locations, the closure of two Smokey Bones locations 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 $12.2 million in the quarter from $10 million in the year-ago period. Total other expense net, which consisted primarily of interest expense, was $41 million in the quarter compared to $35.8 million in last year's quarter. Net loss attributable to fat brands was $58.2 million, or $3.39 per diluted share, compared to a net loss of $44.8 million, or $2.74 per diluted share in the prior year quarter. And on an as-adjusted basis, our net loss attributable to fat brands was $45.4 million, or $2.67 per diluted share, compared to $38 million or $2.34 per diluted share in the prior year quarter. And lastly, adjusted EBITDA for the quarter was $13.1 million compared to $14.1 million in the year-ago quarter. And with that, operator, please open the line for questions.