FAT Brands Q2 2025 Earnings Call Transcript

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July 30, 2025

Key Takeaways

  • Positive Sentiment: DOJ dropped all charges against FAT Brands and key executives, and the company reached settlements in derivative suits, saving over $30 million annually in legal costs.
  • Neutral Sentiment: Second quarter revenue of $146.8 million fell 3.4% year-over-year, with a net loss widening to $54.2 million but adjusted EBITDA flat at $15.7 million.
  • Positive Sentiment: Dividend pause and cost-cutting measures preserve $35–40 million in annual cash flow, complemented by $5 million already trimmed from SG&A budgets.
  • Positive Sentiment: FAT Brands holds $130–150 million in retained notes for liquidity and is on track to reach positive cash flow within the next few quarters amid active deleveraging.
  • Positive Sentiment: A robust development pipeline of 1,000 committed new units and 120 agreements signed year-to-date supports the goal of opening 100 locations in 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
FAT Brands Q2 2025
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the FAT Brands Inc. Second Quarter twenty twenty five 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, 07/30/2025.

Operator

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 twenty twenty five 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 06/29/2025. Before we begin, I must remind everyone that part of the discussion today will include forward looking statements.

Operator

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.

Operator

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. Thank you.

Speaker 1

Thank you, operator, and good afternoon, everyone. Before we begin, I want to address major news that came out yesterday. The US Department of Justice has dropped all charges against me, FAT Brands, William Amon, and Rebecca Hershinger. I'm grateful to the US attorney's office for taking a fresh look at this case and to the attorneys 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.

Speaker 1

Additionally, I want to alert you that we have reached a settlement with all of the parties in the Delaware derivative cases named Harris one and Harris two that were filed in 2021 and 2022. And while the settlement is subject to court approval, I'm optimistic 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 Fab Brands portfolio. Their focus on excellence is driving our momentum, and I couldn't be more optimistic about what lies ahead for Fab Brands.

Speaker 1

I am particularly proud to share that we have been recognized on Time and Statista's best mid sized company list for the second consecutive year, underscoring the strength of our business model and culture. Additionally, 10 of our brands earned 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 seven thirty franchise partners. Over two fifty of these franchise partners operate multiple locations ranging from two to 75 units with no single partner representing an outsized portion of our portfolio.

Speaker 1

Our structure both mitigates concentration risk and positions us for continued expansion. Within this framework, we continue to invest in brands 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.

Speaker 1

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 $100,000,000 equity raise, and we'll provide further updates as appropriate.

Speaker 1

Following today's call, we invite you to join Twin Hospitality Group's q two earnings discussion at 05:15PM 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 $25,000,000 principal reduction threshold, preserving 35,000,000 to $40,000,000 annually in cash flow. Plus, we will save at least another $30,000,000 per year with the dismissal of the DOJ cases and the derivative matters. Additionally, we've implemented over $5,000,000 in annual SG and A reductions, while identifying another $5,000,000 or so of further cost optimization opportunities.

Speaker 1

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 $146,800,000 in revenue and $592,200,000 in system wide sales reflect the current challenging operating environment. And despite this, we achieved adjusted EBITDA of $15,700,000 in the quarter, which is comparable with last year's quarter.

Speaker 1

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 Fatburger locations in Canada, which represent about one third of the Fatburger 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.

Speaker 1

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.

Speaker 1

Once operational, these units are expected to generate 50,000,000 to $60,000,000 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, Fizzoli'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.

Speaker 1

This will grow our total presence in the state to approximately 50 Fatburger locations. Since reentering Florida two years ago after a twenty year absence, Fatburger has seen 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 Texas 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.

Speaker 1

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 Frappburger 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're 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.

Speaker 1

I'm particularly proud that our brands continue to receive prestigious industry recognition. Fatburger was recently named by Yelp as one of the top 25 burger chains in The US, while Fazoli's earned the number 12 spot on the fast casual movers and shakers twenty twenty five 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 Fazoli securitization, securing improved terms that enhance our financial flexibility.

Speaker 1

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 refranchise our entire 57 unit corporate to ZOLI's portfolio, a move that would substantially reduce our corporate owned footprint while delivering approximately two and a half million in annual overhead savings. Should we proceed with this refranchising initiative, we would maintain direct ownership of only about 33 Hot Dog on a Stick corporate locations within our 2,300 unit system, 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.

Speaker 1

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 we'll share updates as appropriate. Our Georgia production facility represents one of our key strategic advantages, generating impressive financial performance with $10,300,000 in second quarter sales and $3,800,000 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.

Speaker 1

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 FAPRANCE Foundation, which has awarded 21 grants in 2025. I'm pleased to share that President Jessica Wiederhorn and Director 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.

Speaker 1

The foundation also recently participated in Twin Peaks Restaurants 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 2025.

Speaker 2

Thanks, Andy. Moving on to our second quarter results, total revenues were $146,800,000 a 3.4% decrease from $152,000,000 in last year's quarter. This was driven by the closure of five underperforming Smoky Bones locations, the temporary closure of one Smoky 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 $14,800,000 to $44,400,000 in the quarter from $29,600,000 in the year ago quarter, primarily due to $12,600,000 of non cash share based compensation expense related to the public listing of Twin Hospitality Group earlier this year and the recognition of $2,100,000 in employee retention tax credits recognized during the second quarter of last year. Cost of restaurant and factory revenues decreased to $98,100,000 in the quarter compared to $100,100,000 primarily driven by the closure of underperforming Smoky Bones locations, the closure of the Smoky Bones location for conversion and lower same store sales, partially offset by wage and food cost inflation.

Speaker 2

Advertising expense varies in relation to advertising revenues and decreased to $11,500,000 in the quarter from $14,700,000 in the year ago period. Total other expense net which consisted primarily of interest expense was $39,400,000 in the quarter compared to $34,800,000 in last year's quarter. Net loss attributable to FAT Brands was $54,200,000 or $3.17 per diluted share compared to a net loss of $39,400,000 or $2.43 per diluted share in the prior year quarter. And on an as adjusted basis, our net loss attributable to FAT Brands was $49,000,000 or $2.88 per diluted share compared to $30,900,000 or $1.93 per diluted share in the prior year quarter. And lastly, adjusted EBITDA for the quarter remained flat at $15,700,000 And with that operator please open the line for questions.

Operator

Thank you. We will now be conducting a question and answer session. 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.

Operator

First question is from Joe Gomez from Noble Capital. Please go ahead.

Speaker 3

Good afternoon. Thanks for taking my questions.

Speaker 2

Hi, So

Speaker 3

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, Andy, you talked about the elimination of roughly 30,000,000 a year of litigation costs. Are you going to be able to recover any of the past costs from your insurance companies?

Speaker 1

So we're hopeful that the SEC investigation or or case, civil case, goes away following the 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's 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.

Speaker 3

Okay, great. Pardon me. And then, one of the big variances our model was the increase in G and A costs. And you explained that that was for share based comp. Is that kind of like a one quarter event?

Speaker 3

Should we expect G and A costs to go back down? I think they've been running roughly around 25% of revenue this quarter.

Speaker 1

Yes. It absolutely goes down at 2% of revenue. Sorry, Chad. I'm sorry. I should really finish.

Speaker 1

It absolutely goes down. It's a onetime event that's tied to the Twin Peaks spin off.

Speaker 3

Okay, just wanted to make sure that I thought so, but I just wanted to just make sure. You talked about manufacturing the 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?

Speaker 1

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 thirty to sixty days it'll be completely out there.

Speaker 1

And there's 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 is more virtual, and one is with a direct very large operator, 400 unit operator. So it's gonna be it's it's really gonna be helpful for the factory, for cookie dough production, all of that.

Speaker 3

Okay. And one more for me. So Cisco reported, they were talking about improved restaurant industry traffic, improved through the quarter for their food service segment. Momentum continued in July. Wingstop reported this morning and they beat expectations.

Speaker 3

Just wondering, are you starting to see some of this at your locations across the chains?

Speaker 1

So it's different in the brand categories. And so like the snack brands, cookies, ice cream, pretzels, things like that are doing significantly better. You're seeing QSR QSR brands be, you know, as beaten up as McDonald's or or some of the Yum brands. So Burger King where you're seeing, like, Fazoli's has has had a tougher road here with sales in the last couple of quarters. And then on the on the polished casual side, it's getting better and better and better.

Speaker 1

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 will continue to improve. We are seeing things they're off less and less.

Speaker 3

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

Speaker 1

Thank you, Joe. Okay.

Operator

The next question is from Roger Lipton from Lipton Financial Services. Please go ahead.

Speaker 4

Yeah. Hi, Andrew. First, congratulations on the legal progress. Thank you. Progress being an understatement, for sure.

Speaker 4

And even though your organization has done an admirable job of not getting too distracted by it, It's gotta be a great source of new focus for everybody, I'm sure. Absolutely. Generally, you indicated that you're gonna have working your way to a positive cash flow. Sounds like within three, four, five quarters from now. That's my estimate, not yours.

Speaker 4

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 money you can draw upon if necessary just to bridge this remaining period.

Speaker 1

Yeah. We continue to sit on a pile of somewhere between a 130 and a $150,000,000 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 that's generally our our path for liquidity.

Speaker 1

You know, we do have things like an ATM in place at that that we can use. But given that we think the stock's undervalued, we haven't done much of that at all. You know, our our focus right now is to we wanna continue to look at g and a and see if there's any anywhere else to have savings across all the brands. There, you know, we've we've identified 5,000,000 we put in place. There's another 5,000,000 I think we can get accomplished here over the between now and the end of the year.

Speaker 1

And then there is the rapid acceleration of the smoke Smoky Bones portfolio, and that is identifying the stores 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 gonna be converted and not gonna remain, open as a smoky bones because the leases might mature. You know, we wanna accelerate that. We really want that process to be accelerated. It just wasn't moving at the pace it needed to move at with the prior management team and it's gonna 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 to do that so that that's not dragging down the Twin Peaks, you know, business. And there are some Smokey Bones that are very profitable that we'll keep as Smokey Bones and whether whether we keep that as a subsidiary of Twin Peaks or not, we'll decide later.

Speaker 1

But there's plenty of stores that are cash flowing just fine. It's just that, you know, the ones that that are gonna be converted and are not not great as the Smokey Bone today, need to deal with now. We can't wait.

Speaker 2

Right. And I can't really I

Speaker 1

can't emphasize enough the the, you know, the savings on the legal expense and professional side. That's just significant cash. And, you know, with if you take that cash and you take the savings from the dividends that we've temporarily paused, then, you know, you're already in the 70 to $75,000,000 a year range. So that's a huge savings. And, there's a few other things we're trying to negotiate for.

Speaker 1

We'll see if we get them and that's that's a

Speaker 4

know, 75% of Okay. Thank you. And you talked about refreshing 5% of the system. Which brands are the priority in terms of beginning to refresh them?

Speaker 1

Well, so these are not company owned stores. Right?

Speaker 4

These are all franchise locations. I understand. Understand.

Speaker 1

It depends, you know, just by unit count, you have 400 round table pizzas and then you have, you know, three or 400 ice cream and three or 400 cookie restaurants and so on. So it's really diverse. It's spread out. It's not just one brand. It's targeted by brand and by market.

Speaker 4

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

Speaker 1

Yeah. I mean, I think it's like like someone we all know who says often you'd like to see interest rates lower, so would we. And if interest rates were lower, that's gonna accelerate development. It's going to accelerate remodels. And franchisees are committed.

Speaker 1

They're continuing to build more stores. They're continuing to buy the rights to build more stores. They're very positive about things in general, but you have different ebbs and flows of the labor market in California or cost of doing business in California and then the cost of, you know, the actual cost of a remodel and cost of equipment and supplies and stuff.

Speaker 4

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

Speaker 1

Well, you're again, you're seeing in the snack brands very positive sales momentum. And then I you know, you're you're actually seeing things improve. Roundtable pizza has been very strong. Not not I wouldn't say hitting the ball out of the park, but very strong given its its competitor and competitive landscape and the competitors it's it's up against. We don't report brand by brand or by segment, so I'm not gonna go into the the specific numbers of each brand.

Speaker 1

But, you know, where you see we've seen the most trauma has really been in the QSR space, which is consistent with most other QSR players. And and at the other end of the spectrum in in sports bars and stuff, there's just an increased consumer sentiment to to wanna get back into the restaurants and sport. The summer, of course, is not the greatest sports time, and so we're looking forward to football starting up in August and the way we go into the fall and expect some some really good numbers there.

Speaker 4

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

Speaker 1

Thank you.

Operator

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

Speaker 1

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.

Operator

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

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