Q2 2020 FAT Brands Inc Earnings Call
In all areas relating to manage between pandemic.
Development construction and training teams remain focused on robust pipeline of new stores, we anticipate opening for the rest of year very strong year for new store openings.
Let me give you a quick overview about our development pipeline as of today in comparison to a year ago.
During the second quarter franchisees opened five new locations, bringing the year to date, a total of 15 with an additional 18 stores slated to open by the ended the year.
Plan to end 2020 was 33 new stores in total and this compares to 2019, when we opened 24 new location.
So despite the effects of the pandemic our development pipeline has remained strong in the key pillar of our organic growth strategy.
The primary limitation in opening new stores, it's been the ability of our training teams to travel for the elements of training that need to be done in person like many others across multiple industries. The pandemic has meant that dream to virtual operations and our teams have conducted virtual training sessions to the extent possible.
Turning now to the second quarter total revenue decreased to $3.1 million from $5.9 billion in the second quarter 2019, our system wide sales decreased 51% year over year, reflecting the impact of the pandemic on our bid.
Excluding ponderosa and Bonanza brands systemwide sales have decreased 29%.
Cost and expenses were $8.9 million in the quarter compared to $3.7 billion last year like our revenue this increasing cost and expenses reflects the effects of the pandemic.
With a $3.2 million goodwill and trademark impairment charge related to ponderosa and Bonanza steak House brands.
So really the costs the actual cost 5.7 billion not 8.9 subtract out the $3.2 million goodwill impairment.
It also reflects a 1 million dollar refranchising loss related to restaurants held for sale and 907000, our provision for bad debt from franchisees that have close or will close. In addition, Gionee also includes a full quarter of depreciation and amortization expense related to elevation Burger, which we acquired in June 20 years.
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The combined effect of lower revenue higher cost resulted in adjusted EBITDA loss of $361000 for the quarter. This compares to adjusted EBITDA.
Profit of $2.0 million in the second quarter of 2019th.
Shifting away from our operating performance, we continue to make progress in our liquidity and capital resources.
Following the close this quarter, we successfully raised a total of $15 million, an equity which includes approximately $9 million in gross proceeds from the underwritten sale of the eight in the quarter percent series D cumulative preferred stock and warrants both of which began trading on NASDAQ on July 14, and an additional $6 million from the exchange of of course.
One of the series a preferred stocks crude dividends there on and into series B stock as well the exchange of series a one in a series B.
These transactions simplified our capital structure.
I'd also like to note that of the series B.
Raised nearly $3 million is owned by company insiders or affiliates, we believe which we believe demonstrates a true sense of confidence in our company.
All in all these financing activities represent another milestone for us as we position ourselves for future growth opportunities.
We also repurchased 509604 of the company's southern dollar 20 cents strike price warrants issued in connection with our 2018 financing.
For reducing significantly the number of out anymore.
While we are currently working through a challenging time in our industry. We are a stronger company today due to the progress and strategies, we've achieved an executed year to date, and we're well positioned to drive our growth for both organically and through opportunistic acquisitions in the years ahead.
In fact, there are several acquisition opportunities. We are currently considering at this time.
While the duration in severity of the ultimate impact from cover 19 on the industry remains uncertain. We were very excited about the platform and our future and we are just well position to take advantage of these opportunities.
Before we open the call for your questions I'd like to once again extend my heartfelt. Thank you to all of our team members franchise partners and their employees they've done an outstanding job. During these unprecedented times adapting and rising to be challenges our industry faced very proud of our team and our partners remain excited for the opportunities in front of us, especially as we participate in industries recovery.
With that operator, please open the lines for questions.
Certainly if you'd like to register a question you can press the one followed by the four and your telephone and you'll hear three tolling pump technology request and if your question to answer you wish to withdraw you compress one three.
Again that is 140 queue up and what maam. Please first question.
Our first question is one of Joe comes from Noble capital. Please go ahead.
Good afternoon.
Hi, Joe [laughter].
Quick question here on you know that's been somewhat of a roller coaster ride here on the call it.
Yes, we've seen certain areas seem to become a hot spots again.
Just wondering.
How's that impacting if it has you guys I mean is.
Some of these rolling hotspot someplace, like Georgia, Texas, Florida.
Yes. Good question. The short answer is in those markets had very little effect Oh, we picked out three four weeks ago, where we had a bigger jumping recovery of weekly sales to around $5 million and then they're off to about $4.7 million. A weekly sales you can see that chart in our earning supplement which.
Is posted on our website, but it's just a little bit right. That's a 567% off of the of the peak recovery, but that's also exacerbated by California closing the dining rooms again.
So it doesn't you know a modest effect there I mean, our delivery business went from 40% to go into Liberty to 70% to go and delivery. So you know in California, where you have the dining rooms close again.
You know, you're you're not getting that incremental amount, but certainly a huge uptick in delivery the east coast brands, a hurricane go to wings Buffalo's cafe have been very very strong and resilient using the outdoor dining porches that they already come with already built that way to start with so we're very fortunate that they have the outdoor beaches are outdoor <unk> kind of think beaches with the bar and sand or.
<unk> screen porches I'm. We are also readying the franchisees for the winter and using the game of Thrones say in the winter is coming to me, we want them to be ready and so we're encouraging them to order their heaters order the 10 through the plastic walls that they might need to have the place. If this continues in some way on the dining room cycle.
It would be awfully hard to get all that stuff. If you try and order. It you know October one.
Right.
Okay.
And it could you provide us a little bit more update on the ponderosa Bonanza brand.
Where where are we would those right now today yep, so across our system right now about half the ponderosa and Bonanza restaurants have temporary closures of some kind either either completely close or the dining rooms, you know indoor or close and they don't really have outdoor dining room. So they just have to liberty to go and that's a lot of states in the Midwest that have.
Then on defense about what to do with the guidelines. So that's the brand. It of course has been hit the hardest here and a more than half of our total change in system wide sales year to date. It through this is through the end of July not through the end of June but through the end of July or like 49 million at a 90.
2 million of our drop in sales.
Comes from onto assumed Bonanza. So you know a significant amount there and we've also had a few closures there and hence we decided to take an impairment on the goodwill of that brand just to rightsize it with.
You know what's happened there it the rest of the brands I've really been quite resilient I mean, we've had a little bit of of of dropping like are you. All are elevation Burger brands with fat Burger Hurricane Buffalo's very very strong they make up 75% of the revenue base.
So you know, it's it's a little difficult in the Midwest and also Puerto Rico, There's 24, Ponderosa's in Puerto Rico, and they and they make up no more than half of the closures. The temporary closures are still close there.
Okay.
And.
I think in the past you'd mentioned you were probably gassing you'd have anywhere from 10 to 15 permanently closed.
Once we come out of this is that still more you're looking for.
Yeah, that's right, we think that front, resulting from the pen downtick not not closing in the ordinary coast course, like your leases up or something like that and there is about 15 that we've targeted that will permanently or have permanently closed from let's say March March one or March 10 forward and that's all.
Pandemic related no other no other reasons there.
And again you know those are generally the lower performing stores. So if you.
Closed 15 out of 370 restaurants, you know, it's a small percentage, but their their contribution to revenues generally even smaller than that because that's not the that's not the same you know a contributor that they would be as a as a unit counts percentage.
Right, Okay, and I think last quarter, you talked about you know a cash burn in the one to 2 million per quarter.
Yeah, I use that where we still are we seeing some improvement in that you know what do you think about back going forward, though it significantly better significantly better. We're we're on <unk> at a.
Break even or positive cash flow on spot today in terms of total revenues. It's it's just a different situation, it's not negative at all we're not burning.
We may not be throwing off as much access as we did before but it's significantly rebounded.
That's good news yeah.
You know in April April for everybody was a disaster and then there were reopenings. It started in May and then you know continued into June so it bounced back very quickly. It has its her husband ways to go but.
You know hurricane Fat Berger.
Buffalo's cafe, and even elevation Burger all or a real contributors to the bottom line Ponderosa Bonanza is maybe 15% of revenues and you know beaten up badly by that but.
We've got a significant bounce back we're not burning cash and.
That's good.
I will jump back in line, let someone else asked the question. Thank you. Thank you very much.
And as a reminder, feed you have a question you can press one for.
The next question's for line to upgrade really fortunate off a private investor. Please go ahead.
Hey, Andy how are you get hurt you.
Got any what's the current cash position.
A little over $6 million.
Okay.
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So every every quarter you have an interest payment.
Believes can you what does that amount you on a monthly basis, I'm, sorry quarterly basis.
So the interest payment is about.
$775000 a quarter.
We have no debt service coverage is like three acts we have plenty of cash flows we cover a death or is and cover dividends and all those things.
Okay, that's great.
There are a it looked like in your presentation, you said that you saw 44% improvement in sales.
What is the run rate as a percentage of 100, so lets say like the 92019 run rate as 100.
Where we where we now so if you look at it.
So if you look year to date, which is not your question, but year to date on you know across all brands were up about 37% Ah, but on a weekly basis. It was very different brand by brand were off.
Somewhere in the high Twentys or very low Thirtys Ah. So if you look at a 10 point swing from year to date has gotten significantly better.
The.
Fabrica brand is.
Almost flat like 0.3% off right now Buffalo's cafes up 1.5%.
Hurricane really wings is off maybe 10% right now.
That's it that's ponderosa's off still like 75% or we can base, that's really the that they can.
Okay.
Last question is just what do you can't just to emphasize that sorry, Greg and wasn't Bonanza. The royalty. The dollar royalties are not equal to hurricane that Berger.
Buffalo's Kathy they have it on average at a lower royalty rate. It was part of that system. So even if sales are off 33% that doesn't mean revenues are up 33%.
Okay.
So what are you thinking about the second half's like obviously, you don't have Crystal ball you always have was cove it but based on the trends you're seeing now do you think it's gonna stay like this or do you think we have.
Tenant improvement I mean, assuming it doesn't get worse, let's say it stays where we are.
I think the key takeaways there are several one is we still have another 18 restaurants to open between now and we ended the year, which will incrementally drive our revenues.
By almost <unk> million dollars royalties little little more than a million dollars right because it's about 60000 to store. So sometimes 18. So that's significant bump right. There. That's additional revenues second we had strong new franchise sales development activity lot of people are looking to find franchises as a way to maybe I don't want to go back to work.
Where I was before I Wanna get my own business. So that's interesting.
The <unk> the other brand has bounced back so sharply casual dining brands that I don't really see anything changing their unless unless.
There's some further closures in the United any this are hoping for that I think we're hoping to go the other direction here, even though it'll probably be slow. So the only thing I worry about is the winter weather and making sure that we've prepared those outdoor dining rooms for the winter.
Places like California don't have that issue, but on the East coast you certainly have that issue. So we need to make sure that we've gotten set up for that.
And.
You know, we're really well position, having completed our preferred stock offering.
Earlier in the month.
Or at the last month, we were very well prepared now you know to weather the storm how the liquidity.
There are ample acquisition opportunities being presented to us and I think it will take advantage of one or two of those in the near future and use our securitization facility, which as you know is expandable like an accordion feature and with the accordion feature and does that low cost long term financing. It's a great time to look at long term healthy brands that we can put in.
Our portfolio not not huge turnaround situation deals, we don't need to heavy lifting right now, but there are plenty of opportunities where we can make acquisitions that are opportunistic right now and I think that's.
Just a key a evaluations are lower there's opportunities be presented to us and we're going to take advantage of that.
Okay, and I just want to make sure I heard this right. So as we stand today no improvement same levels.
Between cutting expenses and improvement in the revenue there's no.
Loss no no more expected actual cashel losses, you're gonna be flat to up a little on the cash going forward, but we're not burning were not burning cash at the $1 million to $2 million a quarter rate that we were form or not suffered losses. I mean, there there could always be a change of dining rooms are closed or whatever but if anything it stayed the same.
I don't forecast or see that happening and we're also promoting or virtual restaurants concept across all our brand and that's something as a competitive advantage and other franchise owners don't have we own eight different brands. We can let our franchisees sell other brands for delivery to go only on the platform and other guys can't do that so that's another way to help mitigate any drop in revenue but.
You know I feel very comfortable about where we are not losing sleep over it. We you know we know we have the problems we discuss like within in Ponderosa Bonanza, but the other brands of really adapted well ponderosa itself has adapted well to having a.
Server Scoop up all the food on the on the salad bar and all you can even phase for the guess I once the order there there there are entre.
Rather than self serve but it's whether the states, let the dining rooms opening and that's the only issue that even seen opened its not the service style. So I really feel like we're well positioned you get through this and that you know and also be opportunistic.
But just for a point of view of like what you're catches versus your previous burn where someone much Oh my God. There's a couple of months of cash. There now you have your <unk> money around one if we have plenty of right. So if we end up if we go to the next quarter same spike or that you're going to have a similar amount of cash in the back then you have to correct correct. Okay. That's it thanks, Andy good job not.
Getting this a ridiculous time hopefully but is this will be the last a messy quarter. Thank you Hudson I hope he goes off power.
Thanks.
And once again as a reminder, if he'd like to ask a question you can press one for.
It looks like there's no other questions did you want to prompt again or go to closing comments no I think we I think.
We can close now.
And I just like to thank everybody for taking the time to participate in our second quarter earnings discussion and asking questions and I feel free to reach out with us if anything else comes to mind.
Thank you all again, and we'll talk to you or.
And your future here with.
More exciting stuff.
That will conclude the conference call for today, we thank you for your participation and you can now disconnect your lines.
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Okay.