Q3 2023 FAT Brands Inc Earnings Call

Okay.

Yeah.

Good afternoon, ladies and gentlemen, and thank you for standing by.

It comes to the Fat brands, Inc. Third quarter 2023 earnings conference call.

At this time, all participants have been placed in a listen only mode.

Please take note for assistance by pressing Star zero.

Please note that this conference is being recorded today October 26 2023.

On the call from Fat brands are chairman of the board.

D V Jim Hart.

Co Chief Executive Officer, and Chief Financial Officer, Tom Cook.

This afternoon the company meet its third quarter 2020, Chief financial Officer publicly about.

Please refer to the earnings release and earnings supplement for the Fitch our developer in the investors section of the company's that site of Ww.

W. W. W docs that brand's dotcom.

Each contain additional details about the third quarter, which closed on September 24 2020.

But 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 Bert 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.

Yeah.

For a more detailed discussion of theirs 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.

As a substitute for results prepared in accordance with GAAP.

Conciliation to comparable GAAP measures are available in today's earnings release.

I would now like to turn the call over to Andy Wade at her chairman of the Board. Please go ahead.

Thank you operator, we appreciate everyone. Joining us this afternoon first and foremost I would like to thank our teams franchisees and their employees for their unwavering commitment and hard work and it resulted in the continued growth that's happening.

Total revenue grew 6% to $109 $4 million in the third quarter of 2023 compared to $103 $2 million in the prior year third quarter.

The increase was driven by a 4.8% increase in royalties.

A 2% increase in company owned restaurant revenues, a 228 and a 5% increase in franchise fees.

And an 18, 9% increase in revenues from our manufacturing facility.

System wide sales in the third quarter grew to $564.6 million, a 0.8% increase when compared to the prior year quarter.

On profitability third quarter, adjusted EBITDA was $21 9 million compared to $24 6 million in last year's third quarter and just to point out that in last year's third quarter. There were $7 2 million of tax credits without those tax credits it would be a 26% increase on.

Quarter over quarter year over year basis.

Throughout Q3, we were extremely busy executing on our three strategic pillars, one growth by acquisition to organic growth and three.

Productivity growth for our Georgia based manufacturing facility.

I'll begin with our first strategic pillar of growth through acquisitions.

Over the last two years our growth strategy has been very focused on our organic development as we digested eight new restaurant brands that we acquired throughout 2020 in 2021.

We continue to be selective and opportunistic in our acquisition strategy under.

Under this strategy, we recently purchased Smokey bones bar and fire Grill, a full service restaurant chain with a sports bar atmosphere from an affiliate of Sun capital partners for $30 million. This was funded from our existing securitization facilities in 'twenty 'twenty. Johnny Rockets was similarly acquired from Sun Capital Partners.

Okey bones is known for its Great Bbq award, winning ribs and perfectly Seared Stakes.

Currently Smokey bones operates 61 company owned locations across 16 states.

We expect the Smokey bones to increase annual adjusted EBITDA by approximately $10 million.

The acquisition marks our expansion into the barbecue segment and bolsters our presence in polished casual dining which until now has been represented exclusively by our twin peaks cheat.

Smokey bones currently has the second highest <unk> in our portfolio following twin peaks at greater than approximately $3 million.

Adding a strong player in the barbecue space like Smokey bones provides our sales team with more development options to offer franchise partners. So that they can further their new unit growth, we plan to work hard and hand in hand, with the Smokey bones leadership team to grow the concept through our franchisee model.

And through our Refranchising strategy, we have plans to build Smokey bones back to the location count It once had approximately 120 units.

Approximately half the operators and the fat brands system, our Multiunit franchisees operating anywhere from two to 75 units and they are hungry to grow their portfolio with brands that have strong avs in fact, a number of franchisees have already expressed interest in acquiring existing smokey bones corporate stores as franchises. So that they can grow their portfolio of restaurants.

Smokey bones has many prime real estate locations that could provide conversion opportunities for twin peaks and our franchise partners over time, we plan to selectively convert locations, where appropriate which will enhance the growth of the twin peaks system.

Inclusive of Smokey bones, the fat portfolio. Now consists of 18 distinctive brands with approximately 800 different franchisees, who operate more than approximately 220 125 franchise restaurants. In addition to our approximately 180 company owned stores press.

Presently we have a total of 2300 units operating or under construction ranking us as approximately 25th largest restaurant company in the U S by unit count.

Yes.

While we have more recently focused on the polished casual segment. We're also looking at other categories to round out our portfolio, such as salad sandwich or coffee brands.

As we continue to assess potential targets for acquisition, our focus remains on identifying strategic and EBITDA accretive opportunities with brands that have demonstrated long term sustainability and robust profitability. They also must be scalable and synergistic with our existing platform, including leveraging our existing manufacturing capacity when possible.

Okay.

On that note another strategic priority for US is the growth of our Georgia based manufacturing facility, which provides pretzel mixing cookie dough for several brands. We believe our factory business today is in its early stage of growth operating at only about 45%, 40% to 45% of its capacity still this is up from 33% two years ago. We also have the ability.

<unk> to significantly expand the capacity of the plant by tapping into our three and a half the acres of excess real estate and the ability to invest in additional equipment that will also enhance capacity.

During the third quarter, our manufacturing facility generated $9 $3 million in sales and 18, 9% increase over last year's third quarter.

To help increase productivity at our manufacturing facility earlier this year, we strategically introduced cookie offerings throughout our Burger portfolio Fat Burger Johnny Rockets and elevation Burger we see these additions as a way to further build and enhance our dessert programs. We continue to explore opportunities to add cookie offerings at our remaining brands brands, including our casual dining concepts.

And as always.

Now, let's take a closer look at our organic growth.

Year to date, we've opened a total of 107 new units, including 30 that opened in Q3.

For all of 2023, we're aiming to open a total of 150 units.

Additionally, this year, we have signed franchise development deals for over 200, new locations, bringing our pipeline for new units to over 1100 signed agreements on top of the 2300 restaurants have already opened.

This pipeline of organic growth is estimated to be worth approximately $60 million in incremental increase to adjusted EBITDA, which massively deleverage that organically.

As mentioned, we are particularly focused on the growth of our polished casual segment, which now consists of our twin peaks and Smokey bones concepts.

Twin peaks is a best in class brand that appeals to a broad demographic of customers across the country. The units produced industry, leading aves of around $6 million, while some of our highest volume locations in Florida are generating a vs between nine and $12 million, they're highly profitable restaurants, with an elevated food and beverage program that forest.

Anything else in the category.

This year, we've opened 11, new twin peaks lodges, bringing our current portfolio to 106 units across 27 states in Mexico of which more than 70% of franchise for the remainder of the year. We plan to open five more lodges and in 2023 with approximately 111 largest D C.

Is a 34% increase in unit count since fat brands acquired the brand in 2020, one just two years ago.

Over the next several years twin peaks plans to grow its unit count to more than 200 lodges and increase the mix of franchise locations to between 75 and 80%.

We currently have over 125, new franchise units signed paid and committed to be built in the next five years.

As mentioned, we also plan to seek to selectively convert between 30 and 40 of the Smokey bones units into twin peaks, which will help accelerate twin peaks growth.

These conversions can take as little as nine months compared to the two and a half years needed to build a twin peaks from the ground up.

The planned unit growth is expected to increase system wide sales of twin peaks to approximately $1 billion.

As a result of the concepts industry, leading economics and strong pipeline of profitable growth as previously announced we plan to take twin peaks public in the future. However, the timing and the size of the transaction will be subject to market conditions and other factors, which could include simply a sale or spin out of the brand with proceeds primarily used to pay down debt.

Another Avenue of growth, we are pursuing is non traditional venues our fat Burger location at six flags great adventure in New Jersey, which opened last year has exceeded our expectations. As a result in July we announced an expansion of its partnership with a new restaurant at six flags Fiesta, Texas. This is our sixth fabric and location in Texas with over 40 additional.

The locations planned to open in the state over the next 10 years.

Similarly, we opened a cobranded marble slab creamery and great American cookies concept and cooks children's hospital in Fort Worth, Texas, and we'll continue to expand that partnership with a second location in their hospital and Prosper, Texas.

We also announced a new development you know to bring 20, new franchise, Johnny rockets to Texas over the next decade.

The first location is planned to open in 2024 and will triple the changed flipping in the state.

Texas continues to be a key growth market for fat brands in our portfolio overall as exemplified by the 80 store development deal we signed in the quarter, which includes several fabric or Buffalo's express in round table pizza locations across the state.

Our brands are also expanding internationally, we plan to open 10, new franchise, how it's all going to stick locations in Iraq over the next five years. The first units slated to open next year in 2024.

There is also demand in our snacking dessert category, we signed a deal to open 25, new franchised personal make relocations in Canada over the next 10 years in doing so we are building on pretzel makers existing footprint of over 50 Canadian units, which underscores our dedication to international growth as we continue scaling the brand.

This deal comes on the heels.

The third quarter's comprehensive rebrand of pretzel maker.

Pretzel makers, new look will complement the brands increased demand for online and to go orders, while continuing to offer fresh baked bite sized products directly from pretzel makers bakery case, the new design is also optimized for drive through locations.

We have opened three drive through locations two of which opened this year.

Over the last two years, our great American Cookie brand has also experienced accelerated growth opening 80, new locations, while entering new states, such as Arizona, Oregon, Illinois, and New Mexico.

This summer the brand celebrated its 400th opening including its first location in Philadelphia, which broadened its east coast presence and increased brand visibility. Since then the brand has also opened in the Orlando market and debuted for the first time in the Pacific Northwest.

Great American cookies is now located in 33 states and five countries around the world and continues to find success as a cobranded model with sister brand marble slab creamery. There are now over 150 co branded locations worldwide.

We are proud to note all three of our Q S. Our snack brands, Great American cookies marble slab creamery and pretzel maker were named the <unk> Best franchise deals list in September further illustrating the strength of our concepts.

Our fast casual brands. There's always also opened a new location in Orlando, which features a double drive through lane to meet high traffic demand and a second location in little rock, Arkansas.

It also received recognition as a top innovator in the fast casual space for delivery from Nations restaurant News. There's always continues to see strong demand for delivery post pandemic.

Underscoring the growth of our brands. We've received a number of press accolades. This quarter 13 of our brands were recognized in franchise times franchise 400 list. Additionally factor that Burger was again mentioned as one of the most iconic and well loved burgers in Los Angeles by the L. A times.

During the quarter, we also bolstered our board of directors by welcoming five new directors, Peter Feinstein, Matthew Green John met James Allison John out our Board now consists of 14 members John Allen Peter find seen it Matthew Green will also serve on the audit Committee. We are confident that our new board members contributions will help us.

Drive returns for our shareholders.

I would also like to share an update on the fat brands Foundation.

To date over 35 grants have been awarded to a wide range of nonprofit organizations in areas, including food insecurity mental health the arts adults and children with disabilities Sterne.

Education and more well it makes it even more rewarding is that the grants hit close to home all near fat brands locations.

Further during Q3 the team at marble slab creamery and Great American cookies were proud to announce a partnership with March of Dimes to show support and raise money for there and I see you support teams during September and I see you awareness month.

To close if there are significant opportunities on the horizon for fat brands and in summary, we are in a strong position for continued growth. We have a veteran leadership team and a robust management platform and we possess the capability to seamlessly and cost effectively integrate new brands and our pipeline for organic growth is healthy and continually developing insuring.

Sustained growth for years to come which will naturally delever our balance sheet.

We look forward to updating you on our progress on future calls we sincerely appreciate you joining us today and for your interest in fat brands and with that I would like to hand, it over to Ken to talk about our financial highlights from the quarter Ken.

Thanks, Andy total revenue during the third quarter increased 6% to $109.4 million.

Driven by a four 8% increase in royalties.

2% increase in company owned restaurant revenue of 228, 5% increase in franchise fees and an 18.9% increase in revenues from our manufacturing facility.

Cost and expenses remained largely unchanged in the quarter, increasing 0.5% from the year ago quarter.

Included in cost and expenses general and administrative expense decreased to $24.5 million in the third quarter from $28 $8 million in the prior year period, primarily due to the recognition of $1 million related to employee retention credits during the third quarter of 2023.

And lower professional fees related to certain litigation matters.

Cost of restaurant and factory revenues increased to $59 $2 million in the third quarter of 2023.

Compared to $55 $3 million in the prior year quarter due to higher company owned restaurant in Doe factory revenues and the recognition of employee retention credits during the third quarter of 2022.

Operator: Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the FAT Brands Inc. Third quarter 2023 earnings conference call.

Depreciation and amortization expense increased slightly to $7 million in the third quarter from $6 $9 million in the year ago quarter.

Operator: At this time, all participants have been placed in a listen only mode. Please signal for assistance by pressing R and 0. Please note that this conference is being regarded today, October 26, 2023. 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 made its third quarter 2023 financial results publicly available. 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. FAT Brands.com. Each contain additional details about the third quarter which closed on September 24, 2023.

Due to depreciation of new company owned restaurant property and equipment.

Advertising expense increased to 11 $7 million in the third quarter of this year from $11 $2 million in the year ago period and.

And these expenses vary in relation to advertising revenues.

Total other expense net for the third quarter of 2023, and 2022 was 36, I'm, sorry, $32 $6 million and $23 $9 million respectively.

Which is inclusive of interest expense of $29 $7 million and $24 $5 million respectively.

Additionally, total other expense net for the third quarter of 2023 included a $2 $7 million net loss on extinguishment of debt.

Operator: But 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. Actor 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.

Related to the repurchase of $78 $4 million in aggregate principal amount of outstanding securitization notes.

Which will be held pending resell to third party investors.

In total we have $218 $3 million of retained securitization notes on our balance sheet available for third party investors.

Net loss for the quarter was $24 $7 million or $1 59 per diluted share compared to a net loss of $23 $4 million or $1 52 per diluted share in the prior year quarter.

Operator: 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-gap financial measures which it believes can be useful in evaluating its performance. The presentation of this additional information should not be considered an isolation, nor as the substitutes for results prepared in accordance with GAP. Reconciliation to comparable GAP measures are available in today's earnings release.

And on an as adjusted basis, our net loss was $17.1 million or $1.14 per diluted share.

Compared to a net loss of $16 $3 million or $1.08 per diluted share in the prior year quarter.

And lastly, our adjusted EBITDA for the quarter was 21 $9 million, a $2 $7 million decrease compared to $24 $6 million in the year ago quarter and as a reminder, last year's quarter included $7 $2 million of employee retention tax credits and excluding these credits adjusted.

Andrew Wiederhorn: I would now like to turn the call over to Andy, Peter Horn, chairman of bullet. Please go ahead. Thank you, operator. We appreciate everyone joining us this afternoon. First and foremost, I would like to thank our teens, franchisees, and their employees for their unwavering commitment and hard work that have resulted in the continued growth of fabrics. Total revenue grew 6% to 109.4 million dollars in the third quarter of 2023 compared to 103.2 million dollars in the prior year third quarter.

EBITDA increased $4 $5 million or 26% over last year's quarter.

And with that operator, please open the line for questions.

Yeah.

Thank you.

We will now begin the question and answer question to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys.

Andrew Wiederhorn: The increase was driven by a 4.8% increase in royalties, a 2% increase in company-owned restaurant revenues, a 228.5% increase in franchise fees, and an 18.9% increase in revenues from our manufacturing facility. Systemwide sales in the third quarter grew to $564.6 million dollars, a 0.8% increase when compared to the prior year quarter. On profitability, third quarter adjusted EBITDA was 21.9 million compared to 24.6 million in last year's third quarter. And just to point out that in last year's third quarter, there were 7.2 million of tax credits.

But any time your question has been addressed so I would like to withdraw your question. Please press Star then two.

At this time people pause momentarily.

Sure.

Our first question comes from Joe Gomes with Noble Captor. Please go ahead.

Good afternoon, Thanks for taking my questions.

Hi, Joe.

So Andy Ken I wanted to start out you know.

The quarter was your expectations going into the quarter to the quarter.

Results meet your expectations were they better or worse than if they were better or worse, what drove the above or below where your expectations were for the quarter.

Andrew Wiederhorn: Without those tax credits, it would be a 26% increase on the quarter of a quarter year. Over your b- throughout Q3 we work extremely busy executing on our three strategic pillars, one growth by acquisition, two organic growth and three productivity growth for our Georgia based manufacturing facility.

Well I think we you know we beat our estimates of earnings.

Earnings per share and our sales estimate so we're happy on on both fronts, there and something that I think we continue to see success in his new franchise sales.

We are having sold now 200 more stores in a in your year to date.

Andrew Wiederhorn: I'll begin with our first strategic color growth through acquisitions. Over the last two years our growth strategy has been very focused on our organic development as we digested eight new restaurant brands that we acquired throughout 2020 and 2020. We continue to be selective and opportunistic in our acquisition strategy.

Adding to our pipeline just shows the strength and interest of our franchise partners in growing the portfolio of brands. So that's that's always a very good measurement of franchisee health.

Okay, great. Thanks for that and I wanted to talk about same store sales for a moment, if we could you know year to date.

Andrew Wiederhorn: Under this strategy, we recently purchased Smokey Bones Bar and Fire Grill, a full service restaurant chain with a sports bar atmosphere from an affiliate of Sun Capital Partners for $30 million. This was funded from our existing securitization facilities in 2020 Johnny Rockets was similarly acquired from Sun Capital Partners. Smokey Bones is known for its great barbecue award winning ribs and perfectly seared stakes. Currently Smokey Bones operates 61 company owned locations across 16 states.

I think you said they were up one 3%.

But that's you know down from the first quarter when same store sales were four 3% positive.

I was just wondering maybe just give us what that.

Driving same store sales.

And how they were just for the third quarter.

And any color there would be appreciated.

Andrew Wiederhorn: We expect Smokey Bones to increase annual adjusted EBITDA by approximately $10 million. The acquisition marks our expansion into the barbecue segment and bolsters our presence in polished casual dining, which until now has been represented exclusively by our Twin Peaks chain. Smokey Bones currently has the second highest AUVs in our portfolio following Twin Peaks at greater than approximately $3 million. Adding a strong player in the barbecue space like Smokey Bones provides our sales team with more development options to offer franchise partners so that they can further their new unit growth.

Yeah, I mean, where we are seeing what I think everyone else has seen which is a softer Q3 than Q2 or Q1, and two and it's it's spotty as to which brand it might apply to for example.

Ponderosa and Bonanza Steakhouse change are now up 18, or 19% year to date in comp same store sales, probably because it's a 15 $16. All you can eat meal.

With the stake, but you know, we we were seeing our snack brands and our dessert brands like cookies ice cream pretzels hotdogs those brands or are up nicely again, maybe customers are moving the dollars around so it's just a little bit choppy.

Andrew Wiederhorn: We plan to work hard and hand in hand with the Smokey Bones leadership team to grow the concept through our franchising model. Through our re-franchising strategy, we have plans to build Smokey Bones back to the location count at once had approximately 120 units. Approximately half of the operators in the fat brand system are multi-unit franchisees operating anywhere from two to 75 units. They are hungry to grow their portfolio with brands that have strong AUVs.

Orders were a little bit flat for the quarter and so I don't know if it's consumer spending across the board, but it's just a little choppy than it was before it's still positive and you know we're still opening a lot of stores with a 150 new stores. This year and so you know things are pretty good. It's just a little softer than it was last quarter.

Okay and on the store openings I know I think beginning of the year. You you were using the 150 to 175 range and I think.

Andrew Wiederhorn: In fact, a number of franchisees have already expressed interest in acquiring existing Smokey Bones corporate source as franchises so that they can grow their portfolio of restaurants. Smokey Bones has many prime real estate locations that could provide conversion opportunities for Twin Peaks and our franchise partners. Over time, we plan to selectively convert locations where appropriate, which will enhance the growth of the Twin Peaks system. Inclusive of Smokey Bones, the fat portfolio now consists of 18 distinctive brands with approximately 800 different franchisees who operate more than approximately 2125 franchise restaurants. In addition to our approximately 180 company on source, presently we have a total of 2300 units operating under construction, ranking us as approximately the 20th largest restaurant company in the US by unit count.

And the transcript for the second quarter, you said 175 now you're at 150.

Outside of just timing of opening is there anything behind that going back to the low end of that range.

It's just pushing into Q1, it's it's a function of equipment availability of permitting delays.

Mainly a little bit of hiring delays in training on the manager side, but.

It's just slipping a few units slipping into the next quarter and you get visibility early in the year of what people have under construction and their estimated.

Completion dates and opening dates and to be honest, it's probably no different than remodeling their kitchen. It doesn't always get done on time.

Andrew Wiederhorn: While we have more recently focused on the polished casual segment, we are also looking at other categories to round out our portfolios, such as salad sandwich or coffee brand. As we continue to assess potential targets for acquisition, our focus remains on identifying strategic and EBITDA creative opportunities with brands that have demonstrated long term sustainability and robust profitability. They also must be scalable and synergistic with our existing platform, including leveraging our existing manufacturing capacity when possible.

So and I know that.

The preferreds I'll ask the question that I'll ask every quarter.

You have the roughly 90 million that was due to be repaid and you haven't yet any movements or anything new on the preferred that needs to be repaid.

So we have we have modified that preferred a bit meaning that was traded some bonds for preferred.

Andrew Wiederhorn: On that note, another strategic priority for us is the growth of our Georgia-based manufacturing facility, which provides pretzel mix and cookie dough for several brands. We believe our factory business today is in its early stage of growth, operating at only about 40-45% of its capacity, still this is up from 33% to years ago. We also have the ability to significantly expand the capacity of the plant by tapping into our three and a half acres of excess real estate and the ability to invest in additional equipment that will also enhance capacity.

And some of those bonds were sold to help redeem them you know to redeem that preferred mm theres still ultimately a $90 million outstanding down from 137 million. So we've made substantial progress in it I mean, there's a high visibility focus for US right now in terms of best use of capital and so we do plan to work hard on road.

Do you mean that preferred with additional liquidity that we have but.

As Ken pointed out we have over $200 million of available for sale securities on our balance sheet that gives us liquidity on top of our cash balances.

Andrew Wiederhorn: During the third quarter, our manufacturing facility generated $9.3 million in sales, an 18.9% increase over last year's third quarter. To help increase productivity at our manufacturing facility, earlier this year, we strategically introduced cookie offerings throughout our burger portfolio, Saperger, Johnny Rockets, and Elvation Bird. We see these additions as a way to further build and enhance our dessert programs. We continue to explore opportunities to add cookie offerings at our remaining brands, including our casual dining concepts and fizzolies.

And you know to the extent that we can raise liquidity from the bond portfolio at prices that we like and use that to redeem preferred will do that.

But first and foremost we want to make sure we have a substantial amount of excess liquidity just to have a long runway to achieve one of these debt repayment events. So it's it's a juggling act of those things, but it's very much in our focus.

Okay.

And then year to date adjusted Ebitdas.

Andrew Wiederhorn: Now let's take a closer look at our organic growth. Year today, we've opened a total of 107 new units, including 30 that opened in Q3. For all of 2023, we're aiming to open a total of 150 units. Additionally, this year, we have signed franchise development deals for over 200 new locations, bringing our pipeline for new units to over 1,100 signed agreements. On top of the 2,300 restaurants already opened. This pipeline of organic growth is estimated to be worth approximately $60 million in incremental increase to adjusted EBITDA, which massively delivers us organically.

64 million.

For all of 2022, it was about 89 million, which suggests you need about $25 million in the fourth quarter just to stay flat.

As you know that possibly you think you can exceed what you did in 2022.

So we we think that we will we will exceed the 2022.

Number is Q4 should be very solid for us and remember that we also had.

Andrew Wiederhorn: As mentioned, we are particularly focused on the growth of our polished casual segment, which now consists of our Twin Peaks and Smokey Bones concepts. Twin Peaks is a best-in-class brand that appeals to a broad demographic of customers across the country. The units produce industry-leading AUVs of around $6 million, while some of our highest volume locations in Florida are generating AUVs between $9 and $12 million. They are highly profitable restaurants with an elevated food and beverage program that far surpasses anything else in the category.

Quite a large number of them.

Of tax credits last year that we don't have this year. So it's really substantial growth we have to kind of look at it on a apples to apples basis, but we actually think that we will exceed.

The 2022 numbers with Q4, yet to come.

Okay, Great and one more if I may I don't know if you guys are.

You could give what the quarter end outstanding debt was in unrestricted cash.

Andrew Wiederhorn: This year, we've opened 11 new Twin Peaks lodges, bringing our current portfolio to 106 units across 27 states and Mexico, of which more than 70% are franchised. For the remainder of the year, we plan to open five more lodges ending 2023 with approximately 111 lodges. This is a 34% increase in unit count since fat brands acquired the brand in 2021 just two years ago. Over the next several years, Twin Peaks plans to grow its unit count to more than 200 lodges and increase the mix of franchise locations to between 75 and 80%.

Yes.

Yeah, I can Joe so the unrestricted cash balance at the end of the quarter.

It was $88 million and as a reminder, we acquired smoky on the first day of the fourth quarter for 30.

And then on a debt basis.

Let's talk space, rather than book value are the face value of our Securitizations outstanding at the end of the third quarter was one.

1 billion $1 58.

Great. Thanks, guys appreciate it great quarter.

Andrew Wiederhorn: We currently have over 125 new franchise units signed, paid and committed to be built in the next five years. As mentioned, we also plan to selectively convert between 30 and 40 of the Smokey Bones unit into Twin Peaks, which will help accelerate Twin Peaks growth. These conversions can take as little as nine months compared to the two and a half years needed to build a Twin Peaks from the ground up. The planned unit growth is expected to increase systemized sales of Twin Peaks to approximately $1 billion.

Joe Thank you thanks, Joe.

Our next question comes from Alton Stump with loop capital. Please go ahead.

Great. Thank you and good afternoon gentlemen.

Yeah.

Yes.

Oh I don't know just one.

Yeah, just wanted to touch on.

On the last question are you know, let's couple questions. Yeah, obviously, our new unit openings, you know brought guidance down a little bit Ah I presume essentially all of that is just delays that seem to be impacting doctors, but everyone right now in industry and there's no you know concerned about underlying demand to build stores.

Andrew Wiederhorn: As a result of the concept's industry-leading economics and strong pipeline of profitable growth, as previously announced, we plan to take Twin Peaks public in the future. However, the timing and the size of the transaction will be subject to market conditions and other factors, which could include simply a sailor spin out of the brand with proceeds primarily used to pay down debt.

You're correct and it's like I I was joking earlier about your kitchen, not getting remodeled one time, it's really just slipping into Q1, there's the stores are still on track, we have well over 100 stores on the chalkboard for 'twenty.

Andrew Wiederhorn: Another avenue of growth we are pursuing is nontraditional venues. Our FAT burger location at Six Flags, Great Adventure in New Jersey, which opened last year, has exceeded our expectations. As a result, in July, we announced an expansion of this partnership with a new restaurant at Six Flags, the S to Texas. This is our sixth FAT burger location in Texas with over 40 additional locations planned to open in the state over the next 10 years.

<unk> 24, and we will get we think north of 175 again next year, but this year you know we think it's going to be in the 150 something range not it'll be more than 150, but I'm not sure how much more with it.

Yeah.

Okay makes sense. Thanks for that color Andy you know and then just on the promotional environment. You know, obviously commodities you are coming off or you know.

Andrew Wiederhorn: Similarly, we opened a co-branded Marvel Swab Creamery and Great American Cookies concept in Cook's Children's Hospital in Fort Worth, Texas, and we'll continue to expand that partnership with a second location in their hospital in Prosper, Texas. We also announced a new development deal to bring 20 new franchise Johnny Rockas to Texas over the next decade. The first location is planned to open in 2024 and will triple the chain's footprint in the state.

Huge highs over the last 18 plus months seem to be somewhat moderating.

How much pricing do you feel after you guys own.

18 brands now so yeah I'm sure every brand is different but you know how it is you know kind of interview the overall.

Pricing promotional environment are you now that you are seeing on average and your brands.

Well, we're definitely a focus more on marketing initiatives now than we've had to be focused on in prior years.

Andrew Wiederhorn: Texas continues to be a key growth market for FAT Brands and our portfolio overall. As exemplified by the 80 store development deal we signed in the quarter, which includes several FAT burger, Buffalo's Express, and Roundtable Pizza locations across the state.

A low interest rate environment, and a post COVID-19 bounce back demand by consumers.

Andrew Wiederhorn: Our Brands are also expanding internationally. We plan to open 10 new franchise hotdog on the stick locations in Iraq over the next five years, the first units slated to open next year in 2024. There is also demand in our snack and dessert category. We signed a deal to open 25 new franchise pretzel maker locations in Canada over the next 10 years. In doing so, we are building on pretzel maker's existing footprint of over 50 Canadian units, which underscores our dedication to international growth as we continue scaling the brand.

It wasn't hard to get people into the restaurants and definitely as we've entered 2023, we've had to spend more money and more time on marketing initiatives to drive brand awareness remind people that our restaurants are open they should come in and you know from from a sports perspective, reminding people what sporting events are available at basically a twin peaks every single sporting event ever known to man.

One is on is on TV at the same time. So you can really see anything you want so just spending our time and not taking for granted that your restaurants are up and you want people to come in it's been a push for US I think it's less about effective L. P. O's L. T O is cost a lot of money.

Andrew Wiederhorn: This deal comes on the heels by the third quarter's comprehensive rebrand of pretzel maker. Pretzel maker's new look will complement the brand's increased demand for online and to go orders while continuing to offer fresh baked bite-sized products directly from pretzel maker's bakery case. The new design is also optimized for drives through locations. Today, we have opened three drives through locations, two of which opened this year. Over the last two years, our great American cookie brand has also experienced accelerated growth, opening 80 new locations while entering new states such as Arizona, Oregon, Illinois, and New Mexico.

They don't really drive you know a lot of new traffic and you know.

We haven't seen huge success in driving profitability as much as we have just generally marketing the brands that are open and inviting customers. It.

Got it makes sense. Thanks for that and then just last question I'll hop back in the queue, but you know grasberg.

On.

Let's see the Smokey bones deal done as you mentioned is now only your second casual chain along with twin peaks I guess you know you.

Should we be reading that this may potentially mean that you could look at other casual dining options down the road or is this just a case of you know.

Andrew Wiederhorn: This summer, the brand celebrated its 400th opening, including its first location in Philadelphia, which broadened its east coast presence and increased brand visibility. Since then, the brand has also opened the New Orlando market and debuted for the first time in the Pacific Northwest. Great American cookies is now located in 33 states and five countries around the world and continues to find success as a co-branded model with sister brand Marvel Slab Creamery. There are now over 150 co-branded locations worldwide.

Good asset you know it came up at the right price for you.

So two things.

We consider the twin peaks and smoking wants to be in what we call polished casual because they're higher aves it higher alcohol percentage and then we have Buffalo's cafe native grilling wings and hurricane grow wings in the casual space, along with Ponderosa and Bonanza and so on and then there's also have good bar business, but there's there's opportunity at Smokey bones for our franchise sales.

Andrew Wiederhorn: We are proud to note all three of our QSR snack brands, great American cookies, Marvel Slab Creamery, and pretzel maker, were named to QSR's best franchise deals list in September, further illustrating the strength of our concepts. Our fast casual brand has always also opened a new location in Orlando, which features a double drive-through lane to meet high traffic demand and a second location in on. It also received recognition as a top innovator in the fast casual space for delivery from nation's restaurant news. There's always continues to see strong demand for delivery post-pandemic.

Team to really distribute that brand through our franchisee portfolio and get traction.

The twin peaks franchise partners have.

The obligations and have capacity to build a good 20 stores next year, plus we will build some corporate stores and convert some corporate stores, but I don't think that you'll see us buy another smokey bones conversion opportunity in the next 12 months or so because we're sort of full with all we need to check the box for development.

Andrew Wiederhorn: Further, undergoing the growth of our brands, we've received a number of press accolades this quarter. 13 of our brands were recognized in franchise times, franchise 400 lists. Additionally, FAT Brands was again mentioned as one of the most iconic and well-loved burgers in Los Angeles by the LA Times.

I mean, we bought in another brand I don't think we can find another 40 stores that we could open at the same time in the next 12 to 24 months, it's just too much.

Asks from our team in terms of openings and capital to be deployed so I think that's not on the table today. Although there are other acquisition opportunities that we're interested in it'll drive our factory business and I'm. You know there are some that are just flat out good deals out. There. Finally, I think I have complained about before a year ago that we really did.

Andrew Wiederhorn: During the quarter, we also bolstered our board of directors by welcoming five new directors, Peter Feinstein, Matthew Green, John Metz, James Ellis, and John Allen. Our board now consists of 14 members. John Allen, Peter Feinstein and Matthew Green will also serve on our audit committee. We are confident that our new board members' contributions will help us to drive returns for our shareholders.

See sellers.

Take.

Really take thought of their multiples and they're asking prices is as rates went up 550 basis points and you didn't see prices come down and now I think you've seen prices come down to levels, where deals can get done so.

Andrew Wiederhorn: I would also like to share an update on the FAT Brands foundation. Today, over 35 grants have been awarded to a wide range of nonprofit organizations in areas including food insecurity, mental health, the arts, adults, and children with disabilities, STEM, education, and more. What makes it even more rewarding is that the grants hit close to home all near FAT Brands locations.

That's definitely good news it doesn't mean that we're going to go on another acquisition binge, but rather if there's the right deal from a deleveraging perspective, it's a good cash flow multiple that sits in our other verticals and we can use our synergies of our back office and one platform.

To acquire them, we will but really we're focused on growing. This you know this hockey stick of growth between peak and also the factory, which has so much excess capacity there.

Andrew Wiederhorn: Further, during Q3, the team at Marvel Fab Creamery and Great American Cookies were proud to announce a partnership with March of Dimes to show support and raise money for their NICU support teams during September NICU Awareness Month.

We're excited about those two things and the organic pipeline.

Great. Thanks, so much and yes, I meant to say polished casual so thank you for correcting.

Andrew Wiederhorn: To close, there are significant opportunities on the horizon for FAT Brands. And in summary, we are in a strong position for continued growth. We have a veteran leadership team in a robust management platform, and we possess the capability to seamlessly and cost effectively integrate new brands. And our pipeline for organic growth is healthy and continually developing, ensuring sustained growth for years to come, which will naturally deliver our balance sheet.

Thanks, So much I appreciate I'll hop back in the queue.

Thank you.

Our next question comes from Roger.

Please go ahead, yes, hi, Andy Ralph.

So the Smokey bones deal closed on October one.

September 20, technically that the first day of the of the new quarter of the new quarter. So it's not obviously that are not reflected in your and your results at all.

Andrew Wiederhorn: We look forward to updating you on our progress on future calls. We sincerely appreciate you joining us today for your interest in FAT Brands.

Kenneth Kuick: And with that, I would like to hand it over to Ken Cueck to talk about our financial highlights from the quarter. Ken. Thanks, Andy.

So as of the beginning of this quarter Youre now operating 61 company stores.

Yeah, I mean, we have a totally brings our total to 180, something 185 company owned stores somewhere in there between 61, Smokey bones fifty-seventh, there's always thirty-three hotdog sticks.

Kenneth Kuick: Total revenue during the third quarter increased 6% to $109.4 million, driven by a 4.8% increase in the royalties, a 2% increase in the company owned restaurant revenues, a 228.5% increase in franchise fees, and an 18.9% increase in revenues from our manufacturing facility. Cost and expenses remain largely unchanged in the quarter, increasing 0.5% from the year ago quarter. Included in cost and expenses, general and administrative expense, decreased to $24.5 million in the third quarter from $28.8 million in the prior year period, primarily due to the recognition of $1 million related to employee retention credits during the third quarter of 2023, and lower professional fees related to certain litigation matters.

And 30 30, something twin peaks.

Okay. So obviously, it's going to take us some time to to reached.

Restructure that portfolio in terms of how many you want to retain for the company.

Do you want to do some shelf to existing franchisees if other concepts.

How many might be convertible conversion.

Candidates right. So how would you guess that that's going to affect the fourth quarter.

Cash flow.

Yeah, a couple of things I mean, when we look at the 61 store portfolio, where we're very excited to have this brand and grow this brand first and foremost second.

Only about two thirds of the restaurants are even eligible for conversion, we don't know, whether we get half or or or two thirds of them converted and that's a function of landlord negotiations and things like that.

Kenneth Kuick: Cost of restaurant and factory revenues increased to $59.2 million in the third quarter of 2023, compared to $55.3 million in the prior year quarter due to higher company owned restaurant and bill factory revenues, and the recognition of employee retention credits during the third quarter of 2022. A depreciation and amortization expense increased slightly to $7 million in the third quarter from $6.9 million in the euro-go quarter, primarily due to depreciation of new company on restaurant property and equipment.

Probably 10 of them will be corporate stores, probably between 20, and 30 will be franchise locations that those last 10, whether their franchise or corporate that remains to be seen there on 20th 20 of them are absolutely in franchise markets, where we have existing franchisees 10 of them are in franchise markets, where we don't have a franchisee and neither one of our existing franchisees will step up.

And take it or new franchisee will come along or will operate them and convert them as a corporate store. It also depends on you know like I said landlord negotiations and things like that so there's it is a little bit up in the air but not that much we were pretty certain that 30 of the 40 over the next couple of years. So it's not an overnight thing we're going to we're going to operate all 61 of those smokey bones well into.

Kenneth Kuick: Advertising expense increased to $11.7 million in the third quarter of this year from $11.2 million in the euro-go period, and these expenses vary in relation to advertising revenues. Total other expense met for the third quarter of 2023 and 2022, with $32.6 million and $23.9 million respectively, which is inclusive of interest expense of $29.7 million and $24.5 million respectively. Additionally, total other expense met for the third quarter of 2023 included a $2.7 million net loss on extinguishment of debt related to the repurchase of $78.4 million in aggregate principal amount of outstanding securitization notes, which will be held pending resale to third-party investors.

'twenty 'twenty four and in Q4, you know we're gonna have a good Q4, and it's and as I answered earlier to Joe Gums, We expect that we will exceed our 2022 numbers from an adjusted EBITDA at an annual basis because of that.

So is your hope is it realistic hope that.

That said the Smokey bones group of stores will that will not hurt the fourth quarter.

Is that reasonable absolutely well it will help the fourth quarter it will not hurt the fourth quarter.

Okay.

Okay. It's a brand it's a brand that we anticipate.

Having 10 million a year in adjusted EBITDA from so you know unless theres, some horrific seasonality, which there shouldn't be in the fourth quarter, we expect it to be helpful to the fourth quarter.

Kenneth Kuick: In total, we have $218.3 million of retained securitization notes on our balance sheet available for third-party investors. Net loss for the quarter was $24.7 million or $1.59 per deluded share compared to a net loss of $23.4 million or $1.52 per deluded share in the prior year quarter. And on an as adjusted basis, our net loss was $17.1 million or $1.14 cents per deluded share compared to a net loss of $16.3 million or $1.8 cents per deluded share in the prior year quarter.

Do you do you expect that $10 million of incremental EBITDA that will be.

In effect essentially already in the fourth quarter.

In the next 12 months.

Is it realistic to think that it'll just in the next year from a run rate perspective in the next 12 months yes.

Well, we see all of it in Q4 on a pro rata basis no. Because there are certain synergies that take you know take months or couple of quarters to realize things like that but it's definitely a net positive and it's all good and you know there were where it's been easy transition there have a great team there were.

You know what.

This isn't a big slash and burn type of acquisition. We you know we need him. When he does his guys running those restaurants are company owned stores. So we're very happy to have him on our team.

Kenneth Kuick: And lastly, adjusted EBITDA for the quarter was $21.9 million, a $2.7 million decrease compared to $24.6 million in the year ago quarter. And as a reminder, last year's quarter included $7.2 million of employee retention tax credits.

Okay.

Helpful as far as the co branding co branding activity, which you made quite a bit of a reference to in recent months.

Kenneth Kuick: And excluding these credits, adjusted EBITDA increased $4.5 million or 26% over last year's quarter.

Can you give us any even if it's only anecdotal.

<unk> of how.

Locations do when the second brand is added or even at the new locations opened with two brands rather than one.

Operator: And with that operator, please open the line for questions. Thank you.

Operator: We will now begin the question and answer session.

Okay.

Absolutely we tend to see.

Operator: To ask a question, you may press star then one on your touchtone phone.

Higher average unit volumes when there is co branding and you can see 10% to 20% increases in your overall sales.

Operator: If you're using the speaker phone, please pick up your hands before pressing the keys. If at any time your question has been addressed and you would like to withdraw your questions, please press star then two.

When you have the brands together because it gives you a menu diversity.

Today, we have about <unk>.

Operator: At the time, we will pause momentarily to assemble a roster.

280 co branded locations, that's a combination of.

Out of 180 to 190 <unk> cookies.

Joseph Gomes: Our first question comes from Joe Gooms with Noble Capital. Please go ahead. Good afternoon. Thanks for taking my questions. Hi, Joe.

Cookies ice cream and pretzels some combination of the two two out of three of those and then there's almost 100 fat Burger and Buffalo's Express locations that are co branded and that's been a very successful is our first co branding back in 2012 and here we are.

Andrew Wiederhorn: So Andy, can I want to start out on the quarter as your expectations go into the quarter. The quarter results meet your expectations where they better our worst. And if they were better or worse, what drove the above or below where your expectations were for the quarter? Well, I think we beat our estimates of, you know, earnings for share and our sales estimates. So we're happy on both fronts there. And something that I think we continue to see success in is new franchise sales.

11 years later, we've got 100 of those.

And there's of the franchise pipeline of 1100, a significant portion of that pipeline mm somewhere between one and two and resorts have co branding attached to them as well certainly the Burger space doing burgers and chicken wings, together works really well cookies and ice cream together works and pretzels works really well.

Right and presumably the franchisees.

Weren't born yesterday in terms of and their inclination to do this nobody's, forcing them. So the fact that they're they're they're stepping up speech pretty well I guess, it's a process, it's a very modest incremental equipment investment for.

Andrew Wiederhorn: We're having sold now 200 more stores in year to date, adding to our pipeline just shows the strength and interest of our franchise partners in growing the portfolio of brands. So that's always a very good measurement of franchisey health.

A pretty decent increase total sales average unit volume number so it's a it's a smart investment by a franchisee.

Joseph Gomes: Okay, great. Thanks for that.

And relative to the productivity of the.

Andrew Wiederhorn: And I wanted to talk about same-store sales for a moment if we could. You know, year to date, I think you said they were up 1.3%. But that's, you know, down from the first quarter when same-store sales are 4.3% positive. So I just want to maybe just give us what that driving same-store sales and how they were just for the third quarter in any color there would be appreciated. Yeah, I mean, we are seeing what I think everyone else has seen, which is a softer Q3 than Q2 or Q1 and 2.

Nope Nope facility.

Georgia, you've made some good progress there.

And I suppose a 40% to 45%.

Run rate what would you guess.

You can do there in terms of percentage of capacity in 'twenty four.

Well, there's two things.

Would it be careful not to confuse you on that I think youre going to find them very positive you know if we find another another doe, making business or cookie business that we can add into the portfolio. There that'll take the utilization from 40, something to probably 60% and when we've talked about long term selling that business to another.

Andrew Wiederhorn: It's it's spotty as to which brand it might apply to for example, ponderos and bananas, our steakhouse chains are now up 18 or 19% year-to-date in comp same-store sales. Probably because it's a $15, $16 all you can eat meal with a steak. But, you know, we were seeing our snack brands and our dessert brands like cookies, ice cream, pretzels, hot dogs, those brands are up nicely. Again, maybe customers are moving their dollars around.

Manufacturer and then getting it on term contracts for our franchise partners.

And using the proceeds to reduce debt and we think that that makes sense in a lot of the potential buyers in the market want excess capacity for their own products or to move move other cookie dough business into our planning and that frees up another plant for them. So that's one point the other point is for.

For a very modest amount of money somewhere between a million and a million half dollars. We've found that we can basically double the capacity of our existing facility before we've been knocked down a wall and take advantage of an extra three and a half acres that we have so basically buying bigger mixing machines.

Andrew Wiederhorn: So it's just a little bit choppy, you know, burgers were a little bit flat for the quarter. And so I don't know if it's consumer spending across the board, but it's just a little choppy than it was before. It's still positive and, you know, we're still opening a lot of stores, we're open 150 new stores this year. So, you know, things are pretty good. It's just a little softer than it was last quarter.

We'll take that 40% to 60% capacity or utilization sorry to cut in half and just give us that much more so we just have a tremendous amount of.

Available utilization of available capacity at that factory and you know that's what people in the marketplace. We're looking for and so you know it will spur us to have some discussions about that in the coming year or two.

Andrew Wiederhorn: Okay. And on the store opening, I know I think the beginning of the year you were using the 150 to 175 range and I think in the transcript for the second quarter, you said 175. Now you're at 150 outside of just timing of opening. Is there anything behind the going back to the low end of that range? It's just pushing into Q1. It's it's a function of equipment availability of permitting delays, mainly a little bit of hiring delays and training on the manager side, but it's just slipping a few units looking into the next quarter.

Okay.

Lastly for the moment.

Can you give us any any rough guidance in terms of the.

The timing of the IPO for twin peaks.

Well given market conditions, I think it's hard to say, whether this will be 'twenty 'twenty, four Q2, or Q3 deal or whether we're better off waiting and letting the market window really opening with where you see you know a little bit more of a return to normal but the good news is that the twin peaks brand is killed.

In terms of growth and new store openings, and while though they'll have opened it to somewhere around 111 units. This year, there's another twentysomething stores for next year and the year after and so on and we have the locations. This isn't like we're saying we're gonna open them, but we're not sure. If we can find despite if we can find a franchisee we have 125 committed franchise.

Andrew Wiederhorn: And you, you know, you get visibility early in the year of what people have under construction and the estimated completion dates and opening dates. And to be honest, it's probably no different than remodeling your kitchen. It doesn't always get down on time. Don't I know that.

Units in our system with franchisees obligated to build stores next year and thereafter and now we have <unk>.

Andrew Wiederhorn: The preferred I'll ask the question that that after recorder, you know, you have the roughly 90 million that was due to be repaid and you haven't yet any movement or anything new on the preferred that needs to be repaid. So we have modified that preferred a bit, meaning that we've traded some bonds for preferred and some of those bonds were sold to help redeem that preferred. There's still ultimately 90 million outstanding down from 137 million so we've made substantial progress in it.

40 locations that can be converted so if we have to wait a little while it just means that the brand is going to be even bigger and even more profitable than the valuation should be better. So if anything waiting helps us, but we'll have to see what the timing is just given the market and you know in case anybody comes along and wants to just buy the brand outright from us in the next couple of years, that's always an option too.

<unk>.

Right and just to clarify that the $218 million of securitized securitize them.

Bonds, I guess you'd call on your balance sheet. So you you can pick your spots I just want to make sure I understand you can pick your spot in terms of selling them and the price in the marketplace and so you would you be able to get $218 million, where interest rates are higher obviously, a great deal higher now than they were in windows.

Andrew Wiederhorn: It is a high visibility focus for us right now in terms of best use of capital. And so we do plan to work hard on redeeming that preferred with additional liquidity that we have. As Ken pointed out, we have over $200 million of available for sale securities on our balance sheet that gives us liquidity on top of our cash balances. And to the extent that we can raise liquidity from the bond portfolio, a price that we like and use that to redeem preferred, we'll do that.

As a security that we're creating is that correct way I would think about it is you know we are.

50 plus million dollars in in cash after the acquisition of Smokey bones or cash equivalents and then we have this 200 and almost $220 million of available for sale.

Andrew Wiederhorn: But first and foremost, we want to make sure we have a substantial amount of access liquidity just to have a long runway to achieve one of these debt retirement events. And so it's a juggling act of those things, but it's very much in our focus.

Asset backed securities bonds.

And you're right that they use.

Were issued for the most part.

<unk> 2021 fixed rate that.

It may average somewhere around six and three quarters to 70 something percent, but at todays rates are considerably higher so those bonds would sell at a slight discount today versus par back in 2020, one that could be.

Joseph Gomes: Okay. And then a year-to-date adjusted EBITDAOs, about $64 million, you know, for all of 2022, it was about $89 million. It would suggest that you need about $25 million in a four-quarter just to stay flat. You know, that possibly you think you can exceed and know what you did in 2022. So we think that we will exceed the 2022 numbers. Q4 should be very solid for us. And remember that we also had quite a large number of tax credits last year that we don't have this year. So it's really substantial growth. We have to kind of look at it on an apples-to-apples basis. But we actually think that we will exceed the 2022 numbers with Q4, you know, yet to come.

5% discount at 7% discount or something but nothing crazy it its really.

You know if the worst case way to think of it probably is well there's $220 million of securities and Youre going to get at least 200 200 million for maybe 215 million who knows but the point is that there you know there are available. It gives us liquidity, we want to make an acquisition liquidity to.

To run the business and that's what we're focused on now that the markets are not as liquid as they once where we all know that and given where rates are and things like that so it's all a function of subject to having a buyer on the other end of the phone that's at a price you want to sell it.

Right got it.

There are five that because I was in my mind. So I was thinking it might only be worth 160 $170 million, but no no no we're not where we would not be sellers in those at those levels and also remember that while we hold those bonds were earning.

Joseph Gomes: A great one more if I may. I don't know if you guys could give what the Q4 in outstanding debt was in unrestricted cash. Yeah, I can, Joe. So the unrestricted cash balance at the end of the quarter was $88 million. And as a reminder, we acquired Smokey on the first day of the fourth quarter for 30. And then on a debt basis, let's talk face rather than book value, the face value of our citrutizations outstanding at the end of the third quarter was $1,158. Great. Thanks, guys. Appreciate it. Great quarter. Joe, thank you. Thanks, Joe.

We earn the coupon on that is how we pay it and then we get it back like a bondholder does.

You know every month, so it's not there's not really any cost to having those available they're structured and they sit on the balance sheet or no.

It's like we can jump into the cash register and then pulling out and turn it into cash we need to.

That's very helpful liquidity is good.

Any other questions.

Let's see we have no further questions. This concludes our question and answer session I would like to turn the conference back over to Andy vitro Hong for any closing remarks.

Operator, thank you very much everyone. Thank you for joining us and look forward to talking to you again on our next call have a good evening.

Alton Stump: Our next question comes from Alton Stump with Loop Capital. Please go ahead. Great. Thank you. And good afternoon, gentlemen. Hello. You know, one. Hey, hey, hey, guys.

The conference has now concluded. Thank you for attending today's presentation you may disconnect.

Right.

Andrew Wiederhorn: You know, just about the touch on the last question or, you know, let's come questions. You know, obviously I'm you know, opening, you know, broad guidance down a little bit. I presume such all that is just a way that seem to be impacting, you know, just but everyone right now in industry. And there's no, you know, concern about underlying demand to build stores. You're correct. It's like I was joking earlier about your kitchen, not getting remodeled on time.

Andrew Wiederhorn: It's really just slipping into Q1. The stores are still on track. We have well over 100 stores on the chalkboard for 2024 and we'll get we think north of 175 again next year, but this year, you know, we think it's going to be in the 150 something range. It'll be more than 150, but I'm not sure how much more than 150. That makes sense. Thanks for that, Colour Andy.

Andrew Wiederhorn: You know, and then just, you know, I'm an emotional environment, you know, obviously commodities, you're coming off of, you know, huge highs over the last 18 plus months, you know, seem to be somewhat moderating. You know, how much pricing do you feel actually guys own, you know, 18 brands now. So, you know, I'm sure everyone is different, but, you know, how is, you know, an interview the overall, you know, kind of pricing for emotional environment.

Andrew Wiederhorn: You know, that you're staying out average in your brands. Well, we're definitely focused more on marketing initiatives now than we've had to be focused on in prior years, you know, with a low interest rate environment and post COVID bounce back demand by consumers. It wasn't hard to get people into the restaurants and definitely as we've entered 2023, we've had to spend more money and more time on marketing initiatives to drive random awareness, remind people that our restaurants are open that they should come in from a sports perspective, you know, reminding people what sporting events are available.

Andrew Wiederhorn: Basically, a Twin Peaks every single sporting event ever known to men is on TV at the same time so you can really see anything you want. And so just spending that time and not taking for granted that, you know, your restaurants are open, you want people to come in has been a push for us. I think it's less about effective LTOs, LTOs cost a lot of money, they don't really drive a lot of new traffic and, you know, we haven't seen huge success in driving profitability as much as we have just generally marketing the brands that are open and inviting customers in. Got a mixed sense. Thanks for that.

Andrew Wiederhorn: And then, you know, this last question I'll hop back in the queue, but, you know, grass, certainly, I'm, you know, the smokey bones deal done. As you mentioned, you know, it is now only your second casual chain along with Twin Peaks, you know, should we be reading that this may potentially mean that you could look at other casual dining options down the road or citrus the case of, you know, a very good asset, you know, came open at the right price for you.

Andrew Wiederhorn: Well, so two things, we consider Twin Peaks and smokey bones to be in what we call polished casual because they're higher AVs and higher alcohol percentage, and then we have Buffalo's cafe, native growing wings and hercane growing wings in the casual space along with ponderos and bananza. And so, and there's also have good bar business, but there's, there's opportunity at smokey bones for our franchise sales team to really distribute that brand through our franchise the portfolio and get traction.

Andrew Wiederhorn: The Twin Peaks franchise partners have obligations and have capacity to build a good 20 stores next year, plus we'll build some corporate stores and converts and corporate stores, but I don't think that you'll see us buy another smokey bones conversion opportunity in the next 12 months or so because we're sort of full with all we need to check the box for development opportunities. I mean, we bought another brand. I don't think we could find another 40 stores that we could open at the same time in the next 12 to 24 months, it's just too much to ask from our team, you know, in terms of openings and capital to be deployed.

Andrew Wiederhorn: So I think that that's not on the table today, although there are other acquisition opportunities that were interested in, it'll drive our factory business. And, you know, there's some that are just flat out good deals out there. Finally, I think I've complained about before a year ago that we really didn't see sellers take, really take thought of their multiples and they're asking prices as rates went up 550 basis points and didn't see prices come down and now I think you've seen prices come down to levels where deals can get done.

Andrew Wiederhorn: So that's definitely good news. It doesn't mean that we are going to go on another acquisition binge, but rather if there's the right deal from a de-levering perspective, it's a good casual multiple that fits in our other verticals and we can use our synergies of our back office and one platform to acquire than we will, but really we're focused on growing this, you know, this hockey sick of growth between peak and also the factory, which has so much excess capacity. And they were excited about those two things in the organic, and Pipeline.

Alton Stump: Great, thanks so much, and yes, I admit to say a polished casual, so thank you for crying. Thank you so much, Andy. I appreciate I'll hop back in the queue. Thank you.

Roger Lipton: Our next question comes from Roger Lipton with Lipton Financial, please go ahead. Yeah, Ty Endy, Rob Ken. So the real key bones deal closed on October 1. Yes, September 25th, it's just technically the first day of the of the new quarter. Of the new quarter, so it's not obviously then we're not reflected in your in your results at all. So as of the begin as of this quarter, you're now operating 61 company stores. Yeah, I mean we haven't told you something, 185 company on stores somewhere in there, between 51 smokey bones, 57 fuzzoles, 33 hot dog on the sticks, and 30 something, 20s.

Andrew Wiederhorn: Okay, so it obviously is going to take you some time to to restructure that portfolio in terms of how many you want to retain for the company, how many you want to do yourself to existing franchisees of other concepts, and how many might be convertible conversion candidates? All right, so how would you guess that that's going to affect the fourth quarter? Yes, well, you know, a couple of things. I mean, when we look at the 61 store portfolio, we're very excited to have this brand and grow this brand first and foremost.

Andrew Wiederhorn: Second, you know, only about two thirds of the restaurants are even eligible for conversion. We don't know whether we get half or two thirds of them converted, and that's a function of landlord negotiations and things like that. Probably 10 of them will be corporate stores. Probably between 20 and 30 will be franchise locations. Those last 10, whether they're franchise or corporate that remains to be seen there. 20 of them are absolutely in franchise markets where we have existing franchisees.

Andrew Wiederhorn: 10 of them are in franchise markets where we don't have a franchisee and either one of our existing franchisees will step up and take it or a new franchisee will come along or will operate them and convert them as a corporate store. It also depends on, you know, like I said, landlord negotiations and things like that. So there's, it's a little bit up in the air, but not that much. We're pretty certain that 30 of the 40 over the next couple years.

Andrew Wiederhorn: So it's not an overnight thing. We're going to operate all 61 of those smoky bones well into 2024. And in Q4, you know, we're going to have a good Q4, and as I answered earlier to Joe Gomes, we expect that we will exceed our 2022 numbers from an adjusted EBITDA on an annual basis because of that. So is your hope, is it a realistic hope that this smoky bones group of stores will not hurt the fourth quarter?

Andrew Wiederhorn: Is that reasonable? Absolutely. It will help the fourth quarter. It will not hurt the fourth quarter. Okay. It's a brand that we anticipate having 10 million a year in adjusted EBITDA from. So, you know, unless there's some horrific seasonality which there shouldn't be in the fourth quarter, we expect it to be helpful to the fourth quarter. Do you expect that 10 million dollar incremental EBITDA will be? In effect, essentially, we're ready in the fourth quarter.

Andrew Wiederhorn: I mean, the next 12 months, is it realistic to think that it'll be? In the next, yeah, from a run rate perspective, the next 12 months, yes. Will we see all of it in Q4 on a pro-rata basis? No, because there are certain synergies that take months or a couple quarters to realize, things like that, but it's definitely a net positive. It's all good, and it's been an easy transition. The great team there, this isn't a big flash and burn type of acquisition.

Andrew Wiederhorn: We need those guys running those restaurants or company on stores, so we're very happy to have them on our team.

Andrew Wiederhorn: Okay, that's helpful. As far as the co-branding activity, which you made quite a better reference to in recent months, can you give us any, even if it's only anecdotal, descriptions of how the locations do when the second brand is added, or even if the new locations open with two brands rather than one? Absolutely. We tend to see higher average unit volumes when there is co-branding. You can see, you know, 10 to 20 percent increases in your overall sales when you have the brands together, because it gives you a menu diversity.

Andrew Wiederhorn: Today, we have about 280 co-branded locations at the combination of about 180 to 190 cookies, cookies, ice cream, and pretzels, some combination of the two out of three of those, and then there's almost a hundred fat burger and buffalo's express locations that are co-branded, and that's been a very successful. I was our first co-branding back in 2012, and here we are, you know, 11 years later, we've got 100 of those. And there's, of the franchise Pipeline of 1100, a significant portion of that Pipeline.

Andrew Wiederhorn: Somewhere between 1 and 200 stores have co-branding attached to them as well. Certainly in a burger space, even burgers and chicken wings together works really well. Cookies and ice cream together and pretzels works really well. Right, presumably the franchisees weren't born yesterday in terms of their inclination to do this. Nobody's forcing them, so the fact that they're there, they're stepping up speaks pretty well, I guess, in the prospect. It's a very modest, incremental equipment investment for a pretty decent, you know, increased total sales, an average of volume numbers, so it's a smart investment by franchise.

Andrew Wiederhorn: Right, and relatively the primary community of the dope facility in Georgia, it made some good progress there. What would they have supposedly at the 40-45% recovery? What would you guess you could do there in terms of percentage of capacity in 24?

Andrew Wiederhorn: Well, there's two things, which I want to be careful not to confuse you on that. I think you're going to find very positive. You know, if we find another another dough-making business or cookie business that we can add into the portfolio there, that'll take the utilization from 40 something to probably 60%. And when we've talked about long-term selling that business to another food manufacturer and then getting a long-term contract for our franchise partners and using the proceeds to reduce debt, you know, we think that that makes sense in a lot of the potential buyers in the market want excess capacity for their own products, sort of move other cookie dough business into our plan and then it frees up another Plan for them. So that's one point.

Andrew Wiederhorn: The other point is for a very modest amount of money, somewhere between a million and a million and a half dollars, we've found that we can basically double the capacity of our existing facility before we've been knocked down the wall and take advantage of the extra three and a half acres that we have. So basically buying bigger mixing machines will take that 40 to 60 percent capacity or utilization started to cut in half and just give us that much more.

Andrew Wiederhorn: So we just have a tremendous amount of available utilization, available capacity at that factory. And you know, that's what people in the marketplace were looking for. And so, you know, it will spur us to have some discussions about that in the coming year or two. Okay.

Roger Lipton: Lastly, for the moment, can you give us any, any rough guidance in terms of the timing of the IPO for printings?

Roger Lipton: Well, given market conditions, I think it's hard to say whether this will be, you know, 2024 Q2 or Q3 deal or whether, you know, we're better off waiting and letting the market window really open where you see, you know, a little bit more of a return to normal. The good news is that the Twin Peaks brand is killing it in terms of growth and new store openings. And while they'll, they'll have opened it to somewhere around 111 units this year, there's another 20 something stores for next year and the year after and so on.

Roger Lipton: And we have the locations. This isn't like we're saying we're gonna open them, but we're not sure if we can find a spot if we can find a franchise. We have 125 committed franchise units in our system with franchisees obligated to build stores next year and the year after. And now we have 40 locations that can be converted.

Roger Lipton: So if we have to wait a little while, that just means that the brand's gonna be even bigger and even more profitable and the valuation should be better. So if anything waiting helps us, but we'll have to see what the timing is just given the market and in case anybody comes along and wants to just buy the brand out right from us in the next couple years, that's always an option too.

Roger Lipton: Right. And just cool on your balance sheet. So you can pick your spots, but I just want to make sure I understand, you can pick your spot in terms of selling them and the price in the marketplace. So you wouldn't be able to get 218 million for it. It's an interest rates are obviously a great deal higher now than they were when those when those securities were created. Is that correct? The way I would think about it is you know we have 50 plus million dollars in cash after the acquisition of Smokey Bones or cash equivalents.

Roger Lipton: And then we have this $220 million of available for sale asset back securities bonds. And you're right that these bonds were issued for the most part at 2021 fixed rates that may average somewhere around six and three quarters to seven something percent. But today's rates are considerably higher. So those bonds would sell at a slight discount today versus par back in 2021. That could be a five percent discount, a seven percent discount, whatever, something, but nothing crazy.

Roger Lipton: It's really, you know, the worst case way to think of it probably is, oh there's 220 million of securities and you're going to get at least 200 million for maybe 215 million, who knows. But the point is that they're available. It gives us liquidity. You want to make an acquisition, liquidity to run the business. And that's what we're focusing on. Now the markets are not as liquid as they once were, we all know that given where rates are and things like that. So it's all a function of subject to having a buyer on the other end of the zone that's at a price you want to sell.

Roger Lipton: All right, we'll clarify that because I was in my mind, so I was thinking I'd only be worth 160, 170 million, but no, no, we're not, we would not be sellers at those levels and also remember that while we hold those bonds, we're earning, you know, we earn the coupon on that, so we pay it and then we get it back like a bondholder does, you know, every month, so it's not really any cost to having those available, they're structured and they sit on the balance sheet and they're, you know, it's like we can jump into the cash register and pull one out and turn it into cash, we need to. Very helpful, liquidity is good, thank you, Andy. Yeah.

Operator: Any other questions? Yes, we have no further questions, just concludes our question and answer session.

Andrew Wiederhorn: I would like to turn the conference back over to Andy Wiederhorn for including Marx. Robert, thank you very much. Everyone, thank you for joining us and look forward to talking to you again on our next call. Have a good evening. The conference is now concluded. Thank you for attending today's presentation.

Operator: You may