Q4 2023 FAT Brands Inc Earnings Call
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Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the FAT Brands Inc. fourth quarter and fiscal year 2023 earnings conference call. At this time, all participants have been placed in a listen-only mode.
Good afternoon, ladies and gentlemen, and thank you for standing by welcome to the Fat brands, Inc. Fourth quarter and fiscal year 2023 earnings Conference call.
At this time all participants have been placed in a listen only mode. Please note that this conference is being recorded today March seven 2024.
Operator: Please note that this conference is being recorded today, March 7, 2024. 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 has made its fourth quarter and fiscal year 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.fatbrands.com. Each contains additional details about the fourth quarter and fiscal year, which closed on December 31, 2023. But before we begin today, 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.
On the call from Fat brands are chairman of the board and he weird Horn and co Chief Executive Officer, and Chief Financial Officer Attorney Queuing.
This afternoon. The company has made its fourth quarter and fiscal year 2023 financial results publicly available.
Please refer to the earnings release and earnings supplement both of which are available in the investors section of the company's website at <unk>.
Www Dot fat brands dotcom.
Which contain additional details about the fourth quarter and fiscal year, which closed on December 31 2023.
But before we begin today I must remind everyone that part of the discussion today will include forward looking statements. These forward looking statements are not guarantees of future performance and therefore undue reliance should not be placed upon them actual results may differ materially from those indicated by these forward looking statements.
Operator: Actual results may differ materially from those indicated by these forward-looking statements due to a number of risks and uncertainties. The company does not undertake to update these forward-looking statements at a later date. For a more detailed discussion of the risks that could impact future operating results and financial condition, please see today's earnings release and recent SEC filings. During today's call, the company will also discuss non-GAAP financial measures, which it believes can be useful in evaluating its performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP. Reconciliations to Comparable Gap Measures are available in today's earnings release. I would now like to turn the conference over to Mr. Andy Wiederhorn, Chairman of the Board. You may begin, sir.
Due to a number of risks and uncertainties and the company does not undertake any does not undertake to update these forward looking statements at a later date.
For a more detailed discussion of the risks that could impact future operating results and financial condition. Please see today's earnings release and recent SEC filings.
During today's call. The company will also discuss non-GAAP financial measures, which it believes can be useful in evaluating its performance the presentation.
All of this additional information should not be considered in isolation, nor as a substitute for results prepared in accordance with GAAP.
Reconciliations to comparable GAAP measures are available in today's earnings release.
I would now like to turn the conference over to Mr. Andy Reader Horn Chairman of the Board you may begin Sir.
Good afternoon, and thank you for joining us I would like to express my gratitude to our teams our franchisees and their employees for their dedication and hard work in 2023 their collective efforts have been key in fat brands continued growth.
Andrew A. Wiederhorn: Good afternoon, and thank you for joining us. I would like to express my gratitude to our teams, franchisees, and their employees for their dedication and hard work in 2023. Their collective efforts have been key in FAT Brands' continued growth. The company has expanded tenfold over the last three years by assembling a portfolio of 18 concepts with over 2,300 locations across more than 40 countries and 49 states. Coming off a record 2022, we are proud to have generated another year of strong growth. During 2023, we grew total revenue by over 18% to $480.5 million from $407.2 million in the prior year. System-wide sales increased 6.9% to $2.3 billion.
The company has expanded 10 fold over the last three years by assembling a portfolio of 18 concepts with over 2300 locations across more than 40 countries and 49 states coming off a record 2022, we are proud to have generated another year of strong growth.
During 2023, we grew total revenue over 18% to $485 million from $407.2 million in the prior year.
System wide sales increased six 9% to $2 $3 billion, we leveraged this strong topline growth into a nearly 3% increase in adjusted EBITDA and in 'twenty to 'twenty, three with 91 $2 million and adjusted EBITDA up from $88 $9 million in 2022.
Andrew A. Wiederhorn: We leveraged this strong top-line growth into a nearly 3% increase in adjusted EBITDA, ending 2023 with $91.2 million in adjusted EBITDA, up from $88.9 million in 2022. Looking specifically to our fourth quarter, we grew total revenue 52.8 percent to $158.6 million compared to $103.8 million in the prior year fourth quarter. The increase was driven by a 10.4% increase in royalty, an 80.5% increase in company-owned restaurant revenues, and a 10% increase in revenues from our manufacturing. System-wide sales in the fourth quarter grew to $626.7 million, a 16.5% increase when compared to the prior year quarter. Fourth quarter adjusted EBITDA was $27 million compared to $19.6 million in last year's. Throughout 2023, we focused on moving forward our three strategic pillars, including organic growth. Growth by acquisition and increasing the capacity utilization of our Georgia-based manufacturing facility. Let me give you some specifics.
No.
Looking specifically to our fourth quarter. We grew total revenue 52, 8% to $158 $6 million compared to $103.8 million in the prior year fourth quarter.
The increase was driven by a 10, 4% increase in royalties.
And 85% increase in company owned restaurant revenues and a 10% increase in revenues from our manufacturing facility.
System wide sales in the fourth quarter grew to $626 $7 million, a 16.5% increase when compared to the prior year quarter.
Unprofitability fourth quarter, adjusted EBITDA was $27 million compared to $19.6 million in last year's quarter.
Throughout 2023 we focused on moving forward, our three strategic pillars organic growth.
Growth by acquisition and.
And increasing the capacity utilization of our Georgia based manufacturing facility.
Let me give you some specifics.
Andrew A. Wiederhorn: Beginning with organic growth in 2023, we opened a total of 125 new units, including 29 that opened in Q4. Looking ahead, we project to open at least another 125 new units in 2024. Throughout 2023, we also signed development deals representing over 225 new franchise locations, bringing our total development pipeline to more than 1,100 units. Once opened, this pipeline is estimated to increase our adjusted EBITDA by approximately $60 million, which will naturally de-lever our balance sheet over time. Throughout the year, we celebrated many significant milestones within our portfolio of brands, including the 100th location of our fastest-growing brand, Twintique, and the 400th location of Great American Cookies, bringing our iconic brands to new and strategic growth markets, including Roundtable Pizza's first location in Houston. Twin Peaks' first locations were in Jacksonville, Florida; Columbus, Ohio; and Chattanooga, Tennessee.
Beginning with the organic growth in 2023, we opened a total of 125 new units, including twenty-nine it opened in Q4.
Looking ahead, we project to open at least another 125 new units in 2024.
Throughout 2023, we also signed at development deals representing over 225, new franchise locations, which brings our total development pipeline to more than 1100 units.
Once opened this pipeline is estimated to increase our adjusted EBITDA by approximately $60 million, which will naturally de lever our balance sheet over time.
Throughout the year, we celebrated many significant milestones within our portfolio of brands, including the 100 location of our fastest growing brand twin peaks.
400 location of Great American cookies.
Bringing our iconic brands to new and strategic growth markets, including round table pizza its first location in Houston twin.
Twin peaks first locations in Jacksonville, Florida, Columbus, Ohio in Chattanooga, Tennessee.
Andrew A. Wiederhorn: Great American Cookies, first locations in Arizona, Alaska, and Illinois; Fazoli's highly anticipated return to the Phoenix and Orlando markets; and Fatburger's return to Tampa and Chicago. When looking at our organic growth, we are particularly focused on our polished casual segment, which consists of our twin Peaks and smoky bones. Twin Peaks restaurants produce category-leading AUVs of around $6 million, with some of our highest volume locations in Florida generating AUVs between $9 and $13 million. They're highly profitable restaurants with an elevated food and beverage program that far surpasses anything else in its category. During 2023, Twin Peaks opened 14 new lodges, ending the year with 109 locations across the United States and Mexico.
Great American cookies first locations in Arizona, Alaska in Illinois.
So it's always highly anticipated returned to the Phoenix and Orlando markets.
And Pat Burgers returned to Tampa and Chicago.
When looking at our organic growth, we are particularly focused on our polished casual segment, which consists of our twin peaks and Smokey bones concepts.
Twin peaks restaurants produce category, leading au vs of around $6 million some of our highest volume locations in Florida generating a vs between nine and $13 million there.
They're highly profitable restaurants, with an elevated food and beverage program that far surpasses anything else in its category.
During 2023 twin peaks opened 14, new lodges ending the year with 109 locations across the United States and Mexico.
Andrew A. Wiederhorn: Looking ahead, Twin Peaks is focused on opening its next 100 plus restaurants, with 20 plus locations tentatively set to open in 2024. Year-to-date, we have opened three new restaurants, including one coming up this Monday, bringing the total to 112, up from 83 units when we purchased the brand just two and a half years ago. Twin Peaks' new unit pipeline is healthy, with over 125 new franchise deals signed, paid, and committed to be built in the next five years. The planned unit expansion is expected to grow Twin Peaks system-wide sales to approximately $1 billion and increase the mix of franchise locations to between 75% and 80%. As you may recall, we acquired Smokey Bones last October. To help capitalize on the rapid growth at Twin Peaks, we've identified a number of current Smokey Bones units to convert to Twin Peaks.
Looking ahead twin peaks is focused on opening its next 100, plus restaurants with 20 plus locations tentatively set to open in 2024.
Year to date, we've opened three new restaurants, including one coming up this Monday, bringing the total to 112 up from 83 units. When we purchased the brand just two and a half years ago.
Twin peaks, New unit pipeline is healthy with over 125, new franchise deals signed heed and committed to be built in the next five years.
The planned unit expansion is expected to grow twin peaks system wide sales to approximately $1 billion and increase the mix of franchise locations to between 75 and 80%.
As you May recall, we acquired Smokey bones last October to help capitalize on the rapid growth of twin peaks. We've identified a number of current Smokey bones units to converts twin peaks.
Andrew A. Wiederhorn: This conversion process allows us to open restaurants much quicker compared to the two and a half years needed to build a new Twin Peaks from the ground up, and which produces higher unit sales volumes as a Twin Peaks compared to a Smoky Bone. Several of these converted units will open this year, with the majority of them opening in 2025 and 2026 as both franchised and corporate locations. Twin Peaks has a strong management team led by CEO Joe Hummel.
This conversion process allows us to open restaurants, much quicker compared to the two and a half years needed to build the new twin peaks from the ground up and which produces higher unit sales volumes as a twin peaks compared to Smokey bones.
Several of these converted units will open this year with the majority of them opening in 2025, and 2026 as both franchise and corporate locations.
Twin peaks has a strong management team led by CEO, Joe Humbled as a result of the concept industry, leading economics and strong pipeline of profitable growth.
Andrew A. Wiederhorn: As a result of the concept's industry-leading economics and strong pipeline of profitable growth, and as we have previously announced last year, we plan to take Twin Peaks public. The timing and the size of the transaction are subject to market conditions and other factors.
And as we have previously announced last year, we plan to take twin peaks public the timing and the size of the transaction is subject to market conditions and other factors, we view, an IPO or any alternative transaction as an opportunity to monetize the business for the benefit of fat shareholders.
Andrew A. Wiederhorn: We view an IPO or any alternative transaction as an opportunity to monetize the business for the benefit of FAT shareholders. Our priority is to use some of the proceeds from any transaction we might pursue to pay down debt. Additionally, we plan to refinance our Twin Peaks Securitization Facility later this year, as well as our Fazoli's and Native Grill and Wings facilities. Next, co-branding. That remains another vehicle for organic growth for us
Our priority is to use some of the proceeds from any transaction, we might pursue to pay down debt. Additionally, we plan to refinance our twin peaks securitization facility later this year as well as our facilities and native grilling wings facility.
Next cobranded that remains another vehicle for organic growth for US we began co branding over 10 years ago, when we first paired fabrics and Buffalo's Express.
Today, there are over 200 co branded locations in our portfolio with the majority of them being fat Burger and Buffalo's Express on one hand, and marble slab creamy and great American cookies on the other.
Andrew A. Wiederhorn: We began co-branding over 10 years ago when we first paired Fatburger with Buffalo's Express. Today, there are over 200 co-branded locations in our portfolio, with the majority of them being Fat Burger and Buffalo's Express on the one hand, and Marble Slab Creamy and Great American Cookies on the other. In 2023, we debuted our first co-branded Fat Burger and Round Table Pizza in Texas, with many more expected to open across the U.S. Co-branding is a great model from both a menu and margin perspective and produces an incremental sales lift of 10 to 20%. From the franchisee's perspective, adding another concept in the same space costs significantly less than what it would be to open on its own. As a result, our franchisees see a great return on co-branding, and we will continue to roll out new options in the years to come. We also announced a slew of new development deals in Texas, which continues to be a key growth market for the FAT Brands portfolio. The deals will bring 10 co-branded Great American Cookies and Marble Slab Creameries locations to Texas and six additional Fat Burger locations across the state over the next five years.
In 2023, we debuted our first co branded fat Burger and round table Pizza in Texas with many more expected to open across the U S.
[noise] co branding is a great model from both the menu and margin perspective, and produces an incremental sales lift of 10% to 20%.
From the Franchisees' perspective, adding another concept in the same space cost significantly less than what it would be to open up on its own as a result, our franchisees you great return with co branding and we will continue to rollout new options in the years to come.
We also announced a slew of new development deals in Texas, which continues to be a key growth market for the fat brands portfolio.
<unk> will bring 10 co branded great American cookies, and marble slab cream reads to Texas and six additional fabric of their locations across the state over the next five years.
Moving onto our second strategic pillar growth through acquisitions in Q4, we acquired Smokey brands, which is now fats second strongest concept by a V with a current Eva of $3 million to date Smokey bones operates 61 company owned locations across 16 States, we expect Smokey bones to increase annual adjusted EBITDA.
By approximately $10 million net of conversions.
Adding a strong player in the barbecue space to our portfolio like Smokey bones gives our sales team more options to offer franchise partners. So they can further their new unit growth.
Andrew A. Wiederhorn: Moving on to our second strategic pillar, growth through acquisition. In Q4, we acquired Smokey Bones, which is now FAT's second strongest concept by AUV, with a current AUV of $3 million. To date, Smokey Bones operates 61 company-owned locations across 16 states.
Our franchisees have already expressed interest in acquiring existing smokey bones corporate stores as franchises. So that they can grow their portfolio of restaurants, all under the fat brands umbrella.
While we are on track to convert some of the 61 Smokey bones locations to twin peaks. Our development team is also working hard to grow the concept through a franchisee model. We ultimately plan to build Smokey bones back to the location count It once had which was roughly 120 units.
Andrew A. Wiederhorn: We expect Smokey Bones to increase annual adjusted EBITDA by approximately $10 million net of conversion. Adding a strong player in the barbecue space to our portfolio, like Smokey Bones, gives our sales team more options to offer franchise partners so they can further their new unit growth. 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 all under the FAT Brands umbrella. While we are on track to convert some of the 61 Smokey Bones locations to Twin Peaks, our development team is also working hard to grow the concept through our franchising model. We ultimately plan to build Smokey Bones back to the location count it once had, which was roughly 120 units. Looking ahead, 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. We are also interested in categories we currently do not operate in to round out our portfolio, such as salads, sandwiches, or coffee.
Looking ahead 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.
We're also interested in categories. We currently do not operate in to round out our portfolio, such as salad sandwich or coffee brands.
Acquisition targets must be both scalable and synergistic with our existing platform, including leveraging our existing manufacturing capacity when possible.
Our third strategic priority is increasing the utilization of our Georgia based manufacturing facility, which produces pretzel makes and cookie dough for several brands during 2023 manufacturing facility generated $38 million in sales is 13% increase over the prior year.
Our our factory business, it's only operating at about 45% of its capacity up.
Up from 33% two years ago, So there's still a lot of potential upside there.
We also have additional capacity that we can create both through a modest capex equipment upgrade as well as expanding across the three and a half acres of excess real estate that are plant sits on.
Both of which can more than double the existing capacity of the factory.
Last year, we acquired the Nestle Tollhouse Cafe by Chip franchise business and we have converted 50 locations to our great American cookies platform, which enabled us to rapidly increase our footprint great American cookies as I mentioned earlier, we reached our 400th location milestone last year and now have a presence in new states recently debut in La.
Andrew A. Wiederhorn: Acquisition targets must be both scalable and synergistic with our existing platform, including leveraging our existing manufacturing capacity when appropriate. Our third strategic priority is increasing the utilization of our Georgia-based manufacturing facility, which produces pretzel mix and cookie dough for several brands. During 2023, our manufacturing facility generated $38 million in sales, a 13% increase over the prior year. However, our factory business is only operating at about 45% of its capacity, up from 33% two years ago.
Oscar Arizona and Illinois.
Additionally, our own brands had helped to fill the capacity of our manufacturing facility by strategically introducing cookie offerings throughout our Burger portfolio fabrics, Johnny rockets and elevation Burger we see these additions as a way to further build and enhance our dessert programs. This year, we plan to add cookie offerings at our remaining brands, including a casual dining concepts pluses.
Twin peaks and Smokey bones.
Now I would like to try and update on the incredible growth and work of the Fat brands Foundation, which was founded in 2022.
Andrew A. Wiederhorn: So there's still a lot of potential upside there. We also have additional capacity that we can create both through a modest CapEx equipment upgrade, as well as expanding across the three and a half acres of excess real estate that our plant sits on, both of which can more than double the existing capacity of the factory. Last year, we acquired the Nestle Tollhouse Cafe by Chip Franchise Business, and we converted 50 locations to our Great American Cookies platform, which enabled us to rapidly increase our footprint for Great American Cookies. As I mentioned earlier, we reached our 400th location milestone last year and now have a presence in new states, recently debuting in Alaska, Arizona, and Illinois.
During last year of 2023, which was our inaugural euro of giving we awarded over $250000 to 43 local nonprofits a crisis across 19 States and Washington D C.
The foundation's impact was widespread standing behind causes such as food insecurity health education youth developments, the arts and more notably the foundation supported the critical work of nonprofits and various fat brands communities, including organizations tied to the fires in Maui.
And tried and the tragedy in Allen, Texas.
Looking into 'twenty 'twenty four the foundation is committed to continuing its work supporting local nonprofits in markets, where we have restaurants that provide a central programs to help communities and families thrive.
I'd like to also share that we are hosting our biannual fat brands summit in Las Vegas in April where we expect to host more than 2000 corporate team members franchisees and partners.
Andrew A. Wiederhorn: Additionally, our own brands have helped fill the capacity of our manufacturing facility by strategically introducing cookie offerings throughout our burger portfolio, Fat Burger, Johnny Rockets, and Elevation Burgers. We see these additions as a way to further build and enhance our dessert program. This year, we plan to add cookie offerings at our remaining brands, including our Casual Dining Concepts, Plus Fizzolis, Twin Peaks, and Smokey Bones. Now, I would like to provide an update on the incredible growth and work of the FAT Brands Foundation, which was founded in 2022. During last year, 2023, which was our inaugural year of giving, we awarded over $250,000 to 43 local nonprofits across 19 states and Washington, D.C. The Foundation's impact was widespread, standing behind causes such as food insecurity, health, education, youth development, the arts, and more.
The group will gather to celebrate our extraordinary growth. In addition to honing in on our summit theme all systems go which encapsulates our commitment to moving forward together navigating industry challenges and maximizing the synergies within our Badlands family.
I would like to reiterate 2023 was a great year in 'twenty 'twenty four is off to a solid start we've already signed two significant development deals driving forward our strategic expansion efforts one for 40 marble slab creamery units in Canada, which will increase our foothold in the country to 140 locations. In addition to a 10 unit round table pizza doing.
Oklahoma six unit Roundtable deal in Arkansas.
Additionally, that Burger made its highly anticipated debut in Orlando.
In summary franchise interest remains strong we have an experienced management team in place and a robust platform that supports expansion of our existing brands and accretive acquisitions that can be efficiently integrated with minimal overhead.
Our pipeline for organic growth is healthy ensuring our sustained growth for years to come which will naturally de lever our balance sheet.
We look forward to updating you on our progress on future calls we sincerely appreciate you joining us today for you and for your interest in fat brands and with that I would like to hand, the call over to Kent, you want to talk about our financial highlights from the quarter.
Andrew A. Wiederhorn: Notably, the Foundation supported the critical work of non-profits in various FAT Brands communities, including organizations tied to the fires in Maui and the tragedy in Allen, Texas. Looking to 2024, the Foundation is committed to continuing its work supporting local non-profits in markets where we have restaurants that provide essential programs to help communities and families thrive. I'd also like to share that we are hosting our biannual FAT Brands Summit in Las Vegas in April, where we expect to host more than 2,000 corporate team members, franchisees, and partners. The group will gather to celebrate our extraordinary growth in addition to honing in on our summit theme, All Systems Go, which encapsulates our commitment to moving forward together, navigating industry challenges, and maximizing the synergies within our FAT Brand
Thanks, Andy total revenue during the quarter increased 52.8% to $158 $6 million.
By a 10, 4% increase in royalties and 85% increase in company owned restaurant revenues, driven by new restaurant openings and the acquisition of Smokey bones during the fourth quarter of 2023, and a 10% increase in revenues from our manufacturing facility.
Cost and expenses increased to $25 $4 million or 18, 6% in the fourth quarter.
Included in cost and expenses general and administrative expense decreased to $33 million in the fourth quarter.
<unk> $39 $1 million in the prior year period, primarily due to a $16.6 million noncash reserve unclaimed employee retention tax credits recorded during the fourth quarter of 2022 and.
Andrew A. Wiederhorn: I would like to reiterate, 2023 was a great year, and 2024 is off to a solid start. We've already signed two significant development deals driving forward our strategic expansion efforts. One, for 40 marble slab creamery units in Canada, which will increase our foothold in the country to 140 locations, in addition to a 10-unit roundtable pizza deal in Oklahoma and a 6-unit roundtable deal in Arkansas. Additionally, Fatburger made its highly anticipated debut in Orlando.
And the recognition of $3 $4 million employee retention credits during the fourth quarter of 2023.
Partially offset by general and administrative expenses related to Smokey bones again acquired in the fourth quarter of 2023 and higher professional fees related to certain litigation matters.
Cost of restaurant in factory revenues increased to $105.1 million in the fourth quarter of 2023.
Andrew A. Wiederhorn: In summary, franchise interest remains strong, we have an experienced management team in place, and a robust platform that supports expansion of our existing brands and accretive acquisitions that can be efficiently integrated with minimal overhead. Our pipeline for organic growth is healthy, ensuring our sustained growth for years to come, which will naturally deliver 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 the call over to Ken Kuick to talk about our financial highlights from the quarter. Thanks, Andy.
Compared to $61 $7 million in the prior year quarter, primarily due to the acquisition of Smokey bones during the fourth quarter of 'twenty three.
Depreciation and amortization expense increased $3 million to $9 $9 million in the fourth quarter from $6 $9 million in the year ago quarter again, primarily due to the acquisition of Smokey bones in the fourth quarter of 2023.
Depreciation of New company owned restaurant property and equipment.
Our advertising expense increased to $13 $8 million in the fourth quarter of this year from $11.6 million in a year ago period, and these expenses vary in relation to our advertising revenues.
Kenneth J. Kuick: Total revenue during the quarter increased 52.8% to $158.6 million, driven by a 10.4% increase in royalties, an 80.5% increase in company on restaurant revenues driven by new restaurant openings and the acquisition of Smokey Bones during the fourth quarter of 2023, and a 10% increase in revenues from our manufacturing facility. Cost and expenses increased $25.4 million or 18.6% in the fourth quarter. Included in cost and expenses, general and administrative expense decreased to $30.3 million in the fourth quarter, from $39.1 million in the prior year period, primarily due to a $16.6 million non-cash reserve on claimed employee retention tax credits, recorded during the fourth quarter of 2022, and the recognition of $3.4 million employee retention credits during the fourth quarter of 2023, partially offset by general and administrative expenses related to Smokey Bones, again, acquired in the fourth quarter of 2023, and higher professional fees related to certain litigation matters.
Total other expense net for the fourth quarter of 2023 and 2022.
It was $31.9 million and $24 $2 million, respectively, which is inclusive of interest expense of $28 $9 million and $29 million respectively.
Additionally, total other expense net for the fourth quarter of 2023 included a $300000 gain on extinguishment of debt related to the repurchase of <unk>.
<unk> thousand $14.6 million in aggregate principal amount of outstanding securitized notes.
She'll be held pending resale to third party investors.
In total at the end of 2023, we had $196 $8 million of retained securitization notes on our balance sheet available for sale with third party investors.
Net loss for the quarter was $26 $2 million or $1 68 per diluted share compared to a net loss of $78 million or $4 39 per diluted share in the prior year quarter.
Kenneth J. Kuick: Costs of restaurant and factory revenues increased to $105.1 million in the fourth quarter of 2023, compared to $61.7 million in the prior year quarter, primarily due to the acquisition of Smokey Bones during the fourth quarter of 23. The depreciation and amortization expense increased $3 million to $9.9 million in the fourth quarter from $6.9 million in the year-ago quarter, again primarily due to the acquisition of Smokey Bones in the fourth quarter of 2023 and the depreciation of new company-owned restaurant property and equipment. Advertising expense increased to $13.8 million in the fourth quarter of this year from $11.6 million in the year-ago period, and these expenses vary in relation to our advertising revenue.
On an as adjusted basis, our net loss was $17.3 million or $1 15 per diluted share.
Compared to a net loss of $43 million or $2.70 per diluted share in the prior year quarter.
And lastly, adjusted EBITA for the quarter was $27 million $7.4 million increase compared to $19 $6 million in the year ago quarter.
And it could be a $6 $2 million favorable legal settlement in the fourth quarter of 2023.
For the full year adjusted EBITDA was $91 2 million, a $2 $4 million increase compared to $88 $8 million in 2022.
And I'll note that 2020 Three's adjusted EBITDA included the $6 $2 million legal settlement I, just mentioned and 2020 twos adjusted EBITDA included $22 million of employee retention tax credits and with that Chris. Please open the line for questions.
Kenneth J. Kuick: Total other expense net for the fourth quarter of 2023 and 2022 was $31.9 million and $24.2 million, respectively, which is inclusive of interest expense of $28.9 million and $20.9 million, respectively. Additionally, total other expense net for the fourth quarter of 2023 included a $300,000 gain on extinguishment of debt related to the repurchase of $14.6 million in aggregate principal amount of outstanding securitized notes, which will be held pending In total, at the end of 2023, we had $196.8 million of retained securitization notes on our balance sheet available for sale to third-party investors. The net loss for the quarter was $26.2 million, or $1.68 per diluted share, compared to a net loss of $70.8 million, or $4.39 per diluted share, in the prior year quarter.
Thank you.
We will now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw it. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Yeah.
Today's first question comes from Joe Gomes with Noble capital. Please proceed.
Yeah.
Good afternoon, congrats on the quarter.
Thanks, Joe.
Yeah.
So I don't want to start off with the the most ticklish question you guys did receive a wells notice I'm, assuming there's not much you can discuss but maybe Andy you could talk about maybe the timing of how that all plays out here going forward and kind of Relatedly litigate.
Kenneth J. Kuick: On an as-adjusted basis, our net loss was $17.3 million, or $1.15 per diluted share, compared to a net loss of $43 million, or $2.70 per diluted share, in the prior year quarter. And lastly, adjusted EBITDA for the quarter was $27 million. $7.4 million increase compared to $19.6 million in the year-ago quarter and included a $6.2 million favorable legal settlement in the fourth quarter of 2023. For the full year, adjusted EBITDA was $91.2 million, a $2.4 million increase compared to $88.8 million in 2022. And I'll note that 2023's adjusted EBITDA included the $6.2 million legal settlement I just mentioned, and 2022's adjusted EBITDA included $22 million of employee retention tax. And with that, Chris, please open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
<unk> costs in the year were a 10.
$10 million higher year over year, and I'm wondering you know when you might start to we might start to see those litigation costs start to moderate.
Well I appreciate the question, but there's not much as you indicated that I can say other than what we've published in our 8-K oar, we will publish in.
Our 10-K, which we expected to be filed very shortly here in the next couple of days and the timing of these kinds of things is uncertain and they can go on for awhile.
And as it relates to legal expense. The same thing we do have a claim against our insurance carrier that we're pursuing for reimbursement.
And.
That's pretty active so I expect that some people will come to that shortly but other than that there's nothing that I can really add that isn't in the public disclosures.
Okay.
Thanks for that.
One of the things that you talked about in the past I don't think you really touched on this time.
Was the non traditional locations and I was wondering if you know there was some more growth opportunities available.
In that segment that you're looking at for 24.
That's a good question a non traditional is on fire, we have new locations coming online left and right.
Opened in a couple of Great Wolf Lodge locations there.
The water parks with hotels.
We have opened some additional six flags locations were coming online at Stanford University, and there are a number of others, including some airports that are on the drawing board. So we've had good success getting a non traditional off the ground.
Operator: If, at any time, your question has been addressed and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Joe Gomes with Noble Capital. Please proceed. Good afternoon, and congratulations on the quarter. Thanks, Joe. So I want to start off with the most ticklish question.
Excellent.
Hum.
Yeah.
What when you talk.
On the call about potentially doing some refinancing of the securitization for twin peaks as always and.
Just trying to get an idea of you know.
Joseph Anthony Gomes: You guys did receive a Wells notice, and I assume there's not much you can discuss, but maybe, Andy, you could talk about maybe how that all plays out here going forward, and kind of relatedly, litigation costs in the year were $10 million higher year over year, and wondering when we might start to see those litigation costs start to moderate. Well, I appreciate the question, but there's not much, as you indicated, that I can say other than what we've published in our 8K or what we will publish in... Hour 10K, which we expect to file very shortly. Day.
What what do you see as kind of the goals for those is it trying to get interest rate relief I'm trying to term them out more tried to upsize them based on the success of the business. There's just maybe a little bit more insight into what the kind of the goals of the refi would be.
Sure.
So we can tap those facilities from time to time, when we needed additional liquidity in and when you read our q's and k's, you'll be able to see that we maintain a fair amount of bonds held available for sale, but that means that we've already with <unk>.
Andrew A. Wiederhorn: The timing of these kinds of things is uncertain. They can go on for a while. And as it relates to legal expenses, same thing. We do have a claim against our insurance carrier that we're pursuing for reimbursement, and it's pretty active, so I expect that something will come of that shortly.
Called tap that securitization facility created additional bonds based on the strong performance of the brands for cash flow from the brands and we're holding those bonds, but we can turn them into liquidity sell them for cash if we need to to fund the operations. So that's already in place and the desire to refinance the twin peaks facility on the.
Andrew A. Wiederhorn: But other than that, there's nothing that I can really add. Okay. Thanks for that. One of the things that you talked about in the past, but I don't think you really touched on this time, was the non-traditional locations. And I was wondering if there were some more growth opportunities available in that segment that you're looking at for 24. That's a good question. Non-traditional is on fire.
Native grilling wings, and there's always facility.
Comes from two things first of all as we've stated we hope to take twin peaks public later this year is doing so that securitization facility would need to be called and reissued.
On a standalone basis.
Our fad isn't the 100% owner.
And hopefully with some debt reduction along the way from the IPO proceeds so have less leverage.
Andrew A. Wiederhorn: We have new locations coming online left and right. We've just opened in a couple of Great Wolf Lodge locations, including waterparks.
There's always is it's purely just a refinance not it may it may result, in even lower leverage if we want to pay it down a little bit but on both.
Andrew A. Wiederhorn: We have opened some additional Six Flags locations. And we're coming online at Stanford University. And there are a number of them on the drawing board. So we've had good success with getting non-traditional. Excellent. When you talked on the call about potentially doing some refinancing of the securitization of Twin Peaks, Tazoli. Um, just trying to get an idea of, you know, what do you see as kind of the goals for those? Is it trying to get interest rate relief, trying to turn them out more, trying to upsize them based on the success of the businesses? Just maybe a little bit more insight into what the kind of goals of the refi would be.
Both of those deals have.
Amortization that starts more significantly next year in 2025 right now they have very very slight amortization of.
2% of year end and so.
I'm.
Trying to get ahead of heavy amortization, which would start sometime in 2025, we want to complete the refinancing 'twenty 'twenty for the rest of our brands don't have amortization of any material amount until 2026, and that's the second half of 'twenty 'twenty six we have a lot of runway to see interest rates come back down, but we want to be ahead of any amortization between peaks.
As always and take advantage of refinancing those bonds as part of the IPO.
Okay. Thank you and you talked about.
Andrew A. Wiederhorn: Sure. So we can tap those facilities from time to time when we need additional liquidity. And when you read our Qs and Ks, you'll be able to see that we maintain a fair amount of bonds held available for sale. That means that we've already, Tapp, that securitization facility created additional bonds based on the strong performance of the brands and cash flow from the brands. And we're holding those bonds, but we can turn them into liquidity and sell them for cash, if we need to, to fund the operations. So that's already in place. The desire to refinance. The Twin Peaks facility and the native grill and wings and Fazoli's facility stem from two things. First of all, as we've stated, we hope to take Twin Peaks public later this year. In doing so, that securitization facility would need to be called and reissued on a standalone basis where FAT isn't the 100% owner, and hopefully, with some debt reduction along the way from the IPO proceeds so they have less leverage, is purely just a refinance.
The requirements for deals that Youre looking at maybe you could just give us a little update on the deal environment. You know, we've seen prices come down and be more reasonable or if theres more properties coming up you know what are you seeing today.
Well to be fair we've seen.
Quite a few deals in the last two quarters and I think we still have not seen sellers.
Come into the range of you know this reality of the interest rate environment, the capital environment and the economy. So many deals just haven't met our price tolerance threshold also we're trying to be very strategic right now we want to reduce our leverage.
Pay down debt and so we're only really looking at things that make sense.
And strategically like that would you know grow our twin peaks business like Smokey bones, as an example grow our manufacturing business like the national lease deal that we did.
You know what does it mean that we wouldn't consider another brand and make an acquisition along the way if it made sense for us at the price would have to be right and it would have to be a delevering event and so there's ways to do that it depends on the price that you pay for the brand versus the cash flow, you're getting or whether we use some other type of security rather than just straight out borrowed cash to make the acquisition it could be preferred.
Andrew A. Wiederhorn: It may result in lower leverage if we want to pay it down a little bit. Both of those deals have amortization that starts more significantly next year in 2025. Right now, they have very, very slight amortization.
Stock common stock.
Seller notes you name it but we want to make sure that anything we do is a delevering event. So those are those are things we have done.
Andrew A. Wiederhorn: 2% a year. And so, trying to get ahead of heavy amortization, which would start sometime in 2025, we want to complete the refinancing in 2024. The rest of our brands don't have any amortization of any material amount until 2026.
Two or three long term strategic acquisitions that we have been following for some time and.
This year, they may come around and as as the sellers are sort of ready to make something happen. So we'll see how 2024 plays out but there's definitely lots of opportunity out there, we just want to make sure of that.
Our balance sheet is well positioned for it and that we deliver on our promise to delever the debt that we have today.
Andrew A. Wiederhorn: And that's the second half of 2026. We have a lot of runway to see interest rates come back down. But we want to be ahead of any amortization for Twin Peaks and Pozzolis and take advantage of refinancing those bonds as part of the, Thank you. You talked about some of the requirements for deals that you're looking at. Maybe you could just give us a little update on the deal environment. We're seeing prices come down, be more reasonable, or there are more properties coming up. What are you seeing today?
Okay, great and one more.
If I may.
On the factoring in a one of the goals was always to get some third party business in there just wanted to see where that effort stands today.
We're actively involved in rfps for various third parties to produce.
Quite a bit of a cookie dough and pretzel mixed type products for them right now we aren't we are actually producing yet, but we're in the middle of several rfps, we've grown the utilization of the capacity by.
Andrew A. Wiederhorn: Well, to be fair, we've seen quite a few deals in the last two quarters. I think we still have not seen sellers come into the range of, you know, this reality of the interest rate environment, the capital environment, the economy. So, you know, many deals just haven't met our price tolerance threshold.
Selling cookies and other products across our other restaurants, but and we have we have quite a bit more to go with that but.
But we want one or two of these rfps that were in the middle of really dropping or lap and that'll soak up quite a bit of capacity at a at a good margin that the factory has the capacity as I mentioned earlier.
Two to really really grow them significantly larger because when we say, 45%. That's before we spend any capex to knock a wall down or increase the size of some of the equipment that we have in the factory, which would double the capacity yet again. So we had a lot of runway in the factory and it's a very valuable asset and you know if you if you put that together with twins.
Andrew A. Wiederhorn: Also, we're trying to be very strategic right now; we want to reduce our leverage and pay down debt. And so we're only really looking at things that make sense, strategically, like things that would grow our Twin Peaks business like Smokey Bones, as an example, or grow our manufacturing business like the Nestle deal that we did. You know, it doesn't mean that we wouldn't consider another brand and make an acquisition along the way if it made sense for us that the price would have to be right, and it would have to be a de-levering event. And so there are ways to do that, depending on the price that you pay for the brand versus the cash flow you're getting, or whether we use some other type of security rather than just straight out borrowed cash to
But between that those two assets alone you know you have enough value to retire them.
Most likely all of the fat brands that so you know we've looked at it is we really want to maximize the value we extract from those assets as we look to two retiring debt.
Okay. Thanks, Andy appreciate it.
The answers.
Great. Thank you Joe Operator next question.
Yeah.
The next question comes from Roger Lipton with Lipton financial Please proceed.
Andrew A. Wiederhorn: It could be preferred stock, common, you know, seller notes, you name it, but we want to make sure that anything we do is a delevering event. So those are those are things we have them. Two or three long-term strategic acquisitions that we have been following for some time, and this year, they may come around as the sellers are sort of ready to make something happen. So we'll see how 2024 plays out. But there's definitely lots of opportunity out there.
Yes, Hi, Andy and Ken.
Can you tell us anything a little more specifically as far as the timing of the of the twin peaks.
Offering any guess at all times when it might move ahead.
I think it is but we hope it depends on market conditions, but hopefully it would be something that would be a Q3 event.
I didn't hear something.
Q3 event, Oh Q3, okay. Thank you and when when.
Andrew A. Wiederhorn: We just want to make sure that our balance sheet is well-positioned for it and that we deliver on our promise to be less. One more, if I may. At the factory, one of the goals was to get some third-party business in there. I just wanted to see where that effort expands today. We're actively involved in RFPs for various third parties to produce quite a bit of cookie dough and pretzel mix type products for them right now.
When when we filed the IPO documents the S. One we will file it on a confidential basis, but we'll put out a statement that it was filed confidentially separately, even though it's been filed and then we have to go through the SEC process and then we'll see how the markets.
And it wasn't fixed keeps growing so a little bit late only it makes it a little larger time is on our side yeah. Absolutely every time is on our side EBITDA. It just keeps growing.
Andrew A. Wiederhorn: We aren't actually producing yet, but we're in the middle of several RFPs. We've grown the utilization of the capacity by selling cookies and other products across our other restaurants, and we have quite a bit more to go with that. But we want one or two of these RFPs that we're in the middle of to really drop in our lap, and that'll soak up quite a bit of capacity at a good margin. The factory has the capacity, as I mentioned earlier, to really, really grow significantly larger. Because when we say 45%, that's before we spend any capital expenditure to knock down a wall or increase the size of some of the equipment that we have in the factory, which would double the capacity yet again. So we have a lot of runway in the factory, and it's a very valuable asset. And if you put that together with Twin Peaks, between those two assets alone, you have enough value to retire most, if not all, of the FAT Brands debt.
Right.
Smokey bones stores or restaurants are how many of those.
Do you think.
Our conversion possibilities to twin peaks.
A fair number of them.
A fair number of them and I'm not going to get into specifics because we're negotiating with landlords today about the conversions, but we've identified a fair number of them that that make a lot of sense to convert and there's a few on the fringe that we'll see how how those go and if not they'll stay the Smoky mountains.
Right and.
And what can you tell us about the general tone of business and the.
Multi branded system at least domestically.
So I would say a couple of things one is this is solid.
You know the.
The commodity costs have come down significantly which is good I think consumers are are sort of at their limits in terms of how much price they're willing to take so.
Andrew A. Wiederhorn: So we've looked at it as we really want to maximize the value we extract from both of those assets as we look to retire. Okay, thanks Annie. Appreciate the answers. Great. Thank you, Joe. Operator, next. The next question comes from Roger Lipton with Lipton Financial. Please proceed. Yes, hi Andy and Ken. Can you tell us anything a little more specifically as far as the timing of Twin Peaks?
Operators have taken price to maintain their margin, but theres definitely you know traffic pushback on that across the entire industry not just within the past 18 brands and you know we have the new increased minimum wage coming in California in just a few weeks to $20 and youre going to see prices go up again, so it'll be interesting to see how California respond. So good news is.
It applies to everybody not just fat brands and drive.
Roger Lipton: offering, and he guessed it all in terms of when it might move ahead. I think it depends on market conditions, but hopefully, it would be something that would be a Q3 event. I think it's something. A Q3 event. When we file the IPO documents, yes one, we will file it on a confidential basis, but we'll put out a statement that it was filed confidentially.
You know I don't see that any.
Any way around that and of course, the voters must have known what they were getting into and they elected everybody. The rates raise these wages from <unk> to 'twenty or soon to be $25.
Right right Alright, that's all I need for now thank you very much alright, Roger Thank you.
Yes.
As a reminder, if you do have a question. Please press Star then one.
Andrew A. Wiederhorn: We have to go through the SEC process. We'll see you out in the market. Okay. And things keep growing, so a little delay only makes it a little larger.
Yeah.
And at this time, we're showing no further questioners in the queue and this does conclude our question and answer session. At this time I would like to turn the conference back over to Andy Wheater Horn for any closing remarks.
Andrew A. Wiederhorn: Time is on our side. Yeah. Absolutely. Time is on our side. Right, and the Smoky Bones stores or restaurants, how many of those do you think are conversion possibilities to Twin Peaks, which is a fair number of them. A fair number of them. I'm not gonna get into specifics because we're negotiating with landlords today about the conversions, but we've identified a fair number of them that make a lot of sense to convert.
Thank you operator, I want to thank everyone for joining us today. This concludes our call.
Yes.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Yeah.
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Andrew A. Wiederhorn: And there are a few on the fringes, and we'll see how those go. And if not, they'll stay at Smokey Mountain. And what can you tell us about the general tone of business? A multi-branded system, at least domestically. So I would say a couple things. One, business is solid, and commodity costs have calmed down significantly, which is good. I think consumers are sort of at their limits in terms of how much price they're willing to take. So, you know, operators have raised prices to maintain their margin, but there's definitely, you know, traffic pushback on that across the entire industry, not just within FAST 18 Brands. And, you know, we have the new increased minimum wage coming in California in just a few weeks to $20, and you're going to see prices go up again. So it'll be interesting to see how California responds.
Andrew A. Wiederhorn: The good news is it applies to everybody, not just stoppers, and, You know, I don't see that anywhere around that, and, of course, the voters must have known what they were getting into, and they elected everybody to raise these wages from, you know, to 20 or soon to be 25 dollars. Well, all right. That's all I need for now. Thank you very much. All right, Roger. Thank you. As a reminder, if you do have a question, please press star, then 1. And at this time, we are showing no further questioners in the queue. And that does conclude our question and answer session. At this time, I would like to turn the conference back over to Andy Wiederhorn for any closing remarks. Thank you, operator. I want to thank everyone for joining us today. This concludes our call. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
Okay.
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