• Total Revenue: Increased 42.4% to $152 million, driven by the acquisition of Smokey Bones.
• System-wide Sales: Grew to $614.7 million, a 7.3% increase compared to the prior year quarter.
• Adjusted EBITDA: $15.7 million, compared to $23.1 million in the prior year quarter. Excluding employee retention tax credits, adjusted EBITDA increased by $2.8 million or 30.8%.
• Net Loss: $39.4 million or $2.43 per diluted share, compared to a net loss of $7.1 million or $0.53 per diluted share in the prior year quarter.
• Store Openings: Expanded footprint by opening 24 new locations in Q2, with a total of 45 units opened year-to-date through July 31.
• Franchisee Base: Approximately 790 franchisees operating around 2,100 restaurants, including those under construction.
• Corporate Restaurants: Approximately 190 corporate-owned restaurants across four brands.
• Cost of Restaurant and Factory Revenues: Increased to $100.1 million from $59.5 million in the prior year quarter.
• General and Administrative Expense: Increased to $29.6 million from $9.9 million in the prior year period.
• Depreciation and Amortization Expense: Increased to $10.2 million from $7.1 million in the prior year quarter.
• Advertising Expense: Increased to $14.7 million from $11.6 million in the prior year period.
• Same-Store Sales: Marble Slab Creamery saw same-store sales up 3.8% on National Ice Cream Day.

• Warning! GuruFocus has detected 9 Warning Signs with FAT.

Release Date: July 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Total revenue grew 42.4% to $152 million, driven by the acquisition of Smokey Bones.
• System-wide sales increased by 7.3% to $614.7 million compared to the prior year quarter.
• FAT Brands was recognized on Time Magazine's and Statista's America's best midsized companies of 2024 list.
• The development pipeline is robust with over 1,100 additional units slated to open in the coming years.
• Twin Peaks is the fastest-growing concept, with plans to expand to 250 units and $1 billion in system-wide sales.

Negative Points

• Adjusted EBITDA decreased to $15.7 million from $23.1 million in the prior year quarter.
• Net loss was $39.4 million, significantly higher than the $7.1 million loss in the prior year quarter.
• Costs and expenses increased by 75.2%, driven by the Smokey Bones acquisition and other factors.
• General and administrative expenses rose by 197.2% due to the Smokey Bones acquisition.
• Legal expenses are expected to continue for another 12 to 18 months, impacting financial performance.

Q & A Highlights

Q: Revenues increased significantly, but expenses grew even more. When can we expect revenue growth to exceed expense growth on a quarterly basis? A: Andrew A. Wiederhorn, Chairman of the Board, explained that several factors contribute to the current financial situation, including interest expenses, tax credits, and depreciation. He highlighted the potential refinancing of Twin Peaks and its public listing as opportunities to reduce interest expenses. Additionally, the pipeline of new store builds is expected to add significant incremental royalties, which should help balance revenue and expenses in the future.

Q: The company projected opening more stores in the second quarter but fell short. Can you explain the delay and confirm if the target for the year is still achievable? A: Wiederhorn acknowledged that franchisees have been slower in opening new locations due to various factors, but he remains confident in achieving the target of 120 new units for the year. He noted that many international openings are on track and emphasized the importance of opening as many stores as possible before Thanksgiving.

Q: Are there any new M&A opportunities, and how has the market environment affected potential deals? A: Wiederhorn stated that there are more M&A opportunities now than last year, with sellers having more reasonable expectations. He mentioned that acquisitions could be made at favorable pricing, similar to the Smokey Bones deal, and that these opportunities could help de-leverage the balance sheet and add scale to the company.

Q: Despite challenges in the quick-service industry, FAT Brands maintained flat two-year stack trends. Which segments performed well? A: Wiederhorn highlighted that the burger, fast casual, and snack segments performed well, while the QSR segment faced challenges. He noted that brands like Ponderosa and Bonanza Steakhouse saw strong sales due to their value propositions. He expressed optimism for the polished casual segment in the second half of the year.

Q: How is the conversion of Smokey Bones to Twin Peaks progressing, and what have you learned so far? A: Wiederhorn shared that the conversion process is going well, with the first location in Lakeland, Florida, set to open in under nine months. He explained that most conversions are planned for 2025 and 2026 due to existing commitments for 2024. The conversions are expected to drive high unit growth, which is a key factor in achieving favorable valuations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.