FAT - Earnings call transcript Q3 2018

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Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the FAT Brands Inc.

Third Quarter 2018 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. The lines will be opened for your questions following the presentation. conference recorded this XXXX. November that note is today, being X, Please

Rebecca now the Brands, over Wiederhorn, Officer Officer, FAT today to and I President Financial On to from Executive Ms. are Rebecca call begin. the to like turn and Hershinger Chief Chief Hershinger. call would Andy

Rebecca Hershinger

section. Investor everyone. the Thank earnings be can release, afternoon, you Relations at all in By our ir.fatbrands.com website you, release operator and have should press which found now good access our on to

of for we more risks date a to include indicated at of statements. uncertainties. due statements not Before future press need release not recent our upon Actual and forward-looking discussion and could These financial are be that part I everyone that not should and to earnings them. operating performance results We of later begin, these update remind statements undue impact results these undertake condition. future today today's a forward-looking a and guarantees those our to detailed filings number may by forward-looking reliance discussion to the placed statements from therefore risks differ and will you of forward-looking refer do SEC materially

GAAP like in Chief measures and to for results to Wiederhorn, over available prepared call isolation we in we or non-GAAP would call, with Officer in not the Andy are this accordance Executive as comparable of may our substitute During today's performance. earnings to presentation considered be financial turn a believe release. Reconciliations today's GAAP. measures, discuss useful which can The evaluating should in I now additional be information President

Andy Wiederhorn

joining thank and Thank you, for afternoon all Rebecca. us Good today. you everyone

and following in acquisition the made-to-order completing to IPO. growth This our cafe is acquisition made Buffalo’s for quarter, Buffalo’s brand a of and seeing the previously integrated & known XX Grill and concept wonderful $XX first meal, of restaurants Inclusive EBITDA annualized our in Wings, of $XX operations. $XX the annualized announced beginning XXXX. reflective will Hurricane progress we have been million During first in of synergies soon platform, expect is onto Express the be $XX serving compliment our strategy to Hurricane of high-quality million quarter million revenue smoothly our our to by million we against our we in full operating of synergies,

sell We acquisition for actionable strong and a to family, a can massive with records franchise credibility authentic brands with cost the to look secure continuing are lenders to into developed with Hurricane the we dry to future potential franchisee accretive acquisitions is the believe new our there the brands and franchise targets, work multiple closed valuations, opportunity In future. pipeline raised steady that partners. sustainable to financing, potential acquisition million enabled which which on We capital. of for operating summer, provided capital of acquisitions prior long-track world accretive a we We this even significant. consolidate we target to relationships. of franchise Furthermore, that and $XX and in modest American funds and sell are global brands along existing fat of level healthy the performance look have evaluating in In we both for flow franchisees cash closing for be continue to acquisitions. can the we brands flow, around cross brands our to earnings powder synergies, July, ensuring acquisitions anticipated debt we earlier lower and for with additional and additional cash with

demonstrated continued which results, momentum. quarter third our with pleased are We business

Bonanza in California, same-store driven quarter store with sales smooth grew, programs and Buffalo’s the continue quarter, segment successful & with In Cafe platform integration outpaced of the the and saw the system speed we're and XX.X% Separately, wide, growth. saw restaurants by X.X% the growth this X.X% negative, system. Buffalo's X.X% sale sales quarter store comprised by of was and quarter, same both where growth pleased same same strong sales acquisition be of our while sales Fatburger our strong marketing same the X.X% is very decline XX.X% the throughout and store franchisees Ponderosa quarter in system Express Hurricane Steakhouse industry growth in of and the brand. sales drive for grew the Grill year-to-date. adopted future we to and third This store which a in restaurants, the Wings with order growth and the these segment, achieving in pleased again which onto Fatburger X.X% initiatives year-to-date. integration Our to and new

During restaurants end five franchisees Buffalo’s franchisees of had quarter, quarter, the we opened the the the Subsequent the & Fatburger restaurants co-branded Singapore. opened third locations our globally. across in quarter, brands. six two of end to Express At XXX over

Our franchisees opening stages various of anticipate units XXXX and XX XX construction globally. we restaurants and currently XX planning in have to in approximately

XXX development around of over world. pipeline restaurants the Our consists

development we both addition, franchisees. deals In continue and existing to with new actively seek

we seven Washington XX During the to development franchisees a announced California, deal locations quarter, open co-branded in in Fatburger several Buffalo’s throughout & new Express state. with and

Jersey’s, franchisee a the in brands mark New will to deal Cherry open to Mall, with East signed new we which addition, a In Coast. Fatburger Hill return restaurant development a the

platform. secured integrated hurricane and achieve dry our of future to quarter, Our post accretive the & in strategy robust In around acquisition interest our our summary, completed only with our momentum IPO business did believe grow pleased but our to and from quarter the results. acquisition was of our powder the demonstrate providing generates we ability pipeline summer, first acquisitions. Hurricane continues this strength growth We for third world. Not The brands while strong franchisees very Wings onto acquisition synergies. financing momentum Grill we're enabled successfully completion the our demonstrates as continued this

forward a scalable as to We add to calls. our system Our to actively our cost brands you on attractive look on is number our asset highly light updating will which financing, platform as and additional of future to evaluate well to working we progress capital. lower

As comparable sense we has don't makes to few last items the financials through data as have line for don't the case from the our walk you quarters, we been ago believe the of it year period.

for However, will that feel operator change In free XXXX. the open our ask questions. about in questions and the meantime, will Q&A beginning results the any the in now line to

Operator

our Instructions] Gregory, investor. Thank We you. will go [Operator ahead. question private first Please from take

Unidentified Analyst

you. Thank Hey how Andy you? are

Andy Wiederhorn

Good. Hi Greg.

Unidentified Analyst

you Good. time? well and as this is with Rebecca

Andy Wiederhorn

Yes.

Rebecca Hershinger

Yes.

Unidentified Analyst

questions. I have How Rebecca. Hi I guess. are Okay. you? couple a of

Rebecca, on be run current will what know you based your XXXX? to that You get this do the flow rate, to cash me? being, Rebecca. have First for back for is or

Rebecca Hershinger

get you with from income back of I EBITDA We can – net an into free cash why walking to analysis flow. don't

Andy Wiederhorn

and Do you dividends, debt want after right? or to talk service before about after before this or

Unidentified Analyst

after. to Yeah. wanted everything after I

So, I want know is what operations going off to et thrown cash cetera. bottom to be dividend line, expenses, after

Andy Wiederhorn

For XXXX. Yes.

Okay. Understood.

Unidentified Analyst

Correct.

Okay.

man what's, at and you've raising money, many this – imminent frame the point? idea you times any do time the Is call and Andy, you on new about mentioned is? general there this So I, feeling any or is what have the

Andy Wiederhorn

under So, deliver. being cautious over and not promise to

don't cost And, shortly. will are significantly it, our timeline able think in that soon. want a, something put We but to very be actively very hope additional middle on will the specific close to capital. to financing We of means soon. soon we'll lower of that announce a an be I I very that

Unidentified Analyst

Okay.

you'll you us So, be, money be new mean, What the have? you're give used going acquisitions. XXXX, for this stores will I will to, an I terms new Can or let's range? you'll in about, money. just get hopefully general say think assume, a EBITDA many you the how idea

Andy Wiederhorn

million but think stores another on for in that the complete that's to before we XX EBITDA existing $XX but make to acquisitions for million, XX, XXXX, XXXX expect we've the XX I the financing. new higher-end Well, units, be any we to forecast or brand we'll add in $XX

as on completing As publicly cost them. in and said working to significantly EBITDA, rate dramatically our is specific time possible to know possible responsibly that times million from plan We're they refinancing on And actively but my like putting $XX close as also our $XX to as lower to I shortly soon more several million you to to $XX a capital make of fast know, we those without goal this happen. acquisitions. that hope I've it, grow addition as from many you'll then million.

there, of capital. soon microcap obviously so integrate the have land to in land we that to get is And small cap our doing those of and cost to grow lower get as get goal and can. so, several to as businesses we EBITDA, out But acquisitions, use make

a definitely that's for goal So XXXX.

Unidentified Analyst

Okay.

raised you million million, thing didn't EBITDA protection for by the You change did your actually rate next mentioned you revenue notice I or One release, in year. rate. $X run $X but your the, your

Andy Wiederhorn

me Let speak that. to

good up. to to you spent, for question. glad Here you book required brought franchise at advertising as January now changed then public spent But revenue the is contribute expense. now why, in have I'm and GAAP it's a dollars add as revenue marketing equal it you're money figure That historically XXXX changed and or beginning company, expense not order and recognize recognize the franchisees add the and of an to normally GAAP really they a to identical would programs. by to that advertising

the quarter it recognized $X So and is our is revenue for is year-to-date year-to-date – million,

Rebecca Hershinger

X.X

Andy Wiederhorn

talked makes and Hurricane so on, margin really but million dollars skew a in to additional XX% that much and number like but is. your That expenses, as there's EBITDA it acquisitions, the We've $X your added we've make we $X or is and more jump it about revenue than just pretty that that's because and so for why always up margin grosses your And million of XXXX. revenue margin kind that. look operating smaller advertising on it that's growing a

adjusted calculation about some talked we of everyone that So we'll have it. sort understands so

Unidentified Analyst

et be ask on for and but Okay. not probably based if is your you it, new I'm Last what's extremely because now. but about have do going you thought know that? I your feeling about know I to buybacks? you that get you dividend, you're allowed share cetera. under undervalued you I buybacks say committed stock to the it comps, believe can't to Will question financing

Andy Wiederhorn

we you're as new in does undervalued is buy middle how think consider. you significantly back. being stock that to is are permit certain limitations that anyone. But the right companies feel of than companies, more I are The publicly to we buybacks, financing largest stock that much that it the shareholder I will traded and can So, there the something

it. something continues that We to we not It's undervalue a If might new in that us this interested discussion. in fashion, the are be market do.

healthy comfort on of look use capital EBITDA generate the just and the debt the to a have, et for You that and to at need have capital return service, to we cetera. the

Unidentified Analyst

Right. I'm Thank if you and people on. other the cash, anything question? what that the okay. Yes. ask Well was of you why was of dividends, with reasons I up, I'll let me was very out much. one answer you else and there all to comes going to available interest reach see back know to to But asking if that wanted to paid the money will was for the them that. I my hop some questions Rebecca, after

Rebecca Hershinger

Absolutely.

Unidentified Analyst

All you very Thank right. much.

Operator

Investor. take will Martin from question next Cowen Please We go Private [ph], ahead. our

Unidentified Analyst

[indiscernible]. Marty afternoon. How good Andy, Hi, This are calling Cowen is you?

Andy Wiederhorn

are you? how Marty,

Unidentified Analyst

in questions. Number point Andy. time. FAT know wondering that at how and had was of is would you just merge ultimately I quick progressing? the mentioned good, I Couple Brands FCCG some the Pretty that one,

Andy Wiederhorn

analysis we how also are complicated be and big working Cutter requires very something we we loss working trap has incorporate I hard of a know tax Brands on to careful to it that We're SEC it. don't quarter that do lot that that but want said in messes up. to that, very it FAT last a because that And Fog on it's loss I properly. do into doing and somehow it – that that it as actually

So we've a that been on lot this quarter. working

accountants the sure of on we're and approach refinancing, complete tax make the SEC to as quickly how that, page to – out waiting everyone's are acquisitions It's sort possible. details and advisors it lower microcap structure three-pronged figured guidelines EBITDA second and who securities, of the the separate sure to it done to on and a lawyers, merger. all on same third the our some of being being finally as among three working to of And top then fits cost out within its make the I'm we think capital, of the as boost I things, the significant one land. get the get is

immediate are for things us, on goals all so soon. deliver we very And those hope to

Unidentified Analyst

all FAT news. That's good lawsuits question, Can that? And quick down comment with coming on other you Brands? on these what's one

Andy Wiederhorn

can, carries taken the And fight any in to the have the multiple federal who one court be measurement kinds pay the business will competing has alleged of and an then common. be I adds consolidated. that in you be insurance federal cases. extent these is our that its it's cases. back there of don't the company. gets the firms class In lawsuits these proceeds to someone kind vigorously it's are to really company because they're the state kind court two as new claim cases shareholders obviously, that between and – federal we fully firms insured And and case going your place shakedown deny already this action But when to system anticipate course to by when you price in deductible. company But for filed put will state it the the just permits a that to as cost best unfortunate seat possible, ambulance I improper a hold, the expense of on interest very of of law a court there's just any complaint. case, defend get this To this the a take – lawsuits. or The law you're of cost and case the to public companies, believe. public going a limited. legal offering If if insurance think And money IPO there's I it's will company that's the chasing actions breaks get multiple state case, an And of because plaintiff. they in the representative If

Unidentified Analyst

a of the you have sort think, agree sense opinion. whatever same I’d In so I

had important together lot especially of think all companies, get [indiscernible] I my FCCG and… benefit think the these most a you thing situation think being I and especially merge the shareholder really has in both shelled under companies us, would of

Andy Wiederhorn

a soon fall it as XX-K the to complexities are without it on there a we is timing and we all those we as to can it. complete it Can do priority as It complete some to do get around, done, is that we need it top – And things. complete it substantially we're it. soon or as we can can we without announce can. done And can it be working it details get in have those

Unidentified Analyst

Thank Okay. Appreciate you. it. And luck. good

Andy Wiederhorn

Thank you.

Unidentified Analyst

Thanks.

Operator

question Trust go from take next will of Please Mutual We Lenny Dunn America. Company our from ahead.

Lenny Dunn

Good which or that cost looks give is me for come, going on insight to you that? minutes, Can a dilution track unknown, your course a going into over some of the few is The me everything. we're afternoon. to going took And new if of what preferred. financials, any it's at financing be like sort

Andy Wiederhorn

lower changing couple the last But that had of it a We're if of all should was facility debt-like be It’s transaction dilutive. but our expensive during bridge process long-term facility with go that what cost very in a acquisition year because Hurricane. cost process. extremely that put I substantially many had we the place capital facility we starts started that into of to terms not we that call summer lagged a us this that it's an facility. I'll the financing familiar, on to lower and details, don't the the lenders complete want happy too you knew remember Hurricane and false on

we expensive deal we're in and that place possible. appreciate out it until so refinance anxious found as we facility as quickly the it's And the held we but right to and put we of kind

Lenny Dunn

encourage because that I rates be Yes, to up would are obviously, going going down. not

to while you you it arch So in can? want

Andy Wiederhorn

It Yes. facility. is a rate fixed

is anticipated I so facility be new with rate the fixed happy that. think facility, So a you'll

Lenny Dunn

up I No, rates fixed a Okay. also, And little. that. be understand going will are also, chances though

done be probably it it the you get execute. undervalued you will to things is stock the like I sooner now, are. if and better the the around And we previous were should selling falling there agree into get off place. price America but considerably right are quarters. want IPO you If So looks the But you with

Andy Wiederhorn

much. you Thank very

Operator

We from will ahead. Please next take our question go [indiscernible].

Unidentified Analyst

tell afternoon. this financing the totally will of whether process earlier or closing out you Yes, acquisitions? from cost that good used Hurricane Can the of in just future me lower it would you're take Grill for be financing

Andy Wiederhorn

bridge that out for pointing Good take question. the would completely. completely you Thank It facility out.

Unidentified Analyst

just And one question. Okay. other

The other – I financing remember. or options came with some warrants can't

$X year? price do do the strike five in or happen one years the that? they a somewhere for you you options think go I long-term range, – know those to are was Can or

Andy Wiederhorn

are don't to new financing terms small year will the because $X.XX is believe options, compared want of never know I it's amount to to but over. related five amount you They there that, the of until the very and a the I it's small a on equity facility. the of size comment price But be

Unidentified Analyst

you. Thank Okay.

Andy Wiederhorn

Absolutely. Thank you.

Operator

from Ehrlich, ahead. We will next take Richard our Please Darbie. question go JH

Richard Ehrlich

Andy, you Hi how doing?

Andy Wiederhorn

are Rich, how you? Hi

Richard Ehrlich

Good.

restaurant there the you've the as Andy, of and looking litter. And so really looks your acquisitions I’m total. always it as So the to you close are way that is X,XXX the best company's through you many can. that really the grow mentioned acquisitions quickest to We've way going you're have, like at been get pick the to

are something get long going time upon feel rolling? of a to waiting it and once contingent you Why an long financing close acquisition your you so ball announce acquisition. forward could this and If confident takes such you

Andy Wiederhorn

to in we're and the it of tail want of in to getting through is situation Hurricane I the financing the want where just sure, close dog – the the be became acquisition. Hurricane to don't when don't lenders complete couple had wagging than a we I go this be different to

again, you'll with I have, pleasantly we of pace so pending, per to that I point, surprised are would completed to count understand that couple and year not as but accelerates Philosophically, be yet, shortly said, the with financing We probable unit that your the I organically. a grow close. along acquisitions think we're but that, like XX%

if add healthy. year grow acquisition restaurants think another to adding restaurants organically, Meaning then don't we And that, the to just XX and XXX is growth you something by benchmark. we can acquisition. that's I have So want something that, per

organically, grow doing also to that of want numbers. is the Fatburger just about brands same-store You the fact mean XX% point which revenues, out obvious to the well. charts. are I sales our so in off that just brand, traffic Again, numbers count and has is

the things I of very track I and good the acquire and want the So of individual of feel time brands. we're health to spend the health trying just on to that. brands about don't lose

right focused around both. we're spirit things these I So corner. And comment I the on because your are the appreciate of think

Richard Ehrlich

it's but about No, you positive, do tact. I to going out agree which the is way the in very franchise closings, getting your And that make land, you're regarding you’re continuously – microcap stays sure talk to opening restaurant important of net get organically acquisitions.

Andy Wiederhorn

XXX%.

Richard Ehrlich

that's So and since something you normally it's it be totally you that know if the is I accretive. and the go year, believe operate, out in year Hurricane a acquisition. it's announcing been a that way would you accretive been But

because bringing increase to chances your the more chances you'd table would financing additional actually, hurt financing, to inputs you're announcing You probably wouldn't of something… you your

Andy Wiederhorn

agree have terms you reason of I've the the thoughtful lenders already part I structure. with Just the with the made, completely, the acquisition of it's is be complexity, the addition what's you in to to in terms understand comments –

subordinated was note stock, but is some debt. an where some contemplating a acquisitions preferred cash a rate, its at example, the purchased and one note of for attractive – and with So Hurricane cash we're

hey, subordinated only may lenders some have it so may other we note. to the with a as And long you can't lenders we're lender, it's And okay be say, subordinated. as have say,

acquisition our turns off, a hands commit not that to and an I'm so potential And trying lender. tie to

we've I'm Now just so same the get ourselves we'll case financing a set potential the are issues acquisition. these already close, I'd done And but the addressed we're it at in complete announce and optimistic shortly up very and rather today, for because that we the time problem. complete we'll it where all shortly then

Richard Ehrlich

one have additional more I No, question.

of So, does some balance on their debt Fog Cutter have sheet. type

operating no debt to looking do is Brands. merge your to If no you Cutter reason Cutter. FAT just you're Cutter not merge is to you're would There's and holds company if just, going but bring Fog with entities, Fog really to way there's an just, Fog

So of get how prior rid do to the Cutter Fog debt a you merger?

Andy Wiederhorn

it structuring going to now and part on of the anticipated That's up. set that's

adding somehow was that. not it's FAT debt Brands. like affect our flow, to or cash So It ratios things

on absolutely comment. point you're with So that

Richard Ehrlich

with Brand’s FAT new anything does Fog do what credit has to debt? facility But Cutter

Andy Wiederhorn

it No, doesn't.

Richard Ehrlich

Not that problem? a Isn't Fog Cutter’s problem. our

rid Cutter of Fog how So do get debt? you

Andy Wiederhorn

if of deal is an debt Fog have right. the Cutter’s Cutter there to does yes, Cutter and how but it – to merge Fog That's FAT if problem that have if acquisition gone you Fog lender. is or you Brands merger, get it affect rid Or debt, and still even current to and – then deal with, it's it's a

minute about that and So Fog is Fog the just the said plan get I rid of all part Cutter, Cutter of I of ago, about as debt that's can say but our that part at and merger to is it. level as a

Richard Ehrlich

because All offline it that. right, just with I'm discuss we'll confused

the want here. dead don't a horse and great much Okay. it I you quarter. Thank was to so beat

Andy Wiederhorn

Richard. you, Thank

Operator

turn the It back to conference time. appears questions would this there are to I any our additional closing like no remarks. further for or host at

Andy Wiederhorn

have great And And Thank Take a care. you and and everyone, the you for evening. if you free further to you, afternoon us. feel out questions, questions. have Hope to to joining thank operator. reach excellent I the all call today want

Operator

this today's you for call. gentlemen, and conference Thank participation. your concludes Ladies

disconnect. now may You

FAT Brands (FAT) 12 Nov 182018 Q3 Earnings call transcript