FAT Brands Results

FAT Brands Inc. Announces Fiscal Second Quarter 2018 Financial Results

Fatburger & Buffalo’s Express - Same-store sales growth in core domestic market of 8.9% - System-wide same-store sales growth of 9.5%

FAT Brands

FAT (Fresh. Authentic. Tasty.) Brands Inc. (NASDAQ: FAT) today announced financial results for the 13-week period ended July 1, 2018.

Andy Wiederhorn, President and CEO of FAT Brands, commented, “We’re pleased to report second quarter results which include positive same-store sales growth across all of our brands. Our flagship Fatburger brand continued to achieve particularly impressive results, with same-store sales growth of 9.5% inclusive of 4.2% transaction growth. Strong Fatburger results continue to be driven by momentum in delivery, as well as by increased traction of the plant-based Impossible Burger. We also saw positive trends in our casual dining brands, supported by the tests of a new media campaign, to-go packaging, and third party delivery.”

“Over the last few months we secured significant financing, which enabled the closing of our previously announced acquisition of Hurricane Grill & Wings, a brand best known for its jumbo fresh wings. The integration of the Hurricane restaurants onto our platform has been smooth, and we now expect to achieve an annualized revenue run-rate of $19-20 million and an annualized EBITDA run-rate of $10-11 million, inclusive of synergies beginning in the fourth quarter of 2018. The financing we secured provides dry powder for future accretive acquisitions; our pipeline of franchise brands is robust, and we are actively working to complete additional transactions.”

The Company was formed as a Delaware corporation on March 21, 2017 as a wholly-owned subsidiary of Fog Cutter Capital Group Inc. (“FCCG”). The Company was formed for the purpose of completing a public offering and related transactions, and to acquire and continue certain businesses previously conducted by subsidiaries of FCCG. These transactions occurred on October 20, 2017. Because this is our initial year of operation, comparative information is not available for the second quarter of 2017.

Fiscal Second Quarter 2018 Highlights

  • Total revenues of $3.9 million(1)
  • EBITDA of $825,000
  • Net income of $373,000, or $0.04 per share
       

(1)

    In the first quarter of 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which changed the timing of recognition of franchise fees, including development fees, territory fees, renewal and transfer fees. Adoption of ASU 2014-09 also changed the reporting of advertising fund contributions and related expenditures.

 

Fiscal Second Quarter 2018 Segment Performance

  • Fatburger & Buffalo’s Express
    • Same-store sales growth in core domestic market of 8.9%
    • System-wide same-store sales growth of 9.5%
    • Total revenues of $2.0 million
    • EBITDA of $887,000
    • Net income of $771,000
    • 4 new store openings
  • Buffalo’s Cafe
    • System-wide same-store sales growth of 10.2%
    • Total revenue of $511,000
    • EBITDA of $165,000
    • Net income of $237,000
  • Ponderosa & Bonanza Steakhouse
    • System-wide same-store sales growth of 0.9%
    • Total revenue of $1.4 million
    • EBITDA of $304,000
    • Net income of $247,000

Financing Events in the Quarter

On April 27, 2018, FAT Brands established a $5 million credit facility with TCA Global Credit Master Fund, LP (“TCA”). A total of $2 million was funded by TCA as part of the initial closing on April 27, 2018, and the proceeds were used for working capital.

On June 7, 2018, FAT Brands completed $8 million in Series A preferred stock financing. The proceeds are being used for acquisition of new restaurant brands, the repayment of indebtedness, and working capital.

On June 27, 2018, FAT Brands entered into a Note Exchange Agreement under which it agreed with FCCG to exchange most of the remaining balance of the Company’s outstanding Promissory note issued to FCCG on October 20, 2017, in the original principal amount of $30 million (the “Note”). At the time of the exchange, the Note had an estimated outstanding balance of principal plus accrued interest of $10,222,053 (the “Note Balance”). FCCG agreed to cancel the Note, in exchange for shares of capital stock of the Company in the following amounts:

  • $2,000,000 of the Note Balance will be exchanged for 20,000 shares of Series A Fixed Rate Cumulative Preferred Stock of the Company at $100 per share; and
  • The remaining Note Balance of $7,272,053 will be exchanged for 989,395 shares of Common Stock of the Company, representing an exchange price of $7.35 per share, which was the closing price of the Common Stock on June 26, 2018.

Subsequent Events

On July 3, 2018, FAT Brands completed the previously announced acquisition of Hurricane AMT, LLC (“Hurricane”), the franchisor of Hurricane Grill & Wings and Hurricane BTW restaurants, for a purchase price of $12,500,000.

Also on July 3, 2018, the Company entered into a new Loan and Security Agreement with FB Lending, LLC, whereby the Company borrowed $16.0 million in a term loan. A portion of the net proceeds were used to fund the Hurricane acquisition, as well as to repay borrowings of $2.0 million plus interest and fees under the Company’s existing loan facility with TCA. The Company intends to use the remaining proceeds for additional acquisitions and general working capital purposes.

Quarterly Cash Dividend

The Company’s Board of Directors approved the payment of a quarterly cash dividend to shareholders of $0.12 per share. The dividend was paid on July 16, 2018 to shareholders of record as of the close of business on July 6, 2018.

Key Financial Definitions

New store openings - The number of new store openings reflects the number of stores opened during a particular reporting period. The total number of new stores per reporting period and the timing of stores openings has, and will continue to have, an impact on our results.

Same-store sales growth – Same-store sales growth reflects the change in year-over-year sales for the comparable store base, which we define as the number of stores open for at least one full fiscal year. Given our focused marketing efforts and public excitement surrounding each opening, new stores often experience an initial start-up period with considerably higher than average sales volumes, which subsequently decrease to stabilized levels after three to six months. Thus, we do not include stores in the comparable base until they have been open for at least one full fiscal year. We expect that this trend will continue for the foreseeable future as we continue to open and expand into new markets.

About FAT (Fresh. Authentic. Tasty.) Brands

FAT Brands (NASDAQ: FAT) is a leading global franchising company that strategically acquires, markets and develops fast casual and casual dining restaurant concepts around the world. The Company currently owns six restaurant brands, Fatburger, Buffalo’s Cafe, Buffalo’s Express, Hurricane Grill & Wings, and Ponderosa and Bonanza Steakhouses, that have over 300 locations open and more than 300 under development in 32 countries.

         
FAT Brands Statement of Operations Data
 
 
(In thousands)
13 weeks ended July 1, 2018
FAT Brands Fatburger Buffalo’s Ponderosa Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Statement of operations data:
 
Revenues
Royalties $ - $ 1,343 $ 353 $ 1,164 $ 2,860
Franchise fees - 286 4 9 299
Store opening fees - 105 - - 105
Advertising fees - 294 154 182 630
Management fee   -   14   -   -   14
Total revenues - 2,042 511 1,355 3,908
 
General and administrative expenses   531   1,153   346   1,051   3,081
 
Income (loss) from operations   (531)   889   165   304   827
 
Other income (expense)
Interest income (expense) (548) 85 159 4 (300)
Depreciation and amortization 4 (9) (2) (33) (40)
Other expense   -   (2)   -   -   (2)
Other income (expense)   (544)   74   157   (29)   (342)
 
Income (loss) before income tax expense (benefit) (1,075) 963 322 275 485
 
Income tax expense (benefit)   (193)   192   85   28   112
 
Net income (loss)   (882)   771   237   247   373
Basic and diluted EPS   ($0.09) $ 0.08 $ 0.02 $ 0.02 $ 0.04
 
         
FAT Brands Statement of Operations Data
 
 
(In thousands)
26 weeks ended July 1, 2018
FAT Brands Fatburger Buffalo’s Ponderosa Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Statement of operations data:
 
Revenues
Royalties $ - $ 2,631 $ 666 $ 2,135 $ 5,432
Franchise fees - 669 9 20 698
Store opening fees - 105 - - 105
Advertising fees - 611 293 322 1,226
Management fee   -   32   -   -   32
Total revenues - 4,048 968 2,477 7,493
 
General and administrative expenses   755   2,307   700   1,963   5,725
 
Income (loss) from operations   (755)   1,741   268   514   1,768
 
Other income (expense)
Interest income (expense) (994) 164 307 9 (514)
Depreciation and amortization (1) (9) (2) (61) (73)
Other expense   0   (3)   -   -   (3)
Other income (expense)   (995)   152   305   (52)   (590)
 
Income (loss) before income tax expense (benefit) (1,750) 1,893 573 462 1,178
 
Income tax expense (benefit)   (326)   417   156   49   296
 
Net income (loss)   (1,424)   1,476   417   413   882
Basic and diluted EPS   ($0.14) $ 0.15 $ 0.04 $ 0.04 $ 0.09
 
           
Consolidated Balance Sheet for FAT Brands, Inc. as of July 1, 2018
 
 
(In thousands)
July 1, 2018
FAT Brands FBNA BFCI Ponderosa Elimination Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Consolidated balance sheet data:
 
Cash $ 955 $ - $ - $ - $ - $ 955
Total assets $ 11,154 $ 13,097 $ 7,334 $ 11,442 $ (10,550) $ 32,477
Total liabilities $ 15,645 $ 8,798 $ 994 $ 453 $ - $ 25,890
Total stockholders' equity (deficit) $ (4,491) $ 4,299 $ 6,340 $ 10,989 $ (10,550) $ 6,587
 
         
EBITDA Reconciliation
 
26 weeks ended July 1, 2018
FAT Brands Fatburger Buffalo's Ponderosa Consolidated
 
(in thousands)
 
Net income (loss) $ (1,424) $ 1,476 $ 417 $ 413 $ 882
Depreciation and amortization expense 1 9 2 61 73
Interest (income) expense 994 (164) (307) (9) 514
Income tax expense (benefit)   (326)   417   156   49   296
EBITDA $ (755) $ 1,738 $ 268 $ 514 $ 1,765
 
 
13 weeks ended July 1, 2018
FAT Brands Fatburger Buffalo's Ponderosa Consolidated
 
(in thousands)
 
Net income (loss) $ (882) $ 771 $ 237 $ 247 $ 373
Depreciation and amortization expense (4) 9 2 33 40
Interest (income) expense 548 (85) (159) (4) 300
Income tax expense (benefit)   (193)   192   85   28   112
EBITDA $ (531) $ 887 $ 165 $ 304 $ 825
 



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