FAT Brands Results

FAT Brands Inc. Announces Fiscal Third Quarter 2018 Financial Results

Fatburger & Buffalo’s Express - Same-store sales growth in California of 12.6% year-over-year, 13.3% YTD - Same-store sales growth domestically of 8.3% year-over-year, 9.1% YTD

FAT Brands

FAT (Fresh. Authentic. Tasty.) Brands Inc. (NASDAQ:FAT)yesterday announced financial results for the 13-week period ended September 30, 2018.

Andy Wiederhorn, President and CEO of FAT Brands, commented, “Third quarter results demonstrated continued business momentum as we achieved acquisition synergies and positive same-store sales growth across our Fatburger & Buffalo’s Express, Buffalo’s Cafe, and Ponderosa and Bonanza Steakhouse brands. During the quarter we completed our previously announced acquisition of Hurricane Grill & Wings, our first acquisition following our IPO. The successful integration of the Hurricane restaurants onto our platform demonstrates the strength of our growth strategy and our ability to generate synergies. Inclusive of these acquisition synergies, we expect to achieve an annualized revenue run-rate of $22-24 million and an annualized EBITDA run-rate of $10-11 million beginning in the first quarter of 2019. Our pipeline of brands for acquisition remains robust, and we continue to actively work 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 third quarter of 2017.

Fiscal Third Quarter 2018 Highlights

  • Total revenues of $5.9 million(1)
  • Net income of $10,000, or $0.00 per share on a basic and fully diluted basis
  • EBITDA(2) of $1.8 million
  • Adjusted EBITDA(2) of $2.1 million, excluding legal and accounting fees related to acquisitions

(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. Please see the “Adoption of New Accounting Guidance” section below for additional information.

(2)

EBITDA and Adjusted EBITDA are non-GAAP measures defined below, under “Non-GAAP Measures”. A reconciliation of GAAP net income to EBITDA and adjusted EBITDA is included in the accompanying financial tables.
 

Fiscal Third Quarter 2018 Segment Performance

  • Fatburger & Buffalo’s Express
    • Same-store sales growth in California of 12.6% year-over-year, 13.3% YTD
    • Same-store sales growth domestically of 8.3% year-over-year, 9.1% YTD
    • System-wide same-store sales growth of 4.7% year-over-year, 7.8% YTD
    • System-wide sales growth of 10.8% year-over-year, 15.5% YTD
    • Total revenues of $2.9 million
    • Net income of $1.5 million
    • EBITDA of $1.9 million
    • 2 new co-branded store openings
  • Buffalo’s Cafe
    • System-wide same-store sales growth of 6.4% year-over-year, 5.5% YTD
    • System-wide sales growth of 8.0% year-over-year, 7.2% YTD
    • Total revenue of $581,000
    • Net income of $263,000
    • EBITDA of $228,000
  • Ponderosa & Bonanza Steakhouse
    • System-wide same-store sales growth of 4.6% year-over-year, 2.2% YTD
    • System-wide sales growth of 3.9% year-over-year, 2.9% YTD
    • Total revenue of $1.0 million
    • Net income of $53,000
    • EBITDA of $217,000
  • Hurricane Grill & Wings
    • Completed the previously announced acquisition on July 3, 2018
    • System-wide same-store sales decline of (2.4%) year-over-year
    • System-wide sales growth of 4.7% year-over-year
    • Total revenue of $1.3 million
    • Net loss of $3,000
    • EBITDA of $79,000

Events in the Quarter

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 comprised of $8,000,000 in cash and $4,500,000 in Series A-1 Mandatorily Redeemable Preferred Shares.

Also on July 3, 2018, the Company entered into a new Loan and Security Agreement 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 an existing loan facility. The Company has been using the remaining proceeds for additional acquisitions, investments, and general working capital purposes.

On September 20, 2018, the Company issued 10,482 shares of its common stock to its independent directors in satisfaction of accrued directors’ fees. These shares were valued at $8.59 per share, the closing price on September 20, 2018, the day that the independent directors elected to receive such shares.

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 October 31, 2018 to shareholders of record as of the close of business on October 18, 2018. On October 31, 2018, FCCG elected to reinvest its dividend for all 9,300,760 shares into newly issued shares of the Company’s common stock at the closing market price of common stock on the payment date. The Company issued 176,877 shares of common stock to FCCG at a price of $6.31 per share in satisfaction of the $1,116,091 dividend payable.

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.

Adoption of New Accounting Guidance

The Company adopted ASU 2014-09 on January 1, 2018 using the modified retrospective method, in which the cumulative effect of applying the standard is recognized at the date of initial application. Amounts presented for the thirty-nine weeks ended September 30, 2018 have been adjusted to reflect the adoption of ASU 2014-09, resulting in an increase in revenues of $1,723,000.

Non-GAAP Measure

This press release includes the non-GAAP financial measure of EBITDA and Adjusted EBITDA.

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. We use the term EBITDA, as opposed to income from operations, as it is widely used by analysts, investors and other interested parties to evaluate companies in our industry. We believe that EBITDA is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate to business performance. EBITDA is not a measure of our financial performance or liquidity that is determined in accordance with generally accepted accounting principles (“GAAP”), and should not be considered as an alternative to net income (loss) as a measure of financial performance or cash flows from operations as measures of liquidity, or any other performance measure derived in accordance with GAAP.

Adjusted EBITDA is defined as EBITDA (as defined above), excluding expenses related to our acquisitions as well as certain non-recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations.

A reconciliation of net income to EBITDA and adjusted EBITDA is set forth in the tables below.

 

FAT Brands, Inc. Statement of Operations Data

           
(In thousands)
13 weeks ended September 30, 2018
FAT Brands Fatburger Buffalo’s Ponderosa Hurricane Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Statement of operations data:
 
Revenues
Royalties $ - $ 1,317 $ 334 $ 893 $ 826 $ 3,370
Franchise fees - 1,215 104 8 16 1,343
Store opening fees - 100 - - - 100
Advertising fees - 268 143 148 479 1,038
Management fee   -     13     -     -     -     13  
Total revenues - 2,913 581 1,049 1,321 5,864
 
General and administrative expenses   406     972     353     832     1,192     3,755  
 
Income (loss) from operations   (406 )   1,941     228     217     129     2,109  
 
Other income (expense)
Interest income (expense) (1,615 ) 42 141 4 - (1,428 )
Depreciation and amortization - (5 ) (1 ) (31 ) (83 ) (120 )
Other expense   (296 )   (6 )   -     -     (50 )   (352 )
Other income (expense)   (1,911 )   31     140     (27 )   (133 )   (1,900 )
 
Income (loss) before income tax expense (benefit) (2,317 ) 1,972 368 190 (4 ) 209
 
Income tax expense (benefit)   (465 )   423     105     137     (1 )   199  
 
Net income (loss)   (1,852 )   1,549     263     53     (3 )   10  
Basic EPS   ($0.16 ) $ 0.14   $ 0.02   $ 0.00     ($0.00 ) $ 0.00  
Fully Diluted EPS   ($0.16 ) $ 0.14   $ 0.02   $ 0.00     ($0.00 ) $ 0.00  
 
           
(In thousands)
39 weeks ended September 30, 2018
FAT Brands Fatburger Buffalo’s Ponderosa Hurricane Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Statement of operations data:
 
Revenues
Royalties $ - $ 3,948 $ 1,000 $ 3,029 $ 825 $ 8,802
Franchise fees - 1,884 113 28 16 2,041
Store opening fees - 205 - - - 205
Advertising fees - 879 436 469 480 2,264
Management fee   -     45     -     -     -     45  
Total revenues - 6,961 1,549 3,526 1,321 13,357
 
General and administrative expenses   1,161     3,279     1,053     2,795     1,192     9,480  
 
Income (loss) from operations   (1,161 )   3,682     496     731     129     3,877  
 
Other income (expense)
Interest income (expense) (2,609 ) 206 447 14 - (1,942 )
Depreciation and amortization (1 ) (14 ) (3 ) (92 ) (83 ) (193 )
Other expense   (296 )   (9 )   -     -     (50 )   (355 )
Other income (expense)   (2,906 )   183     444     (78 )   (133 )   (2,490 )
 
Income (loss) before income tax expense (benefit) (4,067 ) 3,865 940 653 (4 ) 1,387
 
Income tax expense (benefit)   (824 )   873     261     186     (1 )   495  
 
Net income (loss)   (3,243 )   2,992     679     467     (3 )   892  
Basic EPS   ($0.31 ) $ 0.28   $ 0.06   $ 0.04     ($0.00 ) $ 0.08  
Fully Diluted EPS   ($0.31 ) $ 0.28   $ 0.06   $ 0.04     ($0.00 ) $ 0.08  
 
 

Consolidated Balance Sheets for FAT Brands, Inc.

             
(In thousands)
September 30, 2018
FAT Brands FBNA BFCI Ponderosa Hurricane Elimination Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Consolidated balance sheet data:
 
Cash $ 1,308 $ - $ - $ - $ 551 $ - $ 1,859
Total assets $ 27,921 $ 13,545 $ 7,553 $ 11,313 $ 15,275 $ (23,050 ) $ 52,557
Total liabilities $

32,353

$ 7,730 $ 951 $ 271 $ 2,778 $ - $

44,083

Total stockholders' equity (deficit) $

(4,432

) $ 5,815 $ 6,602 $ 11,042 $ 12,497 $ (23,050 ) $

8,474

 
 

FAT Brands, Inc. EBITDA and Adjusted EBITDA Reconciliation

 
13 weeks ended September 30, 2018
FAT Brands   Fatburger   Buffalo's   Ponderosa   Hurricane   Consolidated
 
(in thousands)
 
Net income (loss) $ (1,852 ) $ 1,549 $ 263 $ 53 $ (3 ) $ 10
Depreciation and amortization expense - 5 1 31 83 120
Interest (income) expense 1,615 (42 ) (141 ) (4 ) - 1,428
Income tax expense (benefit)   (465 )   423    

105

   

137

    (1 )   199
EBITDA $ (702 ) $ 1,935 $ 228 $ 217 $ 79 $ 1,757
Acquisition Costs   295     -     -     -     50     345
Adjusted EBITDA $ (407 ) $ 1,935   $ 228   $ 217   $ 129   $ 2,102
 
 
39 weeks ended September 30, 2018
FAT Brands Fatburger Buffalo's Ponderosa Hurricane Consolidated
 
(in thousands)
 
Net income (loss) $ (3,243 ) $ 2,992 $ 679 $ 467 $ (3 ) $ 892
Depreciation and amortization expense 1 14 3 92 83 193
Interest (income) expense 2,609 (206 ) (447 ) (14 ) - 1,942
Income tax expense (benefit)   (824 )   873     261     186     (1 )   495
EBITDA $ (1,457 ) $ 3,673 $ 496 $ 731 $ 79 $ 3,522
Acquisition Costs   295     -     -     -     50     345
Adjusted EBITDA $ (1,162 ) $ 3,673   $ 496   $ 731   $ 129   $ 3,867
 



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