FAT Brands Inc. Provides Business Update Related to COVID-19 and Reports Fourth Quarter and Fiscal Year 2019 Financial Results

Total revenues of $5.3 million, up 17.3% from $4.5 million in the fourth quarter of 2018. Excluding advertising revenues, revenues grew 20.8% to $4.3 million from $3.6 million in the fourth quarter of 2018.

Apr 28, 2020 - 17:08

FAT (Fresh. Authentic. Tasty.) Brands Inc. (NASDAQ: FAT) yesterday provided an update on the business as it relates to the COVID-19 pandemic and reported fiscal fourth quarter and fiscal year 2019 financial results for the 13-week and 52-week periods ending December 29, 2019.

Andy Wiederhorn, President and CEO of FAT Brands, commented, “We are committed to supporting our franchise partners in these challenging times; their health and safety, along with that of their guests, remains our top priority. Our franchisees are complying with all state and local regulations, temporarily closing dining rooms and shifting to a take-out and delivery model only, where it makes sense. We are helping franchisees to acquire personal protective equipment for their staff, so that they may safely serve their communities. In order to facilitate their long-term wellbeing, we have secured extended terms from suppliers on our franchise partners’ behalf, and we are coaching them to access funds provided by the CARES Act and negotiate rent deferrals from their landlords. I’m proud of the way our team and franchisees have come together to successfully navigate this new landscape.”

Wiederhorn continued, “Before the COVID-19 pandemic ramped up in the U.S., we were very excited about the coming year. 2019 had ended with solid business momentum across many of our brands, which had continued through January and February. Furthermore, in March, we completed our whole business securitization transaction, which not only significantly lowered our cost of capital, but also provided ample fuel for our brand acquisition strategy. While the world now looks very different than it did just a few short months ago, the strength of our platform and of our brands remains the same. We are well positioned to weather this crisis, and I am confident that FAT Brands will emerge even stronger than before.”

COVID-19 Business Update Highlights

  • Strengthened liquidity position following completion of whole business securitization transaction in March
  • Helping franchise partners access funds provided by the CARES Act and negotiate rent deferrals
  • Secured extended terms from suppliers on behalf of franchise partners
  • Supporting franchisees through the development of enhanced safety, social distancing, and cleaning procedures
  • Experiencing significant increases in to-go and delivery orders within the system

Fiscal Fourth Quarter 2019 Highlights

  • Total revenues of $5.3 million, up 17.3% from $4.5 million in the fourth quarter of 2018. Excluding advertising revenues, revenues grew 20.8% to $4.3 million from $3.6 million in the fourth quarter of 2018.
    • System-wide sales growth of 8.1% y/y
      • System-wide sales growth (excluding Ponderosa & Bonanza) of 18.1% y/y
      • United States sales growth of 4.8% y/y
      • Canada sales growth of 4.0% y/y
      • Other International(1) sales growth of 25.5% y/y
    • System-wide same-store sales decline of 0.6% y/y
      • System-wide same-store sales decline (excluding Ponderosa & Bonanza) of 0.5% y/y
      • United States same-store sales growth of 0.2% y/y
      • Canada same-store sales growth of 1.6% y/y
      • Other International(1) sales decline of 6.4% y/y
    • 5 new franchised store openings during the fourth quarter 2019
      • Store count as of December 29, 2019: 374 stores system-wide
  • Net loss of $953,000 or $0.08 per share on a basic and fully diluted basis, as compared to net loss of $2.7 million or $0.23 per share on a basic and fully diluted basis in the fourth quarter of 2018
  • EBITDA(2) of $726,000 as compared to a loss of $467,000 in the fourth quarter of 2018
  • Adjusted EBITDA(2) of $1.8 million as compared to $732,000 in the fourth quarter of 2018. The reconciliation of EBITDA to Adjusted EBITDA can be found in the accompanying financial tables.

Fiscal Year 2019 Highlights

  • Total revenues of $22.5 million, up 26.2% from $17.8 million in 2018. Excluding advertising revenues, revenues grew 25.5% to $18.4 million from $14.7 million in 2018.
    • System-wide sales growth of 4.0% y/y
      • System-wide sales growth (excluding Ponderosa & Bonanza) of 15.0% y/y
      • United States sales growth of 2.5% y/y
      • Canada sales growth of 4.4% y/y
      • Other International(1) sales growth of 10.7% y/y
    • System-wide same-store sales decline of 0.7% y/y
      • System-wide same-store sales growth (excluding Ponderosa & Bonanza) of 0.9% y/y
      • United States same-store sales growth of 0.4% y/y
      • Canada same-store sales growth of 2.5% y/y
      • Other International(1) sales decline of 8.7% y/y
    • 24 new franchised store openings during 2019
      • Store count as of December 29, 2019: 374 stores system-wide
  • Net loss of $1.0 million or $0.09 per share on a basic and fully diluted basis, as compared to net loss of $1.8 million or $0.16 per share on a basic and fully diluted basis in 2018
  • EBITDA(2) of $6.8 million as compared to $3.1 million in 2018
  • Adjusted EBITDA(2) of $7.7 million as compared to $5.0 million in 2018. The reconciliation of EBITDA to Adjusted EBITDA can be found in the accompanying financial tables.

(1)

Excludes Canada, includes Puerto Rico.

(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.

COVID-19 Business Update

The Company’s top priority is ensuring the health and safety of its employees, franchise partners, and communities. In compliance with state and local regulations, dining rooms have been temporarily closed. Many of our franchisees are operating on a take-out and delivery basis only, and we have seen a significant shift to these type of sales in both our burger and chicken wing brands. Across the system, approximately 150 restaurants are temporarily shut down completely, primarily across the steakhouse concepts as well as the Fatburger restaurants located inside casinos.

The Company is supporting franchise partners by coaching them to access funds made available through the CARES Act and negotiating deferred rent from landlords. In addition, the Company is helping franchisees procure PPE for their staff and instituting enhanced cleaning procedures in order to safeguard everyone in the restaurants. Lastly, the Company has secured extended terms from suppliers on behalf of franchise partners.

At the corporate level, the Company has taken measures to reduce expenditures, including layoffs of non-essential team members representing approximately 20% of headcount.

The Company has strengthened its liquidity position through the completion of the whole business securitization transaction in March.

Review of Fourth Quarter 2019 Financial Results

Total revenues increased 17.3% to $5.3 million compared to $4.5 million in the fourth quarter of 2018. The increase was primarily driven by a 16.3% increase in royalty revenue which includes the contribution of Elevation Burger which we did not own in the prior year period.

Costs and expenses increased 16.3% to $4.8 million compared to $4.1 million in the fourth quarter of 2018. The increase was primarily driven by losses on our refranchising program of $1.0 million, the majority of which related to operating losses at certain restaurants to be refranchised, without significant comparable activity in the prior period. The refranchising loss was offset by an 11.7% decrease in our general and administrative expenses.

Other expense was $1.2 million in the fourth quarter of 2019 as compared to $3.8 million in the fourth quarter of 2018. The decrease in other expense was driven primarily by a decrease in interest expense related to prepayment penalties recognized in the fourth quarter of 2018 associated with our term debt which was refinanced in the first quarter of 2019 without comparable activity in the fourth quarter of 2019 as well as other income of $13,000 in the fourth quarter of 2019 compared to other expense of $991,000 in the prior period.

Net loss improved to $953,000 compared to $2.7 million in the fourth quarter of 2018. The improvement was primarily driven by growth in total revenue, reductions in general and administrative expenses, and reductions in interest expense compared to the prior period.

FAT Brands Inc. Consolidated Balance Sheet as of December 29, 2019



As of December 29, 2019

(in thousands)


Cash

$

25

Total assets

$

82,550

Total liabilities

$

77,172

Total stockholders' equity

$

5,378

FAT Brands Inc. Consolidated EBITDA and Adjusted EBITDA Reconciliation













13 weeks ended

52 weeks ended




December 29,

2019

December 30,

2018

December 29,

2019

December 30,

2018











(in thousands)



Net loss

$

(953)

$

(2,690)

$

(1,018)

$

(1,798)


Interest expense, net

1,173

2,828

6,530

4,770


Income tax expense (benefit)

257

(770)

510

(275)


Depreciation and amortization expense

249

165

785

358


EBITDA

726

(467)

6,807

3,055


Share-based compensation


44

69

262

439


Non-cash lease expenses (1)

17

-

174

-


Acquisition costs


(46)

1,063

201

1,408


Refranchising loss

1,070

67

219

67


Adjusted EBITDA


$

1,811


$

732


$

7,663


$

4,969




















(1) Includes non-cash lease expense costs related to new lease accounting standards

FAT Brands Inc. Consolidated Statements of Operations











13 weeks ended

52 weeks ended



December 29,

2019

December 30,

2018

December 29,

2019

December 30,

2018

(in thousands)

Revenue

Royalties

$

3,831

$

3,295

$

14,895

$

12,097

Franchise fees

855

95

3,433

2,136

Store opening fees


(399)


148


-


352

Advertising fees

952

918

4,111

3,182

Other income


13


21


66


67

Total revenue

5,252

4,477

22,505

17,834

Costs and expenses









General and administrative expenses

2,766

3,133

11,472

10,349

Advertising expense


952


918


4,111


3,182

Refranchising loss

1,070

67

219

67

Total costs and expenses


4,788


4,118


15,802


13,598

Income from operations


464


359


6,703


4,236

Other expense









Interest expense, net

(1,173)

(2,828)

(6,530)

(4,770)

Other income (expense), net

13

(991)

(681)

(1,536)

Total other expense, net


(1,160)


(3,819)


(7,211)


(6,309)

Loss before income tax expense (benefit)


(696)


(3,460)


(508)


(2,073)

Income tax expense (benefit)


257


(770)


510


(275)

Net loss


$

(953)


$

(2,690)


$

(1,018)


$

(1,798)

Basic and Diluted Loss per Share


$

(0.08)


$

(0.23)


$

(0.09)


$

(0.16)