• Total Revenue: Increased 31.1% to $143.4 million, driven by the acquisition of Smokey Bones.
• System-Wide Sales: $600.7 million, marking a 6.4% increase year over year.
• Adjusted EBITDA: $14.1 million, down from $21.9 million in the previous year.
• Net Loss: $44.8 million or $2.74 per diluted share, compared to a net loss of $24.7 million or $1.59 per diluted share in the prior year.
• New Units Opened: 22 new units in the quarter, with 71 units opened year-to-date.
• Cost and Expenses: Increased by $45.8 million or 44.6% in the third quarter.
• General and Administrative Expense: Increased by $10 million or 41% to $34.5 million.
• Interest Expense: $35.5 million, up from $29.7 million in the prior year.
• Depreciation and Amortization: Increased by $3.7 million to $10.7 million.
• Advertising Expense: Decreased to $10 million from $11.7 million in the prior year.

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

Release Date: October 30, 2024

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

Positive Points

• FAT Brands Inc (NASDAQ:FAT) reported a 31.1% increase in total revenue, reaching $143.4 million, primarily driven by the acquisition of Smokey Bones.
• The company achieved system-wide sales of $600.7 million in Q3, marking a 6.4% increase year over year.
• FAT Brands Inc (NASDAQ:FAT) opened 22 new units during the quarter, with plans to open approximately 40 more units in Q4, aiming for over 100 new units by year-end.
• The Twin Peaks brand continues to perform well, with company-operated lodges achieving average unit volumes of approximately $6 million annually.
• The company is leveraging its Georgia-based manufacturing facility, which generated $3.5 million of adjusted EBITDA on $9.5 million in sales, operating at 40-45% capacity.

Negative Points

• Adjusted EBITDA decreased to $14.1 million from $21.9 million in the corresponding quarter last year.
• Net loss was $44.8 million, or $2.74 per diluted share, compared to a net loss of $24.7 million, or $1.59 per diluted share, in the prior year quarter.
• Smokey Bones, a corporate-owned system, has not performed well since acquisition, impacting overall financial results.
• The company is facing increased costs and expenses, including a 41% rise in general and administrative expenses due to the Smokey Bones acquisition and litigation fees.
• FAT Brands Inc (NASDAQ:FAT) is dealing with legal expenses and is working towards resolving ongoing legal issues, which are expected to persist for another 12 months.

Q & A Highlights

Q: How has the conversion of Smokey Bones to Twin Peaks in Lakeland gone so far, and what potential do you see for future conversions? A: Andrew Wiederhorn, Chairman of the Board, President: The conversion has been a huge success, with sales increasing from $3.6 million to $8.3 million. The process was timely, although costs were slightly higher due to building conditions. We are optimistic about future conversions.

Q: Is the Twin Peaks brand outperforming the overall system in terms of customer standpoint or same-store sales? A: Andrew Wiederhorn, Chairman of the Board, President: Twin Peaks has shown outstanding same-store sales over a two- or three-year period. While 2023 ended flat, 2024 has seen a positive turnaround, especially in the current quarter. We are pleased with the performance and growth plans for Twin Peaks.

Q: Can you explain the discrepancy between positive developments and the financial numbers, such as the operating loss and adjusted EBITDA? A: Andrew Wiederhorn, Chairman of the Board, President: The operating loss is mainly due to Smokey Bones' underperformance and pressure on Fazoli's in the QSR space. We are focusing on converting Smokey Bones locations to Twin Peaks to improve sales and profitability.

Q: What is the status of the manufacturing facility's revenue and efforts to increase utilization? A: Andrew Wiederhorn, Chairman of the Board, President: We are pursuing high-margin third-party manufacturing opportunities and expect to announce a significant rollout by Q1. Internal demand from FAT Brands will also increase utilization over time.

Q: What are the plans for refinancing debt and addressing preferred stock? A: Andrew Wiederhorn, Chairman of the Board, President: We are in the process of refinancing Twin Peaks debt and plan to address Fazoli's debt soon. The goal is to deleverage by using proceeds from a potential Twin Peaks IPO to pay down bonds and redeem preferred stock.

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