FAT Brands Inc. (FAT) Q1 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed signals: a strong revenue increase due to acquisitions, but a widening net loss and underutilized manufacturing capacity. The Q&A indicates uncertainty about the Twin Peaks IPO and franchisee reliance, but a positive outlook on Twin Peaks expansion. The absence of clear guidance on some issues, like same-store sales, tempers optimism. These factors suggest a neutral stock price movement, as positive revenue growth is balanced by operational inefficiencies and uncertainties.
Key Financial Performance
Total Revenue $152 million, a 43.8% increase year-over-year, driven by the acquisition of Smokey Bones and revenues from new restaurant openings.
System-wide Sales $581.8 million, a 4.8% increase year-over-year.
EBITDA $9.4 million, an increase of $1.7 million compared to $7.7 million in Q1 2023.
Adjusted EBITDA $18.2 million, a decrease from $19.2 million in the prior year quarter.
Costs and Expenses Increased by $48 million, or 45.6% year-over-year, primarily due to the acquisition of Smokey Bones.
General and Administrative Expense $30 million, a 5.6% increase from $28.4 million in the prior year, primarily due to the acquisition of Smokey Bones.
Cost of Restaurant and Factory Revenues $99.1 million, compared to $59.1 million in the prior year quarter, primarily due to the acquisition of Smokey Bones.
Depreciation and Amortization Expense $10.2 million, an increase of $3.1 million from $7.1 million in the year-ago quarter, primarily due to the acquisition of Smokey Bones and depreciation of new company-owned restaurant property.
Advertising Expense $12.6 million, an increase from $10.5 million in the year-ago period.
Net Loss $38.3 million, or $2.37 per diluted share, compared to a net loss of $32.1 million, or $2.05 per diluted share in the prior year quarter.
Adjusted Net Loss $32.9 million, or $2.05 per diluted share, compared to a net loss of $23.5 million, or $1.53 per diluted share in the prior year quarter.
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Operating Highlights
New Units Opened: Opened 16 new units across brands in Q1 2024, with plans for 44 more this quarter, targeting 125-150 new units for the year.
Twin Peaks Expansion: Opened 3 new Twin Peaks locations in Q1 2024, with plans for 15-18 new locations in total for the year.
Smokey Bones Acquisition: Acquired Smokey Bones in Q4 2023, expected to add $10 million to annual adjusted EBITDA.
Fazoli's International Expansion: Signed a deal for 25 Fazoli's locations in Canada over the next 10 years.
Marble Slab Creamery Expansion: Signed a deal for 40 new Marble Slab Creamery locations in Canada over the next 10 years.
International Development: First international development deal for Fazoli's in Canada, with 25 locations planned.
New Market Entry: Fatburger opened in Orlando, part of a 14-store development agreement in Florida.
New Franchise Agreements: Signed development deals for 10 Round Table Pizza locations in Oklahoma and 6 in Arkansas.
Manufacturing Facility Performance: Georgia-based manufacturing facility generated $9.5 million in sales, contributing $3.7 million to adjusted EBITDA.
Capacity Utilization: Manufacturing facility operating at 45% capacity, with potential to double output with $1.5 million investment.
Strategic Focus Areas: Focused on organic growth, acquisitions, and increasing production at the manufacturing facility.
IPO Plans: Working on plans to take Twin Peaks public, with proceeds aimed at deleveraging the balance sheet.
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Risk or Challenges
Forward-looking statements: The company cautions that forward-looking statements are not guarantees of future performance and actual results may differ materially due to various risks and uncertainties.
Acquisition Risks: The company is assessing new potential acquisitions, which must be scalable and synergistic with existing operations. This involves risks related to integration and market acceptance.
Regulatory Issues: The company must navigate regulatory environments, especially as it expands internationally, which can pose challenges and delays.
Supply Chain Challenges: The company faces potential supply chain challenges, particularly in the context of expanding its manufacturing capabilities and meeting increased demand.
Economic Factors: Economic conditions can impact consumer spending and overall business performance, particularly in the restaurant industry.
Debt Management: The company is focused on deleveraging its balance sheet, which involves risks associated with managing existing debt and potential refinancing.
Market Conditions for IPO: The timing and size of the planned IPO for Twin Peaks are subject to market conditions, which can be unpredictable and affect the company's financial strategy.
Franchisee Relationships: While the company is expanding its franchise network, maintaining strong relationships with franchisees is crucial and any issues could impact growth.
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Guidance & Outlook
Strategic Pillars: FAT Brands is focused on three strategic pillars: organic growth, growth by acquisition, and increasing cookie dough and dry mix production at their Georgia-based manufacturing facility.
Organic Growth: In Q1, FAT Brands opened 16 new units and plans to open another 44, targeting a total of 125 to 150 new units in 2024, representing a potential 20% increase from 2023.
Polished Casual Segment Growth: FAT Brands aims to accelerate growth in the Polished Casual segment, particularly through Twin Peaks, which is expected to grow to approximately 125 lodges by the end of 2024.
Smokey Bones Acquisition: The acquisition of Smokey Bones is projected to increase annual adjusted EBITDA by approximately $10 million, with plans to convert over half of its locations to Twin Peaks.
International Expansion: FAT Brands signed a development deal for 25 Fazoli's locations in Canada and 40 Marble Sub Creamery locations, indicating a commitment to international growth.
Manufacturing Facility Expansion: The Georgia-based manufacturing facility is expected to double its output capability with a $1.5 million capital expenditure.
Revenue Growth: FAT Brands reported a 43.8% increase in total revenue to $152 million in Q1 2024, driven by acquisitions and new openings.
Adjusted EBITDA Projections: The company estimates that the robust future unit growth will translate to approximately $50 million to $60 million of incremental adjusted EBITDA.
Net Loss: FAT Brands reported a net loss of $38.3 million for Q1 2024, compared to a net loss of $32.1 million in the prior year.
Future IPO Plans: FAT Brands is working on plans to take Twin Peaks public, with proceeds aimed at deleveraging the balance sheet.
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Shareholder Return Plan
Shareholder Return Plan: FAT Brands is planning to use proceeds from potential IPOs or other transactions to deleverage the balance sheet, which is aimed at benefiting shareholders.
Share Buyback Program: None
Dividend Program: None
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Key Q&A
Q:Could you update us on kind of where the utilization is now, say, versus time last year and kind of where it could head over the course of the year?
A:It's roughly 45% today, Alton. And that's before we pull any of the levers to give us even more capacity. Last year, 12 months ago, capacity was somewhere in the lower 40s.
Q:How quickly do you think that the pace of builds could pick up given the fact that you obviously now have the Smokey Bones opportunity to convert?
A:We have this 15 to 18 store target for 2024. It should be somewhere in the 20 to 25 units per year, not 15 to 18 units.
Q:How long does it take to convert?
A:It's 120, 150 days for the first one, but we think going forward, knock on wood, will be 120 days to convert them.
Q:How much of that same-store sales decline is due to traffic and are maybe price reductions at some of the franchisees?
A:We don't report or break them out that way. But our snack brands are trending in a pretty good direction.
Q:Is there something that you're waiting for, or that is unique to Twin Peaks that it's not a go yet for an IPO?
A:We hope to be on file very soon, and we will announce that we confidentially filed when we do file.
Q:Do you expect them to maintain them as company stores? Or do you think they would be refranchised?
A:Somewhere between two-thirds and three quarters of them will be franchised. The balance will be company-owned.
Q:How confident are you that's a pretty big jump from the 16 that were in the first quarter?
A:No question. It's heavily back-ended here for Q2. But what you see in Q1, I mean, you had just ridiculous weather in January in so many markets.
Q:Review of Unclear Management Responses
A:Management did not provide specific breakdowns of same-store sales decline by segment, which lacked clarity.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Alton Stump
Briwin Restaurants
Foundation
Hurricane Wings
Lakeland Florida
Loop Capital
Marble Sub
Stump Loop
Sub Creamery
Wings restaurant
area
brand portfolio
casual dining
chain
color
cruise
development agreement
dining segment
entity
experience
fact
file
franchisees location
franchising
grant
investment
location Canada
location Fatburger
location unit
location year
meal
month
number store
opening unit
percentage
plan
question Instructions
FATBB Transcript
FAT Brands Inc. (FAT) Q1 2024 Earnings Call Transcript
Unknown5-2
The earnings call reveals mixed signals: a strong revenue increase due to acquisitions, but a widening net loss and underutilized manufacturing capacity. The Q&A indicates uncertainty about the Twin Peaks IPO and franchisee reliance, but a positive outlook on Twin Peaks expansion. The absence of clear guidance on some issues, like same-store sales, tempers optimism. These factors suggest a neutral stock price movement, as positive revenue growth is balanced by operational inefficiencies and uncertainties.
FAT Brands Inc. (FAT) Q4 2023 Earnings Call Transcript
Neutral3-8
Frequently Asked Questions
Where does this earnings call transcript come from?
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
