Good morning. Hi, I'm Michelle Michalski, Senior Vice President at ICR. Here with me today is Andy Wiederhorn, CEO of FAT Brands, and Ken Kuick, CFO. FAT Brands is a leading global franchise company that strategically acquires, markets, and develops fast casual, quick service, casual dining, and polished casual dining concepts around the world. The company currently owns 18 brands, including iconic concepts such as Johnny Rockets, Fatb urger, and Round Table Pizza. Before we get started today, I'm going to play a short video to bring to life the diverse portfolio at FAT Brands. To set the foundation for the conversation, can you start by walking us through the origins of FAT Brands and the original vision you had when you first began building the platform?
Sure. Hi, everyone. Thanks for being here. We acquired the first franchise company back in 2003, which was Fatburger, back when it had 40 restaurants. And I'm someone who grew up in the restaurant business, swore I would never be in the restaurant business, and ended up buying Fatburger in 2003. And so really what I learned as we began to grow that business was how powerful franchising could be and how that scale could really help us grow quickly. So we did that and then acquired a second brand in 2011, Buffalo's Cafe, and created Buffalo's Express, which is more like a Wingstop. And from there, we just kind of let that model play out. And it became evident that you could get more scale with one back office, because every franchisor had its own overhead.
And if you had multiple brands, you could cover those with one back office. And that's really how FAT Brands came to be.
FAT Brands has grown significantly from Fatburger to an 18-brand platform in a relatively short time. What are the core drivers that drove this expansion?
Certainly we bought Ponderosa & Bonanza, Elevation Burger, Hurricane Grill & Wings, some of those brands along the way after we went public in 2017. Definitely during COVID, there was an onslaught of brands for sale. That was just an opportunity for us to acquire more brands that we could line up the synergies of the different categories. Today we have QSR, fast casual, c asual dining, our sports bars, which we call polished casual dining, much higher AUVs, and then our manufacturing business where we make cookie dough. It enabled us to add more brands to those categories or create those categories, still really using one back office, one set of overhead, one legal, one purchasing, things like that.
Given your diverse portfolio, how would you characterize the current state of the consumer? Are you seeing any meaningful shifts in behavior or preferences across different brand segments?
Well, we definitely see a cautious consumer. There's no question that that remains. But maybe I would say cautiously optimistic versus just cautious. We've certainly seen in the last few weeks sales become positive or improved significantly. And so that's a bright light. We'll see if that holds as we go through the next couple of quarters. But hopefully with some of the refund checks and things like that, there'll be a little bit more consumer confidence in spending.
Then how would you describe the current development pipeline? What does it say about franchisee confidence in the platform right now?
Sure. I always judge a brand's health by the state of existing franchisees buying more franchises, more units, and of course, new franchisees coming into the system. And we've sold a couple hundred incremental franchise units in each of the last few years, including just ending in 2025, over 213, I think. And so each time that happens, that's really, I think, a testament to franchisees having confidence that the unit economics are working for them and they want to buy more stores. And I think it's a really good sign of brand health.
And then within the pipeline, are there certain brands that are generating more interest than others? And what do you think is driving that?
Yeah, not every one of the 18 brands are high-growth brands. It's really six or seven of them like Fatburger and Johnny Rockets, like Round Table Pizza or Fazoli's, and our cookies and ice cream, Great American Cookies, Marble Slab. Those are really the high-growth brands. Then, of course, Twin Peaks, which just has. It's a big enterprise to build a Twin Peaks or to build multiple Twin Peaks. It uses a lot of capital. But there's a lot of growth there as well.
Ken, the company has pursued a lot of co-branded and multi-branded locations across the portfolio. How important are these formats to the broader growth strategy? And what strategic advantages do they give the company?
I think it's very important to the growth strategy, and it's a good opportunity for FAT Brands owning 18 restaurant brands, and so many of these brands pair well together, whether it's burgers and wings or burgers and pizza or cookies and ice cream. We did our first co-branding in 2013. We put a Fatburger with a Buffalo's Express, and it's done really well. We expect 10%-20% higher revenues with a co-brand unit, and that's good economics for us. From a franchisee perspective, it's a lot less expensive to get into another brand in the portfolio without having to build an entirely new unit, so very important for us. Our latest growth is in Sacramento. We're putting Round Table Pizza in or sorry, Fatburger into 40 Round Table Pizza, so there's quite a bit of square footage in each of these concepts.
With a little investment, a franchisee can get a new concept.
Great. And then, Andy, you've also moved into several non-traditional locations. How do you view this as a meaningful growth opportunity? And what aspects of your brand make them well-suited for success in these types of environments?
Non-traditional, everyone knows it can be great or it can be terrible. When you find non-traditional with good traffic flow and you're selling pretzels or burgers or pizza or something like that that's easy, it really can take off, whether that's universities or airports or something in between like water parks. It's great. We've seen operators come to us and say, we want a brand in our facility not to be an independent name, because brands sell more product, right? The customers identify with it. Six Flags, as an example, adding branded Fatburgers or Hurricanes is a way for them to get their customer to identify. Non-traditional is a great opportunity. It just has a very long lead cycle, like sales cycle. You have to have a team prepared for that, because it takes a while.
Interesting. Ken, FAT has something unique with their manufacturing operation alongside its restaurant portfolio. Can you just give us a little background on the manufacturing platform and how that fits into FAT's long-term strategy?
Yeah, sure. So when we acquired Global Franchise Group in 2021, it came with five brands and a manufacturing facility. This manufacturing facility manufactures basically cookie mix and or cookie dough and pretzel mix, primarily selling to the existing franchisees of Global Franchise Group. At the time we acquired it, that factory ran at about 30% capacity. And we saw a really good opportunity to utilize that excess capacity. It runs a very high margin for us. Today it creates $15 million or so of EBITDA on an annual basis. We've expanded it over the past few years to additional concepts that are in our portfolio. And we recently started a program with Chuck E. Cheese where we're delivering cookies through Chuck E. Cheese. So a lot of opportunity for us. Today it runs at about 45% capacity. And we could expand the capacity with a pretty small capital expenditure.
It sits on 3.5 acres, but it's a pretty small building. So a lot of opportunity and a big focus for our team to continue to use the capacity that sits there.
Exciting. Now we're going to shift gears to Twin Hospitality. Andy, can you give us a brief overview of Twin Peaks and Smokey Bones and how they fit together within the platform?
Yeah, you bet, so this polished casual dining segment, you have much higher average unit volumes. Twin Peaks, somewhere between five and six million, at least six million on the newer stores and anywhere up to 12 or 13 million, so just big operations. We acquired Twin Peaks in 2021 and then Smokey Bones in 2023, really with the intent of taking some of those locations and converting them into Twin Peaks, and we've done so with a few. We have a bunch more under development now, and it's a great opportunity, but the Twin Peaks franchise, the Twin Peaks brand is just such a great sports bar experience where you can get cold beer. You can watch any sporting event on every TV or every event on the TVs that's playing live, and so that's really become a great foundational brand for us.
And then last year around this time, you spun Twin Peaks out into its own publicly traded company. Why was that the right choice versus a different type of strategic alternative?
When we acquired Twin Peaks, we put a fair amount of debt on it to make the acquisition. They had some pretty lofty projections. Our view was we should raise equity and pay down that debt. We looked at the capital market, which we all know for restaurants was certainly a problem in the last few years. We explored private equity, explored selling the brands. We grew the brand by 40% since our acquisition. It went from 80 units to 115 or so units in a relatively short period of time. We just didn't like the valuations that the private market was giving us. Part of that's just because it's a high alcohol business, 48% alcohol and all the entertainment aspects. We felt like accessing the public markets would be the best way to raise capital and pay down debt.
And so the spinout was that avenue to get it public and then do an equity offering.
Great. So you recently took on the CEO role at Twin Hospitality while you're continuing to lead FAT Brands. How do you think about prioritizing your time across both organizations? And how should that leadership structure evolve over time?
Across all of FAT Brands, and FAT Brands still owns 95% of Twin Peaks, we have brand presidents. And so we promoted our Chief Operating Officer at Twin Peaks to be the brand president. And he's been there for 15+ years and was a Hooters guy for years and years before that. So tons of experience in the sports bar category. We hired a brand president for Smokey Bones. And all of our brands have brand presidents. And they all report to our Chief Operating Officer, Thayer. So it's not a huge lift for me to step into the CEO role, because as Chairman of the Board, I was giving guidance anyway on strategy. And it's really sort of kept the management team calm to not go through too much change.
Great. You've outlined a strategy to convert select Smokey Bones into Twin Peaks and are executing accordingly. How should investors think about the role of conversions within Twin Peaks' broader portfolio strategy? And what is the long-term vision for Smokey Bones and the future of Smokey Bones?
Yeah, there's around somewhere in the mid-30s for remaining Smokey Bones, with a number of them slotted to be Twin Peaks. Everyone knows that second-generation restaurant conversions is a much more economical way to go if you can make it work. And the Smokies that we've converted so far have seen like a double in sales. So you can take a $3 million box and get $6 million out of it. That's a pretty good return on investment when you look at the cost to convert and then the incremental EBITDA. It takes time. Some of the Smokey Bones were pretty beaten up. So it takes a little bit of work to get them up and running. And then hiring a true trained management staff for each restaurant, it's a bit of a heavy lift.
But there are some Smokey Bones that just cannot be Twin Peaks, usually because of real estate restrictions like alcohol. Like some landlords won't allow 48% alcohol or any kind of sports bar in their shopping center for all the obvious reasons. So there's probably 20 of them that don't make the cut today. And also, we may have a Twin Peaks next door or nearby, so you can't do it that way. So there's probably another 10- 15 that will be converted over time, either by franchise or corporate. We have a couple of them under development right now, Kissimmee, Florida, right here. One in Citrus Park that's coming up. We're opening in Fayetteville soon, a franchise operation. So it's not just corporate that's converting. It's also franchise. And we'll see that through. It's taken a little longer than we'd hoped for.
But I think we're on a clear path now to finish the conversions.
Any learnings from the conversions you've done last year?
Once it's done, they've done well. And the numbers have been. They've exceeded our expectations, and we're very happy with it. The construction costs are, of course, higher than they were three or four years ago when we started this path. And the buildings were a little bit more beaten up than we had hoped they were. So you're peeling back the layers of the onion, and you've got a lot of can't-see-ems in there that have taken some work. That brand suffered a little bit from CapEx. So that's probably been the biggest surprise.
Great. When you think about Twin Peaks' growth this year, is that growth primarily coming from these conversions, franchise openings, or a combination of both?
Growth is definitely a combination. We have a good pipeline of new store development at Twin Peaks. It's probably three quarters franchise, one quarter corporate, and of that corporate, some will be just straight up new Twin Peaks. Some will be Smokey Bones conversions. It just depends on the real estate opportunities, but we have a very solid path of incremental growth for Twin Peaks this year and next year.
Great, and then there has been recent external reporting around FAT Brands' balance sheet and discussions with lenders. At a high level, how should investors think about the company's financial position while it continues to support brand investment and the long-term strategy?
Right. You could call it the $64 question or the $1.3 billion question. Depends how you look at it. I think at a high level, again, what investors need to understand, market needs to understand, is that the debt that we're talking about is actually non-recourse to FAT Brands. This is all debt at the brand level only. And it's in five different securitization trusts secured by different brands. FAT Brands doesn't guarantee any of the debt. Twin Peaks doesn't guarantee any of its debt. So as we originally issued this debt in 2021 to make these acquisitions, we did it on an unrated basis, which means there's no rating agency that put a letter on it as to the quality of the debt.
And our goal was to get into 2022, post-COVID and post the acquisition binge and the opportunity that we saw to make some acquisitions and get the debt rated, which would lower the cost of the debt by about 3% and really make the business cash flow. And we also wanted to raise equity in 2022 and pay down some of the debt so it would be a smoother leverage position. But we all know that interest rates went up 550 basis points in 2022, and the equity market disappeared for restaurants. And so refinancing the debt didn't make sense, because on a rated basis, it would be more expensive than where we were locked in on an unrated basis. And so we've had to ride that out a little bit. And that's how we got to the Twin Peaks spinout and things like that.
I mean, the challenge at that time was the equity markets were hard to access, and trying to navigate through ratcheting of interest rates and amortization just created more stress in terms of the amount of paydown that bondholders required, so we went through a period of time where we paid a lot of money for interest and a little bit of principal, and it was cruel, and then as those things got ratcheted up because of our inability to refinance at a rate that would save us money, it really just sucked a lot of capital out of the company, and then we had the government investigation, which was a gigantic waste of $75 million to fight that, and thank God we were able to prevail, but a lot of money, so all of that led to a number of conversations.
I mean, we've been talking about restructuring this debt for 18 months, maybe two years with our noteholders, and there's a little bit of, let's have a meeting. Let's talk about it. Okay, make sure you send in your payment. It wasn't a very constructive negotiation despite our trying for quite some time, so here we are today where we definitely have their attention, and we're definitely looking at avenues to restructure the debt, lower the debt, and just make it practical, and we're looking for common sense solutions, not technical ones, and I wish I could say that this would go quickly and get resolved, but it may not. It may take a couple of rounds. Everyone knows I'm not afraid of a couple of rounds, but it's just something that you would expect everyone would be reasonable and sit down and figure it out.
I think it's difficult. In our structure, again, there are five different loans. Think about it that way. Each loan has like a senior position, a subordinate position, and a mezzanine position. You've got about 25 investors that make up those noteholders. They're all in all those deals, but they're in different places in one deal or another or the other deal. They're having a hard time agreeing on anything. My deal is better than your deal. I'm not in that deal. I'm in this deal. That kind of stuff is what's making this painful and slow. We're trying to resolve it out of court. There are benefits to resolving it in court. You can sort of drag it. You only need a majority. You don't need 100%, things like that that may drive those decisions.
It is not for a lack of trying that we want to resolve it, but it's complicated. You've seen some recent restaurant restructurings that have had some really good outcomes and some that have had some not so good outcomes, and the thing about our business, our same-store sales last year were off 3%, 3.5% across all the 18 brands. While, of course, we want to be positive, in this environment, being off 3%, I'll live with it. It's not terrible, and we sold 200 new stores, and we opened 70-something new stores, and we'll open another probably 100 this year, so the brands are really performing pretty well, and that's very different than other brands that we witnessed last year go through a transformation where they had closed 30% or 40% of their units, and same-store sales were off 20% or 30% and just swimming upstream.
We just don't have that issue. Our brands are in really good shape. Our manufacturing business has tremendous opportunity. I think that has to drive the end result. This is a business that, if you boil it all down, has, let's say, $150 million, I'm using round numbers, $150 million of revenues, just royalties, franchise fees, and profits from the company-owned stores. We have technical gross revenues of more than $600 million because of company-owned store sales. We're 92% franchise. If you boil it down to $150 million of revenue and maybe $80 million or $90 million of overhead, and we've cut $10 million or $15 million of overhead, but that number, you still have $60 million or more of free cash flow or EBITDA. With that, it's a really solid business. It just needs the debt stack restructured to be affordable.
I think that's a conclusion our noteholders need to come to sooner than later.
Great. Well, thank you, Ken and Andy, for being here with us today.
Thank you, Michelle. Thanks, everyone.
Thanks, guys.