FAT Brands Inc. Reports Third Quarter 2020 Financial Results
FAT Brands (NASDAQ: FAT) reported a 37% decline in total revenues to $4.1 million for Q3 2020, significantly affected by COVID-19. Despite challenges, the company closed the acquisition of Johnny Rockets, boosting its global presence to over 700 franchises with $700 million in annual system-wide sales. System-wide same-store sales grew 63.2% quarter-over-quarter, indicating recovery. However, the company recorded a net loss of $0.6 million, contrasting with a net income of $1.2 million in Q3 2019. The outlook remains cautious amid ongoing pandemic impacts.
- Acquisition of Johnny Rockets adds 325 locations and significant scale.
- System-wide same-store sales growth of 63.2% quarter-over-quarter.
- Increase in delivery sales by over 40% post rollout of new platforms.
- Successful expansion of total store count to 678 by September 27, 2020.
- Total revenues fell 37% compared to Q3 2019.
- Net loss of $0.6 million, down from net income of $1.2 million in Q3 2019.
- Increased costs and expenses to $4.9 million in Q3 2020 from $3.6 million in Q3 2019.
LOS ANGELES--(BUSINESS WIRE)--FAT (Fresh. Authentic. Tasty.) Brands Inc. (NASDAQ: FAT) (“FAT Brands” or the “Company”) today reported fiscal third quarter 2020 financial results for the 13-week period ending September 27, 2020.
Andy Wiederhorn, President and CEO of FAT Brands, commented, “Thank you to our franchise partners and employees who have shown perseverance as we all continue to battle hardships brought on by the COVID-19 pandemic.”
“Despite the pandemic, the third quarter proved to be transformative for FAT Brands as we successfully closed the acquisition of Johnny Rockets, completed the public offering of our Series B Preferred Stock, and expanded our whole-business securitization facility with the closing of the
“In the third quarter, we continued to react to the ever-changing regulatory landscape on a state-by-state and country-by-country basis while executing on our organic growth strategies. Notably, our franchise partners opened six co-branded Fatburger & Buffalo’s Express locations, one Elevation Burger and five Johnny Rockets locations across the globe. As of November 6th, 2020, FAT Brands has opened 45 new stores this fiscal year, including Johnny Rockets, and we expect to open an additional 12 locations across our brands through the end of 2020. We began the roll-out of Chowly, a point-of-sale integrator for third-party delivery platforms, and HNGR, a native online-ordering and delivery-as-a-service platform, across our brands in September which resulted in an increase in the delivery sales of our franchise partners of over
Wiederhorn continued, “Throughout the third quarter, local restrictions eased across the country and dining rooms continued re-opening, albeit at capacity restrictions. We continue working diligently to optimize operations wherever possible, execute on our Johnny Rockets integration strategy, and support our new store development pipeline.”
Fiscal Third Quarter 2020 Highlights
-
Total revenues declined
37% to$4.1 million compared to the third quarter of 2019, showing sequential improvement when compared to a decline in the prior quarter of47% .
-
System-wide sales growth of
52.8% q/q-
United States sales growth of
53.2% q/q -
Canada sales growth of
21.7% q/q -
Other International(1) sales growth of
123.0% q/q
-
United States sales growth of
-
System-wide same-store sales growth of
63.2% q/q-
United States same-store sales growth of
64.2% q/q -
Canada same-store sales growth of
18.2% q/q -
Other International(1) sales growth of
213.6% q/q
-
United States same-store sales growth of
-
12 new franchised store openings during the third quarter 2020
-
Store count as of September 27, 2020: 678 stores system-wide
-
Store count as of September 27, 2020: 678 stores system-wide
-
System-wide sales growth of
-
Net (Loss) Income of
$(0.6) million or$(0.05) per share on a basic and fully diluted basis, as compared to net income of$1.2 million or$0.10 per share on a basic and fully diluted basis in the third quarter of 2019 -
EBITDA(2) of
$0.1 million inclusive of acquisition costs of$0.5 million as compared to$3.0 million in the third quarter of 2019 -
Adjusted EBITDA(2) of
$0.6 million as compared to$2.3 million in the third quarter of 2019. 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.
Summary of Third Quarter 2020 Financial Results
Total revenues were
Costs and expenses increased to
Other income was
The combination of the aforementioned revenue and expenses resulted in a net loss of
Recent Events and Liquidity
On July 16, 2020, the Company closed its underwritten public offering (the “Offering”) of 360,000 shares of
On September 21, 2020, the Company completed the sale of
Concurrent with the completion of the sale of the Notes, the Company successfully completed the acquisition of Johnny Rockets from an affiliate of private equity firm Sun Capital Partners, Inc. for a purchase price of approximately
Subsequent to the Offering through the end of the third quarter of 2020, the Company repurchased from various holders 587,018 warrants to purchase shares of the Company’s common stock with a weighted average exercise price of
Key Financial Definitions
New store openings - The number of new store openings reflects the number of stores opened during a particular reporting period. The total number of new stores per reporting period and the timing of stores openings has, and will continue to have, an impact on our results.
Same-store sales growth - Same-store sales growth reflects the change in year-over-year sales for the comparable store base, which we define as the number of stores open and in the FAT Brands system for at least one full fiscal year. For stores that were temporarily closed, sales in the current and prior period are adjusted accordingly. Given our focused marketing efforts and public excitement surrounding each opening, new stores often experience an initial start-up period with considerably higher than average sales volumes, which subsequently decrease to stabilized levels after three to six months. Additionally, when we acquire a brand, it may take several months to integrate fully each location of said brand into the FAT Brands platform. Thus, we do not include stores in the comparable base until they have been open and in the FAT Brands system for at least one full fiscal year. For 2020, the comparable store base does not include Elevation Burger and Johnny Rockets stores as we did not own the brands for the full year of 2019.
System-wide sales growth - System wide sales growth reflects the percentage change in sales in any given fiscal period compared to the prior fiscal period for all stores in that brand only when the brand is owned by FAT Brands. Because of acquisitions, new store openings and store closures, the stores open throughout both fiscal periods being compared may be different from period to period.
Conference Call and Webcast
FAT Brands will host a conference call and webcast to discuss its fiscal third quarter 2020 financial results today at 5:00 PM ET. Hosting the conference call and webcast will be Andy Wiederhorn, President and Chief Executive Officer, and Rebecca Hershinger, Chief Financial Officer.
The conference call can be accessed live over the phone by dialing 1-877-705-6003. A replay will be available after the call until Tuesday, November 17, 2020, and can be accessed by dialing 1-844-512-2921. The passcode is 13712929. The webcast will be available at www.fatbrands.com under the “Investors” section and will be archived on the site shortly after the call has concluded.
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 nine restaurant brands: Fatburger, Johnny Rockets, Buffalo’s Cafe, Buffalo’s Express, Hurricane Grill & Wings, Elevation Burger, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses, and franchises over 700 units worldwide. For more information, please visit www.fatbrands.com.
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to the future financial and operating results of the Company, our future acquisitions, and the effects on our business of the current novel coronavirus pandemic (“COVID-19”). Forward-looking statements generally use words such as "expect," "foresee," "anticipate," "believe," "project," "should," "estimate," "will," "plans," "forecast," and similar expressions, and reflect our expectations concerning the future. It is possible that our future performance may differ materially from current expectations expressed in these forward-looking statements. Forward-looking statements are subject to significant business, economic and competitive risks, uncertainties and contingencies including, but not limited to, uncertainties surrounding the severity, duration and effects of the COVID-19 pandemic, many of which are difficult to predict and beyond our control, which could cause our actual results to differ materially from the results expressed or implied in such forward-looking statements. We refer you to the documents we file from time to time with the Securities and Exchange Commission, such as our reports on Form 10-K, Form 10-Q and Form 8-K, for a discussion of these and other risks and uncertainties that could cause our actual results to differ materially from our current expectations and from the forward-looking statements contained in this press release. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this press release.
Non-GAAP Measures (Unaudited)
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 acquisitions, refranchising gain or losses, and certain non-recurring or non-cash 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 presented in accordance with GAAP to EBITDA and adjusted EBITDA is set forth in the tables below.
| FAT Brands Inc. Consolidated Statements of Operations Data | ||||||||||||||||
| 13 weeks ended September 27, 2020 |
13 weeks ended September 29, 2019 |
39 weeks ended September 27, 2020 |
39 weeks ended September 29, 2019 |
|||||||||||||
| (in thousands) | ||||||||||||||||
| Revenues | ||||||||||||||||
| Royalties | $ |
3,156 |
|
$ |
3,937 |
|
$ |
8,678 |
|
$ |
11,064 |
|
||||
| Franchise fees |
|
122 |
|
|
1,272 |
|
|
571 |
|
|
2,578 |
|
||||
| Store opening fees |
|
- |
|
|
109 |
|
|
- |
|
|
398 |
|
||||
| Advertising fees |
|
803 |
|
|
1,151 |
|
|
2,347 |
|
|
3,159 |
|
||||
| Management fees and other income |
|
8 |
|
|
15 |
|
|
23 |
|
|
54 |
|
||||
| Total revenues |
|
4,089 |
|
|
6,484 |
|
|
11,619 |
|
|
17,253 |
|
||||
| Costs and expenses | ||||||||||||||||
| General and administrative expenses |
|
2,990 |
|
|
3,422 |
|
|
10,626 |
|
|
9,242 |
|
||||
| Impairment of assets |
|
753 |
|
|
- |
|
|
3,927 |
|
|
- |
|
||||
| Advertising expenses |
|
814 |
|
|
1,151 |
|
|
2,358 |
|
|
3,159 |
|
||||
| Refranchising loss (gain) |
|
325 |
|
|
(902 |
) |
|
1,869 |
|
|
(851 |
) |
||||
| Total costs and expenses |
|
4,882 |
|
|
3,671 |
|
|
18,780 |
|
|
11,550 |
|
||||
| (Loss) income from operations |
|
(793 |
) |
|
2,813 |
|
|
(7,161 |
) |
|
5,703 |
|
||||
| Other income (expense), net | ||||||||||||||||
| Interest expense, net |
|
(446 |
) |
|
(1,975 |
) |
|
(3,285 |
) |
|
(5,357 |
) |
||||
| Change in fair value - derivative liability |
|
(374 |
) |
|
- |
|
|
887 |
|
|
- |
|
||||
| Loss on extinguishment of debt |
|
(88 |
) |
|
- |
|
|
(88 |
) |
|
- |
|
||||
| Gain on contingent consideration payable adjustment |
|
1,680 |
|
|
- |
|
|
1,680 |
|
|
- |
|
||||
| Other expense, net |
|
(566 |
) |
|
(56 |
) |
|
(627 |
) |
|
(157 |
) |
||||
| Total other income (expense), net |
|
206 |
|
|
(2,031 |
) |
|
(1,433 |
) |
|
(5,514 |
) |
||||
| (Loss) income before income tax (benefit) expense |
|
(587 |
) |
|
782 |
|
|
(8,594 |
) |
|
189 |
|
||||
| Income tax (benefit) expense |
|
(19 |
) |
|
(372 |
) |
|
(1,405 |
) |
|
253 |
|
||||
| Net (loss) income | $ |
(568 |
) |
$ |
1,154 |
|
$ |
(7,189 |
) |
$ |
(64 |
) |
||||
| Basic and diluted (loss) income per share | $ |
(0.05 |
) |
$ |
0.10 |
|
$ |
(0.60 |
) |
$ |
(0.01 |
) |
||||
| Consolidated Balance Sheet for FAT Brands Inc. as of September 27, 2020 | ||||
| As of September 27, 2020 | ||||
| (in thousands) | ||||
| Cash and restricted cash | $ |
14,268 |
||
| Total assets | $ |
149,593 |
||
| Total liabilities | $ |
137,111 |
||
| Total stockholders' equity | $ |
12,482 |
||
| FAT Brands Inc. Consolidated EBITDA and Adjusted EBITDA Reconciliation | ||||||||||||||||
| 13 weeks ended September 27, 2020 |
13 weeks ended September 29, 2019 |
39 weeks ended September 27, 2020 |
39 weeks ended September 29, 2019 |
|||||||||||||
| (in thousands) | ||||||||||||||||
| Net (loss) income | $ |
(568 |
) |
$ |
1,154 |
|
$ |
(7,189 |
) |
$ |
(64 |
) |
||||
| Interest expense, net |
|
446 |
|
|
1,975 |
|
|
3,285 |
|
|
5,357 |
|
||||
| Income tax (benefit) expense |
|
(19 |
) |
|
(372 |
) |
|
(1,405 |
) |
|
253 |
|
||||
| Depreciation and amortization |
|
263 |
|
|
258 |
|
|
763 |
|
|
535 |
|
||||
| EBITDA | $ |
122 |
|
$ |
3,015 |
|
$ |
(4,546 |
) |
$ |
6,081 |
|
||||
| Share-based compensation |
|
45 |
|
|
59 |
|
|
61 |
|
|
218 |
|
||||
| Non-cash lease expenses |
|
91 |
|
|
29 |
|
|
174 |
|
|
153 |
|
||||
| Acquisition costs |
|
503 |
|
|
50 |
|
|
633 |
|
|
247 |
|
||||
| Refranchising loss (gain) |
|
325 |
|
|
(902 |
) |
|
1,869 |
|
|
(851 |
) |
||||
| Impairment loss |
|
753 |
|
|
- |
|
|
3,927 |
|
|
- |
|
||||
| Chainge in fair value - derivative liability |
|
374 |
|
|
- |
|
|
(887 |
) |
|
- |
|
||||
| Loss on extinguishment of debt |
|
88 |
|
|
- |
|
|
88 |
|
|
- |
|
||||
| Gain on contingent consideration payable adjustment |
|
(1,680 |
) |
|
- |
|
|
(1,680 |
) |
|
- |
|
||||
| Adjusted EBITDA | $ |
621 |
|
$ |
2,251 |
|
$ |
(361 |
) |
$ |
5,848 |
|
||||
