FAT Brands: Reports First Quarter 2020 Financial Results

Los Angeles / CA. (fbb) FAT Brands Inc., parent company of Fatburger, reported fiscal first quarter 2020 financial results for the 13-week period ending March 29, 2020 and provided an update on the business as it relates to the Covid-19 pandemic.

Andy Wiederhorn, President and CEO of FAT Brands, commented, «The first five months of 2020 have been unprecedented, and our mission has been steadfast – to guide our franchisees and their employees through these challenging times as safely as possible so they may best serve their communities and guests. As we are now moving into the re-opening phase in many locations both domestically and internationally, our operations teams have worked tirelessly with our franchisees to prepare – from operating practices and procedures that align with local, state and federal regulations; to overall safety, sanitation and social distancing measures to provide comfort to guests; and finally to redesigned menu and serving options. As we look forward to the second half of the year, I am confident that our franchisees will be in a position to navigate successfully through this new landscape.»

Wiederhorn continued, «During the first quarter, we closed the whole business securitization which has provided us with a significantly lower cost of capital as well as a platform to fuel growth not only through our strong development pipeline but also through the execution of our acquisition strategy.»

Fiscal First Quarter 2020 Highlights

• Total revenues of USD 4.4 million compared to USD 4.9 million in the first quarter of 2019. Excluding advertising revenues, revenues were USD 3.5 million, down from USD 3.9 million in the first quarter of 2019.
  • System-wide sales were down 10.5 percent y/y
    • System-wide sales (excluding Ponderosa + Bonanza) declined 1.6 percent y/y
    • United States sales decline of 13.7 percent y/y
    • Canada sales decline of 0.3 percent y/y
    • Other International(1) sales were down 1.8 percent
  • System-wide same-store sales decline of 10.5 percent y/y
    • System-wide same-store sales decline (excluding Ponderosa + Bonanza) of 12.1 percent y/y
    • United States same-store sales decline of 10.0 percent y/y
    • Canada same-store sales decline of 10.2 percent y/y
    • Other International(1) sales decline of 13.1 percent y/y
  • Seven new franchised store openings during the first quarter 2020
    • Store count as of March 29, 2020: 374 stores system-wide

• Net loss of USD 2.4 million or USD 0.20 per share on a basic and fully diluted basis, as compared to net loss of USD 710,000 or USD 0.06 per share on a basic and fully diluted basis in the first quarter of 2019
• Ebitda(2) of (USD 362,000) as compared to USD 820,000 in the first quarter of 2019
• Adjusted Ebitda(2) of USD 283,000 as compared to USD 1.5 million in the first 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.

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Covid-19 Business Update

With the re-opening of many domestic and international jurisdictions, our franchisees are moving from the to-go only model to modified in-store dining with certain capacity or other restrictions. As of today, approximately 90 locations remain temporarily closed worldwide.

As our franchisees have re-opened their stores, we have been providing guidance and assistance with the procurement of PPE for employees, updates to seating plan layouts including the utilization of non-traditional dining areas such as outdoor space, and the reconfiguration of the buffet concept in our Ponderosa and Bonanza brands to either table service or cafeteria-style buffets.

Our development pipeline remains strong with the opening of seven locations through March 29, 2020 and another three locations subsequent to the end of the period.

Successful Completion of the Business Securitization

On March 6, 2020, the Company completed a whole business securitization (the «Securitization») through the creation of a bankruptcy-remote issuing entity, FAT Brands Royalty I, LLC («FAT Royalty») in which FAT Royalty issued new notes pursuant to an asset-backed securitization (the «Securitization Notes») and indenture (the «Indenture»). Net proceeds from the issuance of the Securitization Notes were USD 37,314,000, which consists of the combined face amount of USD 40,000,000, net of discounts of USD 246,000 and debt offering costs of USD 2,440,000. A portion of the proceeds from the Securitization was used to repay the remaining USD 26,771,000 in outstanding balance and accrued interest under our prior term loan. The remaining proceeds from the Securitization will be used for working capital.

Summary of First Quarter 2020 Financial Results

Total revenues were USD 4.4 million compared to USD 4.9 million in the first quarter of 2019. The decrease reflects a decline in royalty revenue related to the beginning of the impact of Covid-19 as well as decreases in store opening fees related to the preferred application of ASC 606 in the fourth quarter of 2019.

Costs and expenses increased 19 percent to USD 5.0 million compared to USD 4.2 million in the first quarter of 2019. The increase was driven by a 30 percent increase in our general and administrative expenses primarily related to increased public company expenses and increases in depreciation and amortization expenses related to the contribution of Elevation Burger which we did not own in the prior year period as well as nominal increases in compensation expenses related to additional hires made during 2019.

Other expense was USD 2.1 million in the first quarter of 2020, flat to the prior year period and reflecting increases in interest expense related to the repayment of the term loan, including certain fees related to the repayment as well as the acceleration of recognition of the related debt offering costs, and offset lower cash interest costs in March after the closing of the Securitization.

Net loss was USD 2.4 million, compared to USD 710,000 in the first quarter of 2019, reflecting improvement in total revenue up to the pandemic, increases in general and administrative expenses and flat year over year interest expense.