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FAT Brands(FAT) - 2024 Q4 - Annual Report
FATFAT Brands(FAT)2025-02-28 22:12
Transcript

Financial Performance and Risks - The aggregate principal balance of the indebtedness under the whole-business securitization facilities was 1.3billionasofDecember29,2024[74].−ThecompanyfacesgovernmentchargesrelatedtoviolationsoftheSarbanes−OxleyAct,withatotalamountof1.3 billion as of December 29, 2024[74]. - The company faces government charges related to violations of the Sarbanes-Oxley Act, with a total amount of 2.65 million involved, which could adversely affect its financial condition and reputation[107]. - The company is involved in stockholder litigation that may increase expenses and divert management attention, potentially harming business operations[110]. - Environmental litigation against the company's subsidiary could result in damages ranging from 12millionto12 million to 22 million, impacting financial results[112]. - The company’s financial performance may be impacted by economic uncertainties, affecting stock price[125]. Franchise Operations and Challenges - The company's growth strategy relies on the successful operation of franchisees, which impacts royalty payments and overall financial results[62]. - Franchisees face challenges in opening new restaurants, including location availability, competition, and financing, which could delay growth[67]. - Negative publicity related to food safety or franchisee operations could adversely affect sales across all franchised restaurants[70]. - Franchisees may underreport sales, impacting royalty income and financial results[65]. - The company is dependent on the financial success of franchisees, and their financial distress could adversely affect overall performance[62]. - The ability to recruit and contract with qualified franchisees is crucial for opening new restaurants and increasing revenues[66]. - Labor shortages and difficulties in staffing could slow growth and reduce profitability, impacting the planned openings of new restaurants[103]. - California's new minimum wage of 20perhourforfastfoodemployees,effectiveApril1,2024,mayincreaselaborcostsandaffectprofitabilityatfranchisedrestaurants[105].LegalandRegulatoryCompliance−CompliancewithalcohollicensingregulationsisessentialfortheoperationofTwinPeaksandSmokeyBonesrestaurants,asnon−compliancecouldsignificantlyimpactrevenues[80].−Thecompanyfacespotentiallegalrisksunderdramshopstatutes,whichcouldleadtosignificantjudgmentsandsettlementsthatmayadverselyimpactfinancialperformance[81].−Thecompanyissubjecttonumerouscomplexlawsandregulationsglobally,andnoncompliancecouldadverselyaffectoperationsandfinancialresults[114].EconomicandMarketConditions−Economicconditions,includinggeopoliticalinstabilityandinflation,couldmateriallyaffectconsumerdiscretionaryspendingandoperationalcosts,impactingrestauranttrafficandaveragecheckamounts[82].−Changesinconsumerdiscretionaryspendingduetoeconomicconditionscouldadverselyaffectsalesatfranchiseerestaurants,impactingoverallprofitability[98].−Theretailfoodindustryishighlycompetitive,withincreasedcompetitionfromgroceryanddeliveryservicespotentiallyharmingsalesandprofitability[91].−Inflationarypressuresonfood,labor,andutilitycostsareexpectedtocontinue,potentiallyimpactingrevenuesandoperationalresultsifpriceincreasesdonotoffsetthesecosts[92].−Supplychainshortagesorinterruptionscouldleadtoincreasedcostsandreducedrevenues,affectingtheavailabilityandqualityoffoodproducts[93].−Climatechangemaydisruptsupplychainsandincreasecostsduetosevereweathereventsandregulatorychanges,negativelyimpactingrestaurantsalesandoperationalexpenses[97].BrandandIntellectualProperty−Thecompany′ssuccessisheavilyreliantonmaintainingbrandvalueandconsumertrust,whichcanbedamagedbyincidentsrelatedtoproductqualityorsupplierconduct[83].−Thecompanyreliesoneffectiveintellectualpropertyprotection,andanyinfringementcouldadverselyaffectbrandvalueandbusinessoperations[84].CorporateGovernanceandStockholderInterests−FogCutterHoldingsLLCcontrolsapproximately55.620 per hour for fast food employees, effective April 1, 2024, may increase labor costs and affect profitability at franchised restaurants[105]. Legal and Regulatory Compliance - Compliance with alcohol licensing regulations is essential for the operation of Twin Peaks and Smokey Bones restaurants, as non-compliance could significantly impact revenues[80]. - The company faces potential legal risks under dram shop statutes, which could lead to significant judgments and settlements that may adversely impact financial performance[81]. - The company is subject to numerous complex laws and regulations globally, and noncompliance could adversely affect operations and financial results[114]. Economic and Market Conditions - Economic conditions, including geopolitical instability and inflation, could materially affect consumer discretionary spending and operational costs, impacting restaurant traffic and average check amounts[82]. - Changes in consumer discretionary spending due to economic conditions could adversely affect sales at franchisee restaurants, impacting overall profitability[98]. - The retail food industry is highly competitive, with increased competition from grocery and delivery services potentially harming sales and profitability[91]. - Inflationary pressures on food, labor, and utility costs are expected to continue, potentially impacting revenues and operational results if price increases do not offset these costs[92]. - Supply chain shortages or interruptions could lead to increased costs and reduced revenues, affecting the availability and quality of food products[93]. - Climate change may disrupt supply chains and increase costs due to severe weather events and regulatory changes, negatively impacting restaurant sales and operational expenses[97]. Brand and Intellectual Property - The company's success is heavily reliant on maintaining brand value and consumer trust, which can be damaged by incidents related to product quality or supplier conduct[83]. - The company relies on effective intellectual property protection, and any infringement could adversely affect brand value and business operations[84]. Corporate Governance and Stockholder Interests - Fog Cutter Holdings LLC controls approximately 55.6% of the voting power, which may conflict with the interests of public stockholders[118]. - The dual class structure of common stock limits the influence of Class A stockholders on corporate matters, potentially affecting stock price[119]. - Anti-takeover provisions may prevent beneficial changes in control, impacting stockholder interests[120]. - The company has authorized and outstanding shares of Series B Preferred Stock, which have liquidation and dividend rights superior to the rights of Common Stock[123]. - The board of directors has the discretion to decrease or discontinue cash or stock dividends, which have been paid since 2018[126]. - The ability to pay dividends is dependent on the operating subsidiaries generating earnings and positive cash flows[126]. - The company agreed not to pay dividends on common stock until at least 25,000,000 in proceeds from Qualified Equity Offerings have been used to prepay the Twin Securitization Notes[126]. - The potential issuance of preferred stock may adversely affect the market price and rights of Common Stock holders[123]. - The board of directors has the authority to determine preferences and rights of preferred stock without further stockholder action[123]. Guidance and Market Expectations - The company may provide public guidance on expected operating and financial results, which are subject to risks and uncertainties[125]. - If actual results do not meet guidance, the market price of Class A and Class B Common Stock may decline[125]. - The exclusive venue provision in the certificate of incorporation may discourage lawsuits against directors and officers[124]. Cybersecurity - Cybersecurity incidents pose risks of unauthorized access and data theft, which could lead to significant financial and reputational damage[89]. International Operations - The company currently operates franchised restaurants in 34 countries, including 46 states in the U.S., and plans to continue international expansion despite potential geopolitical and economic risks[99].