FAT Brands(FATBB) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION (Unaudited) Item 1. Condensed Consolidated Financial Statements Presents FAT Brands Inc.'s unaudited condensed consolidated financial statements and detailed notes for Q1 2025 and Q1 2024 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Item | March 30, 2025 | December 29, 2024 | | :-------------------------------- | :------------- | :---------------- | | Assets | | | | Total current assets | $83,081 | $88,034 | | Total assets | $1,273,539 | $1,289,178 | | Liabilities and Stockholders' Deficit | | | | Total current liabilities | $316,594 | $298,316 | | Long-term debt, net of current portion | $1,216,805 | $1,208,997 | | Total liabilities | $1,773,035 | $1,744,890 | | Total stockholders' deficit | $(499,496) | $(455,712) | | Total liabilities and stockholders' deficit | $1,273,539 | $1,289,178 | - Total assets decreased by $15.6 million (1.2%) from December 29, 2024, to March 30, 2025[9] - Total liabilities increased by $28.1 million (1.6%) from December 29, 2024, to March 30, 2025[9] - Stockholders' deficit increased by $43.7 million (9.6%) from December 29, 2024, to March 30, 2025[10] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Item | Thirteen Weeks Ended March 30, 2025 | Thirteen Weeks Ended March 31, 2024 | | :-------------------------------- | :---------------------------------- | :---------------------------------- | | Total revenue | $142,019 | $151,967 | | Total costs and expenses | $150,585 | $153,349 | | Loss from operations | $(8,566) | $(1,382) | | Total other expense, net | $(35,976) | $(33,410) | | Net loss | $(46,311) | $(38,316) | | Net loss attributable to FAT Brands Inc. | $(45,969) | $(38,316) | | Basic and diluted loss per common share | $(2.73) | $(2.37) | - Total revenue decreased by $9.9 million (6.5%) in Q1 2025 compared to Q1 2024[13] - Loss from operations increased significantly from $(1.4) million in Q1 2024 to $(8.6) million in Q1 2025[13] - Net loss attributable to FAT Brands Inc. increased by $7.6 million (19.9%) in Q1 2025 compared to Q1 2024[13] Condensed Consolidated Statements of Changes in Stockholders' Deficit Changes in Stockholders' Deficit (in thousands) | Item | March 30, 2025 | March 31, 2024 | | :-------------------------------- | :------------- | :------------- | | Balance at beginning of period | $(455,712) | $(255,863) | | Net loss | $(45,969) | $(38,316) | | Issuance of common and preferred stock | $4,391 | $924 | | Share-based compensation | $367 | $745 | | Dividends paid on Series B preferred stock | $(2,231) | $(1,881) | | Dividend of Twin Hospitality Group Inc. Class A common stock | $5,218 | — | | Balance at end of period | $(499,496) | $(296,766) | - The accumulated deficit increased from $(458.6) million at December 29, 2024, to $(499.4) million at March 30, 2025[16] - A special dividend of Twin Hospitality Group Inc. Class A common stock resulted in a $5.2 million increase in stockholders' deficit attributable to FAT Brands Inc. in Q1 2025[16] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Thirteen Weeks Ended March 30, 2025 | Thirteen Weeks Ended March 31, 2024 | | :-------------------------------- | :---------------------------------- | :---------------------------------- | | Net cash used in operating activities | $(13,217) | $(28,401) | | Net cash used in investing activities | $(24) | $(8,046) | | Net cash provided by financing activities | $5,193 | $40,376 | | Net (decrease) increase in cash and restricted cash | $(8,048) | $3,929 | | Cash and restricted cash at end of period | $59,341 | $95,832 | - Net cash used in operating activities decreased by $15.2 million in Q1 2025 compared to Q1 2024, primarily due to changes in working capital[22][147] - Net cash used in investing activities significantly decreased from $8.0 million in Q1 2024 to $24 thousand in Q1 2025, mainly due to decreased property and equipment purchases and the absence of acquisition purchase price payments[22][148] - Net cash provided by financing activities decreased from $40.4 million in Q1 2024 to $5.2 million in Q1 2025, driven by lower proceeds from borrowings[22][149] Notes to Condensed Consolidated Financial Statements NOTE 1. ORGANIZATION AND RELATIONSHIPS - FAT Brands Inc. is a multi-brand restaurant company with eighteen brands and approximately 2,300 locations globally as of March 30, 2025, with about 92% franchised[24] - The company's growth strategy focuses on expanding existing brands and acquiring new ones through a centralized management organization[26] - The company reported an operating loss of $8.6 million in Q1 2025 and negative cash flow from operations of $13.2 million, with an accumulated deficit of $499.4 million and negative working capital of $233.5 million[27] - Management plans to use cash flows from operations, cash on hand, and proceeds from issued/repurchased secured notes to cover working capital for the next twelve months, but acknowledges potential need for additional financing[27] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The financial statements are unaudited and prepared in accordance with GAAP, with all intercompany accounts and transactions eliminated[28][30] - The company operates on a 52-week fiscal year, with fiscal years 2025 and 2024 both being 52-week years[31] - Significant estimates include fair values of goodwill and other intangible assets, allowances for receivables, and valuation allowance for deferred tax assets[32] - The company is evaluating the impact of new FASB ASUs on expense disaggregation disclosures (effective 2026/2027) and income tax disclosures (effective 2025)[33][34] NOTE 3. REFRANCHISING - The company refranchises operating restaurants to convert them to franchise locations or acquires existing franchised locations for resale[35] Assets Classified as Held-for-Sale (in millions) | Item | March 30, 2025 | December 29, 2024 | | :-------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $0.4 | $0.4 | | Total | $0.4 | $0.4 | Refranchising Operating Results (in millions) | Item | Thirteen Weeks Ended March 30, 2025 | Thirteen Weeks Ended March 31, 2024 | | :-------------------------- | :---------------------------------- | :---------------------------------- | | Refranchising loss | $0.0 | $1.5 | NOTE 4. PROPERTY AND EQUIPMENT, NET Property and Equipment, Net (in millions) | Item | March 30, 2025 | December 29, 2024 | | :-------------------------- | :------------- | :---------------- | | Real estate | $90.2 | $89.6 | | Equipment | $56.7 | $57.3 | | Accumulated depreciation | $(55.4) | $(49.5) | | Property and equipment, net | $91.5 | $97.4 | - Depreciation expense was $6.0 million for Q1 2025, up from $5.8 million in Q1 2024[38] - Loss on disposals of property and equipment was $0.1 million in Q1 2025, compared to $0 in Q1 2024[39] NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET Goodwill and Other Intangible Assets, Net (in millions) | Item | March 30, 2025 | December 29, 2024 | | :-------------------------------- | :------------- | :---------------- | | Amortizing intangible assets (net) | $138.1 | $142.0 | | Goodwill | $285.3 | $285.3 | | Trademarks (non-amortizing) | $453.7 | $453.7 | | Total amortizing and non-amortizing intangible assets, net | $591.8 | $595.7 | - Amortization expense for the thirteen weeks ended March 30, 2025, and March 31, 2024, was $3.9 million[43] Expected Future Amortization of Definite-Life Intangible Assets (in millions) | Fiscal Year | Amount | | :---------- | :----- | | Remainder of 2025 | $11.7 | | 2026 | $15.6 | | 2027 | $15.6 | | 2028 | $15.9 | | 2029 | $15.0 | | Thereafter | $64.3 | | Total | $138.1 | NOTE 6. INCOME TAXES Provision for Income Taxes (in millions) | Item | Thirteen Weeks Ended March 30, 2025 | Thirteen Weeks Ended March 31, 2024 | | :-------------------------- | :---------------------------------- | :---------------------------------- | | Provision for income taxes | $(1.8) | $(3.5) | | Effective tax rate | 4.0 % | 10.1 % | - The effective tax rate decreased from 10.1% in Q1 2024 to 4.0% in Q1 2025, primarily due to increases in valuation allowance, nondeductible expenses, and state income taxes[44][45] NOTE 7. LEASES - Lease expense was $7.7 million for Q1 2025, down from $8.2 million in Q1 2024[46] Operating Lease Right-of-Use Assets and Liabilities (in millions) | Item | March 30, 2025 | December 29, 2024 | | :-------------------------------- | :------------- | :---------------- | | Total right-of-use assets | $198.7 | $198.5 | | Total operating lease liabilities | $217.9 | $216.8 | Contractual Future Maturities of Operating Lease Liabilities as of March 30, 2025 (in millions) | Fiscal Year | Amount | | :---------- | :----- | | Remainder of 2025 | $31.0 | | 2026 | $28.9 | | 2027 | $28.4 | | 2028 | $26.1 | | 2029 | $25.2 | | Thereafter | $309.5 | | Total lease payments | $449.1 | | Less: imputed interest | $(231.6) | | Total | $217.5 | NOTE 8. DEBT Long-term Debt (in millions) | Debt Type | March 30, 2025 Book Value | December 29, 2024 Book Value | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total Securitized Debt | $1,250.8 | $1,242.0 | | Elevation Note | $1.8 | $2.0 | | Twin Peaks Equipment Notes | $4.4 | $4.7 | | Twin Peaks Construction Loan | $0.0 | $3.2 | | Promissory Note | $8.3 | $6.3 | | Total Debt | $1,265.3 | $1,258.2 | | Current portion of long-term debt | $(48.5) | $(49.2) | | Long-term Debt | $1,216.8 | $1,209.0 | - The company was in compliance with all financial covenants for its Securitization Notes as of March 30, 2025[65][78] - The Fazoli's/Native Securitization's Anticipated Call Date was extended from July 2023 to October 2025, and certain financial covenants were relaxed or deferred to 2026[69] - In Q1 2025, the company repurchased $15.8 million and sold $25.0 million of Retained Notes, holding $149.2 million of Retained Notes as of March 30, 2025[76] NOTE 9. REDEEMABLE PREFERRED STOCK - As of March 30, 2025, the carrying value of GFG Preferred Stock Consideration was $67.5 million, with interest accruing at 5% or 10% per annum due to unfulfilled put options[87][88][89] - The carrying value of Twin Peaks Preferred Stock Consideration was $24.3 million as of March 30, 2025, with $0.6 million in interest expense recognized in Q1 2025[90][93] - The company has $91.8 million in liabilities related to exercised put options on Series B Cumulative Preferred Stock[27][143] NOTE 10. SHARE-BASED COMPENSATION - The 2017 Omnibus Equity Incentive Plan has a maximum of 5,000,000 shares available for grant[94] - As of March 30, 2025, there were 3,357,303 stock options outstanding with a weighted average exercise price of $6.33[96] - In Q1 2025, 232,544 stock options were granted with a fair value of $0.1 million, compared to no grants in Q1 2024[97] - Share-based compensation expense was $0.4 million in Q1 2025, down from $0.7 million in Q1 2024, with $0.9 million remaining to be recognized over approximately 3.0 years[98] NOTE 11. WARRANTS Warrant Activity (Thirteen Weeks Ended March 30, 2025) | Item | Number of Shares | Weighted Average Exercise Price | | :-------------------------------- | :--------------- | :------------------------------ | | Warrants exercisable at December 29, 2024 | 745,904 | $2.53 | | Exercised | (567,119) | $0.94 | | Warrants outstanding and exercisable at March 30, 2025 | 178,785 | — | - 567,119 warrants were exercised in Q1 2025, generating $0.5 million in net proceeds for the company[99] NOTE 12. COMMON STOCK - In Q1 2025, the company sold and issued 391,599 shares of 8.25% Series B Cumulative Preferred Stock through an Equity Distribution Agreement, receiving net proceeds of $3.8 million[100] NOTE 13. COMMITMENTS AND CONTINGENCIES - The DOJ indicted the company in May 2024 for two Sarbanes-Oxley Act violations related to extending credit to former CEO Andrew Wiederhorn in 2019 and 2020, totaling $2.65 million[102] - The SEC filed a complaint against the company alleging violations of securities acts for failing to disclose related party transactions, executive compensation, and making false statements regarding liquidity from 2017-2020[103] - Two derivative lawsuits (Harris I and Harris II) alleging breach of fiduciary duty related to the 2020 merger and 2021 recapitalization are in settlement discussions, subject to court and U.S. non-objection[105][106] - A class action lawsuit (Mitchell Kates v. FAT Brands, Inc.) was filed in June 2024, alleging false and misleading statements related to government investigations and the company's handling of these matters[108] - As of March 30, 2025, the company accrued $5.1 million for specific litigation matters and claims involving franchisees[113] NOTE 14. GEOGRAPHIC INFORMATION Revenue by Geographic Area (in millions) | Region | Thirteen Weeks Ended March 30, 2025 | Thirteen Weeks Ended March 31, 2024 | | :----------- | :---------------------------------- | :---------------------------------- | | United States | $139.5 | $149.7 | | Other countries | $2.5 | $2.3 | | Total revenue | $142.0 | $152.0 | - All company assets are located in the United States[114] - No individual franchisee accounted for more than 10% of the company's revenue in Q1 2025 or Q1 2024[115] NOTE 15. SEGMENT INFORMATION - The company manages its business activities on a consolidated basis and operates as a single reporting segment, deriving revenue primarily from franchised and company-owned restaurants in the United States[116] - The Chief Operating Decision Maker (CODMs), comprised of Co-Chief Executive Officers, reviews consolidated net loss to evaluate performance and allocate resources[117] NOTE 16. NON-CONTROLLING INTEREST - On January 29, 2025, the company completed the Spin-Off of Twin Hospitality Group Inc. (Twin Peaks and Smokey Bones brands) as an independent, publicly traded company (TWNP)[119][120] - FAT Brands Inc. retains approximately 98.6% controlling ownership of Twin Hospitality's voting power, continuing to consolidate 100% of Twin Hospitality into its financial statements[122] - A $5.2 million non-controlling interest was recognized on the condensed consolidated balance sheets and statements of changes in stockholders' deficit due to the Spin-Off[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and liquidity for Q1 2025 compared to Q1 2024 Executive Overview - FAT Brands Inc. is a multi-brand restaurant franchising company with 18 brands and approximately 2,300 locations, 92% of which are franchised, as of March 30, 2025[125] - The company's asset-light franchisor model aims for strong profit margins and attractive free cash flow by minimizing restaurant operating risks[126] - Growth strategy includes acquiring new brands and expanding existing ones, leveraging a scalable management platform for corporate overhead synergies[126] Results of Operations Key Components of Condensed Consolidated Results of Operations (in thousands) | Item | Thirteen Weeks Ended March 30, 2025 | Thirteen Weeks Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :---------------------------------- | :---------------------------------- | :--------- | :--------- | | Total revenue | $142,019 | $151,967 | $(9,948) | (6.5%) | | Total costs and expenses | $150,585 | $153,349 | $(2,764) | (1.8%) | | Loss from operations | $(8,566) | $(1,382) | $(7,184) | 520.0% | | Net loss attributable to FAT Brands Inc. | $(45,969) | $(38,316) | $(7,653) | 19.9% | - Total revenue decreased by $9.9 million, or 6.5%, primarily due to a decrease in restaurant revenue from planned restaurant conversions[131] - General and administrative expense increased by $3.0 million, or 10.1%, mainly due to increased professional fees related to pending litigation[133] - Refranchising activity shifted from a $1.5 million net loss in Q1 2024 to a $22 thousand net gain in Q1 2025[136] Liquidity and Capital Resources - Primary liquidity sources in Q1 2025 included cash on hand and $25.0 million from the sale of secured debt[140] - The company faces significant liquidity requirements for worldwide franchise expansion and potential acquisitions, which may necessitate additional debt or equity financing[141][142] - The company has $91.8 million in liabilities from exercised put options on Series B Cumulative Preferred Stock, with contractual options to extend repayment via incremental interest payments[143] - Cash and restricted cash decreased from $67.4 million at December 29, 2024, to $59.3 million at March 30, 2025[144] - Cash dividends on Series B Cumulative Preferred Stock were $2.2 million in Q1 2025; no dividends were paid on common stock. Payments on preferred stock dividends are paused starting May 2025, but will accrue[150] Critical Accounting Policies and Estimates - The company's critical accounting estimates, which involve significant management judgment and assumptions, are detailed in its Annual Report on Form 10-K for the fiscal year ended December 29, 2024[152] Item 3. Quantitative and Qualitative Disclosures About Market Risk Quantitative and qualitative disclosures about market risk are not required for the company - Quantitative and qualitative disclosures about market risk are not required for FAT Brands Inc[153] Item 4. Controls and Procedures Evaluates disclosure controls and procedures, confirming effectiveness and no material changes in internal control - The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 30, 2025[154] - There were no material changes in internal control over financial reporting during the thirteen weeks ended March 30, 2025[155] - The company acknowledges the inherent limitations of internal controls, which cannot prevent all errors or fraud[156] PART II. OTHER INFORMATION Item 1. Legal Proceedings Incorporates material pending legal proceedings by reference from Note 13 of the financial statements - Material pending legal proceedings are described in Note 13, Commitments and Contingencies, of the condensed consolidated financial statements[157] Item 1A. Risk Factors Advises considering risk factors from the Annual Report on Form 10-K, with no material changes noted - No material changes have occurred in the risk factors discussed in the Annual Report on Form 10-K filed on February 28, 2025[158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report during the period - There were no unregistered sales of equity securities or use of proceeds to report[159] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - There were no defaults upon senior securities[160] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to FAT Brands Inc[161] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended March 30, 2025[162] Item 6. Exhibits Lists exhibits filed as part of the Form 10-Q, including agreements, certifications, and XBRL documents - Exhibits include the Master Separation and Distribution Agreement, Tax Matters Agreement, Omnibus Amendment No. 1, various certifications (Section 302, Section 906), and Inline XBRL documents[164] SIGNATURE - The report was signed on May 9, 2025, by Kenneth J. Kuick, Co-Chief Executive Officer and Chief Financial Officer[168]