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Fat Brands, Inc

FATBB
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Business Summary

FAT Brands Inc. operates as a multi-brand restaurant franchising company, developing, marketing, acquiring, and managing quick service, fast casual, casual dining, and polished casual dining restaurant concepts globally . The company primarily functions as a franchisor, generating revenue through initial franchise fees and ongoing royalties based on franchisee sales, which is described as an "asset light" model designed for strong profit margins and attractive free cash flow while minimizing restaurant operating risks . As of December 29, 2024, FAT Brands Inc. had approximately 2,300 locations open or under construction, with about 92% being franchised, and directly owned and operated 181 restaurants . System-wide sales for fiscal year 2024 reached $2.4 billion .

The core business model revolves around franchising, where the company charges franchisees an initial fee ranging from $20,000 to $50,000 per store , and a typical royalty fee of between 0.75% to 7.0% of net sales . Franchisees also typically pay an advertising fee based on net sales . Revenue is generated from royalties, restaurant sales, advertising fees, factory revenue, franchise fees, and other revenue . The company also owns and operates a manufacturing and production facility in Atlanta, Georgia, which supplies cookie dough, pretzel dry mix, and other ancillary products to its franchisees .

FAT Brands Inc. and its majority-owned subsidiary, Twin Hospitality Group Inc., own and franchise 18 restaurant brands across four categories: Quick Service, Fast Casual, Casual Dining, and Polished Casual Dining . The Quick Service category includes Round Table Pizza, Marble Slab Creamery, Great American Cookies (GAC), Hot Dog on a Stick (HDOS), Pretzelmaker, and Fazoli's . The Fast Casual category features Fatburger, Johnny Rockets, Elevation Burger, and Yalla Mediterranean . Casual Dining brands include Buffalo's Cafe and Buffalo's Express, Hurricane Grill & Wings, Ponderosa Steakhouse / Bonanza Steakhouse, and Native Grill & Wings . The Polished Casual Dining category comprises Twin Peaks and Smokey Bones .

For the fiscal year ended December 29, 2024, total revenues were $592.652 million , an increase of $112.195 million from $480.457 million in fiscal year 2023 . This increase was primarily driven by the acquisition of Smokey Bones in September 2023 and revenues from new restaurant openings . Royalties decreased to $90.035 million in 2024 from $94.036 million in 2023 . Restaurant sales significantly increased to $413.480 million in 2024 from $299.029 million in 2023 . Advertising fees were $39.473 million in 2024, slightly down from $39.490 million in 2023 . Factory revenue was $37.949 million in 2024, compared to $37.983 million in 2023 . Franchise fees increased to $6.487 million in 2024 from $4.979 million in 2023 . Other revenue was $5.228 million in 2024, up from $4.940 million in 2023 .

Total costs and expenses increased to $644.872 million in 2024 from $458.127 million in 2023 , primarily due to the Smokey Bones acquisition and increased activity from company-owned restaurants . General and administrative expenses rose by $35.447 million to $128.564 million in 2024 from $93.117 million in 2023 , mainly due to the Smokey Bones acquisition and increased professional fees related to pending litigation . Cost of restaurant and factory revenues increased by $110.244 million, or 39.0%, to $393.131 million in 2024 from $282.887 million in 2023 . Depreciation and amortization increased by $10.397 million to $41.528 million in 2024 from $31.131 million in 2023 . The company recorded non-cash impairment charges for goodwill and other intangible assets of $30.600 million in 2024, compared to $0.500 million in 2023 . Refranchising loss was $1.949 million in 2024, down from $2.873 million in 2023 . Advertising expense increased by $1.481 million to $49.100 million in 2024 from $47.619 million in 2023 .

The company reported a net loss of $189.847 million for fiscal year 2024, compared to a net loss of $90.110 million for fiscal year 2023 . Loss from operations was $52.220 million in 2024, a decrease from income from operations of $22.330 million in 2023 . Total other expense, net, was $140.380 million in 2024, up from $118.695 million in 2023 , primarily consisting of net interest expense of $138.250 million and net losses on extinguishment of debt of $1.798 million in 2024 . Diluted loss per common share was $11.60 in 2024, compared to $5.85 in 2023 . Cash and restricted cash totaled $67.389 million as of December 29, 2024, down from $91.903 million as of December 31, 2023 . Total debt was $1.2865 billion in 2024, compared to $1.1529 billion in 2023 . The company had negative working capital of $210.282 million as of December 29, 2024 .

During fiscal year 2024, the company acquired no new brands, but in September 2023, it completed the acquisition of Barbeque Integrated, Inc., operator of Smokey Bones restaurants, for a net purchase price of $31.3 million . In January 2025, the company distributed approximately 5% of the fully-diluted shares of Class A Common Stock of Twin Hospitality Group Inc. to its common stockholders, and Twin Hospitality began trading as a standalone publicly traded company listed on NASDAQ under the symbol "TWNP" . The company retained the remaining shares of Twin Hospitality outstanding immediately following the distribution and will continue to consolidate its financial statements with Twin Hospitality .

Business Outlook

The company's growth strategy includes organically growing its new store pipeline and attracting new franchisees, with a pipeline of approximately 1,000 restaurants under development . Management believes worldwide markets for its brands are not saturated and can support a significant increase in units through new franchisee relationships . The company also plans to expand its factory business, which currently operates at approximately 40% capacity, by offering batter to other brand categories within its portfolio and entering into third-party manufacturing contracts . A key growth area is capitalizing on opportunities in the Polished Casual Dining category, specifically with the Twin Peaks brand, which has grown from 85 units to 115 units since its acquisition in October 2021 . The company intends to pursue continued growth for Twin Peaks through additional company-owned and franchised units .

Driving store growth through co-branding is another strategic element, with existing co-branded Fatburger / Buffalo’s Express, Johnny Rockets / Hurricane Grill and Wings, Great American Cookies / Marble Slab Creamery, and Pretzel Maker / Great American Cookie locations . The company also tri-brands Fat Burger / Buffalo's Express / Hot Dog on a Stick and Great American Cookies / Marble Slab Creamery / Pretzel Maker locations . Co-branding and tri-branding are estimated to result in a 20%-30% increase in average unit volume compared to stand-alone locations with minimal incremental cost to franchisees . The acquisition strategy reinforces co-branding, as the company expects to offer complementary acquired brands to existing franchisees on a co-branded basis .

The company aims to optimize its capital structure, having funded acquisitions primarily through whole-business securitization facilities, which significantly reduced its net cost of capital . It has refinanced and may continue to refinance these notes, potentially seeking an investment rating to further reduce capital costs . International expansion is also a focus, with franchised stores in 34 countries, including 46 states within the United States, Washington D.C., and Puerto Rico . The company targets further penetration of Middle Eastern and Asian markets by expanding the number of units for several existing brands . Finally, the company plans to acquire new brands that enhance existing categories, leveraging its management platform to cost-effectively scale with new restaurant concept acquisitions .

Regarding capital allocation, the company has no material commitments for capital expenditures as of December 29, 2024 . The Twin Securitization Notes require that 75% of the net proceeds from each "Qualified Equity Offering" by Twin Hospitality Group Inc. be deposited into a segregated, non-interest bearing trust account for repayment of the Twin Securitization Notes, until an aggregate of $75.0 million has been repaid . If the amount of net proceeds from Qualified Equity Offerings used for repayment of the Twin Securitization Notes is not at least $25.0 million by April 25, 2025, July 25, 2025, and October 27, 2025, or not at least $75.0 million by January 26, 2026, a Cash Flow Sweeping Event would occur, leading to additional principal payments from excess cash flows . The company agreed not to pay a dividend on its common stock until at least $25,000,000 in proceeds from Qualified Equity Offerings have been used to prepay the Twin Securitization Notes . This restriction does not apply to dividends on the Series B Cumulative Preferred Stock .

Risk Factors

The company faces material risks including pending government charges and stockholder litigation. On May 10, 2024, the U.S. Department of Justice indicted the company on two violations of Section 402 of the Sarbanes-Oxley Act for extending credit of $2.65 million to its former CEO in 2019 and 2020 . Concurrently, the SEC filed a complaint alleging violations related to undisclosed related party transactions, failure to maintain proper books and records, false statements regarding liquidity, and extending credit to the former CEO . These charges and litigation could result in additional expenses, fines, penalties, or other remedies, and materially adversely affect the company's business, financial condition, and reputation . The company is also a party to environmental litigation, Stratford Holding LLC v. Foot Locker Retail Inc., where property owners seek damages in the range of $12.0 million to $22.0 million for alleged environmental contamination . As of December 29, 2024, the company had accrued an aggregate of $5.1 million for specific legal matters and claims involving franchisees . The company's ability to meet payment obligations under its $1.3 billion outstanding indebtedness as of December 29, 2024, depends on generating sufficient cash flow, and failure to do so could lead to default and lender remedies .

Management Priorities

Management emphasizes a commitment to the "Fresh. Authentic. Tasty." (FAT) values, which guide the company's operations and marketing efforts, aiming to consistently deliver high-quality food and positive guest experiences. The company's strategic priorities include organically growing its new store pipeline and attracting new franchisees, expanding its factory business, capitalizing on growth opportunities in the Polished Casual Dining category, driving store growth through co-branding, optimizing its capital structure, continuing international expansion, and acquiring new brands that enhance existing categories. Management has provided specific guidance related to its Twin Securitization Notes, agreeing not to pay a dividend on its common stock until at least $25,000,000 in proceeds from Qualified Equity Offerings have been used to prepay these notes .

View Source Annual Report on SEC.gov ↗

References

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  8. [8] Item 7, MD&A — Results of Operations
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  15. [15] Item 7, MD&A — Results of Operations
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  37. [37] Item 7, MD&A — Results of Operations
  38. [38] Item 7, MD&A — Comparison of Cash Flows
  39. [39] Item 10, Debt
  40. [40] Item 2, Summary of Significant Accounting Policies — Liquidity
  41. [41] Item 3, Mergers and Acquisitions — Acquisition of Barbeque Integrated, Inc.
  42. [42] Item 19, Subsequent Events
  43. [43] Item 19, Subsequent Events
  44. [44] Item 1, Business — Our Growth Strategy
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  58. [58] Item 7, MD&A — Capital Expenditures
  59. [59] Item 10, Debt — Terms and Debt Covenant Compliance
  60. [60] Item 10, Debt — Terms and Debt Covenant Compliance
  61. [61] Item 10, Debt — Terms and Debt Covenant Compliance
  62. [62] Item 10, Debt — Terms and Debt Covenant Compliance
  63. [63] Item 1A, Risk Factors — Risks Related to Government Regulation and Litigation
  64. [64] Item 1A, Risk Factors — Risks Related to Government Regulation and Litigation
  65. [65] Item 1A, Risk Factors — Risks Related to Government Regulation and Litigation
  66. [66] Item 1A, Risk Factors — Risks Related to Government Regulation and Litigation
  67. [67] Item 16, Commitments and Contingencies — Litigation and Investigations
  68. [68] Item 1A, Risk Factors — Risks Relating to Our Business and Operations
  69. [69] Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Analysis on 5/21/2026