FAT Brands’ Financial Performance: A Comprehensive Analysis

FAT Brands Inc. is a leading multi-brand restaurant franchising company that owns and operates 18 different restaurant concepts, including well-known brands like Fatburger, Johnny Rockets, and Fazoli’s. As of December 29, 2024, the company had approximately 2,300 locations open or under construction, with around 92% of them being franchised.

Financial Overview

In the fiscal year ended December 29, 2024, FAT Brands reported total revenues of $592.7 million, up from $480.5 million in the prior year. However, the company also incurred significant costs and expenses, leading to a net loss of $189.8 million for the year, compared to a net loss of $90.1 million in 2023.

The key components of FAT Brands’ revenues are:

The increase in total revenues was primarily driven by the acquisition of the Smokey Bones restaurant chain in September 2023 and revenues from new restaurant openings.

On the expense side, FAT Brands’ costs and expenses increased from $458.1 million in 2023 to $644.9 million in 2024. The key drivers of this increase were:

• General and administrative expenses increased by $35.4 million, mainly due to the Smokey Bones acquisition and higher professional fees related to pending litigation.
• Cost of restaurant and factory revenues increased by $110.2 million, or 39.0%, primarily due to the Smokey Bones acquisition and higher costs at company-owned restaurants.
• Depreciation and amortization increased by $10.4 million, again largely due to the Smokey Bones acquisition and new property and equipment at company-owned restaurants.
• The company recorded non-cash impairment charges of $30.6 million for goodwill and other intangible assets in 2024, compared to $0.5 million in 2023.

Strengths and Weaknesses

One of FAT Brands’ key strengths is its asset-light franchising business model, which allows the company to generate revenue through franchise fees and royalties without the burden of operating company-owned restaurants. This model provides the opportunity for strong profit margins and attractive free cash flow.

However, the company’s recent acquisitions, such as Smokey Bones, have increased its exposure to the operational risks and costs associated with company-owned restaurants. This has put pressure on the company’s profitability and cash flow, as evidenced by the significant net losses in 2024 and 2023.

Another strength is FAT Brands’ scalable management platform, which enables the company to add new brands and restaurant concepts to its portfolio with minimal incremental corporate overhead. This has been a key part of the company’s growth strategy.

A weakness is the company’s high debt load, which has resulted in significant interest expenses and losses on debt extinguishment. The company has financed its acquisitions and operations through the issuance of securitized notes, which has increased its leverage and debt service costs.

Liquidity and Capital Resources

As of December 29, 2024, FAT Brands had cash and restricted cash totaling $67.4 million. The company’s primary sources of funds for liquidity during the fiscal year were cash on hand and net proceeds from the sale of secured debt.

The company is involved in a worldwide expansion of franchise locations, which requires significant liquidity, primarily from its franchisees. If the company or its franchisees cannot obtain sufficient capital to fund this expansion, the timing or extent of restaurant openings may be reduced or delayed.

FAT Brands has also liabilities of $91.8 million relating to put options exercised by others on its Series B Cumulative Preferred Stock. The company has contractual options to extend this repayment via incremental interest payments and may consider capital market options to address this liability.

Overall, the company believes it has sufficient liquidity to meet its needs and capital resource requirements for at least the next twelve months, primarily through available cash, cash flows from operations, and access to the capital markets.

Debt Issuances and Refinancing

FAT Brands has financed its acquisitions and operations through the issuance of securitized notes by several special purpose, wholly-owned subsidiaries. These subsidiaries own substantially all of the company’s operations, and FAT Brands acts as the manager of each subsidiary.

In 2024, the company repurchased certain of its securitized notes to be held for resale to third-party investors and sold certain previously repurchased or issued notes. As of December 29, 2024, the company held $164.8 million of these “Retained Notes,” which have been eliminated in consolidation.

Additionally, in November 2024, the company refinanced all of the secured notes issued by its Twin Hospitality I, LLC subsidiary through the issuance and sale of $416.7 million in new fixed-rate secured notes to third-party investors. The net proceeds from this refinancing were used to redeem all of the prior securitization notes.

As part of this refinancing, the company also contributed Twin Hospitality I, LLC to a new holding company, Twin Hospitality Group Inc., in anticipation of a planned listing of Twin Hospitality as a standalone public company. In January 2025, the company distributed approximately 5% of the fully-diluted shares of Twin Hospitality to its common stockholders, and Twin Hospitality began trading as a standalone publicly traded company.

Equity Issuances

In 2022, FAT Brands entered into an at-the-market (ATM) sales agreement with ThinkEquity LLC, under which the company could offer and sell up to 21,435,000 shares of its Class A Common Stock and/or 8.25% Series B Preferred Stock. This agreement was terminated in May 2024.

In July 2024, the company entered into a new Equity Distribution Agreement with Noble Capital Markets, Inc., under which it can offer and sell shares of its Class A Common Stock and/or 8.25% Series B Cumulative Preferred Stock. During the three months ended December 29, 2024, the company sold and issued 169,247 shares of 8.25% Series B Cumulative Preferred Stock, receiving net proceeds of $1.6 million.

Dividends

The company’s Board of Directors declared and paid quarterly dividends on the company’s common stock during the fiscal year ended December 29, 2024, totaling $9.6 million. The declaration and payment of future dividends are subject to the discretion of the Board and will depend on the company’s future results of operations, financial condition, capital levels, cash requirements, and other factors.

Outlook and Conclusion

FAT Brands’ financial performance in 2024 was marked by significant revenue growth but also substantial increases in costs and expenses, leading to sizable net losses. The company’s acquisition strategy, particularly the addition of Smokey Bones, has increased its exposure to the operational risks and costs associated with company-owned restaurants, putting pressure on profitability.

While the company’s asset-light franchising model and scalable management platform remain strengths, the high debt load and associated interest expenses have been a drag on financial performance. The recent refinancing of the Twin Hospitality I, LLC securitization and the planned public listing of that subsidiary may help to address some of these issues.

Looking ahead, FAT Brands will need to carefully manage its growth and acquisition strategy to balance the benefits of expansion with the risks and costs of operating company-owned restaurants. Continued focus on its core franchising business, prudent debt management, and effective cost control will be crucial for the company to return to profitability and create long-term value for its shareholders.