Andy Wiederhorn – President and Chief Executive Officer Rebecca Hershinger – Chief Financial Officer.

Lenny Dunn – Mutual Trust Company of America Richard Ehrlich – JH Darbie.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the FAT Brands Inc. Third Quarter 2018 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. The lines will be opened for your questions following the presentation.

Please note that this conference is being recorded today, November 8, 2018. On the call today from FAT Brands, are President and Chief Executive Officer Andy Wiederhorn, and Chief Financial Officer, Rebecca Hershinger. I would now like to turn the call over to Ms. Rebecca Hershinger to begin..

Thank you, operator and good afternoon, everyone. By now you should all have access to our earnings release, which can be found on our Investor Relations website at ir.fatbrands.com in the press release section. Before we begin, I need to remind everyone that part of our discussion today will include forward-looking statements.

These forward-looking statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. Actual results may differ materially from those indicated by these forward-looking statements due to a number of risks and uncertainties.

We do not undertake to update these forward-looking statements at a later date and refer you to today's earnings press release and our recent SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition.

During today's call, we may discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Reconciliations to comparable GAAP measures are available in today's earnings release. I would now like to turn the call over to Andy Wiederhorn, President and Chief Executive Officer.

Thank you, Rebecca. Good afternoon everyone and thank you all for joining us today. During the quarter, we made progress against our growth strategy by completing our previously announced acquisition of Hurricane Grill & Wings, our first acquisition following our IPO.

This concept is known for serving high-quality made-to-order meal, is a wonderful compliment to our Buffalo’s cafe in Buffalo’s Express brand and the 58 restaurants have been smoothly integrated onto our platform, and we will soon be seeing full operating synergies in the operations.

Inclusive of Hurricane and reflective of synergies, we expect annualized revenue of $22 million to $24 million in annualized EBITDA of $10 million to $11 million beginning in the first quarter of 2019.

We continue to believe there is a massive opportunity to consolidate franchise brands into the fat brands family, and we have developed a strong and actionable pipeline for potential acquisitions.

In evaluating acquisition targets, we look for authentic American brands that we can sell with credibility to new franchisees around the world and cross sell to our existing global franchise partners. We look for brands with long-track records of sustainable operating performance and steady cash flow, and brands with healthy franchisee relationships.

We target a modest multiple of franchise level cash flow valuations, ensuring that acquisitions are accretive to earnings even prior to anticipated synergies, which can be significant.

In July, we closed on $16 million in debt financing, which along with the capital we raised earlier this summer, both enabled the closing of the Hurricane acquisition and provided dry powder for additional accretive acquisitions in the future.

Furthermore, we are continuing to work with potential future lenders to secure additional funds for acquisitions and lower our cost of capital. We are pleased with our third quarter results, which demonstrated continued business momentum.

Our Fatburger segment, which is comprised of both Fatburger and Buffalo’s Express restaurants, again outpaced the industry achieving a 4.7% system wide, same store sales growth in the quarter and 7.8% year-to-date. This was driven by strong growth in California, where same-store sales grew, 12.6% for the quarter and 13.3% year-to-date.

Separately, our Buffalo's Cafe segment saw strong same store sales growth of 6.4% in the quarter, and we continue to be very pleased with the successful acquisition and integration of the Ponderosa and Bonanza Steakhouse brand. In the third quarter same store sales grew 4.6% system.

Hurricane Grill & Wings saw same store sale growth decline by 2.4% in the quarter, and while negative, we're pleased with this smooth integration of these restaurants onto our platform and the speed with which the franchisees adopted new marketing programs and initiatives throughout the system in order to drive future sales growth.

During the third quarter, franchisees opened two co-branded Fatburger & Buffalo’s Express locations in Singapore. At the end of the quarter, we had over 330 restaurants across our six brands. Subsequent to the end of the quarter, franchisees opened five restaurants globally.

Our franchisees currently have 36 restaurants in various stages of planning and construction and we anticipate opening approximately 25 to 30 units in 2019 globally. Our development pipeline consists of over 300 restaurants around the world. In addition, we continue to actively seek development deals with both new and existing franchisees.

During the quarter, we announced a new development deal with several franchisees to open 12 co-branded Fatburger & Buffalo’s Express locations throughout seven in California, and in Washington state.

In addition, we signed a development deal with a new franchisee to open a Fatburger restaurant in New Jersey’s, Cherry Hill Mall, which will mark the brands return to the East Coast. Our robust pipeline continues to grow as our strong momentum generates interest from franchisees around the world.

In summary, we're very pleased with our third quarter results. Not only did our brands demonstrate continued business momentum in the quarter, but we completed our first acquisition post IPO and successfully integrated Hurricane Grill & Wings onto our platform.

We believe this acquisition demonstrates the strength of our growth strategy and our ability to achieve synergies. The financing was secured this summer, enabled the completion of hurricane acquisition while providing dry powder for future accretive acquisitions.

Our asset light platform is highly scalable and we actively working to evaluate a number of attractive brands to add to our system as well as additional financing, which will lower our cost to capital. We look forward to updating you on our progress on future calls.

As has been the case for the last few quarters, we don't believe it makes sense to walk you through the line items of our financials as we don't have comparable data from the year ago period. However, that will change beginning in 2019.

In the meantime, feel free to ask any questions about our results in the Q&A and the operator will now open the line for questions..

Thank you. [Operator Instructions] We will take our first question from Gregory, private investor. Please go ahead..

Thank you.

Hey Andy how are you?.

Good. Hi Greg..

Good.

and Rebecca is with you as well this time?.

Yes..

Yes..

Okay. Hi Rebecca. How are you? I guess. I have a couple of questions. First being, this is for Rebecca.

Rebecca, based on your current run rate, what will the cash flow be for 2018? You know that or do you have to get back to me?.

We can – why don't I get back to you with an analysis of walking from net income EBITDA into free cash flow..

Do you want to talk about this before or after debt service and before or after dividends, right?.

Yeah. I wanted to after everything after. So, I want to know bottom line, what cash is going to be thrown off after dividend operations expenses, et cetera..

For 2018. Yes. Okay. Understood..

Correct. Okay.

So Andy, you and I, and you've mentioned on the call many times about raising new money, do you have any idea what the time frame is? Is there any – man is this imminent or what's, the general feeling at this point?.

So, being cautious to not over promise and under deliver. We are actively in the middle of a, an additional financing that will significantly lower our cost of capital. We hope to close that very soon. I don't want to put a specific timeline on it, but very soon means very soon. And, I think that will be something we'll be able to announce shortly..

Okay. So, you're going to, hopefully you'll get this new money. I assume, the new money will be used for acquisitions.

Can you give us an idea about, let's say in 2019, how many stores you'll have? What you think the EBITDA will be, I mean, just general terms or a range?.

Well, we expect that we'll add another 30 units, 25 to 30, but I think on the higher-end in new stores for the existing brand in 2019, we've forecast EBITDA for 2019 to be $10 million to $11 million, but that's before we make any acquisitions or complete the financing.

As you know, I've said publicly many times in addition to completing this refinancing to significantly lower our cost of capital and we plan to make several acquisitions. We're actively working on them. I also hope that those close shortly without putting a specific time on it, but you'll know as soon as they happen.

And then my goal is to dramatically grow our EBITDA, as fast as possible from responsibly possible from that $10 million to $11 million rate to more like $20 million. And so to get there, we obviously have to make several acquisitions, grow that EBITDA, integrate those businesses and use the lower cost of capital.

But in doing so, our goal is to get out of microcap land and get to small cap land as soon as we can. So that's definitely a goal for 2019..

Okay. You actually mentioned the, the protection for next year. One thing I did notice in your release, you raised your revenue run rate by $3 million or $4 million, but you didn't change your EBITDA rate..

Let me speak to that. Here is why, it's a really good question. I'm glad you brought it up.

That GAAP changed at the beginning of January and you're required now to add to revenue and add to expense an equal figure for advertising money spent, normally or historically franchise order would not book the marketing dollars spent by franchisees as they contribute to advertising programs.

But GAAP changed and now in 2018 as a public company, you have to recognize that revenue and then recognize the identical expense. So our year-to-date revenue recognized is – for the quarter it is $1 million, and year-to-date is.

2.2.

And so because we've added Hurricane and so on, that's a $3 million to $4 million number for 2019. That just grosses up your revenue and your expenses, but that's why there's the jump in revenue and it makes it look like your margin is smaller than it really is.

We've always talked about operating on pretty much a 50% or more EBITDA margin and that margin growing as we make additional acquisitions, but that advertising dollars kind of skew that. So we'll have some sort of adjusted calculation that we talked about so everyone understands it..

Okay. Last question for now. I'm not going to ask you because I know you probably can't say it, but I believe that the stock is extremely undervalued based on comps, et cetera.

I know you're committed to your dividend, but have you thought about share buybacks? Will you be allowed under new financing if you get it to do buybacks and what's your feeling about that?.

So, you're right that I think the stock is significantly undervalued and being the largest shareholder I feel that more than anyone. The new financing that we are in the middle of does permit buybacks, there are certain limitations to companies, publicly traded companies as to how much stock you can buy back. But it is something that we will consider.

We are interested in it. It's not a new discussion. If the market continues to undervalue us in this fashion, that might be something that we do. You just have to look at the use of a capital and the return on the capital and the EBITDA that we need to generate to have, healthy comfort for debt service, et cetera..

Right. Yes. Well that was one of the reasons why I was asking of the cash, I wanted to know what was available after you paid the dividends, interest and all that to see if there was money for that. But okay. I'm going to let some other people ask them questions and if anything else comes up, I'll hop back on. Thank you very much.

Rebecca, will you reach out to me with the answer to my question?.

Absolutely..

All right. Thank you very much..

We will take our next question from Martin Cowen [ph], Private Investor. Please go ahead..

Hi, Andy, good afternoon. This is Marty Cowen calling [indiscernible].

How are you?.

Marty, how are you?.

Pretty good, Andy. Couple of quick questions. Number one, I know you had mentioned that the FCCG and the FAT Brands would ultimately merge at some point in time.

I was just wondering how that is progressing?.

We're working on it. I know I said that last quarter also but we actually are working on it very hard that it's very complicated because that Fog Cutter has a big tax loss that we want to incorporate into FAT Brands and be careful that – in doing that, we don't somehow trap that loss and do something that messes it up.

And it requires a lot of SEC analysis as to how to do it properly. So we've been working on that a lot this quarter.

I think we figured out finally the details of the structure and we're waiting on – its sort of a three-pronged approach of securities, lawyers, accountants and tax advisors who are all separate to make sure everyone's on the same page and then make sure that, it fits within the SEC guidelines as to how to get it done as quickly as possible.

It's among the top three things, I'm working on one being the refinancing, the lower cost of capital, the second being some significant acquisitions to boost our EBITDA and get out of microcap land. And third is to complete the merger. And so all those things are immediate goals for us, we hope to deliver on very soon..

That's good news.

And one other quick question, what's with all these lawsuits coming down on FAT Brands? Can you comment on that?.

To the extent that I can, it's going to be very limited. But these kinds of ambulance chasing class action lawsuits when you have an IPO that breaks its offering price are common.

And I don't think they're in the best interest of shareholders because they cost the company money obviously, it's kind of an insurance shakedown because of course the company carries insurance and you're going to pay your deductible. And then in this case by any measurement possible, this is a fully insured claim – when you get multiple lawsuits.

The law firms competing for the business and there has to be a fight between the law firms as to who gets to be the representative plaintiff. And that's already taken place I believe. In the state court case, someone filed a federal court case, one of the two cases. If there's multiple cases in state or federal will get consolidated.

If there's a – if the state court proceeds and the federal case will just take a back seat and put it on hold, anticipate that the company will vigorously defend these cases. And we deny any improper actions as alleged in the complaint.

But it's really unfortunate that our legal system permits this kind of expense to public companies, just adds to the cost of new public company..

In the sense I’d agree whatever you think, so I sort of have a same opinion. I think the most important thing in my situation being shelled under the both companies, especially [indiscernible] FCCG has had these companies get together and merge I think would really benefit all of us, especially you think a lot of shareholder and….

It is a top priority and the timing is as soon as we can get it done, there are some complexities that fall around, do we need to have a 10-K to complete it. Can we do it – can we complete it without it or can be substantially complete it without it. And can we announce it in those things.

And we're working on all those details to get it done as soon as we can..

Okay. Appreciate it. Thank you. And good luck..

Thank you..

Thanks..

We will take our next question from Lenny Dunn from Mutual Trust Company of America. Please go ahead..

Good afternoon. And going over the financials, which took me a few minutes, looks like we're on track for everything. The unknown, of course is at what cost that your new financing is going to come, a dilution or if it's going to be some sort of preferred.

Can you give me any insight into that?.

I don't want to go into too many details, but it's a lower cost debt-like facility and it should not be extremely dilutive. It’s a substantially lower cost of capital long-term facility. We're very happy that we put in place that what I'll call the bridge facility this summer to complete the acquisition of Hurricane.

But we all knew that that was an expensive facility that the Hurricane transaction lagged on because if you remember our familiar, we started the financing process last year and had a couple of false starts with lenders that had changing terms on us during the process.

And so we kind of held out until we found the right deal and we appreciate the facility that we put in place but it's expensive and we're anxious to refinance it as quickly as possible..

Yes, I would encourage that obviously, because rates are going to be going up not down.

So you want to arch it in while you can?.

Yes. It is a fixed rate facility. So the new facility anticipated is a fixed rate facility, so I think you'll be happy with that..

Okay. No, I understand that. And also, though fixed rates also, chances are will be going up a little. So you want the sooner you get it done the better off we are. But it looks like things are falling into place. And I agree with the previous quarters.

If stock is considerably undervalued and probably should be selling around the IPO price right now, but the America will get you there if you were to execute..

Thank you very much..

We will take our next question from [indiscernible]. Please go ahead..

Yes, good afternoon.

Can you tell me whether this lower cost of financing that you're in the process of closing will totally take out the Hurricane Grill financing from earlier or would it just be used for future acquisitions?.

Good question. Thank you for pointing that out. It would completely take out the bridge facility completely..

Okay. And just one other question. The other financing came with some options or warrants – I can't remember.

I think the strike price was somewhere in the $7 range, are those a long-term options or do they go for five years or one year? Can you – do you happen to know that?.

They are five year options, the price I believe is $7.35 and I don't want to comment on the terms of the new financing because you never know until it's over. But there will be a small amount of equity related to that, but it's a very small amount compared to the size of the facility..

Okay. Thank you..

Absolutely. Thank you..

We will take our next question from Richard Ehrlich, JH Darbie. Please go ahead..

Hi Andy, how you doing?.

Hi Rich, how are you?.

Good. So Andy, you've always mentioned that there are so many acquisitions that you're looking at and you really have, I’m really the pick of the litter. And it looks like the way your company's going to grow the quickest the best way is through acquisitions to get the restaurant total. We've been as close to 1,000 as you can.

If you feel confident of your financing going forward and it takes such a long time to close an acquisition.

Why are you waiting so long once you announce something could contingent upon acquisition and get this ball rolling?.

I don't want to be – sure, I just don't want to be in this situation than we're in the Hurricane where we had to go through a couple of different lenders and it became the tail wagging the dog of when is the financing getting close to complete the Hurricane acquisition.

We have, again, as I said, a couple of acquisitions that are pending, not completed yet, but probable and I think that you'll be pleasantly surprised with the pace that, that accelerates to shortly along with the financing so I understand your point, but we're close. Philosophically, we would like to grow 10% unit count per year organically.

So if we have 300 something restaurants and we can add 30 something restaurants per year organically, I think that's healthy. And then adding to that, the acquisition growth is another benchmark. Meaning that, you don't want to just grow by acquisition. You want to also grow organically, in fact that our brands are doing so well.

I mean just to point out the obvious that the Fatburger brand, which is about 50% of revenues, is just has off the charts. Again, same-store sales numbers and traffic count numbers. So I feel very good about the health of the brands and we're trying to spend time on that.

I don't want to just acquire things and lose track of the health of the individual brands. So we're focused on both. And I appreciate the spirit of your comment because I think these things are right around the corner..

No, I do agree that it's very important to make sure your franchise stays in tact. And you’re organically net positive, regarding opening – restaurant closings, but the way you're going to get out of the microcap land, which you continuously talk about is getting acquisitions..

100%..

So I know that it's been a year, it's been a year since announcing the Hurricane acquisition. But if you go in and out something that you believe is accretive and that's the way you normally operate, it would totally be accretive.

You would actually, you wouldn't hurt your chances of additional financing, you'd probably increase your chances to financing because you're bringing more inputs to the table announcing something….

Just you understand the complexity, it's – I agree with you completely, part of the reason is in addition to the comments I've already made, the terms with the lenders have to be thoughtful in terms of what's the acquisition structure.

So for example, where Hurricane was purchased with some cash and some preferred stock, one of the acquisitions we're contemplating is cash and a note – a subordinated note at an attractive rate, but its debt. And so some lenders may say, hey, we have to be the only lender, you can't have a subordinated note.

And other lenders may say, we're okay with it as long as it's subordinated. And so I'm trying not to tie our hands and commit to an acquisition that turns off, a potential lender. Now in the case where we are today, I'm very optimistic that shortly we'll complete the financing and shortly we'll complete the acquisition.

And we've already addressed these issues but because we're so close, I'd rather just get it all done at the same time and announce it then set ourselves up for a potential problem..

No, I have one more additional question. So, Fog Cutter does have some type of debt on their balance sheet. If you're looking to do merge with your entities, but Fog Cutter is just, is really not an operating company and just holds Fog Cutter.

There's no way you would just, there's no reason to merge if you're going to bring Fog Cutter debt to FAT Brands.

So how do you get rid of the Fog Cutter debt prior to a merger?.

That's part of the structuring that's going on now and anticipated to set it up. So it's not adding debt to FAT Brands. It was somehow affect our ratios or cash flow, things like that. So you're absolutely on point with that comment..

But what does FAT Brand’s new credit facility has anything to do with Fog Cutter debt?.

No, it doesn't..

Isn't that a Fog Cutter’s problem? Not our problem.

So how do you get rid of Fog Cutter debt?.

That's Fog Cutter’s problem to get rid of Fog Cutter debt, but if – yes, and if Fog Cutter and FAT Brands merge then you have to deal – it's a merger, right. Or even if it's an acquisition you have to deal with, is that debt gone or is it still there and how does it affect the current lender.

So as I just said a minute ago, our plan is to get rid of that debt at the Fog Cutter level and as part of the merger and that's about all I can say about Fog Cutter, but that is part of it..

All right, we'll discuss it offline because I'm just confused with that. Okay. I don't want to beat the dead horse here. Thank you so much and it was a great quarter..

Thank you, Richard..

It appears there are no further questions at this time. I would like to turn the conference back to our host for any additional or closing remarks..

Thank you, operator. And everyone, I want to thank you for joining the call today and the excellent questions. And if you have further questions, feel free to reach out to us. Hope you all have a great afternoon and evening. Take care..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect..