Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the FAT Brands Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded today, March 26, 2019.

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 our 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..

Hurricane Grill & Wings and Yalla Mediterranean as well as by the timing of the Ponderosa and Bonanza acquisition. We owned Ponderosa and Bonanza for the full 13 weeks of the fourth quarter in 2008 and also 10 weeks from our IPO through the end of the fourth quarter in 2017.

This acquisition growth was partially offset by system-wide same-store sales decline of 2%. The system-wide decline in same-store sales was driven by 3.5% growth in Canada, 0.1% growth in the U.S. and offset by a decline of 16% in international same-store sales.

This Q4 2018 decline is attributable to the Hurricane Maria impact on the fourth quarter and it's lapping the Ponderosa and Bonanza rollover with those units in Puerto Rico that were affected by the hurricane, a very dramatic effect. As we look to 2019 and into the future, we have 4 key strategic initiatives in place to drive same-store sales growth.

One, we will continue to focus on third-party delivery, which has been incredibly successful for us. We believe we are still in the early stages of delivery's potential. Second, we have a large CapEx remodel program underway.

Restaurants that have undergone significant remodels have experienced material increases in sales that we believe are sustainable. This program is coupled with the conversion of certain locations into co-branded locations.

We estimate that co-branding results in a 20% to 30% increase in average unit volumes compared to stand-alone stores with minimum incremental cost to the franchisee. Third, we will continue to innovate our menus across the brands with products such as the Impossible Burger and Impossible Foods.

And lastly, we will continue to focus on cross-selling brands to existing franchisees. We have a very strong network of franchisees around the world who are eager for growth. We believe that these strategic initiatives will drive increased same-store sales growth across our brands. Turning now to the development picture.

During the fourth quarter, franchisees opened 2 new co-branded Fatburger and Buffalo's Express locations, 1 Fatburger and 1 new Hurricane Grill & Wings restaurant as well opening -- as well as reopening of a remodeled store in California.

For the full year, franchisees opened 9 new co-branded Fatburger and Buffalo's Express locations, two Fatburgers, one Buffalo's Cafe and one Hurricane Grill & Wings for a total of 13 new restaurants in 2018 as well as the aforementioned remodels. This was below our expectation of approximately 25 restaurants due to slippage into 2019.

At the end of the year, we had 341 restaurants across our 7 brands consisting of 334 franchised restaurants and 7 company-owned Yalla restaurants that we're working to convert to franchises. Subsequent to the end of the quarter, franchisees opened 3 restaurants globally and we anticipate opening another 6 units through the end of April.

We anticipate opening 30 to 40 units in 2019 inclusive of the slippage of restaurants originally slated to open in 2018 based on our construction pipeline. Our development pipeline consists of more than 200 restaurants around the world. In addition, we continue to actively seek new development deals with both new and existing franchisees.

In January, we announced the deal with new and existing franchisees to open 10 new co-branded Fatburger and Buffalo's Express locations throughout California, Arizona, Texas, Pennsylvania and Virginia. Additionally, we recently announced a 60-unit development deal with a new partner to open restaurants throughout India over the next 10 years.

Our very robust pipeline continues to grow as we continue to generate interest from franchisees around the world.

On the cost side of the equation, we did experience higher than expected public company costs in the quarter and the year, which, when coupled with the slippage of new units into 2019, led to adjusted EBITDA that was below internal expectations.

Additionally, the fourth quarter is seasonally our slowest quarter driven by seasonality in our casual dining brands. On a go-forward basis, we now expect annualized revenues of $22 million to $24 million and annualized EBITDA between $9 million and $11 million beginning in the first quarter of 2019.

In summary, we're very excited about the opportunities ahead to grow FAT Brands. We are well-positioned for growth with a strong and dynamic brand management platform, ample capacity to smoothly and cost-effectively integrate new brands as demonstrated with the successful acquisitions of Hurricane Grill & Wings and Yalla Mediterranean.

We have several strategic initiatives in place that we believe will drive same-store sales growth in our existing markets and we have a robust and growing development pipeline and a diverse network of franchisees. We plan to complete a new financing that will lower our cost of capital very soon.

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 since we don't have comparable data from the year-ago period. However, that will change with our 2000 -- our first quarter 2019 report.

In the meantime, please ask any questions about our results in the Q&A. And the operator will now open the line for questions..

[Operator Instructions]. Our first question comes from the line of Steven Wallet [ph] with BBC Corp..

Hi, Andy. I have two questions. I'll just ask them both. About three months ago on your previous call, you indicated that the -- you were going to hopefully replace the financing with a lower cost funding. And you said that, that was going to be soon and now we're three months later, and you're also saying that's going to be soon.

So maybe you could provide a little more of a timetable for that, if you can. And the second question is that, I believe for the first time, you decided to pay the dividend in stock and not in cash. And I'm just wondering why you made that decision and if you plan going forward to also pay the dividend in stock..

Steven, those are both good questions. Let me try to give you the bigger picture here.

We entered into a financing transaction with a family office lender in the fourth quarter, term sheet in the third quarter, the final contract in the fourth quarter with this family office lender at a substantially lower cost of capital and the family office failed to close on the transaction. It had nothing to do with FAT Brands at all.

Documents were signed and they literally didn't fund, which is something I've never seen before. So we have to go back to the market, which we have now done, and we are in the middle of negotiations with several parties over a -- what I think will be a very good combination facility that will be expandable for us and at a substantially lower cost.

But that led us to bear a number of expenses in Q4 that were related to the financing that didn't get completed, meaning legal expenses and due diligence costs and higher interest costs and fees. And that's -- it's very frustrating and we will seek to recover those costs, but it happened and it's just delayed us a little bit.

Second, with respect to your question about the stock, because our cost of capital is high and we had to replace our existing lender with an interim lender just to smooth things out a little bit, we felt that using cash while paying a very high rate of borrowing that didn't make sense and that paying a stock dividend would not be dilutive to shareholders given the share price.

So we paid a stock dividend and I expect that we'll do that again until the financing costs are in line and then we'll consider how to best handle the dividend going forward..

Okay. Just a quick follow-up on the financing that you're working on now.

If that takes place, do you think that will take place within the next 30 to 90 days or are you much closer than that at this point?.

I think it will take place in Q2. Timing of it is not nailed down, but we're hopeful that it's 30 to 60, not 30 to 90..

[Operator Instructions]. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back over to Andy Wiederhorn for closing remarks..

Everyone, I want to thank you again for joining our call today. I really want to express that our platform is well-positioned to take off here. We're very undervalued compared to the overall market.

Clearly, we need to complete the financing transaction to set a clear path and a lot of runway for us to make the additional acquisitions that we have teed up in this robust pipeline and I expect that we'll do that shortly. We appreciate everyone's patience.

We're also working diligently on the next steps for the merger with Fog Cutter, which we hope to complete before the end of the year, and that really just involves finishing a bunch of audit work on the Fog Cutter side and then letting the boards negotiate that deal between them. So it's all good stuff.

As the largest shareholder, we have the most at stake here and we care very much about how the brands perform as well as the stock price. On the business level, the fast casual part of our business is still comping extremely positive and just very strong on all fronts. The casual dining sector has also improved since the end of the year.

We definitely had some challenges with Ponderosa and Bonanza and Hurricane from a comp perspective because of the Hurricane Maria -- don't get confused by the word hurricane -- and the effect of that from a year ago comping over that, but trends across all the brands really look good.

I'm not going to go into the individual details of each brand because it just takes too much time, but they really do look good. Thank you very much for joining the call again. Please reach out if you have further questions. Have a great afternoon or evening..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..