Tag Archives: FATBURGER




FAT Brands (FAT) continues to grow its multi-branded system of franchised restaurants, now with 650 franchised stores in their portfolio, and the ability to grow much further. The recently reported first quarter, obviously still affected by the Covid pandemic, was in line with expectations and sets the stage for growth within the current portfolio and the acquisition of additional brands in the near future. As we have written in the past (use the SEARCH function on our Home Page), the Balance Sheet, while leveraged, seems manageable. Based on expectation of normalized post-pandemic cash flow, lenders are prepared to go further. The Enterprise Value of FAT seems high on the surface relative to reported results, but post-pandemic expectations indicate that the Enterprise Value is substantially below larger multi-branded peers. If results come through as expected, the valuation spread should narrow.


FAT Brands reported operating results for the quarter ending 3/31/21, with progress on multiple fronts. It should be noted that gross revenues and bottom line results are heavily influenced by the acquisition in September, 2020 of Johnny Rockets, which substantially increased the total number of franchised locations within the FAT portfolio.

Compared to Q1/20: Total Revenues were up 50% to $6.6M, System-wide sales growth was 35.3%. U.S sales growth was 28.1%, Rest of World sales growth was even higher, at 54.2%, because Johnny Rockets is more developed outside of the US. System-wide same store sales growth was 7.8%, US SSS was 7.8%. Rest of World SSS was up 4.9%. Income from Operations was $104k vs. a loss of $578k in ’20. After higher interest ($2.748M vs. $2.074M) and a couple of minor changes, the GAAP net loss was flat at $2.43M vs. $2.37. Corporate EBITDA was $585k vs. an EBITDA loss of $362k in Q1’20.  Adjusted EBITDA was $1.1M vs. $283k. Within the first quarter, advertising expense was $1.2M vs. $.9M, refranchising losses were down 100k to $0.4M, G&A was $4.9M vs. $3.5M, which included increases in compensation and legal expenses, partially offset by lower accounting and T&E. Overall, as expanded upon with commentary from the conference call below, results were consistent with expectations and set the stage for more normalized results as ’21 unfolds.

The balance sheet at 3/28/20 does not reflect the major transaction, with affiliate, Fog Cutter Capital, pending in Q2, but does reflect the completion of an offering of $144M of Fixed Rate Asset-Backed Notes. As the Company has described before, and we have written about, the new financing reduces the average fixed interest rate of the debt from 8.75% to 5.92%. The further availability of similar capital, as well as the merger, set the stage for the addition of more franchising brands.


As pointed out on the conference call, the strongest brands in Q1 were Fatburger, Buffalo’s and Hurricane Grill, with system-wide sales growth of 18%, 19% and 16% respectively. SSS at those brands were also up: 6%, 26% and 20% respectively. Very importantly, versus Q1’19: Buffalo’s increased 9% and Hurricane Grill was up 10%. The pandemic was still an important influence on results as 107 locations were still closed, primarily at Johnny Rockets’ special venues and within the Ponderosa/Bonanza steakhouse brands.

The total store count was 651 system-wide at 3/31, with 5 locations opened in Q1, 3 more since then, and another 36 to come in ’21. FAT still has 107 temporarily closed locations, expected to reopen in Q2/Q3.  In addition to previously announced multi-unit deals in France, Kuwait and Africa, new development agreements have been signed in California, Arizona and Mexico.

Management reiterated, and updated their previous guidance, including the acquisition of Johnny Rockets, in a normalized post-Covid environment. Expectations are based on demonstrated results from calendar ’19, with the addition of a full year from Elevation Burger (acquired in mid ’19) and the most important contribution from Johnny Rockets. As presented by CEO, Andy Wiederhorn, had the pandemic not come along, revenues without Johnny Rockets would have been $23.5-$24.0M in ’20 and Johnny Rockets would have added $10-12M, for normalized total Revenues of $34-$36M. 2019 Adjusted EBITDA in ’19 was $7.9M, a full year from Elevation Burger would have brought that close to $9M and Johnny Rockets would have added an additional $9-10M. Total normalized EBITDA would therefore be $18-20M once the pandemic is out of the way. Management best guess seems to be that results will normalize by Q4’21 or Q1’22.

Relative to growth in units, management suggested that the expected 40-50 new locations in ’21, while gratifying, has no doubt been reduced by the pandemic. Therefore, with sales steadily improving as the worldwide pandemic winds down, a normalized environment should at least match that pace in ’22 and beyond.

Lastly, management reiterated their active consideration of further acquisitions, and the expectation that a transaction will be concluded in a matter of months. More capital is available from lenders, so cash, the common stock, and the 8.25% preferred stock, could all be potential currency.

CONCLUSION: Provided at the beginning of this article




FAT Brands (FAT) reported  calendar ‘20 results last week, including an update on trends to date in Q1’21. Calendar 2020 was substantially distorted by Covid-19, but management of FAT Brands managed well, operationally and financially, completing a major acquisition, productively merging with their affiliated parent company, and enlarging the balance sheet to allow for further expansion. As the post-pandemic restaurant world unfolds, FAT Brands will have over 700 franchised locations among their current nine brands, planned positive same store sales with about 10% new unit growth, normalized annual EBITDA approaching $20M and ongoing acquisition opportunities. The current leveraged balance sheet is manageable based on projections and management seems to have credibility with the lending community. In terms of valuation, current Enterprise Value approaching $200M is admittedly expensive relative to history, but compared, to estimated post-pandemic EBITDA from the current portfolio of brands, it is only about half of its larger peers.


One of the best performing restaurant stocks in calendar ’20 was FAT Brands (FAT), approximately tripling from $2.00 to $6.00. From the low of about $1.00 in late March’20, it has been above $10.00 recently, and a ten bagger from low to high within twelve months is likely worth studying, at the very least.  We established coverage of FAT Brands (FAT) in January, and our basic report is accessible by SEARCHing for FAT on our Home Page or clicking through the link just below:


California based FAT Brands (FAT) has established a franchising platform that supported, as of 12/31/20, 679 locations. The most important of the nine brands, in terms of current size and expected growth, are Fatburger and Johnny Rockets. Also growing, though smaller, are Buffalo’s Café (and Buffalo’s Express), Hurricane Grill & Wings, Yalla Mediterranean, and Elevation Burger. Currently least important, with admittedly unreliable prospects, are Ponderosa and Bonanza. The briefest summary is that FAT Brands has emerged as a diversified franchisor, with a post pandemic normalized EBITDA that should, according to management, approach $20M. The balance sheet, though leveraged relative to historical results, seems manageable once general economic conditions normalize and current sales improvement supports that expectation. Moreover, most of the $93M of long term debt may be renegotiated with a lower interest rate.


We will summarize below (1) The operating results for calendar ’20. (2) The progress in terms of systemwide unit growth (3) The balance sheet expansion over the last twelve months (4) The significant merger with previous affiliate, Fog Cutter Capital (5) The current situation in terms of same store sales and indications of organic growth (6) Management guidance relative to balance sheet improvement, further acquisitions and post-pandemic corporate EBITDA.

(1)There was obviously a great deal of pandemic-related “noise” in calendar ’20, continuing into early ’21, as well as operating Adjustments relating to financing progress and acquisitions. Accordingly, we will describe the GAAP results, as well as the Adjustments leading to Adjusted EBITDA for the year. The Net Operating Loss for the year was $14.9M. Working toward Adjusted EBITDA: add major Adjustments such as: impairment of goodwill and other intangible assets of $9.3M, a net loss of $3.8M from re-franchising, $1.7M from a mismatch of franchise advertising expenses vs. receipts, acquisition costs of $1.2M, depreciation of $1.2M, and interest expense of $4.9M, partially offset by income tax benefit of $3.7M, a change in fair value of derivative liability of $0.9M and a gain on contingent consideration payable  of $1.7M, and a few less material addbacks, works down to an Adjusted positive EBITDA of $1.4M for the year.

The year’s results were substantially affected, not only by the pandemic but by the acquisition in September of Johnny Rockets, which almost doubled the number of locations under the FAT franchising umbrella, so fourth quarter revenues were easily the best of the year. Most important, as presented in the year end Investor Presentation, companywide same store sales, for stores open during both periods and owned for over a year, steadily improved from a low of minus 30.1% in Q2 to a negative 9.4% in Q4. Management indicated on the conference call that sales have continued to improve in Q1’20 and the Investor Presentation shows system wide sales growing steadily from $7.9M weekly in January to $9.6M in the week ending 3/14.

(2) Unit growth proceeded in calendar ‘20, in spite of the pandemic, with 62 new openings in the year, 29 in Q4 alone, both of which include Johnny Rockets prior to ownership. In recent months new multi-unit development deals in France, Kuwait , Congo, Illinois, D.C., California, Arizona and Alabama call for up to 56 new locations, and the total pipeline is over 200 units. Management indicated on the conference call that 34 locations are currently under construction and 10% annual growth (about 70 stores) is the objective.

(3)The balance sheet was substantially expanded, as a new $40M facility (with a weighted average interest rate of 8.75%) was put in place in September, for working capital and to fund the acquisition of Johnny Rockets. Long Term Debt, including $19M within current obligations, is $93M. A year earlier, that total was just under $30M. There is a total of $38M in Preferred Equity as well. Management indicated their expectation of refinancing a major portion of the total of $85M in notes with substantially better terms. As we said above, the debt, while substantial based on historical results, is manageable relative to normalized post-pandemic EBITDA, and current sales improvement supports that expectation.

(4)The recent merger with Fog Cutter Capital Group was a significant corporate event.  It increased the FAT public float to 44% of the fully diluted shares. By merging the entities, FAT stock becomes available for acquisition, because Fog Cutter no longer needs at least 80% of ownership to maintain their $100M of tax loss carryforward, which protected their share of FAT income. Critically, that NOL now protects FAT income from future taxes. Fog Cutter Capital, now owns 58.4% of voting power of common stock.

Full disclosure: as disclosed in the 10-K filing, there are a handful of litigation items, none of which involve restaurant operations. Per the 10-K, “the Company does not believe that resolution will result…material adverse effect….but has accrued $5.68M for the matters mentioned above..”

(5) As mentioned above, same store sales have been steadily improving, there is a strong development pipeline, and new store growth is guided to about 10% annually. As indicated on the conference call, most of the unit growth is coming from the two largest brands, Fatburger and Johnny Rockets. The notable laggards, as the pandemic runs it course, are Ponderosa and Bonanza.

A particular highly successful operational focus at Fatburger/Buffalo Express has been the use of Chowly (a POS integrator for third party delivery) and well as HNGR for native online-ordering and delivery-as a service. Total Delivery and To-Go Sales at Fatburger moved from .95M in January ’20 to $1.3M in August, popped to $1.8M with Chowly and HNGR in September, and hit a new high of $2.1M in December.

(6) Management continues to move expeditiously to expand their platform, by way of organic growth (a 10% unit growth objective) as well as acquisition of other brands. To that end, a further expansion of the balance sheet is planned within the next six months, raising more capital as well as reducing the interest rate.  Systemwide sales were over $107M in Q4, and, based on the numbers through 3/14/21, as shown in the Investor Presentation, should be $120M or higher in Q1’21. In terms of EBITDA guidance, management continues to use 2019 pre-pandemic, pre-Johnny Rockets, Adjusted EBITDA as a base run rate, and that was $7.7M. Elevation Burger was largely absent from that base, which would add about $1.3M more, The addition of about $9.0M from Johnny Rockets provides a base case of $18M of Adjusted EBITDA once the pandemic has run its course.

CONCLUSION: Provided at the beginning of this article




FAT BRANDS, INC. (FAT) has come a long way over the last several years. The company has established a multi-branded restaurant franchising company, now with over $700M of systemwide sales within the portfolio’s nine brands. The units are mostly within the fast casual segment of the restaurant industry, a generally good positioning within the post-Covid convenience driven consumer economy. The performance since becoming publicly owned three years ago has been sufficient to leverage the balance on acceptable terms and, in spite of the operating challenges within the last twelve months, fresh capital has been raised and an important acquisition doubled the company’s reach. Most recently, a merger with the corporate parent simplifies the situation and provides a $100M tax loss carryforward.

The company has guided to a doubling of the 2019 pre-Covid cash flow (EBITDA) generation once post-Covid normalization takes hold. Beyond that, $12M of current cash, an apparent ability to add to existing debt arrangements and potentially refinance or improve terms on current debt should allow for further acquisitions. Though, as Yogi Berra said “predictions are always difficult, especially about the future”, aside from the normal macro concerns, the performance of FAT will depend upon (1) continued reasonable performance, supported by the corporate team, of the existing portfolio, (2) the integration of the recent Johnny Rockets (JR) acquisition, including reduction of the previous JR G&A, as shown in our operating model below (3) future acquisitions generating an attractive return. While we cannot predict the timing of post-Covid “normalization”, we expect Fat Brands to continue on its growth path, especially if the current low interest rate environment prevails. The Enterprise Value of FAT, at about $180M is about 12x the post-Covid EBITDA potential, 30%-40% less than the valuation accorded larger publicly held pure franchising companies. As FAT demonstrates the performance of its current brands and the portfolio expands further, there is room for the valuation of FAT common stock to grow as well.


FAT Brands, Inc. (FAT) has been publicly held since late 2017, with only about two million shares publicly outstanding. Though this is about to change, 81.5% of the shares issued have been owned by Fog Cutter Capital Group Inc. Management, led by CEO, Andrew Wiederhorn, has established a platform to support a portfolio of restaurant franchising companies. The object is to spread the administrative and promotional costs, as well as using best practices to improve and build the individual brands.

Per: The most recent Investor Presentation

The two largest contributors to current FAT revenues are the first and last acquisitions, Fatburger and Johnny Rockets.

In order of purchase: Fatburger was purchased by Fog Cutter in 2003, transferred to FAT prior to the IPO in October ‘17, Buffalo’s Café and Buffalo’s Express were purchased by Fog Cutter in 2011, transferred to FAT prior to the IPO, Ponderosa and Bonanza Steakhouses were purchased in October ’17 in conjunction with the IPO, Hurricane Grill & Wings was purchased in November ‘17, Yalla Mediterranean in December ‘18, Elevation Burger in June ‘19, and Johnny Rockets in September’20. In total, FAT’s portfolio today consists of over 700 franchised locations with systemwide sales over $700M. Each concept is described in detail below.


The founder, CEO and President is 54 year old, Andrew Wiederhorn. He also founded Fog Cutter Capital Group, Inc. After earning a B.S. in Business Administration from USC in 1987, he founded and was CEO of Wilshire Financial Services Group and Wilshire Credit Corporation. He has served on numerous philanthropic Boards, the Citizens Crime Commission of Oregon, the Economic Development Council for Beverly Hills Chamber of Commerce. He was featured as Fatburger CEO in 2013 on “Undercover Boss”, still available and worth watching on youtube. We would be remiss not to mention that Wiederhorn pleaded guilty to filing a false tax return in 1998, by way of which he violated an ERISA statute. He paid a total of $4.6M in fines and fourteen months in federal prison in ’05-’06. Over two decades removed from this obviously unfortunate episode, based on his ability to raise approximately $150M from the capital markets, Wiederhorn seems to have overcome possible doubts about his personal integrity as well as the prospects for Fat Brands.

The CFO is 47 year old Rebecca Hershinger. After earning a Business Degree from Georgetown University and an MBA from Wharton, she studied at Oxford and was an analyst at JP Morgan Chase. With Fat Brands since 2018, she was previously CFO of a publicly traded global children’s media company.

The President of the Casual Dining Division is 64 year old Gregg Nettleton, with FAT since October ’17. Prior to that he was President and CEO of an international consulting firm. His restaurant experience includes Board Membership at Black Angus Steakhouses, Chief Marketing Officer at IHOP and Interim Chief Marketing Officer at Applebee’s.

The Chief Operating Officer of the Fast Casual Division since February 2020 is 36 year old Jacob Berchtold. He joined Fatburger in 2005, out of Arizona State University, as a restaurant manager and member of the new store opening team. He has served in a wide variety of operational management positions with Fatburger company and franchised locations, in China, S.E. Asia, the Middle East and North Africa.

The Senior VP of Finance is Ron Roe, previously with Fog Cutter Capital and Piper Jaffray.

The Chief Marketing and Chief Development Officers are Thayer and Taylor Wiederhorn,  respectively, both of whom have spent over 10 years with Fog Cutter Capital, Fatburger and Buffalo’s Café/Express.

The Board of Directors is headed by Chairman, Edward Rensi, former President of McDonald’s, USA. Other Board members include James Neuhauser of Stifel Nicolaus, Turtlerock Capital, Fifth and Co. and the Bank of New England: and Squire Junger of Knight Consulting and Arthur Anderson.


It is difficult for a relatively small publicly held company to build a portfolio of high quality restaurant brands, especially when there are hundreds of billions of dollars competing for attractive acquisitions. The process, of necessity, must focus on brands that seem troubled or are too small for multi-brand operators like Restaurant Brands (QSR, with Burger King, Tim Horton’s, Popeye’s), Yum Brands (YUM, with Taco Bell, KFC, Pizza Hut, Habit Burger), Bloomin’ Brands (BLMN) or privately held Inspire Brands (franchising Arby’s, Buffalo Wild Wings & Sonic). FAT, as a relatively small new competitor must deal with a lack of purchase currency: neither a large equity capitalization or inexpensive debt.

It is understandable therefore that Fat Brands, after going public in late 2017, with just a couple of brands, the most important of which was Fatburger (the first acquisition), has had to piece together a portfolio of brands too mature, not large enough, or not growing fast enough to attract a higher price from other bidders. It was on that basis that Hurricane, Ponderosa and Bonanza, Yalla and Elevation were acquired. By mid-2020, FAT had established an operating record good enough to monetize the existing royalty stream and raise capital at an acceptable interest rate to acquire Johnny Rockets (JR). JR has instantly become the “bookend” to Fatburger, between them providing the bulk of the current royalty stream and growth potential. As described further below, the post-Covid and post-JR cash flow  potential is expected to be at least a doubling of that in pre-Covid 2019. The currently liquid balance sheet plus further monetization of the royalty stream at an increasingly attractive interest rate, would allow for further acquisitions to build upon the newly enlarged base.


Fatburger – (The Last Great Hamburger Stand), was founded in Los Angeles, California in 1947. It serves a variety of freshly made-to-order, customizable, big, juicy, and tasty Fatburgers, Turkeyburgers, Chicken Sandwiches, Impossible™ Burgers, Veggieburgers, French fries, onion rings, soft-drinks and milkshakes. Fatburger has counted many celebrities and athletes as past franchisees and customers, and they believe this prestige has been a principal driver of the brand’s staying power. As of December 29, 2019, there were 163 franchised and sub-franchised Fatburger locations across eight states and 18 countries.

Per the most recent Fatburger Franchise Disclosure Document: it costs from $459K to $988K to begin operations, including the initial franchise fee of $50k. Current ongoing fees include 6%% royalty plus national ad fund of 1.9% within Los Angeles DMA or 0.95% outside of LA DMA, plus 2.0% local ads. Item 20, Page 60, shows 163 systemwide outlets (all franchised)  (79 domestic and 84 Int’l) at 12/31/19. The areas with US states with 5 or more locations are: CA (50), NV (15), WA (5), Canada (54), and China (5).  During fiscal 2019 the domestic system grew by 9 units.  

Buffalo’s Café  (and Buffalo’s Express) – Buffalo’s Café was established in Roswell, Georgia in 1985, Buffalo’s Cafe (Where Everyone is Family) is a family-themed casual dining concept known for its chicken wings and 13 distinctive homemade wing sauces, burgers, wraps, steaks, salads and other classic American cuisine. Featuring a full bar and table service, Buffalo’s Cafe affords friends and family the flexibility to enjoy an intimate dinner together or to casually watch sporting events. Beginning in 2011, Buffalo’s Express was developed and launched as a fast-casual, smaller footprint variant of Buffalo’s Cafe offering a limited version of the full menu with an emphasis on chicken wings, wraps and salads. Current Buffalo’s Express outlets are co-branded with Fatburger locations, providing  complementary concepts that share kitchen space and result in a higher average unit volume (compared to stand-alone Fatburger locations. As of December 29, 2019, there were 17 franchised Buffalo’s Cafe and 87 co-branded Fatburger / Buffalo’s Express locations globally.

Per the most recent Buffalo’s Cafe Franchise Disclosure Document: For Buffalo’s Cafe it costs from $407k to $1,009k, including the initial franchise fee of $50k, to begin operations. Current ongoing fees include 6% royalty plus 2.0% for the Creative Ad Fund, plus 2.0% local ads. Item 20, Page 60 shows 18 systemwide units (14 domestic) operating at 12/31/19, all franchised. The distribution of units is: GA (14) and Qatar (4). The system unit count was unchanged during ’19.

Relative to the co-branding of Buffalo’s Express within Fatburger outlets, it costs $36.5K to $88K to begin operations of a co-branded operation, plus the initial franchise fee of $25k. The ongoing fees are consistent with those paid by the Fatburger franchise partner. Per the FDD, “since 2012 Fatburger has permitted a total of 34 of its franchisees (in 87 locations) to also display the Buffalo’s Café marks, trade dress, and serve a limited menu relative to that described above.

Ponderosa & Bonanza Steakhouses – Ponderosa Steakhouse, founded in 1965, and Bonanza Steakhouse, founded in 1963, offer the quintessential American steakhouse experience, for which there is strong and growing demand in international markets, particularly in Asia and the Middle East. Ponderosa and Bonanza Steakhouses offer guests a high-quality buffet and broad array of affordably priced steak, chicken and seafood entrées. Buffets at Ponderosa and Bonanza Steakhouses feature a large variety of all you can eat salads, soups, appetizers, vegetables, breads, hot main courses and desserts. An additional variation of the brand, Bonanza Steak & BBQ, offers a full-service steakhouse with fresh farm-to-table salad bar and a menu showcase of USDA flame-grilled steaks and house-smoked BBQ, with contemporized interpretations of traditional American classics. As of December 29, 2019, there were 76 Ponderosa and 13 Bonanza restaurants operating under franchise and sub-franchise agreements in 16 states and five countries. There is not a current FDD for these brands, and the current stay at home economy is least promising for this portion of the FAT portfolio.

Hurricane Grill & Wings – Founded in Fort Pierce, Florida in 1995, Hurricane Grill & Wings is a tropical beach themed casual dining restaurant known for its fresh, jumbo, chicken wings, 35 signature sauces, burgers, bowls, tacos, salads and sides. Featuring a full bar and table service, Hurricane Grill & Wings’ laid-back, casual, atmosphere affords family and friends the flexibility to enjoy dining experiences together regardless of the occasion. The acquisition of Hurricane Grill & Wings has been complementary to FAT Brands existing portfolio chicken wing brands, Buffalo’s Cafe and Buffalo’s Express. As of December 29, 2019, there were 51 franchised Hurricane Grill & Wings and 2 franchised Hurricane BTWs (Hurricane’s fast-casual burgers, tacos & wings concept), across eight states.

Per the most recent Franchise Disclosure Document, dealing with domestic units: It costs from $491k to $1,088k to begin operations, including the initial franchise fee of $50k. Current ongoing fees include 6% royalty, plus 2% to nat’l ad fund, plus 2% spent on local ads. Item 20, page 63, shows 51 domestic units or int’l), all franchised plus 1 affiliated unit in FL operating at 12/31/19. The states with 2 or more locations are: AL (2), FL (36), and NY (9). During calendar 2019, the system declined by 6 units. Relative to the Hurricane BTW franchise, it varies from the above by the fact that the cost to begin operation ranges from $260k to $521k, including the $5k initial franchise fee.

Yalla Mediterranean – Founded in 2014, Yalla Mediterranean is a Los Angeles-based restaurant chain specializing in authentic, healthful, Mediterranean cuisine with an environmental conscience and focus on sustainability. The word “yalla” which means “let’s go” is embraced in every aspect of Yalla Mediterranean’s culture. Yalla offers wraps, plates, and bowls in a fast-casual setting, with cuisine prepared fresh daily using, GMO-free, local ingredients for a menu that includes vegetarian, vegan, gluten-free and dairy-free options. The brand demonstrates its commitment to the environment by using responsibly sourced proteins and utensils, bowls and serving trays made from compostable materials. Also featured are an on-tap selections of craft beers and fine wines. Originally acquired as company operated, two restaurants had been franchised as of December 29, 2019, with the intention of franchising the remaining five existing Yalla locations to franchisees and expand the business through additional franchising.

Per the most recent Yalla Franchise Disclosure Document: If a current company store is being purchased, the franchise will pay Fat Brands from $500k to $700k, depending on the existing location, which will include assets and initial franchise fee ($50k). Stores to be constructed will cost $525k to $988k, including the $50k initial franchisee fee, to open. Current ongoing fees include 6% royalty plus 2.0% to the National Ad Fund, plus 2.0% for local ads.  Per the most recent Franchise Disclosure, Item 20, Page 57 shows 7 systemwide units, unchanged in the last two years, with the 2 stores moving from company to franchisee during 2019. All locations are in California.

Elevation Burger – Established in Northern Virginia in 2002, Elevation Burger is a fast-casual burger, fries, and shakes chain that provides its customers with healthier, “elevated” food options. Serving grass-fed beef, organic chicken, and French fries cooked using a proprietary olive oil-based frying method, Elevation maintains environmentally-friendly operating practices including responsible sourcing of ingredients, robust recycling programs intended to reduce carbon footprint, and store décor constructed of eco-friendly materials. Ownership of the Elevation Burger brand aligns with our the corporate mission of providing fresh, authentic and tasty products, complementing the Fatburger brand. As of December 29, 2019, there were 45 franchised Elevation Burger locations across nine states and four countries.

Per the most recent EB Franchise Disclosure Document: It costs from $459k to $988k to begin operations, including the initial franchise fee of $50k. Current ongoing fees include 6% royalty plus 1.5% national ads plus 2% local ads.  Per the most recent Franchise Disclosure, Item 20, Page 60 shows 48 total systemwide units (27 domestic + 19 int’l franchised) + 2 Affiliates operating at 12/31/19. There are at least 2 units operating in: ME (4), MD (5), MI (2), NY (4), PA (5), VA (4) (US Total of 27), Bahrain (3), Kuwait (8), Qatar (4), UAE (3) (Int’l Total of 19). The two Affiliated units are in VA. The total number of units declined by 4 in fiscal 2019.

Johnny Rockets – Founded in 1986 by Ronn Teitelbaum in Los Angeles, originally a 20 stool counter operation on Melrose Avenue, presenting a 1940s vintage style malt shop. The first unit, featuring jukeboxes, red-vinyl booths and chrome counters, opened with fans such as Bob Hope and Elizabeth Taylor. The chain grew to 200 locations by 2007 when it was acquired by RedZone Capital. By 2013, when Sun Capital Partners bought it, there were 300 locations in 30 states and 16 countries, including more than a dozen in amusement parks and cruise ships. They typically offer lunch and dinner, featuring made to order burgers, crispy fries, chili, hand-spun shakes and malts, plus sandwiches and other items. Today, under FAT’s ownership there are 322 locations operated by 129 franchisees, having reported 2019 systemwide sales of $316M. The average royalty in 2019 was 4.3%.

Per the most recent JR Franchise Disclosure Document, dealing with domestic units: It costs from $597k to $1,189k to begin operations, including the initial franchise fee of $50k. Current ongoing fees include 6% royalty, plus 2% to a marketing fund, plus 2% spent on local ads. Item 20, page 51, shows 175 domestic units (not including cruise ships or int’l) (162 F + 13 C ) operating at 12/31/19. The US states with 5 or more units are in CA (30), CT (5), FL (14), GA (6), MD (8), NV (12), NJ (6), NY (10), PA (5), RI (5) and TX (5). During calendar 2019, the domestic system declined by 22 units (20F + 2C). Internationally: SEC filings show 177 int’l units as of 9/30/20, with the heaviest concentration in Chile, Korea, Brazil and Mexico, with units also operating in over twenty five other countries.


The company raised a total of $49M ($40M of “M-2” plus $9M of “Series B”, below) in the third quarter, which funded the Johnny Rockets acquisition and provided a $12M unrestricted cash cushion going forward. In addition to the cash, as of 9/30/20, there were current assets of $31.2M almost exactly matching $31.8M of current liabilities, long term debt, net of $1.6M current portion amounting to $78.4M. There was also (net of offering costs, OID, etc.) $13M of Preferred Stock (not including $13M to be issued in Q4 in conjunction with the Fog Cutter transaction, discussed below), along with $12.7M of equity. The long term debt is obviously substantial relative to the historical trailing EBITDA, but a great deal of it was incurred to purchase Johnny Rockets, with a cushion for a future purchase. Relative to the post-Covid expectation, including Johnny Rockets, of EBITDA in the range of $15-16M, the long term debt to EBITDA ratio drops in half to a more tolerable 5.2x. The table below shows that the weighted average interest rate on the Series 2020 notes is 8.75%. Management has noted their intention to refinance these notes at a lower interest rate in H1’21.


The Company announced in late 2020 a plan to merge with Fog Cutter Capital. FAT is now the surviving Company and individual shareholders of Fog Cutter own common shares of FAT with the total outstanding unchanged. Presumably to offset the elimination of the $38M receivable from Fog Cutter, each share of FAT common shareholders received .232 shares of FAT Brands’ 8.25% Series B Cumulative Preferred Stock (FATBP) which have recently been trading in the area of $16/share. The company has not yet filed information relative to the post-merger balance sheet.

The most important advantages of this transaction are (1) Fog Cutter no longer has to own over 80% of FAT to maintain its $100M tax loss carryforward, so FAT can use its stock for acquisitions (2) FAT gets the use of the tax loss carryforward  (3) The public float of FAT increases to 46% of the fully diluted shares (4) Intercompany balance sheet items are eliminated.


It is clear now that 2020 was a lost year in terms of revenues, earnings, and cash flow progress for most restaurant companies. In spite of that, Fat Brands made meaningful progress, building on their base of brands with the Johnny Rockets acquisition as well as positioning the balance sheet for long term growth. Though we cannot predict at what point normalized post-Covid operations will be in place, our exercise is to take the 2019 platform, breaking the royalty stream down by brand, and then project forward in a reasonable fashion to the post-Covid earning and cash flow power of the FAT franchise portfolio.  In addition to the numbers shown below, it is worth noting that a total of 57 new locations  have opened across the portfolio in the first nine months of 2020, up from 52 in 2019, plus six ghost kitchens. We have, however, projected forward to a post-Covid environment assuming no growth in units or same store sales.

By definition, the projections cannot be precise, either numerically or within a timeframe. However, we have pieced together the model just below from SEC filings and investor presentations, with relevant assumptions indicated by footnotes. Our model indicates that the company conclusion that pro forma EBITDA, post-Covid with the inclusion of Johnny Rockets, could double or more from the $6.7M ($7.7M Adjusted) in calendar 2019 appears reasonable. Our most important assumptions are that the most important segments, namely Fatburger, Hurricane Grill and Johnny Rockets don’t deteriorate from their 2019 results and the G&A from Johnny Rockets can be cut from $11.9M to $6.1M annually.

 CONCLUSION : Provided at the beginning of this report