Executive Summary / Key Takeaways

• Strategic Transformation Underway: FAT Brands is actively shifting towards an asset-light, predominantly franchised model, exemplified by the Twin Hospitality spin-off and planned Fazoli's refranchising, aiming to streamline operations and reduce corporate overhead.
• Robust Organic Growth Pipeline: The company boasts a significant development pipeline of approximately 1,000 new units, projected to generate $50 million to $60 million in incremental annual adjusted EBITDA, providing a clear path to organic deleveraging.
• Path to Cash Flow Breakeven: Management targets achieving a cash flow breakeven run rate, including dividends, by the end of 2025, driven by debt amortization elimination, preferred stock redemption, and reduced litigation expenses.
• Leveraging Manufacturing & Digital Innovation: The Georgia manufacturing facility offers substantial untapped potential for high-margin revenue growth, while digital initiatives like the 3D cookie cake filter are enhancing customer engagement and operational efficiency.
• Addressing Headwinds: Despite recent financial pressures from underperforming corporate stores, increased litigation costs, and market volatility impacting equity raises, the company is making tangible progress on debt refinancing and legal resolutions.

The FAT Brands Blueprint: A Diversified Franchise Powerhouse

FAT Brands Inc. stands as a multi-brand restaurant franchising company, strategically acquiring, developing, marketing, and managing a diverse portfolio of quick-service, fast-casual, casual dining, and polished casual dining concepts globally. With 18 distinct brands and over 2,300 locations open or under construction across more than 40 countries and 49 U.S. states, the company's core business model is built on an asset-light franchisor approach. This strategy aims to generate strong profit margins and attractive free cash flow by minimizing direct restaurant operating risks, leveraging a scalable management platform to efficiently integrate new stores and concepts with minimal incremental corporate overhead.

In the highly competitive restaurant franchising sector, FAT Brands positions itself as a mid-tier player. While larger, more established multi-brand franchisors like Yum! Brands , Dine Brands Global (DIN), and Restaurant Brands International benefit from immense scale and often more mature digital infrastructures, FAT differentiates through its strategic agility in acquisitions and its diverse brand portfolio. Yum! and QSR, for instance, exhibit stronger profitability metrics and cash flow generation, with TTM Gross Profit Margins of 47% and 36% respectively, compared to FAT's 32.32%. Similarly, their Operating Profit Margins (YUM: 32%, QSR: 29%) significantly outpace FAT's -6.06%, reflecting the efficiency benefits of their larger operations. However, FAT's emphasis on acquiring niche and regional brands, coupled with its co-branding initiatives, allows it to exploit market gaps and offer tailored franchise opportunities.

A key differentiator for FAT Brands lies in its technological advancements, particularly within its dessert concepts. The company has launched an innovative co-branded online ordering platform for Great American Cookies and Marble Slab Creamery. This platform features a groundbreaking customizable 3D cookie cake filter, a first of its kind in the industry, allowing customers to visualize their creations in real-time. This digital tool has yielded tangible benefits, including higher average order values and improved online conversions. The digital integration, especially through their new app, has resulted in an 8% increase in sales and a 17.6% increase in average check size for these brands. This technological edge enhances the guest experience, improves operational efficiency, cultivates brand loyalty, and strengthens FAT's competitive moat by offering a unique, engaging customer interface. The company plans to extend this "Cookie Cake Builder" to self-serve kiosks in select physical locations by early 2025, further integrating digital innovation into the in-store experience.

A History of Strategic Evolution

FAT Brands was incorporated in 2017, initiating its journey with an IPO at $12 per share. Its growth trajectory has been defined by a rapid expansion through strategic acquisitions. Key additions included GFG in July 2021 and Twin Peaks in October 2021, significantly broadening its portfolio. Around 2021, the company also acquired a manufacturing facility in Georgia, a strategic asset for producing proprietary items like pretzel mix and cookie dough. This facility, initially operating at 33% capacity, has become central to FAT's vertical integration strategy.

The period from 2021 to 2023 saw FAT Brands' footprint increase tenfold, reaching over 2,300 locations. Acquisitions like Nestle Toll House Cafe by Chip enabled conversions to Great American Cookies, boosting both the brand's presence and the manufacturing facility's volume. In Q4 2023, the acquisition of Smokey Bones was strategically designed to fuel Twin Peaks' rapid expansion through conversions, a move that began to materialize with the successful conversion of the first Smokey Bones to Twin Peaks in Lakeland, Florida, in September 2024. This conversion notably boosted annualized sales from $3.6 million (as Smokey Bones) to approximately $8.3 million (as Twin Peaks), demonstrating the significant value creation potential of this strategy.

Operational Momentum and Strategic Initiatives

FAT Brands continues to drive organic growth across its portfolio. In 2024, the company opened 92 new restaurants, and it targets over 100 new locations in 2025, with 23 units opened in Q1 2025 and an additional 25 expected in Q2 2025. The robust development pipeline includes signed agreements for approximately 1,000 additional locations, which are projected to generate $50 million to $60 million in incremental annual adjusted EBITDA once operational. This substantial pipeline is a testament to the continued appeal of FAT's brands and provides a strong foundation for future organic deleveraging.

Twin Peaks remains a standout performer and a key growth driver. It is the company's fastest-growing concept, with average unit volumes at company-operated locations reaching approximately $6 million annually, and some high-performing markets, particularly in Florida, seeing AUVs between $9 million and $14 million. The brand has grown from 83 locations at acquisition to 113 currently, with plans to open 19 new lodges in 2025 (5 corporate, 14 franchised), including seven Smokey Bones conversions. The long-term pipeline for Twin Peaks calls for over 100 additional restaurants, potentially driving system-wide sales to over $1 billion and reaching 250 units.

Co-branding is another critical growth strategy. The Great American Cookies and Marble Slab Creamery pairing has expanded to over 160 locations, while Fatburger and Buffalo's Express co-branded units exceed 100. New tri-branded models, such as Great American Cookies, Marble Slab Creamery, and Pretzelmaker, are emerging, alongside new pairings like Fatburger and Round Table Pizza, with over 50 new co-branded locations under development, including 12 in Utah. These strategic combinations enhance the guest experience and maximize operational efficiency.

International expansion is also a significant growth avenue. Fatburger has a new partnership to open 30 locations across France over the next three years, with five planned for 2026. A development agreement for 10 Buffalo's Cafe fast-casual locations in France, with the first three by 2026, further underscores this focus. Johnny Rockets' international footprint now accounts for over 55% of its global presence. Additionally, FAT Brands is expanding into non-traditional venues, including airports (Fatburger at DFW International Airport's employee dining hall), cruise lines (15th Johnny Rockets on Royal Caribbean (RCL)), amusement parks, and universities (Round Table Pizza at Stanford).

The Georgia manufacturing facility continues to be a strategic asset. In Q1 2025, it generated $8.8 million in sales and $3.1 million in adjusted EBITDA, achieving an attractive 35% margin. The facility currently operates at 40% to 45% of its capacity, with a near-term target of reaching 60% to 70% utilization. Management aims to increase the facility's annual revenue contribution from approximately $15 million to $25 million, with a major third-party cookie dough manufacturing contract expected to be announced soon. This asset could eventually generate over $300 million in proceeds for debt reduction through strategic divestiture, although the immediate focus is on optimizing its growth potential.

Financial Performance and Liquidity

FAT Brands' recent financial performance reflects both strategic transitions and ongoing challenges. For the thirteen weeks ended June 29, 2025, total revenue decreased 3.4% year-over-year to $146.836 million, and for the twenty-six weeks ended June 29, 2025, total revenue decreased 5.0% to $288.855 million. This decline was primarily driven by lower restaurant revenue due to the closure of five underperforming Smokey Bones locations, the temporary closure of one Smokey Bones for Twin Peaks conversion, and lower same-store sales, partially offset by new Twin Peaks lodge openings. Royalties also saw a slight decrease, down 4.9% in Q2 2025 to $22.169 million.

General and administrative expenses increased significantly, up 50.3% in Q2 2025 to $44.415 million and 30.0% in H1 2025 to $77.458 million. This was primarily due to increased share-based compensation related to Twin Hospitality Group Inc. and higher professional fees associated with pending litigation. The company reported a net loss attributable to FAT Brands of $54.188 million in Q2 2025 and $100.157 million for H1 2025. Adjusted EBITDA for Q1 2025 was $11.1 million, down from $18.2 million in the prior year quarter. The company acknowledged "noise" in its numbers, including the impact of an extra operating week in Q4 2023 and the ongoing Smokey Bones conversions, which have seen significant sales declines for the legacy Smokey Bones units.

Liquidity remains a critical focus. As of June 29, 2025, FAT Brands had $7.6 million of unrestricted cash, an accumulated deficit of $553.6 million, and negative working capital of $264.6 million. The company had negative cash flow from operations of $40.1 million for the twenty-six weeks ended June 29, 2025. A significant liability is $91.8 million in redeemable preferred stock, which accrues interest due to missed payment dates. Management, however, believes it has sufficient liquidity for the next twelve months through existing cash, cash flows from operations, and proceeds from issued but not sold ($73.5 million) and repurchased but not re-sold ($75.4 million) secured notes.

Deleveraging and Future Outlook

FAT Brands is executing a clear strategy to deleverage its balance sheet and enhance shareholder value. A major milestone was the spin-off of Twin Hospitality Group Inc. in January 2025. FAT Brands distributed 5% of Twin Hospitality's Class A stock to its shareholders as a $50 million dividend, while retaining approximately 98.6% of the voting power. This move was designed to unlock value, with FAT's retained shares in TWNP valued at over $900 million at the time of spin-off, in addition to shedding over $400 million of Twin Hospitality's debt.

The company is committed to raising $75 million to $100 million of equity at Twin Hospitality in 2025, with 75% ($75 million) earmarked for debt reduction. While volatile market conditions have temporarily impacted the near-term ability to secure this equity at a reasonable price, management remains confident in achieving the full annual target over the next twelve months. The common dividend has been temporarily paused, and Series B preferred dividends are accruing, linked to the $25 million principal reduction payment threshold on the new Twin Hospitality indenture.

Further deleveraging efforts include the planned refranchising of 57 company-owned Fazoli's locations. This initiative is expected to generate $20 million to $25 million in proceeds for debt reduction and yield $2.5 million to $3.5 million in annual overhead savings. This strategic shift will return FAT Brands to an "almost 100% franchise business model," retaining only about 33 Hot Dog on a Stick corporate locations. The company is also focused on refinancing its three remaining securitization silos, all with an anticipated repayment date of July 2026, aiming to complete these in Q2 or Q3 2025.

Management anticipates being "pretty close to a run rate that is breakeven cash flow wise" by the end of 2025, including dividends. This is predicated on the elimination of debt amortization (saving approximately $25 million annually), the redemption of expensive preferred stock, and a significant reduction in legal expenses. Progress on the legal front is evident, with the DOJ moving to dismiss charges against all defendants in July 2025, and settlement agreements signed for two derivative lawsuits.

Risks and Competitive Dynamics

Despite the clear strategic roadmap, FAT Brands faces several risks. The reliance on external financing, particularly for the Twin Hospitality equity raise, is subject to market volatility, which has already caused delays. The company's significant debt load, including the redeemable preferred stock, presents a substantial financial burden. While progress has been made, ongoing litigation, including the SEC complaint and other derivative actions, continues to incur professional fees and poses potential liabilities, with the company obligated to indemnify directors for defense costs that may exceed insurance coverage.

Operational challenges include higher-than-anticipated costs for Smokey Bones to Twin Peaks conversions and a slight slowdown in new store development due to franchisee financing challenges and increased construction costs. The broader consumer environment remains apprehensive and "fatigued by price," necessitating a continued focus on delivering "comprehensive value" to drive traffic and frequency.

In the competitive landscape, FAT's diversified portfolio and acquisition strategy provide resilience, but its smaller scale compared to industry giants like Yum! (YUM) and QSR (QSR) can lead to higher operating costs and potentially slower innovation in certain areas. While Twin Peaks is "killing it" and outperforming troubled sports bar competitors by focusing on guest experience and flexible pricing, the QSR segment, where Fazoli's operates, remains highly price-sensitive. FAT's ability to execute its refranchising strategy and increase manufacturing utilization will be crucial in improving its financial standing relative to more efficient, larger rivals.

Conclusion

FAT Brands Inc. is undergoing a profound strategic transformation, shedding its corporate-owned restaurant footprint to embrace a leaner, predominantly franchised business model. The spin-off of Twin Hospitality Group (TWNP), coupled with the planned refranchising of Fazoli's and the optimization of its high-margin manufacturing facility, are pivotal steps in unlocking value and deleveraging the balance sheet. Despite current financial pressures stemming from legacy corporate operations, increased litigation expenses, and a challenging market for equity raises, management has laid out a clear path to cash flow breakeven by the end of 2025.

The company's robust organic growth pipeline, driven by strong franchisee demand and successful co-branding initiatives, provides a powerful engine for future incremental EBITDA. While the competitive landscape is intense, FAT's diversified brand portfolio, strategic acquisition capabilities, and commitment to digital innovation position it to capture market share and enhance customer loyalty. Investors should closely monitor the execution of debt reduction initiatives, the progress of the Twin Hospitality equity raise, and the continued operational improvements across its brands as FAT Brands strives to realize its full potential as a formidable franchise empire.