Franchising
FAT Brands CEO denies fraud allegations, looks forward to growth
Andy Wiederhorn said his lawyers will prove his innocence and that FAT Brands is growing strong.
March 23, 2022 by Cherryh Cansler — Editor, FastCasual.com
Andy Wiederhorn, CEO of FAT Brands Inc., the parent company of Fatburger and 16 other restaurant brands, told investors Monday that there was little to worry regarding the pending lawsuits and FBI inquiry into allegations of securities and wire fraud, money laundering and attempted tax evasion. He denied all allegations, saying that he looks forward to his legal team demonstrating "that all transactions were properly documented, reviewed, approved and disclosed."
Although the LA Times broke the news last month about the investigation, citing the government's affidavit, Wiederhorn said it should not have been made public as it was a subject of the sealed court order. The CEO, who spent 15 months in prison after pleading guilty to 2005 charges of paying an illegal gratuity to an associate and to filing a false tax return, pointed out that the company was not under investigation. Instead, the United States Attorney's Office was focused on Wiederhorn and his family.
"Being a public company and a public figure attracts its share of visibility," Wiederhorn said during an earnings call, where he discussed the company's fiscal fourth quarter 2021 financial results for the 13-week period ending December 26, 2021. "Given my personal history, it does not surprise me that the government will look into allegations also raised in the derivative complaint," said Wiederhorn, who has publicly denied that he purposely broke the law in relations to his guilty plea which led to his imprisonment. "The LA Times article that published characterizations of the government's position has many factual errors and conflates the different entities and my family as if they were (one)."
A shareholder has filed a lawsuit, however, against FAT Brands and Fog Cutter Capital Group, alleging that Fog Cutter used funds borrowed from FAT Brands to produce $27 million in cash advances over the course of several years. It claimed Fog Cutter owed FAT Brands $38.7 million but said the company forgave loans to Wiederhorn before the merger. In January, a Delaware judge ruled the lawsuit could proceed, but Wiederhorn maintains no wrongdoing.
"While these legal matters are certainly a distraction personally, our team is focused on running our business and integrating the newly acquired brands into the FAT family brands," Wiederhorn said.
Those brands included Twin Peaks, which FAT purchased for $300 million, as well as Fazoli's, which cost the brand $130 million, and Native Grill & Wings acquired for $20 million. Wiederhorn estimated that the 2021 acquisitions would lead to $45 to $50 million in incremental normalized post-COVID EBITDA in 2022.
"We are extremely pleased with the performance of the brands we acquired in 2021 which, if we were to include them, would have brought our same-store sales growth to 8.5% for the fourth quarter of 2021 compared to 2019," he said.
Wiederhorn was happy with the rest of the company's fourth quarter results, saying that revenues increased by 1,042% and adjusted EBITDA rose 500% over the prior year quarter.
"FAT Brands is truly unique as we have a scalable platform that affords us the opportunity to synergistically incorporate new concepts with minimal incremental corporate overhead costs," he said "We also have a long runway for organic growth with more than 850 new locations in our pipeline, providing us with a potential 33% unit growth and 50% EBITDA growth over the next few years."
The company reported 5.6% same-store sales growth and a system-wide sales increase of 353% for the fourth quarter of 2021 compared to 2019.
By year's end, the company will open 120 locations and expects system-wide sales to rise over $2.3 billion resulting in an estimated normalized post-COVID EBITDA run rate of nearly $90 to $95 million for 2022. Adding to its portfolio of brands, however, is no longer a focal point.
"We are now at a size and scale, but we do not need to acquire additional brands," Wiederhorn said. "We already have so many great ones with so much organic growth already committed and paid for."
That doesn't mean that all acquisitions are off the table, however.
"In fact, we're considering some presently, but our focus has to be this year on digesting what we already acquired realizing the synergies," Wiederhorn said. "Additionally, as previously mentioned, there are significant cross-selling opportunities amongst the franchise community within our 17-brand portfolio."
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