Participants

Andrew Wiederhorn; Chairman of the Board, President; FAT Brands Inc

Kenneth Kuick; Co-Chief Executive Officer, Chief Financial Officer; FAT Brands Inc

Alton Stump; Analyst; Loop Capital

Joe Gomes; Analyst; NOBLE Capital.

Roger Lipton

Presentation

Operator

Good afternoon. Ladies and gentlemen, thank you for standing by. Welcome to the Fat Brands Inc third quarter, 2024 earnings conference call.
(Operator Instructions) Please note that this conference is being recorded today, October 30 2024.
On the call from FAT Brands are Chairman of the board, Andrew Wiederhorn and Co Chief Executive Officer and Chief Financial Officer Ken Kuick.
This afternoon, the company made its third quarter 2024 financial results publicly available. Please refer to the earnings release and earnings supplement. Both of which are available in the investors section of the company's website at www.fatbrands.com.
Each contains additional details about the third quarter. But before we begin, I must remind everyone that part of the discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance and therefore undue line 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. The company does not undertake to update these forward-looking statements at a later date for more detailed discussion of the risks that could impact future operating results and financial conditions.
Please see today's earnings release and recent SCC filing during today's call. The company will also discuss non-GAAP financial measures which it believes can be useful in evaluating its performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP reconciliation to comparable GAAP measures are available in today's earning release.
I would now like to turn the call over to Andy Wiederhorn, Chairman of the board. Please go ahead.

Andrew Wiederhorn

Thank you operator. Let me start by expressing my gratitude to our exceptional team members, franchisees and employees. Their commitment to fat brands continues to fuel our success. And I'm very encouraged by what we're accomplishing together.
Over the last three years, we have expanded our brand portfolio to include 18 distinct concepts. While our footprint has increased tenfold now encompassing over 2,300 locations open or under construction across more than 40 countries and 49 US states or territories.
The results we will discuss today showcase the strength of our multi concept approach. We are enhancing operational efficiencies through our scale. We are providing a strong backbone for each brand through a shared services model.
And we are fueling our expansion through our deep Franchising acumen by combining these elements, scale advantages, shared resources and franchise expertise. We've built a robust platform that will continue delivering value as we further grow the company over the long term.
Now let me briefly highlight our financial performance for the third quarter.
Total revenue grew 31.1% to $143.4 million. Up from $109.4 million in the same quarter. Last year, this significant growth was primarily fueled by our strategic acquisition of Smokey Bones in September of 2023.
We achieved system wide sales of $600.7 million in Q3, marking a 6.4% increase year over year adjusted EBITDA was 14.1 million compared to 21.9 million in the corresponding quarter last year.
Over the last few years, we have been busy executing on our three main strategic pillars, organic growth by acquisition and increasing cookie dough and dry mix production at our Georgia based manufacturing facility.
Let me provide brief updates on each strategic pillar from an organic growth perspective. We opened 22 new units during the quarter, bringing our year-to-date openings through Q3 to 62 units. And in fact, we've already opened nine units this quarter, bringing the total to 71 units year-to-date as of today. Looking to the full fourth quarter, we plan to open approximately 40 units ending the year with over 100 new units.
Our development pipeline remains healthy with signed agreements to open approximately 1,000 new units in the coming years.
Once fully operational, these additional units are projected to incrementally contribute 50 to $60 million to our annual adjusted EBITDA.
This substantial increase in earnings will organically reduce our leverage over time enhancing our balance sheet.
We continue to see significant traction by emphasizing our focus on digital marketing initiatives which I'll go into in greater depth in a minute and also on establishing value perception in terms of delivering an outstanding guest experience for our customers.
Further, we are prioritizing growth within the polished casual dining segment. Specifically Twin Peaks, our most rapidly expanding concept, Twin Peaks locations continue to perform very well. Company operated lodges continue to achieve average unit volumes of approximately $6 million annually. With select high performing markets seeing a UVS materially higher in the 9 to $14 million range during the quarter, we strengthened Twin Peaks presence in South Carolina opening in Fort Mill, our fourth lodge in the state in August. We opened in Terrell Texas, our 10th lodge in the Dallas Fort Worth market.
Most recently in October, we ventured into a new market with our first Northern Nevada Lodge in Reno.
As you know, our acquisition of Smokey Bones last year was strategically designed to fuel Twin Peaks rapid expansion. We see great value in converting approximately 30 Smoky Bones locations into Twin Peaks over the next several years.
This conversion process offers significant advantages, notably reducing construction time by about 18 months compared to building from the ground up in September, we completed our first Smoky Bones to Twin Peaks conversion in Lakeland, Florida marking Twin Peaks 15th lodge in our top performing state growing the sales in this location from 3.6 million in 2023 as a Smoky Bones to a current annualized run rate of approximately $8.3 million.
As a Twin Peaks, seven additional conversions will take place throughout 2025 5 corporate and two franchised with many more converting in 2026 today, Twin Peaks has 115 lodges across the US and Mexico and we plan to open another 19 lodges in 2025 including the seven Smoky Bones conversions that I just mentioned. Five of those 19 units will be corporate stores and 14 will be franchised.
The expansion represents a 42% growth in unit count since our 2021 acquisition and a 62% total unit growth including the planned 2025 stores. This underscores the brand's strong market performance and our effective growth strategy.
Over the coming years, the Twin Peaks development pipeline calls for more than 100 additional restaurants which could which could potentially drive system wide sales to more than $1 billion to fuel Twin Peak sales.
We continue to invest in menu items that move the needle such as our new Game Day menu which features bold, globally inspired twists on classic dishes such as chicken Tikka flatbread and a new Wing sauce, spicy chili crisp.
Twin Peaks also continues to work with the veteran focused nonprofit Tunnel to Towers, highlighting our commitment to our passionate fan base and a cause they care about our nation's veterans recently raised $65,000 for the cause. Increasing its total charitable contribution to over $435,000 to date for tunnels to towers.
As you're aware, Twin Peaks and Smokey Bones as a combined entity took a significant step towards becoming a standalone public company. This past May we confidentially submitted a registration statement to the Securities and Exchange Commission initiating the process to achieve public reporting status while the timing and the size of any transaction is subject to market conditions and other factors.
We are working diligently to expedite a successful transaction and we hope to provide you with further updates in the coming weeks.
As previously discussed, we view this potential IPO or alternative transaction as a strategic opportunity to unlock value for fat shareholders.
Our plans for the proceeds remain focused on two key areas, deleveraging our balance sheet and funding the construction of new restaurants.
We're also in the process of refinancing Twin Peaks, securitization debt prior to any IPO or other transaction. This move is designed to optimize our structure as we prepare for this potential transition. Again, we expect to provide an update soon on this subject.
Another area of growth we've been leveraging is cobranding. We've long recognized the power of cobranding to enhance both growth and customer experience. A prime example of this strategy success is our Great American cookies, marble slab ice cream cobrand initiative. Since launching the pairing in 2014, there are now over 160 Great American cookies and marble slab creamery locations worldwide.
Most recently, the co-branded concept added to its presence in Texas with openings in Sugarland and Lewisville.
We also just surpassed 55 locations in Georgia with our most recent Atlanta area opening building. On this success, we took a significant step in September by introducing an innovative co-branded online ordering platform for Great American cookies and marble slab creamery. In collaboration with partners three and Olo, we set out to create a best in class digital experience. The highlight of this new platform is our groundbreaking customizable 3d cookie cake builder. A first of its kind in the industry.
This digital tool improves the customer's experience by offering real time design capabilities. Users can now visualize their creations as they experiment with various icing colors, flavors and personalized messages. The result is not just an improved guest experience but also enhanced order accuracy for our stores.
While still in the early days since launching this platform, we are seeing higher average order values and improving online conversions. Looking ahead, we plan to extend this Great American Cookies, cookie cake builder to physical locations in the form of self- serve kiosks and select stores by early 2025.
As part of our ongoing digital transformation. We also launched a new loyalty program and app experience for Great American cookies and marble slab creamery. The app seamlessly integrates ordering and rewards across both brands for guests, driving guests towards higher average check size.
We're also seeing great success with our co-branded Fatburger and Buffalo's Express locations. Most recently, we opened the first co-branded Fab Burger and Buffalo's Express in Puerto Rico, located in Plaza Carolina, the Island's second largest shopping center.
This is the first of 10 locations set to open in Puerto Rico. Over the next several years, we have more than 100 co-branded Fatburger and Buffalo's Express locations open. Today.
We are building momentum with our tri branded model of Fab Burger Buffalo's Express and Hot Dog on a Stick. Recently opening our second tri-branded location in the Los Angeles market.
We continue to see growth at Fazoli’s in August. We opened our eighth Fazoli location in the State of Georgia.
We recently signed a new development agreement to bring Fazoli back to Utah with five new locations set to open in the next five years.
The first unit is scheduled to open in Saratoga Springs in 2025 and future openings are slated throughout Salt Lake City and Utah counties also worth noting is QSR Magazine's recognition of Fazoli’si's on their best restaurant Franchising deals list for 2024.
In addition to this recognition, 13 of our restaurant brands were recognized on franchise times TOP400 list which ranks the largest US based franchise systems by global system wide sales, non-traditional venues and international markets are important growth areas for the company as well to help accelerate this expansion.
We strengthened our development team with two new hires this quarter, Amy Harrison joins us as senior Vice President of nontraditional development, bringing a fresh perspective from her experience with Papa John's International and Penn Station East Coast subs.
And based in Hong Kong Mayo Hood joins us as Vice President of International Development, leveraging his international knowledge from his previous role as managing director at Subway Greater China, where he was key in driving forward the development of over 4,000 locations across the area.
Menu innovation continues to play a part in our growth strategy as we are committed to enhancing menu items for guests across our brands. Recently, marble slab creamery and Great American cookies added a fall inspired pumpkin spice latte, ice cream and caramel churro cookies LTO to their menus to address the growing demand for occasions. And catering Pretzel maker debuted a new shareable item bucket of bites which includes approximately 120 pretzel bites served with six different sauces.
Hot dog on a stick, unveiled an all-new leachy lemonade. Currently hot dog on a stick classic hand stomped lemonade makes up 40% of daily product mix.
We're also committed to creating innovative lemonade offerings to further position the brand as a go to spot for fresh lemonade.
In terms of acquisitions, we continue to assess brands with growth potential that complement our existing portfolio, prioritizing franchise brands with strong momentum and proven market traction rather than brands that require a turnaround.
While the market is starting to transition in our favor, we continue to remain selective with acquisitions ensuring that they align with our business model.
Moving on to our third strategic priority leveraging our Georgia based manufacturing facility which provides pretzel mix and cookie dough for several brands. During the third quarter, our manufacturing facility generated 3.5 million of adjusted EBITDA on 9.5 million in sales.
We maintain that our factory business is in its early stage of growth today, operating at only about 40 to 45% of its capacity compared to 33% of acquisition. Three years ago, we continue to enter our FP processes and aggressively pursue avenues to utilize our remaining excess capacity.
Now, I'd like to provide you with an update on our Fat brands foundation. The foundation continues to make incredible strides with its grant giving through September. The foundation has awarded over 50 grants which has surpassed the number of grants that were awarded in 2023.
Additionally, the board has formed a 17-person committee team to help with a variety of tasks including events and amplifying fundraising efforts. This added support will ensure we continue to make a lasting impact in fat brands communities further illustrating our commitment to giving back.
This quarter FAT brands announced a new partnership with donation scout, an enterprise software solution that streamlines restaurant fundraising efforts for operators and their guests. The new platform creates a more seamless experience to host additional community events for our franchisee base.
The pilot program which launched at a burger and Round Table Pizza far exceeded donation scouts average pilot donation programs affirming the community service focused nature of our brands. In addition to the overall benefit of the platform itself.
In conclusion, that brand continues to position itself for growth. We have a strong pipeline of organic growth opportunities, and we also plan to monetize our polished casual brands through a potential IPO or alternative transaction together. This will enhance our balance sheet and create value for our shareholders.
I look forward to further updating you about this in the near future. If you can't tell, I'm excited about creating value for our shows and for the future of happens with that, I'd like to hand this over to this call over to Ken to discuss our financial highlights for from the third quarter.

Kenneth Kuick

Thanks Andy. I'd like to now review our quarterly performance total revenues increased 31.1% to $143.4 million driven by the acquisition of Smokey Bones in the fourth quarter of 2023.
And revenues from new restaurant openings costs and expenses increased. $45.8 million or 44.6% in the third quarter, included in cost and expenses, general and administrative expense increased $10 million or 41% to $34.5 million from $24.5 million in the prior year period. Primarily due to the Smoky Bones acquisition and increased professional fees related to pending litigation cost of restaurant and factory revenues increased to $96.8 million compared to $59.2 million in the prior quarter.
Again, primarily due to the smokey bones acquisition and also higher company owned restaurant sales, depreciation and amortization expense increased $3.7 million to $10.7 million in the year ago quarter.
Again, primarily due to the Smoky Bones acquisition along with depreciation of new company owned restaurant, property and equipment.
Advertising expense varies in relation to advertising revenues and decreased to $10 million from $11.7 million in the year ago period.
Total other expense net for the third quarter of 2024 and 2023 was $35.8 million and $32.6 million respectively, which is inclusive of interest expense of $35.5 million and $29.7 million respectively.
Net loss was $44.8 million or $2.74 per diluted share compared to a net loss of $24.7 million or $1.59 per diluted share in the prior year quarter.
And on an as adjusted basis, our net loss was $40 million or $2.34 per diluted share compared to $18.9 million or $1.14 per diluted share in the prior quarter.
And lastly, EBITA was $5.3 million compared to $10.8 million in the third quarter of 2023. While adjusted EBITA for the quarter was $14.1 million compared to $21.9 million in the year ago quarter.
And with that operator, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Alton Stump, Loop Capital.

Alton Stump

I want to ask you about the conversion. Obviously, I think you mentioned you know, took place in September in Lakeland, obviously. You know, with Smokey Bones still, obviously, just over six weeks into it. But, you know, how's that gone so far?
And, you know, have you learned anything either way as far as, you know, what the potential could be for, you know, obviously, what will, you know, undoubtedly be further conversions down the road?

Andrew Wiederhorn

Yes. Alton, thanks. Look, we're extremely optimistic about the conversions of the Smokey Bones into Twin Peaks. This first store has been a huge success to go from 3.6 million in sales to 8.3 million in sales exceeds our expectations and hopes. The conversion process was timely. Joe Ho and his team at Twin Peaks executed beautifully to get it open on time. The buildings are a little bit more beat up than we had hoped. They would be when you start to peel back. You know, some of the skin so the cost is just a little bit higher. But you know, the result is outstanding.

Alton Stump

Got it. Understood. Thank you. And then, you know, you know, I thought I touch on, you know, the Twin Peaks brand, I think you mentioned 9 to 14 million as far as, you know, some outperformers, I think that number's been 9 to 12 million in the past. You know, with that, you know, is it safe to say that you know, brand is outperforming your, you know, the overall system as far as you know, customer standpoint or the, or, you know, you know, or just overall same store sales versus what you saw, you know, in your other 17 brands during the quarter.

Andrew Wiederhorn

Well, I mean, you can look at Twin Peaks multiple different ways. You can look at over a two- or three-year period of time and it's just had outstanding same source sales. We ended 2023 on a flat basis with Twin Peaks, but it, it, started out quite positive and, you know, a lot of things pulled back in the second half of 2023.
We started out 2024 deeply in the hole like everybody else in January because the weather was so bad everywhere and twin pieces come racing back to now positive in, in this quarter and, not on a year to day basis but in the quarter.
And so I think, you know, we're very happy with the performance on the total sales system. Wide sales are up massively from a year ago and two years ago because we keep adding units. I mean, we've grown as, you know, 42% in total units. And we, our system sales have grown significantly and you know, the growth for 2025 is already laid out 19 new stores and 2026 on top of that. So we're very, very happy with the performance at Twin Peaks and I just can't wait to get more stores open sooner.

Alton Stump

Great. Sounds great. Thanks so much for your help. I will hop back in the queue.

Operator

Joe Gomes, NOBLE Capital.

Joe Gomes

Good morning, good afternoon. Thanks for taking the questions. Andy.
So I kinda want to hope to see if you can maybe kind of square the circle for me here. You know, if I'm looking at the operations, you know, operating loss has grown every quarter this year. You know, royalty revenues were down not only year over year, but sequentially, the restaurant sales were down sequentially even though, you know, you're talking about, you know, how good Twin Peaks is doing?
Just really trying to get a better handle on, on what is happening beneath the surface here. You know, nine month adjusted EBITDA number is at I think 48 million versus 64 million last year. And this is with the addition of, you know, Smoky Bones is adjusted EBITA numbers, which I think you said we should add about 10 million.
So just trying to get a better handle on the on the what's happening on the operating side that there's a lot of good things, you know, seem to be occurring but not being reflected in the numbers from where I can see.

Andrew Wiederhorn

And I think that's a fair point. It's really, attributed to a few things. The Corp, remember, Smokey Bones is an entire corporate owned system, and sales have been down at Smokey Bones significantly since the time of our acquisition. And even before that, and so as we can't convert them fast enough, but the faster we convert them, we're going to see huge pops in sales and success. But Smokey Bones by itself has not performed on a stand-alone basis in the last 12 months. And that's a line share of those numbers.
Also, company owned stores at Fazoli’s have had some pressure and that's really related to the QSR space where we have other categories that are positive like Round Table pizza or our burger brands that are right around flat, you've had you know, Fazoli’s for example, off 6 6% or so. And that's demonstrative of the QSR space. You know, people have traded down from casual dining to fast casual, from fast casual to QSR.
But in the QSR space where Fazoli's is our most price sensitive brand with like a $9.10 dollar average check number, there's nowhere for that QSR customer to go when prices are up and gas prices were up and things like that so they felt it in terms of traffic and that directly relates to, you know, sales and profitability or company owned stores.
I think that there'll be some tremendous re Franchising opportunities with Fazoli’s in the coming quarter or two for those company owned stores. We know that, you know, on the corporate store side at Twin Peaks, we've exceeded our numbers. We're very happy with those numbers. So it's really not at that end of the, of the spectrum, but on the Smoky Bone side, which is, you know, still in the same, the same segment of polished, it struggled there and that those units need CapEx and it makes more sense to convert them faster than to spend CapEx on the old units that are, that are identified for conversion when it, it won't work. So, you know, we're dealing a little bit with just that tweener time period here as we shift to more of a franchise model and we get those stores converted.

Joe Gomes

Okay. Thank you for that. And on the factory, the manufacturing facility, you know, revenues there have been kind of, you know, flat over the past year or so. And I know you've spent a lot of time and effort in looking for third party customers you mentioned tonight, you know, you've got a lot of RFPs out there and, you know, trying to get a again, you know, a little more detail on, you know, when you think some of these RFPs might start coming in to start increasing the utilization of the factory.

Andrew Wiederhorn

Well, two things are going on there and, and again, it's a fair question.
It's been a tougher road to go down in terms of third-party manufacturing because we've really wanted a high margin manufacturing business rather than just any manufacturing business. If we're going to use up capacity. We know that over time, other brands within FAP brands will take up some of that capacity or utilization because we've started selling cookies in many of the other brands.
We're also now just completing a large national test with a couple of other distribution centers where we think it will significantly increase the volume of cookie production or cookie dough production that goes through the facility.
So hopefully by sometime in Q1, we'll be able to announce a big roll out of a third party program that will have, you know, real legs to it. We're, we're at the end of the test period now.

Joe Gomes

Okay, great. And then one last one for me and I'll get back in queue. So you mentioned about you know, refine the debt associated with Twin Peaks. What about the other debt that is, is on the balance sheet, the preferred stock, anything new on, on trying to refine those or, or getting some better rates?

Andrew Wiederhorn

Well, so sequentially, let's address these.
So the Twin Peaks deal is in the middle of refinancing now and hopefully we'll announce a completed transaction in the coming weeks. It's, it's just being documented. So we hope to announce that soon. It's not done yet, but we expect it to be. Remember that these rates are locked in for the most part of 2021 rates with a slight uptick as the bonds went past their anticipated call date, we didn't call them but they're still far below where current rates are.
So when you look at the deals, we needed to refinance the Twin Peaks debt in preparation for this public listing and we hope to be able to talk more about that in the very near future. Next is Fazoli’s's which also has a Q1 pending amortization date and we've already begun discussions with our bond holders about extending or refinancing the Twin P the sorry, the Fazoli’s's debt facility you know, very soon. So I anticipate that that gets done also before, you know, sometime in Q1, then when we look to our, our next couple of securitizations, they actually don't have rapid amortization dates until July of 2026 and they're locked in at 2021 rates. That being said we want to address that sometime in 2025.
So I think what that also leads to is it really helps our cash flow because right now we're advertising the entire $1.2 billion debt portfolio by about 2%. A year and not having to do that saves us a significant amount of cash to pay, which is used to pay down principal, but it still choose up cash. So we're very focused right now on the Twin Peaks refinance on the Twin Peaks listing.
And then we'll focus on Fazoli’s next. And then, you know, we've, we've always indicated that the use of proceeds on the Twin Peak side will be to delver that business that means pay down bonds and build more company owned stores, the conversions and you know, some some new locations and then that will look to monetize its investment in Twin Peaks over time and use that to pay down other debt and deleverage overall debt at that brands.
And so I would expect that to happen beginning later in 2025 and that includes the redemption of some of the preferred stock that's expensive and that we need to redeem it's just taking a long time because of market condition. So very, very much focused on all of those things that you just mentioned over the next 12 months.

Joe Gomes

Great. Let me, let me add one more if I may you know, awesome job on the on the development deals, year-to-date. Where, where are you getting or seeing the most interest from franchisees in, in terms of signing these development deals, what brands.

Andrew Wiederhorn

It's it is spread out, which is good. You know, it's always a healthy sign of a franchise system when existing franchisees and new franchisees are coming in and buying the rights to develop more stores. So, we've sold, you know, a couple 100 units, to date, which is very positive and we've exceeded already what we did in all of last year about to exceed. So, so all that's positive. I, we've sold a lot of Round Table Pizzas, a lot of Fazoli’s.
Twin Peaks continues to sign up new brands. The cookies and ice cream brands and fabric or Johnny Rockets are all, you know, developing new units. We're not seeing a lot of growth in the casual dining space with hurricane Buffaloes or native growing wings. We're not seeing in Ponderosa and Bonanza. You wouldn't expect us to. Hot dog on a stick is sort of popular in some of these non-traditional venues. And Round Table Pizza is just, is just super solid. And so we've got a bunch of interesting new development going on with seven or eight of the brands and you know, the other brands are, are sort of just cruising along.
Great. Thanks. I'll get back in queue.
Thank you.

Operator

Roger Lipton, Lipton Financial Services.

Roger Lipton

Yes. Hi Andy. Thanks for taking my question. A number of subjects I was going to touch on were touched on by, by Joe and the others but, but one question, one general question about, about comps over the course over the scope of the portfolio.
And then I have a couple of other questions on Twin Peaks. So what, what can you tell us about with all of your breadth of brands? It's an interesting commentary on the, the industry as a whole. What's been the sequential trend over the last say six months? That is, I think down 2.3 for the quarter, I think you said. But has it improved or, or, or what in the, in the course of the quarter.

Andrew Wiederhorn

It has improved. In fact, last week, a week ago, we're down as a system across ALL18 brands, down 0.1%. So very much an improvement. And that's been sequentially happening week after week where sales are much better. It's just, there's only, you know, some 10 more weeks before the end of the year. And so I don't know that that 2.5% across ALL18 brands on average, if you average all, you know, 2.5 billion in sales will move down that much. I don't know if we'll get under two or not.
But that's sort of, you know, sequentially, it's, it's much better Q3 and Q4 than we were in Q1 and Q2. It's great to have sports back. We've had, you know, better weather we're entering, you know, the holiday period too. So I think that, you know, we're fairly optimistic that we'll see some improvements we have in the last week. I can, I can look at my schedule and see like 75% of our 18 brands are, are positive, same store sales.
And so it's just can we bring that, that, you know, year-to-date negative. And this is really because Q1 was just so difficult for so many of our brands, given their, their geography and what happened with weather that you're trying to climb out of that. But it's, it's not been the last couple quarters. It's really just, you know, climbing back from in total, climbing back from where we were at the beginning of the year.
So we're, we're seeing things move in the right direction. You know, on the QSR side of things, it's all about traffic given price. And, you know, I don't think the consumer is willing to take any more price. They're fatigued by price. So you've really got to make it up with guest experience to keep the traffic flowing and keep that guest coming back for repeat visits. And I think that's a big focus of that. Everyone needs, you know, in the industry needs to be paying attention to and I think they are.

Roger Lipton

Okay, that's helpful. All of the Twin Peaks, which I where everybody is tremendously interested in. Most of all you and your team and your and, and Joe and his team. But, generally from what I'm reading in the industry, the, the sports bar segment is, is rather troubled. I mean, I'm reading, reading about Hooters and bombshells and walk ons and they're all closing stores, some of them for some, some of them, the chains may go away. Does that give, are you seeing acquisition possibilities.

Andrew Wiederhorn

And, and Fridays and, and Fridays and that some of these others? You know, I think, we've looked at all of them. You, you know that we see everything and we look at everything and, you know, it hasn't been that hard to keep my hand in my pocket.
As we looked at some of those because their performances have just been terrible and we're not in that we're at the other end of that spectrum. Twin Peaks is killing it. It has come way, way back. We're not seeing those kind of trends. We have the guest experience which is off the charts. Top in class, best in class, you know, for intent to return to the restaurant. So because consumers are happy, they're still, you know, everyone's still price sensitive.
You know, we fortunately have that Barbell pricing where you can get a $5 beer or a $35 whiskey depending on how much you want to spend, but you can manage your, your budget there. It's just, you know, it's traffic. Are we getting that frequency three times, you know, a week instead of, you know, two times a week, that's really what everyone focuses on. And that's, you know, that it's really a guest experience and having that pricing available.
So we're very fortunate. It doesn't come without hard work, but we have really great results there and we're just not in the same camp as some of the other guys and I, and I feel their pain because I'm not sure there's a lot you can do to turn around some of those other brands.

Roger Lipton

Right? And you mentioned relative to the conversion process of the, the construction time savings and the fact that you've got all these locations in hand rather than having to negotiate with, with through brokers and so forth. But can you save any money from the cost of the construction when, when all is said and done?

Andrew Wiederhorn

Well, we're saving like 18 months. So time is money for sure. Think about it that way. Don't forget that because when we build, when we buy the land, build the building and do a sale lease back, you're in this thing for 2.5 years and you're paying interest on that 67 $8 million facility. I mean, you can spend a million dollars or more in interest expense, while you're holding it. And so we are saving money that way for sure. And it also costs less money to do a conversion than it does to do a ground up build, even if you exclude the land.
So we save money in both places and then we, you know, we save time. So, you know, we're very happy with the conversion results. It is, it has been a little bit more expensive than we hoped it would be. It, it's not, you know, we weren't blind to it when we bought the brand, but we were hopeful that it wouldn't be quite as much CapEx when you, you know, peel back the skin of the building. But, you know there's definitely some deferred maintenance and it's a full budget. It's not a, you know, under budget remodel.

Roger Lipton

Right. And I, I think you've made reference in the past II, I, and I just wanted to refresh my recollection that quite a few of the Twin Peaks franchise locations are coming from existing franchisees. Is that still the case? And, and with a pretty high number, as I recall.

Andrew Wiederhorn

Well, it's a mix. We have some new franchisees. You know, it's an interesting, it's not a very big franchise system. There are, you know, couple dozen, somewhere between 2030 Twin Peaks franchisee groups. A few of them, you know, half a dozen or so are new and haven't opened stores yet.
But, many of them are existing franchisees who have development obligations who are building more stores on their schedule and some of those existing groups are buying out other groups who are smaller and you want a liquidity event for one reason or another.
So that's also, you know, always a good sign when you see an existing franchisee group step up and take on more territory. And, you know, want to develop more stores. We've expanded some of our corporate territory to include the west coast of Florida As we've started to develop some of the Smoky Bones in the Mid Atlantic area. We're looking at as well for corporate areas other than, you know, just Texas and Colorado and some of those markets.
But if you think about all of that where we have 800 different franchisees making up those 2,300 restaurants and the 1,100 or 1,000 or 1,100 you know, new franchises that have been signed up for to be built. It's a pretty nice experience to have a 25 to 30 unit 25 to 30 group of franchise owners that you have to deal with. It is much easier to move the needle than when you are dealing with 800.
So I think the Twin Peaks is really well positioned to grow. We know that when you see value created in the, in the restaurant space right now, brands that have committed unit development that can really point their finger at absolute units that are going to be built next year and the year after and those are brands that are getting the most value. And so we're hoping that we can unlock that value with this development pipeline and with this pending public listing.

Roger Lipton

Right? And, and lastly between the the refinancing of the the Twin Peaks dad and and the adjustment and some of the other debt over the next year or so is there, can you give us any reason, reasonable approximate indication when the company can get to cash flow break even?

Andrew Wiederhorn

Yeah, very high on our radar as you could. Yeah. No, I understand you very high on our radar. As you can imagine, there are really three things that drive the negative cash flow position we're in today.
One is the amortization of the debt. If we weren't amortizing the debt, that's about $25 million a year that we save. And so as we refinance all of our asset backed securities over the next 12 months, that amortization goes away, The rates aren't going to change much. They might come down a little bit if we wait. You know, we'll probably get into the same rate. So that's a positive.
Second, we want to redeem you know, some of the preferred stock that's outstanding by selling some Twin Peak shares. Once the, you know IPO is up in the air and that will you know, eliminate that expensive preferred stock.
And then the third place is, is just legal expense. We expect to get some recovery in Q1 or Q2 from insurance carriers on legal expense. But, you know, ultimately the legal expense should go away in 12 months or so as we continue to battle this out and hopefully resolve the legal issues that we're facing. And that's the only thing. So really by, you know, I would say 12 months from now by the end of 2025 we should be pretty close to a run rate that is break even cash flow wise. And certainly having created a tremendous amount of value with Twin Peaks and starting to unlock that.

Roger Lipton

And when you say break, that does that break even

Andrew Wiederhorn

Including dividends.

Roger Lipton

State, including dividends, including including dividends. That was where the.

Andrew Wiederhorn

Common, I mean, if, if our, if you look at our overall cash flow, I mean, the preferred dividends are three or four times the amount that the common dividends are the common dividends are just, you know, eight or 9 million a year compared to everything else. So yes, including dividends.

Roger Lipton

Okay. Thanks very much. That's all very helpful.

Andrew Wiederhorn

Thank you.

Operator

Thank you, ladies and gentlemen. We have reached the end of question-and-answer session. I would now like to turn the floor over to Andy Wiederhorn for closing comments.

Andrew Wiederhorn

Thank you operator and thank you everyone for joining us tonight. Have a good evening. Take care.

Operator

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