FAT Brands Inc (FATAV) 2019 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by.

Welcome to FAT Brands Inc.

Second Quarter 2019 Earnings Conference Call.

(Operator Instructions) Please note that this conference is being recorded today, August 13, 2019.

On today's call from FAT Brands are President and Chief Executive Officer, Andy Wiederhorn; and Chief Financial Officer, Rebecca Hershinger.

I would now like to turn the conference over to Mr. Raphael Gross of IRC (sic) [ICR].

Please proceed.

Thank you, operator, and good afternoon, everyone.

By now, everyone should have access to our earnings release, which can be found on our Investor Relations website at ir.fatbrands.com in the Press Release section.

Before we begin, I need to remind everyone that part of our discussion today will include forward-looking statements.

These forward-looking statements are not guarantees of future performance and, therefore, undue reliance should not be placed upon them.

Actual results may differ materially from those indicated by these forward-looking statements due to a number of risks and uncertainties.

The company does not undertake to update these forward-looking statements at a later date.

For a more detailed discussion of the risks that could impact future operating results and financial condition, please see today's earnings press release and other SEC filings.

During today's call, the company may 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 or as a substitute for results prepared in accordance with GAAP.

Reconciliations to comparable GAAP measures are available in today's earnings release.

I would now like to turn the call over to Andy Wiederhorn, President and Chief Executive Officer.

Thank you, Raphael.

Good afternoon, everyone, and thank you for joining us today.

Before reviewing our results for the second quarter, let me first express how excited we are with our most recent acquisition.

In late June, we closed on the purchase of Elevation Burger, consisting of 44 franchise locations across the U.S. and internationally.

The $10 million acquisition was funded through a combination of sellers' notes and cash.

Elevation Burger was originally conceived in 2002 by Hans Hess as a healthier burger offering, delivering authentic, sustainably prepared food.

Elevation Burger offers 100% USDA certified organic, grass-fed, free-range beef and fresh-cut fries cooked in heart-healthy olive oil that are better for consumers and for the environment.

Their slogan of "Ingredients matter" aligns with our own commitment in providing guests with fresh, authentic, tasty food, and we are thrilled to partner with them on this next chapter.

This transaction reflects our strategy of seeking out synergistic acquisitions where we can leverage our extensive expertise and resources to propel the brand's domestic and international expansion.

We remain confident in this significant opportunity we have to consolidate franchise brands onto the FAT Brands platform.

On June 3, 2019, we announced the commencement of an offering of up to $30 million of nonconvertible preferred stock and common stock purchase warrants.

The offering is being conducted on a best-efforts basis and available to retail and institutional investors.

We are offering up to 1.2 million shares of 8.25% Series B cumulative preferred stock and warrants initially exercisable to purchase an aggregate 720,000 shares of common stock.

Each of the Series B preferred stock will be accompanied by a warrant to purchase 0.60 shares of common stock at an exercise price of $8.50 per share.

Each warrant will be immediately exercisable and will expire on the 5-year anniversary date of the issuance.

The offering will close on a rolling basis subject to customary closing conditions, commencing upon qualification from the SEC, which we expect imminently.

Turning now to the second quarter itself.

We are pleased to report that our growth in revenues was matched by an equally robust increase in adjusted EBITDA and that we leveraged our G&A expenses on our expanded top line.

Keep in mind that we closed the acquisition of Elevation on June 19, so our financial results for the second quarter only reflect approximately 2 weeks of operating performance.

Our system-wide sales rose 26.3% and were driven primarily by the acquisition of Hurricane Grill & Wings in July of last year.

While it is not our intention to report same-store sales by brand over the long term, given our increasing number of brands, we note the following: as I mentioned last quarter, Hurricane has experienced a dramatic turnaround since we took over the brand last summer.

At the time of the acquisition, the brand was comping negatively in the mid-single digits; however, with the launch of a new advertising campaign, Hurricane's same-store sales rose 4.9% in the second quarter.

Fatburger's same-store sales were slightly negative in the quarter, as its Q2 2018 performance was positively impacted by promotions with certain of the third-party delivery providers resulting in same-store sales falling by 1.7% in this quarter comping against the previous year's quarter.

The steakhouse brands were also slightly negative in the second quarter as 25 of our restaurants are located in Puerto Rico and are lapping the very strong performance last year following Hurricane Maria.

There, in Puerto Rico, our restaurants served as a home base to many impacted residents and aid workers.

Now returning to more normal levels, the resulting same-store sales fell by 2.7%.

We are encouraging our steakhouse franchisees to commit to an advertising program similar to what we ran for Hurricane and Buffalo's, and we believe those direct marketing efforts will rightsize the sales and traffic trends for Ponderosa and Bonanza.

As a reminder, we continue to focus on 4 key strategic initiatives designed to drive sales and traffic growth across our brand: first, third-party delivery, which has been incredibly successful for us.

We were a pioneer partner in the delivery space testing all kinds of programs with Postmates and Uber Eats.

We believe we are still in the beginning stages of delivery's potential.

Delivery has been implemented in all Fatburger restaurants and we are midstream in implementing it across other brands noting that it is not yet available in every market where we have restaurants.

Second, our CapEx remodel program.

Restaurants that have undergone significant remodels have experienced material increases in sales that we believe are sustainable.

This program is coupled with the conversion of certain locations into co-branded locations.

We estimate that co-branding results in 20% to 30% increases in average unit volumes compared to stand-alone stores with minimum incremental cost to the franchisee.

Third, menu innovation across menus at all of our brands.

We have the Impossible Burger in our Fatburger, Buffalo's, and Buffalo's Express, Hurricane and Yalla brands, and we are currently working through a plan to extend the reach into our steakhouse brands and the newly acquired Elevation Burger.

And lastly, we will continue to focus on cross-selling brands to existing franchisees.

We have a very strong network of franchisees around the world who are eager for growth through new physical restaurants as well as through virtual kitchens.

We believe these strategic initiatives will drive increased same-store sales growth across our brands.

On the development front, our franchisees opened 8 new restaurants during the quarter: a co-branded Fatburger Buffalo's Express in Huntington Beach, Glendora, and Monrovia, California; in Trout Run, Pennsylvania; and Pine Centre and Langford, British Columbia; in addition to a Fatburger in China World Mall in Beijing, China; and 1 in Tempe, Arizona.

We ended the quarter with 386 restaurants worldwide across our 8 brands.

Subsequent to the end of the quarter, franchisees have opened 3 additional restaurants: a Fatburger in Beijing in Pacific Century Place, marking the 6th opening of Fatburger in China; another Fatburger on the East Coast, in the Cherry Hill New Jersey Mall; and an Elevation Burger in Kuwait.

On a year-to-date basis, we have opened 16 franchise locations so far.

And by comparison, franchisees opened 14 locations during the full year of 2018.

We continue to expect our franchisees to open approximately 30 units in total this year.

On the development pipeline, it remains very strong, consisting of over 200 restaurants worldwide yet to be built.

And in addition, we continue to seek new development deals with both new and existing franchisees.

During the second quarter, we announced several new development deals.

They include a 3-unit development deal for co-branded Fatburger Buffalo's Express locations in the Dallas-Fort Worth market; a 10-unit development deal for co-branded locations in Canada; a 25-unit development deal throughout Dallas, Houston, San Antonio and Austin, Texas; a development deal for Fatburger in Albuquerque, New Mexico in partnership with Isleta Resort & Casino; and a development deal for Fatburger in the Rolling Hills Casino in Northern California.

As you can see, our robust pipeline continues to grow, and we expect this pipeline to fuel even greater unit expansion in 2020.

We continue to expect adjusted EBITDA of $9 million to $11 million for the full year 2019.

Adjusted EBITDA through the first half of the year was $3.6 million, bringing the annualized total to $7.2 million.

So let me help you bridge the gap to the $9 million to $11 million number.

As you know, we can only recognize store opening fees as revenue once the stores have been opened.

Based on our pipeline for development for the remainder of the year, we anticipate an uplift in royalties and franchise fees of another $1 million to $2 million on an annual basis.

Additionally, our refranchising program allows us to opportunistically acquire and resell franchises or convert operating restaurants into franchise locations, thereby growing our store count and augmenting our royalty and franchise fee revenue streams.

We are beginning to recognize incremental income from our refranchising program, which is anticipated to generate additional EBITDA of $1.5 million to $2.5 million on an annualized basis.

The combination of these elements and the timing of each gets us to the $9 million to $11 million full year figure.

And to note, the acquisition of Elevation Burger was not previously included in our expected EBITDA estimates and looks to add another $2 million to $2.5 million in annualized EBITDA from additional royalties, franchise fees and store opening fees.

That could get you up to $13 million.

In summary, the opportunities ahead for FAT Brands are considerable, and we are well positioned for growth.

We have a strong and dynamic brand management platform capable of smoothly and cost-effectively integrating new brands.

We have several strategic initiatives in place that we believe will drive same-store sales growth in our existing brands, and we have a healthy and growing development pipeline that will fuel organic growth for many years to come.

Our acquisition pipeline is equally robust, with several opportunities for synergistic acquisitions that would leverage our platform.

We look forward to updating you on our progress on future calls.

And with that, I'd like to turn the call over to our Chief Financial Officer, Rebecca Hershinger, to review our second quarter results in greater detail.

Thanks, Andy.

Total revenue in the second quarter of 2019 was $5.9 million, an increase of 50.8% from $3.9 million in the second quarter of 2018.

The increase was driven primarily by the acquisition of Hurricane and the resulting increase in royalties as well as increases in franchise fees and advertising fees.

As you know, advertising fee revenue is directly offset by advertising expenses resulting in no impact to our profitability.

Revenue, excluding advertising, was $4.9 million in the second quarter, an increase of 48.4% from $3.3 million in the second quarter of 2018.

Cost and expenses were $4.5 million in the quarter, an increase of $1.4 million from the second quarter of 2018.

These costs include G&A expenses, advertising expenses and refranchising restaurant costs and expenses net of revenue.

In the second quarter of 2019, G&A totaled $3.2 million -- $3.0 million compared to $2.5 million in the second quarter of 2018.

Advertising expenses, which, I explained before, are equal to advertising fee revenue, increased to $1 million in the second quarter of 2019 from $630,000 in the second quarter of 2018.

Our refranchising restaurant costs and expenses net of revenue were $503,000 during the second quarter of 2019, with no comparable activity in the second quarter of 2018.

Adjusted EBITDA in the second quarter more than doubled to $2 million compared to $945,000 in the second quarter last year.

As a percentage of total revenues, excluding advertising fees, adjusted EBITDA improved to 42% for the second quarter of 2019 from 28.8% for the second quarter of 2018.

Other expenses were $566,000 in the second quarter of 2019 and included net interest expense of $1.3 million and other income of $846,000.

This compares to $342,000 in other expenses in the second quarter of 2018, inclusive of $300,000 in net interest expense.

The increase in net interest expense quarter-over-quarter was driven by our higher debt balances.

We recorded a provision for income taxes of $1.3 million for the second quarter of 2019 as compared to a provision for income taxes of $112,000 in the second quarter of 2018.

As you know, effective October 20, 2017, the company entered into a tax-sharing agreement with our parent company, Fog Cutter Capital Group, whereby Fog Cutter will, to the extent permitted by applicable law, file consolidated federal and state income tax returns with the company and its subsidiaries.

And the company will pay Fog Cutter the amount that its current tax liability would have been had it filed a separate return.

Net loss was $508,000 in the second quarter of 2019 or a loss of $0.04 per diluted share as compared to net income of $373,000 in the second quarter of 2018 or $0.04 per diluted share.

As I explained a few minutes ago, we recorded a provision for income taxes in the quarter of $1.3 million, the majority of which is noncash.

In terms of liquidity and capital resources, we ended the quarter with $540,000 in cash, $23.5 million in term loan debt, $14.5 million in redeemable preferred stock outstanding and a net of $5.2 million in sellers' notes and sellers' receivables related to the Elevation acquisition.

With that, this concludes our prepared remarks.

And we are now open -- happy to answer any questions you may have.

Operator, please open the line for questions.

(Operator Instructions) Our first question is from [Marty Cohen], private investor.

A couple of quick questions, and 1 major question.

We spoke about the FCCG-FAT merger and how we're moving along with that?

I know you said sometime that we might be able to...

Sure.

Let me update you -- we -- the professionals are in the middle of the audit of Fog Cutter now.

You know, I believe, that we hired a new accounting firm back in May as our previous auditors exited the public company accounting business, and they're up to speed.

They're in the middle of the Fog Cutter audit.

It's quite an extensive project.

We're hoping that they finish it in the coming months.

And that we can then turn to figuring out the details of the merger and the related shareholder statutory notice period and vote and all that, with the aim of completing it by the end of the year.

Making it effective by the end of the year, so we're pretty much on track.

I would be able to give you more specifics by the time -- once we know the audit's done.

But until then, we're pretty much on track.

All right.

So we're on board to do that merger, correct?

Right.

Both Boards have to vote and approve it.

Shareholders have to vote and approve it.

I think it will -- obviously, I think that all of this is still fine, but -- it's not like we don't have the votes, right?

But anyway, we are moving forward just as fast as we can, and we're in the middle of it.

It's not like we're going to start it.

We are in the middle of it.

I know because that will give us the liquidity we need and maybe bring some big shareholders onboard because this stock has been an absolute disaster.

Agreed.

Have you ever thought about buying back some of the stock being it's down about 8 points from the IPO?

We have thought about it.

There are some limits to what we can do.

And also, until our cost of capital and the refinancing is completed, we're not going to use cash to do that, but it's certainly not out of the question, subject to the regulatory limits.

Okay.

One last thing.

What -- how's the dividend situation as far as the stock dividend goes to the common shareholders?

Yes, so we've had some disagreement amongst the shareholders about whether to pay a stock dividend or not versus the cash dividend, which we decided not to pay until the borrowing costs come back in line.

So we just waited, as a Board, until the refinancing's completed.

And then, we'll address the dividend policy as part of that.

But right now, it's just on hold.

That's it for me.

Just hope that FCCG merger goes through.

I think that's the whole key to moving the stock forward.

Thank you.

Our next question is from Lenny Dunn with Mutual Trust Company.

Sure.

I have a couple of questions.

My concern is that you can get rid of this very high interest debt that you have with Biglari and it's -- I am assuming, and correct me if I'm wrong, that as the preferred tranches get done that you'll use that money first to get rid of the extremely high interest rates.

Is that a reasonable assumption?

It is.

A couple of things.

The preferred stock offering was filed in early June, the SEC has indicated that they're ready to approve it, however, our numbers go stale tomorrow.

So we have to refile with this 10-Q that will be filed tomorrow with that data updated in the preferred offering, and I believe that by next week, we'll be qualified and able to move forward with the offering.

And yes, those shares are attractive as the source of capital at a reasonable cost to retire the Lion Fund loan.

We also have an active debt refinancing process underway with -- even with term sheets in hand, but we want to see how well the preferred stock offering goes as well because that seems to be the lowest cost of capital today.

So we're all over making that debt go away as quickly as possible.

As you can tell from the tone of public filings that there is a warrant associated with that debt that is now pushed out a year, so it gives us plenty of runway here to negotiate the best deal possible and consider all the alternatives from a term loan to securitization to the preferred stock offering.

Yes, if I read the preferred offering correctly, that can be paid in kind, which even though that may be expensive, does not hurt cash.

Is that accurate?

The new preferred stock offering?

Yes.

I think it's a cash pay, 8.25% preferred.

There may be a paid-in-kind feature to it that I don't remember sitting on this call, but it's intended at 8.25% to be paid in cash.

Okay.

Even that's better than the -- it's 1/3 of what you're paying to [finance it].

Right.

We were -- we were spending -- look, if our cost of capital should be 10% or less and we're paying on a portion of our capital this senior secured loan, at a much higher rate, it's costing us an extra $500,000 a quarter, we want to refinance it as quickly as possible.

But I don't want to move from deal to deal to deal and have an interim deal that has a lot of fees and expenses and prepayment involved if we're going to ultimately get a very reasonable deal done here in the next couple of months.

So that's the only reason that -- why it's taking a little bit of time.

But I assure you that there are active discussions going on presently.

Okay, well, the meter runs while you're discussing it.

So...

Right.

But that's my point that if we go down one path that's expensive, right, every deal that you do costs hundreds of thousand dollars in legal appointing...

I am more than aware of that and don't want to see you spend $100 that you don't have to spend.

Right.

So that's the only issue, really.

Okay.

Then my next concern is that I'm not quite sure why you don't -- why you can't pay a pay-in-kind dividend to your common shareholders, what the holdup is here because if you're going to do it, you just do it.

So as discussed a minute ago, there's a lot of different opinions about the dividend with the outstanding high cost of capital.

We could agree that a stock dividend is neutral to all parties, it's paid to all parties, right?

But some people don't like the stock dividend because it's raising the earnings per share threshold.

Even though you have more shares, it changes your earnings per share threshold.

So we just decided to wait and announce, loud and clear, the permanent financing.

And once we can do that, then we can revisit the dividend policy.

That's really the issue that's holding it up.

Okay.

And with this new preferred, how much do you have to sell at a time in order to close part of it?

It's a rolling close.

There's no minimum to the amount.

Okay.

So I certainly don't wish it on you, but if you sold only $200,000 worth, you would close on $200,000.

Would that be...

Correct.

Yes, I mean I think it -- I'm hoping that it's a couple of million a month at a minimum, but we'll see.

No, I understand that.

I'm -- so am I. I'm just asking the question.

I'm not wishing it on you, believe me.

And the -- the stock, as the first caller said, has been a disaster of late because without paying even a stock dividend and with the vagaries out there, with the amount of interest that you're paying to the Lion Fund, nobody wants to buy the common apparently.

And even the small amount of institutional interest that you had seems to have disappeared from the recent filings.

So I think when you get this behind you, which shouldn't be too far out, are you going to go out and do a roadshow, so you can -- we can get some institutional interest in the company?

Yes, as soon as -- these key things that we're talking about here, between now and the end of the year, refinancing one direction or another either a term loan or securitization and the completion of a certain amount of preferred and the announcement of the details of a merger, I think, set the stage for a roadshow because it takes away all of those things that people are waiting to see.

And also -- look, we just printed a really, really strong quarter of EBITDA and I just gave a bridge to the $9 million to $11 million, if not more, of run rate EBITDA and calendar year EBITDA.

And I think demonstrating that growth in EBITDA is important as well and so those coupled together, we'll be very willing to do a roadshow, and I think we'll see some real attraction to the stock and movement.

(Operator Instructions) Our next question comes from Adam Wyden with ADW Capital.

Andy, congrats on a strong EBITDA quarter.

So I just have a couple of follow-ups.

I think most of my questions are more or less covered.

Just on the preferred, maybe starting June, is there any -- I mean could you close $2 million every quarter and just refinance $2 million of Lion every -- sorry, $2 million every month?

Or are there like, I guess, the previous caller was asking, I mean, I think, obviously, you're selling it through more Reg A offering, so it will go out in tranches, but I mean is there anything stopping you from closing $2 million a month and then refi-ing out $2 million of Lion a month?

Or is there a natural, like, level that you need to get to?

And can you comment on how much you've sold so far?

Yes.

So we're not qualified yet to sell any -- the SEC just told us last week they are ready to -- or early this week, they are ready to qualify us, except that knowing that our numbers are going to go stale tomorrow, we have to refile the numbers tomorrow or the day after tomorrow.

And then, within a couple of days, I think they'll qualify us.

So we haven't sold any yet.

But in answer to your first question, absolutely, closing a couple of million a month would chip away very quickly, between now and the end of the year at the Lion Fund debt.

And there are a lot of other alternatives to come in replacement of that debt depending on the path we're going down now.

But absolutely, that's the plan, as quickly as we can.

Okay, good.

So I guess the idea is you're going to go close, close as much as you can a month.

And then, there is no disadvantage in terms of paying it down.

So every month you close a little bit of -- well, you can pay back Lion and the thing starts coming down.

Do you have a sense of, like, how long...

Right.

The loan goes for another year.

The loan has 11 months to run and at $2 million a month plus all the retained earnings, if we're not paying out a dividend, there is a very clear path here to pay off the Lion Fund.

Lion has also said they would renegotiate the rate to a substantially lower rate if we wanted to if we raise some more equity like the preferred.

So that's another option, but I don't think it's ever going to get to a rate below 15%.

So I don't think that's going to be the long-term solution.

We really want to get our cost of capital below 10% from a debt perspective, and so we're pursuing those things at the same time.

Right.

And on that, I mean, I'm curious on your bridge, you bought Elevation for $10 million, it sounded like some combination of that is cash and seller notes and just from what I heard from Rebecca, it sounds like your kind of total -- your total debt and preferred as it stands today, at least is the way I heard, is roughly $40 million.

Is that right?

I think I heard like $35 million plus another $5 million in seller notes, so plus or minus $40 million of kind of debt in preferred as it stands today.

Is that more or less right?

It's about $43 million between...

$43 million.

The reason, $23.5 million or $24 million of Lion fund debt, and then there's $10 million of preferred A, so that gets you to $34 million.

And then there is about $9 million of seller notes and preferred A1 stock, which is all very low-cost 6% type money.

When -- even when we bought Elevation Burger with a $3 million of cash added onto our Lion Fund rate, so at a high rate, 20%, but the seller notes are at 6%.

So on a blended basis, it was only like a 10% incremental cost of capital deal to make the acquisition and it's throwing off to us more than $2 million a year annualized.

So it was really a good acquisition, but I don't plan to do many more of those until we get the Lion Fund note reduced.

So that $9 million to $11 million, does that include Elevation?

Or it sounds like Elevation is upside to the $9 million to $11 million you quoted.

Yes, I think that Elevation -- so I think if you look at $11 million, that you could say that's the conservative middle point of the increase in royalties, the increase in refranchising, and you add in Elevation.

If we fire on all cylinders and franchising goes very well, it could be $13 million, but I'd like to guide everybody safely to the $9 million to $11 million, more focus on the $11 million side, and over deliver is better than under deliver here.

And as you look forward to 2020, I mean, let's say you just focus on generating cash and deleveraging and organic growth, can you comment on kind of what you see in -- the franchising businesses are great because once you add your fixed cost, every incremental new store pays you a royalty.

And you've got delivery and you've got all this throughput.

I mean your public company costs, you've got CEO, CFO, headquarters.

Can you talk a little bit about how you see 2020 like the move from -- what you're run rating in '19 into 2020, assuming you kind of get your store schedule and your franchise royalties in conjunction with the new store openings?

I mean, assuming you don't do any more deals, how do you think about kind of EBITDA going into kind of what you could be in 2020?

We could be at a $15 million 2020 number just from the organic growth of incremental stores.

So it would be more like 50 stores or 60 stores in 2020, not 30 stores, because of the additional brands we've acquired and the development foundation we've laid this year.

We have a lot of stores under development, a lot of orders for new stores.

So we could squarely come in -- and the refranchising efforts, we could squarely come in close to $15 million, which would be great.

We'd be very happy with that.

That's if we don't make another acquisition, we just grow what we've got.

Right.

So I mean this kind of back-of-the-envelope math, if I'm at a $43 million market cap plus or minus and $43 million of that is $86 million, and you're saying you have line of sight to $15 million next year, I mean you're saying that you think the business could be trading today at like under 6x?

That's right.

Yes, absolutely.

Right.

Well, that's pretty good for a franchise business that's growing.

I mean -- and presumably, as you kind of get that and maybe I would think that your financing sources would get better.

I mean in terms of you get the preferred done, the EBITDA keeps going and maybe you're able to get a credit facility or a term loan or something like that, I mean, presumably it should flywheel in terms of your cost of funds as the EBITDA comes up as well, no?

Right.

The fixed overhead, as you just commented on, it's solid.

We built capacity with the adding of team members here in our accounting side and in our back office, so we can handle additional unit count very smoothly internally and externally.

We could handle a couple more acquisitions if they were small without adding to that, but we're in a great place to leverage the platform now.

And incrementally, as we've talked about before, instead of having 20 -- so if our revenues are $24 million and -- or $25 million, and $4 million or $5 million of that is advertising, so you take that out on both sides and you have an $11 million net, it's sort of a 50% net.

But incrementally, as we add these acquisitions, it's like 65% to 75% or even 75% to 80% to the bottom line.

So that's going to leverage across the platform and the organic growth that's set up is strong.

Now on the financing side, there are a bunch of proposals that we're considering, but there -- some are expenses, some are reasonable, and I just want to pick the right one.

Like I just said to Lenny, I don't want to do 2 deals in 12 months.

So I'm just trying to flush out the details of the last couple of alternatives, so we can pick a path and go down that path.

And hopefully, I don't know if we'll get it flushed out before the end of August but, for sure, by September we will, and then we'll be on our way.

let me ask a question.

So obviously, you're limited from a -- your debt -- your cost of debt is pretty expensive.

I mean if you were able to -- obviously, at under 6x next year, you don't have a lot of flexibility in terms of being able to purchase M&A.

But I mean if you were able to get the stock up even just a little bit or even here for that matter, if you could buy assets at 3 or 4x pro forma, would you be comfortable using equity to do those?

I mean if they were still accretive just to get you -- get some more scale?

I mean do you think there is some asset deal that you could do, and would the sellers be willing to take some stock or more seller notes?

So I am in the middle of looking at several deals just like that, where just like -- Elevation is a perfect example, where we used a little bit of cash and a seller note.

Hurricane was the same deal with a little bit more cash and a little bit smaller preferred stock instrument, but it's like a seller note.

So I think those will make sense.

I don't want to go do an all-cash deal at 20% interest.

But if we use a little bit of cash flow from retained earnings and we do a seller note, I think it makes a lot of sense.

Like I used the example for Elevation Burger, where our blended cost of capital to purchase Elevation Burger was 10% or 10.5%, that was very reasonable.

So yes, if we can bootstrap on a couple of additional acquisitions that will feed the platform, absolutely I think that makes sense.

Yes.

I mean, look, I definitely think, with the first caller, if you guys can get Fog -- merge Fog, I think that will help from a liquidity perspective and kind of take away -- take away an overhang.

And then to the extent that you guys can continue to put up EBITDA and kind of get your platform going, I think your cost of funds will -- should come down implicit in that and attract more eyeballs.

So congratulations on a good first move.

Thank you.

This concludes the question-and-answer session of our conference.

I would like to turn the conference back over to management for closing remarks.

Thank you, operator.

I want to thank everyone for taking your time to listen and participate in today's call.

This concludes our call.

Feel free to reach out to us if you have any further questions.

Thank you very much.

Thank you.

You may disconnect your lines at this time, and thank you for your participation.