Andrew Wiederhorn: Yes, they are coming down. There was a lot of activity in Q1 and some of that got billed in Q2 from responding to some of the litigation and motions and meetings and things like that. We’re certainly hoping that this goes away during the balance of the year. Very hard to tell if it’s built into next year. We are pursuing claims against our insurance carriers for reimbursement of that litigation expense, and we hope to ultimately prevail on that and recover a significant amount of that.
Operator: The next question comes with Alton Stump with Loop Capital.
Alton Stump: Great. Thanks, Andy. Thanks for taking my question. Just wanted to ask you, I guess, first off, you mentioned obviously the opportunity to potentially convert assets that you would purchase into Twin Peaks models. Just given the current landscape, there’s obviously been a lot of, of course, smaller players that have had of closure doors the last 12 weeks of months coming out of the pandemic. Any kind of ballpark number as to what percentage or is of your future builds, do you think fortunes in particular, could come from conversions as opposed to having to build your own restaurants?
Andrew Wiederhorn: Yes. I think to answer you very directly, it could be somewhere between 1/3 and 50% in the next few years. It’s something that we’re very, very focused on because it will accelerate the opening of those new stores by years or so, meaning it takes almost 2.5 years to find a location, build it, get it open with permitting and things like that, maybe permitting improves, but we haven’t seen it improve lately. Supply chain is much better. But if we’re able to convert some of these the second-generation restaurants, and we’ve done a bunch of conversions in the past quite successfully a whole bunch of on the Twin Peaks portfolio. Then we think it will dramatically accelerate the opening. And so I would see if that 110 or 115 store pipelines that Twin Peaks today out of that 1,100 total pipeline.
I would see probably a third, 50% of that to be conversions over the next two or three years. And we have our eye on a number of those opportunities, and we hope to announce those in the near future.
Alton Stump: Great. Very, very helpful. And then I want to ask just on going back to Twin Peaks obviously came out in early June with the plans for it to go public. I presume that the bulk of those potential proceeds would be used to pay down debt. Is that your main goal once this, if it does go through at some point in 2024?
Andrew Wiederhorn: Yes, there would be a substantial paydown of debt on the FAT Brand side, and then there would be money used to develop additional stores for Twin Peaks on the corporate side, still maintaining a very heavy balance of franchise to company-owned stores.
Alton Stump: Got it. Great. And then I guess the last thing, and I’ll hop back in the queue if you answer those questions. But just the overall competitive landscape, obviously, you guys have 17 brands. I’m sure you’re seeing a lot of different things in different markets. But given that we’re coming off industry-high pricing over the last 18 months for good reason, had to be taken because of a 4-year high inflation. But now that we’re starting to get, it feels like into a bit more moderate input cost inflation environment. How do you think your costs to respond to that from a competitive standpoint?
Andrew Wiederhorn: Well, it’s really an interesting question because it’s very different brand by brand and a little spotty even within categories. So we are seeing commodity costs come down a little bit, not tons, but definitely a little bit, which is helping with restaurant-level margins. And we’re not really feeling the pressure to continue to take price at this point like we have done before. We are trying to manage the menu mix to utilize the best margin we can realize the best margin we can, if at all possible, in terms of what we specialize in selling on an LTO basis or things like that. But it is different month-by-month and quarter-by-quarter across the category. So fast casual, we’ve seen some lumpiness where sales have rallied, sales have been soft, sales have rallied, Same thing on the [ Polish ] side.
