Operator
Good afternoon. Welcome to Twin Hospitality Group, Inc.'s third quarter 2025 conference call. Hosted by Chief Executive Officer Kim Borima and Chief Financial Officer Ken Kulik. Also joining today's call is Twin Hospitality Group's Chairman of the Board, Andy Widerhorn. At this time, all participants have been placed in a listen-only mode. Please note that this conference call is being recorded today, November 5, 2025. After the market closed, Twin Hospitalities issued its quarterly financial results via press release. Please refer to this document, which can be found in the Investor section of the company's website at TwinPeakRestaurants.com. Before we begin, I must remind everybody that part of the 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. Twin Hospitalities does not undertake to update these forward-looking statements at a later date. Actual results may differ materially from those indicated by these forward-looking statements due to a number of risks and uncertainties. For a more detailed discussion of risks and uncertainties that could impact future operating results and financial condition, please see today's earnings release and recent SEC filings. During today's conference 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. Reconciliations to comparable GAAP measures are available in today's earnings release. I also want to note that we will not be taking questions following our prepared remarks. I would now like to turn the call over to Kim Borima, Chief Executive Officer. Thank you. You may begin.
Good afternoon, and thank you for joining us today. I am pleased to share our quarterly results and highlight the progress we have made across Twin Hospitality Group. Since joining the company in May, we have been focused on driving operational excellence, strengthening margins, and positioning our business for sustained, profitable growth. We have already made significant progress on each of these fronts, supported by bolstered executive team, enhanced operational discipline, and a renewed commitment to delivering exceptional guest experience across both Twin Peaks and Smokey Bones. Assembling the right corporate leadership has been instrumental in guiding twin hospitality through the next phase. In August, we appointed Annie Wienerhorn as Chairman of the Board of Directors. Annie brings decades of experience in building and scaling restaurant brands and played a pivotal role in the spin-out that created Twin Hospitality as an independent company earlier this year. A strategic insight and deep, deep industry perspective are invaluable as we execute our strategic plans. We have also strengthened our C-suite with several key additions and one promotion. Ken Brindemill joined as president of Smokey Bones, bringing more than 25 years of restaurant leadership experience with brands including Velvet Taco, California Pizza Kitchen, Texas Roadhouse, and On the Border. Rob Cherney joined as chief operating officer of Smokey Bones. Rob previously served as VP of Uncommon Brands and spent five years in operations at Velvet Taco alongside Ken. Having worked with both Ken and Rob during my career, I have seen firsthand their operational expertise, leadership strength, and ability to drive results. Both have hit the ground running as we focus on elevating Smokey Bones' core business and strengthening their financial model. In November, Mike Wolfgang will join as new director of culinary at Smoky Bones. Mike brings extensive culinary experience from Jim and Nick's Velvet Taco and City Barbecue. He previously worked with Ken and Rob and me at Texas Roadhouse, creating a strong foundation of collaboration with our leadership team. Mike's primary focus will be returning Smoky Bones to its authentic barbecue roots. Next, Lexi Burns was recently promoted to Chief People Officer. Lexi has been instrumental in Twin Peaks expansion from 13 to more than 100 locations, and now oversees human resources across both brands. Her industry knowledge and cultural expertise will help us attract and retain top talent. Most recently, Melissa Fry joined as Chief Marketing Officer, bringing over 25 years of restaurant marketing experience, most recently with Hooters of America. Melissa is leading efforts to elevate our brand, enhance guest engagement, and drive traffic. Turning to Twin Peaks third quarter results, we delivered exceptional operational performance, expanding profit margins by 72 basis points to 17% through disciplined execution. While comparable sales declined, we sustained steady system-wide weekly sales averaging $11.3 million over the past 12 weeks, reflecting our team and franchise partners' commitment to a premier sports dining experience. Our core markets delivered year-over-year strong performance, though external headwinds in specific regions, particularly San Antonio, and Austin pressured overall results. We've positioned Twin Peaks as a premier destination for fantasy draft parties supported by new online reservation capabilities launched this year. This drove the highest fantasy football participation to date and created strong early season engagement that is carrying into weekly watch parties and repeat visits. We also had another strong promotion that drove traffic this quarter, such as National Wing Day, which featured BOGO wings and brew days on Wednesdays in September. We are making progress across our six strategic priorities for Twin Peaks. First, operational excellence. Our renewed focus on speed, hospitality, and consistency is driving sales and great results. Guest engagement scores continue to lead our competitive have set, and we have aligned each director of operation with a regional training coordinator to reinforce brand pillars and support execution in the field. Second, simplification. We have streamlined workflow, allowing teams to focus on guest engagement. Third, cost discipline. Through reduced spending, renegotiated vendor agreements, and improved food and beverage cost controls, we have achieved margin gains versus second quarter in prior year. Fourth, menu optimization and value. Guest feedback remains strong as we refine our menu and strengthen our lunch platform. Our core offerings, burgers, wings, sandwiches, and shirables continue to drive performance while delivering value and maintaining operational consistency. Fifth, pricing strategy. We are taking a measured, market-informed approach to pricing. We took a modest price increase in the second quarter would significantly offset rising costs, maintaining value perception, and traffic stability. Sixth, growth readiness. We are executing a strategic conversion program that transforms underperforming smoky locations into high-performing twin peak lodges. We have strategically optimized our portfolio by closing 11 underperforming units year-to-date and converted two locations to Twin Peaks, leaving us with 45 operating Smoky Bones locations today. Of these 45 remaining units, we have identified 19 prime conversion candidates for transformation into Twin Peaks lodges while continuing to operate 26 profitable Smoky Bones units that generate $3 million in trailing 12-month EBITDA. Our conversion strategy is delivering exceptional results, the first two Smoky Bones to Twin Peaks conversions have more than doubled revenue, achieving average unit volumes of $7.8 million compared to $3.5 million when operating as Smoky Bones locations. Looking ahead to 2026, we have a robust pipeline of conversions and new openings planned. Our third conversion in Fayetteville, North Carolina, our first franchise conversion, a new franchise Twin Peaks location in Omaha, Nebraska, a company-owned Kissimmee, Florida conversion, which is currently under construction, and two to four additional conversions contingent on securing necessary capital funding. Beyond immediate conversions, we have built a sustainable growth foundation with 82 committed lodges, providing clear visibility, with 82% coming from existing franchise partners who understand our proven model. We have also developed a next-generation Twin Peaks Proto that reduces costs and complexity through structural simplification, expanded patio space, and a more efficient 1,200 square foot smaller footprint. At Smokey Bones, we have now improved financial visibility and accountability across the field, streamlined operations through labor models, menu simplification, and reduced costs through smarter scheduling, hours, and system integration. Digitally, we are unifying platforms to strengthen loyalty, online ordering, and delivery. We have also right-sized our support center. These actions are improving profitability and setting the foundation for long-term success at Smokey Bones. And finally, I am proud to share our new partnership with Camp Hope, an organization doing incredible work supporting veterans struggling with combat-related PTSD. A special thank you to the Rosa family, our longtime Twin Peaks franchise partners in Houston and Indianapolis for making the introduction. The impact they are having is truly amazing. We are committed to executing our core principles, driving exceptional hospitality, serving scratch made food, 29-degree beer, creating an energetic, sports-forward atmosphere, driving strong unit economics, and growing responsibly with our franchise and company partners. With that, I'll turn the call over to Kim to review our third quarter financial results.
Thanks, Kim. Total system-wide sales, which includes both Twin Peaks and Smoky Bones, were $170.7 million in the quarter, a 3.3% decrease from last year's quarter. Of the total, Twin Peaks system-wide sales were $138.8 million, a decrease of 1.4% from $140.7 million in the prior year quarter, driven by the closure of two franchise locations and a 4.1% decrease in lower same-store sales, driven in part by continued immigration-related issues, particularly in our San Antonio market, mostly offset by new lodge openings. Total revenue was $82.3 million in the quarter, a 1.6% decrease from $83.7 million in last year's quarter. Looking at revenue between Twin Peaks and Smokey Bones, Twin Peaks revenue was $50.3 million, up 5.3% from $47.8 million in the prior year quarter, driven by new lodge openings, partially offset by the closure of two franchise locations and the decline in same-store sales. Smoky Bones revenue was $32 million in the quarter, down 10.8% from $35.9 million in the prior year quarter, reflecting our continued strategic conversion of locations into Twin Peaks lodges and the closure of 11 underperforming units as planned. Turning to costs and expenses, food and beverage costs in the quarter decreased 10 basis points to 27.4% in the quarter, as menu price increases were substantially offset by commodity inflation, which remained in the low single digits as expected. Labor and benefits costs decreased 70 basis points to 32.1%, reflecting improved productivity from our streamlined operations and better sales leverage. Our menu simplification test results also contributed to these efficiency gains. Other operating costs decreased 70 basis points to 22.9% in the quarter, and occupancy costs decreased 80 basis points to 8%, benefiting from the closure of underperforming Smokey Bones locations. Restaurant-level contribution margin improved 90 basis points to 9.6% from 8.7% in the last year's quarter. And looking at individual brand performance, Twin Peaks restaurant level contribution margin increased 72 basis points to 17% from 16.3% in last year's quarter, demonstrating strong operational leverage. Smokey Bone's restaurant level contribution margin was negative 0.3%, down from positive 0.3% in last year's quarter, which was expected as we continue converting higher-performing locations. Additionally, with the closure of 11 underperforming Smoky Bones locations and new leadership, we are targeting Smoky Bones to generate stronger restaurant-level contribution margins beginning in early 2026. General and administrative expenses were $19.5 million compared to $7.2 million in the year-ago quarter, with the increase primarily related to a $6.9 million store closure reserve and a $1.4 million non-cash impairment of fixed assets in the third quarter related to the closure of underperforming Smoky Bones locations, as well as higher non-cash share-based compensation. Total other expense was $11.9 million compared to $12.6 million in last year's quarter, and that loss in the quarter was $24.5 million compared to $16.2 million in last year's quarter. Adjusted EBITDA increased to $3 million compared to $2.3 million in last year's quarter. Twin Peaks adjusted EBITDA was $7.2 million compared to $6.5 million in last year's quarter And Smokey Bones adjusted EBITDA that was negative $3.8 million compared to negative $2.9 million in the prior year. Regarding our balance sheet and capital allocation, we continue to make progress on our equity raise commitments. Market conditions have improved, and we remain confident in achieving our full annual equity target range to support debt reduction and growth investments. Looking ahead to the fourth quarter, we expect continued benefit from the strong sports calendar, including college football playoffs. Our operational improvements and cost discipline initiatives should also continue to drive margin expansion. And with that, I'll turn it back over to Kim for closing remarks.
