Q4 2021 Burgerfi International Inc Earnings Call

Good morning, everyone and thank you for participating in today's conference call to discuss financial results for the fourth quarter and fiscal year ended December 31st 2021.

Joining us today are Ian Baines CEO of burgers by International and Mike <unk> CEO of bogus by International following their remarks, we'll open the call for your questions.

Before we begin today I want to remind everyone. This conference call may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995, including statements related to the Burger size estimates of its future business outlook store opening plans same store sales and restaurant operating margin growth plans and prospects.

So financial results, including projected sales restaurant EBITDA or financial results from the company's acquisition of Anthonys coal fired pizza and wings.

We're looking statements generally can be identified by words, such as anticipates believes estimates expects intends plans predicts projects will be will continue will likely result in similar expressions. These forward looking statements are based on current expectations and assumptions that as such.

The risks and uncertainties, which could cause actual results to differ materially from those reflected in before the big statement.

Factors that could cause this contribute to differentiate include but are not limited to those discussed in our annual report on Form 10-K for the year ended December 31st 2020, and when filed our annual report on Form 10-K for the year ended December 31st 2021 and.

And those discussed in other documents, we file with the Securities and Exchange Commission all subsequent written and oral forward looking statements.

Attributable to yoga Fi or persons acting on Burger fives behalf are expressly qualified in their entirety by the cautionary statements included in this conference call. We undertake no obligation to revise or publicly release. The result, and then you were missing the forward looking statements except as required by law.

Given these risks and uncertainties listeners are cautioned not to place undue reliance on such forward looking statements also the following discussion may contain non-GAAP financial measures.

For a discussion a reconciliation of these non-GAAP financial measures. Please see our earnings release for the fourth quarter and full year 2021.

I would like to remind everyone that this call will be available via telephonic replay for two weeks starting today a webcast replay will also be available via the link provided in today's press release as long as well as on the company's website at H C. T. P. S suddenly call at Ford Class Ford Class Www Dot Bergen five dot.

Com for Slash now I would like to turn the call over to the CEO of broker five Ian Thanks Ann.

Thank you operator.

Everyone.

Wherever you can join us today, and I'm thrilled to be here.

Goodbye.

I want to take a moment to express.

For our entire team.

Remainder dedicated continuing to successfully navigate this very challenging environment.

For those of you who are new to the company.

He was previously CEO of Anthonys coal fired pizza and wings unaffected.

Unaffected in November the eight if I assumed the CEO role of the combined company.

I'm very excited to combine these two premium brands as a reminder, on November 3rd 2021.

We closed on the transaction to purchase 61 corporate on premium casual dining locations operating under the name Anthonys coal fired pizza for Wayne.

Anthony was a compelling opportunity to buy.

Given its strong profitability history, and future potential top tier economics with <unk>.

Average unit volumes of $2 3 million.

Sales per square per square foot nearing $700.

19% restaurant level margins on a pre COVID-19 basis.

In addition to the outstanding opportunity for manganese call restaurants, we see additional long term growth opportunities through a smaller concept footprint that we plan to franchise beginning this year.

And a virtual brand called the roasted wings.

Furthermore, anthonys was very attractive to define as there is a significant overlap in geography with golf brands, having a strong foothold in the Florida market and the opportunity to realize both cost synergies as well as revenue.

Strategic synergies.

Through this transaction, we have strengthened our profitability.

Access to create a competencies between the two brands and leadership teams and elevated.

Our our potential growth.

Be put behind efficient strategies, and our dedicated team integration of Anthonys into the <unk> system is going very well.

And we've already begun to realize positive synergies from the business combination to that.

And we plan to realize $2 million in cost savings as a result of our first wave of synergies in 2022.

We have fantastic opportunities ahead for both brands and I am looking forward to leading the growth of the combined company moving forwards.

Our long term goal is to assemble a strong multi platform growth company in the fast casual and casual dining industries and I'm thrilled with the progress we're making towards that end.

The brand was recently recognized for the second year in your role as a top better Burger fast casual chain in USA. Today's 2022 10, best Reader's Choice survey.

The number one brand in the fast Casuals top 100, movers and Shakers list for 2021.

I'll now turn the call over to our CEO , Mike <unk>, who will provide additional commentary on our performance for the fourth quarter and full year 2021 financial results.

I'd like to turn the call over to you.

Thank you Ian and good morning, everyone to start I want to mention that our reported fourth quarter results include a full quarter of <unk> and two months of Anthonys results. Our fourth quarter total revenue continued to be impacted by COVID-19, and its variance, but we were still able to deliver an increase of 261% to <unk>.

$335 1 million in sales compared to $99 7 million in sales a year ago quarter.

Our strong revenue growth was driven by the addition of two months of Anthonys operations, which was acquired on November three 2021.

New Burger five restaurant openings and positive same store sales, which were supported by new product innovation and our high retention rate on digital sales.

For the Burger brand corporate owned restaurants delivered a 5% increase in same store sales during the fourth quarter and our franchise locations performed very well with a 7% same store sales increase.

We are making significant progress and recouping, our pre COVID-19 sales levels compared to 2019 same store sales at corporate owned restaurants were flat.

And minus 4% four franchise locations for the fourth quarter.

System wide sales in the fourth quarter increased 23% to $40 7 million compared to $33 2 million.

In the year ago quarter as our franchisees have continued to recover from the extremely difficult challenges, we all face during the peak of COVID-19.

Overall for the <unk> brand.

Channel sales comprised 36% of our system wide revenue in the fourth quarter of 2021.

We are very pleased to have retained the vast majority of digital channel component of our business relative to peak COVID-19 .

While our in restaurant dining continues to recover.

We will continue to invest in technology with the goal of delivering a more frictionless omni channel experience to drive guest satisfaction and sales.

We were not alone in feeling the inflationary cost of food supplies and later this year.

As a result restaurant level operating margins declined 340 basis points compared to that of a year ago quarter.

Turning specifically to Anthonys restaurants, we realized a $13 seven restaurant level margin during the fourth quarter. While this is well below pre COVID-19 levels due to sales not yet being fully recovered and therefore not able to lever the rest of lever the restaurant operating expenses that are fixed in nature.

We expect significant improvement in restaurant operating margins as sales continue their recovery.

Which for the two months ending December we're still 6% below 2019, but higher than 2020 by 22%.

In addition, with price increases normalization of chicken wing prices and procurement strategies recently implemented we believe that we can recapture Anthony strong restaurant level margins of 19% when sales and inflationary pressures become normalized <unk>.

Supporting this belief is that Anthony has also retained a significant portion of its digital business.

With 39% of their sales during our ownership.

Moving on to pricing.

Here in the short term given pervasive inflationary pressures on food and labor costs, We took a price increase of three 5% at Burger five company restaurants in mid January .

Which follows a 4% price increase taken late last June .

And Anthony we also took a 2% price increase in late January .

We will continue to monitor our restaurant level costs and pricing elasticity with an aim to drive normal operating margins in a more stable environment.

We reported a net loss attributable to common shareholders in the fourth quarter of $117 3 million, which compares to a gain attributable to controlling interest of $6 million in the year ago quarter.

This loss, primarily resulted from a noncash impairment charges of $114 8 million and to a lesser extent certain investments made related to being a public company.

Adjusted EBITDA in the fourth quarter was $2 6 million compared to 800000 in the year ago quarter.

This year over year improvement was driven by the acquisition of Anthonys and Burger five revenue growth, partially offset by the investments related to being a public company and those to drive the growth and development of corporate owned restaurants.

Next I'd like to recap our results for the full year 2021.

Total revenue in 2021 increased 103% to $68 9 million.

Compared to 34% $34 million in 2020.

Driven by the inclusion.

From two months of Anthonys operations. The addition of new Burger five restaurants throughout the year.

And a 14% increase in system wide same store sales.

Berger Fye brand system wide sales in 2021 rose, 31% to $166 $1 million for the year compared to $126 $9 million in 2020.

Same store sales for Burger by restaurants increased 14% and 15%.

Corporate owned and franchise locations respectively.

We're supported by an increase in average check value.

<unk> for menu innovation at the end of the first quarter price increases instituted instituted towards the end of the second quarter and an improved selling environment as compared to when COVID-19 first impacted us in early 2020.

Restaurant level operating expenses for 2021 were $50 4 million compared to $22 $1 million in the prior year period.

Restaurant level operating expenses as a percentage of sales improved for the full year.

2021 by 110 basis points compared to the full year of 2020 due to leverage from higher same store sales on occupancy costs, which are relatively fixed in nature offset by higher labor costs as a percent of sales.

Net loss attributable to controlling interest in common shareholders in 2021 was $121 $5 million.

Compared to a net gain attributable to controlling interest in common shareholders of $6 million in 2020.

The loss resulted primarily from $114 8 million noncash impairment charges.

$7 6 million of noncash share based compensation expenses.

$4 $3 million of acquisition related costs.

$1 9 million of Preopening costs.

And the investments related to becoming a public company in December 2020.

Adjusted EBITDA increased by 72% for the full year 2021.

Around $2 2 million in the prior year to $3 8 million in 2021.

This gross growth was driven by two months of operations of Anthonys being included.

<unk> was acquired on November 20th November 'twenty, one revs.

Revenue growth from Neuberger, five restaurants, and a 14% increase in Burger five brand system wide same store sales.

Offset by the investments related to being a public company.

And the investments associated with the resources to support accelerated company owned restaurant development.

Moving onto our balance sheet.

Our cash balance at the end of the year was $14 9 million compared.

Compared to $37 2 million on December 31, 2020.

The difference in cash reflects the repayment and termination of our revolving line of credit of $3 million in the first quarter of 'twenty one.

Repayment of $9 $2 million of debt associated with the acquisition of Anthonys.

As well as capital expenditures of $10 2 million.

Related to the construction of new corporate owned restaurant locations.

Next I'd like to speak to our unit growth.

During the fourth quarter, we opened six new Burger Fi restaurants, consisting of three corporate owned and three franchise locations for the full year 'twenty. One we opened 16, new locations, which represented 13% unit growth.

Further we have opened six additional locations through March of this year.

And have another 14 under various stages of development.

Most of the new locations are in markets. We currently operate in and as a result, we're excited about continuing to build on the strength of the brand in those areas.

For Anthony we are developing a smaller 2200 square foot prototype as.

As a franchising alternative to the traditional 3200 3200 square foot footprint of the company owned restaurants.

This increases our optionality on sites provides more attractive unit economics and will expand to Anthonys total addressable market.

We look forward to providing updates over the coming quarters with our.

With our progressing growth of the <unk> brand.

Moving onto our outlook we remain.

Optimistic about our short term and long term prospects. While January was a more volatile sales month, given the surge of the omicron variant, we have seen sales stabilized as the quarter progressed for.

For 2022, we are reaffirming our previous guidance.

Which includes annual revenues of between $180 million to $190 million, which assumes a mid single digit increase in same store sales.

And the addition of 15 to 20 new restaurants.

With respect to the breakout of franchise versus corporate locations. We expect most of the new stores to be franchise locations.

We did see some slippage in the number of new unit openings last year due to the challenges related to securing equipment permitting and construction delays and scarcity of labor.

That said, we are seeing a more robust store opening schedule here in the first half of 2022, resulting from these delays.

In total we are expecting capital expenditures to be between three and $4 million for the full year.

Now I'll send it back to Ian to discuss our growth plan and strategic initiatives going forward.

Thank you Mike.

Our top priority remains the guest experience and our team members with dining rooms have reopened we remain intensely focused on providing the guests with a seamless experience.

Accompanied by high quality, great tasting food.

Further we remain focus on off premise and digital dining as we continued to optimize our digital ordering solutions. So that our guests can choose where and when they want to have their meal.

Guests can order pickup and delivery through our mobile apps or through our websites or order from the largest third party delivery providers into the marketplace.

Another way.

Another way, we are looking to improve our guest experience is from continued refinement of our omnichannel experience.

We're working on a more consumer focused and data driven approach to drive engagement among consumers and ultimately increase sales and profitability.

We are also focused on building out our loyalty mobile application and delivery features as well as our payments capabilities we.

We're very excited about increasing our usage of our state of the art self ordering kiosks at Burger pie.

Which is on average resulting in strong increases in check average.

And we believe improving the guest experience.

We currently have begun rolling out to the corporate locations. In addition to some of our franchisees.

We are also testing the utilization of AI telephone entering at Anthonys to also improve that experience.

By leveraging upgraded technology and innovative multichannel services, we are excited to provide our customers with the experience of choosing when and where they want their order.

Linking upgraded technology with our refined consumer focused marketing we are confident that we will increase our brand recognition and further improve our customer experience as we progressed through 2022 and beyond.

Moving onto our development strategy.

Development strategy over the next few years will be focused on building clusters of corporate owned restaurants to leverage our scale in key cities, such as Jacksonville, Tampa, Atlanta and Nashville.

Along with franchise restaurant expansion.

From the southeast from the southeast we wanted to work our way up the eastern Seaboard, where we already operate in the Carolinas in suburbs of Washington, D C, Philadelphia and New York.

By moving North we are creating a prominent brand presence along the east coast.

Looking to other U S opportunities, we intend to pursue multi unit franchise deals in markets like southwest and Midwest, but only if they meet our rigorous criteria.

We expect our potential franchise partners in these markets to be well capitalized.

Strong handle retail experience.

And deep knowledge of the geography, they do business in.

It would be a good cultural fit for our company.

To address our opportunities outside of the Continental U S. We are already have a strong performing restaurants in Puerto Rico with plans to open additional locations in that market.

We also continue to have conversations with potential franchise partners in Latin America, which is again another significant growth opportunity.

In early 2021, we signed a multiunit deal to open six restaurants, and eastern province of Kingdom of Saudi Arabia, we.

We opened our first franchise restaurants in Saudi Arabia in the fourth quarter.

Currently have additional locations in various stages of development.

In addition, we're very excited.

The high level of interest from our franchise network regarding investing in Anthonys franchise locations, which we plan to begin later this year.

It is an exciting time at <unk> as our two premium brands are on trend with the consumer and we are early we are in the early innings of a significant growth potential.

Once again I would like to thank all of our team members for their hard work dedication and perseverance during this challenging time.

With that operator, please open up the call for questions.

Thank you, Sir if you'd like to ask a question. Please press Star then one.

Your question has been answered and you'd like to remove yourself from the queue press the pound key.

And our first question will come from Peter Saleh with <unk>. Please proceed.

Great. Thank you. Thanks for taking the question just a point of clarification.

The mid single digit same store sales guidance for 2022.

Is that strictly for <unk> does that include Anthonys and then secondly.

Secondarily.

How much of that is menu pricing at this point, if you don't take any more price for the balance of this year.

It's a good question Peter.

That mid single digit assumption is a blend of the two brands combined.

And given that we took a 4% three 5% price increase at Burger fine at 2%.

That would average out to be somewhere around two and a half so somewhere between.

A quarter.

And a third of the sales assumption is coming from price.

Understood and do you Peter <unk>, Peter I'm, sorry, I just want to add.

Further clarification to that given that <unk> also took a price increase last June .

You would see a first six month impact so maybe the overall two year rolling price impact in same store sales would be closer to half.

Okay.

Closer to closer to have okay can you just give us I mean.

Alright.

Fair.

Okay.

Do you plan to take more pricing.

Later this year job to I guess replace what you what is going to roll off sometime this summer.

The price increase that we took in January was was in reaction to the trailing.

Three to four month experience as we saw in the labor market and the food and supply chain side.

We want to be able to give the market that.

That same period of two to three four months of evaluation because taking price is is not.

Strategically what we would want to do we want to be able to offer an overall value proposition to the customer.

So as we see stabilization.

In our food and commodity prices, which we've already begun to see on the Anthony side. For example, in the chicken wings, which was one of their biggest points of pressure last year.

Those margins would begin to normalize and our initiatives would be much less focused on price having said that.

If the if the labor and food side of the equation continues to pressure through inflation, which which really we saw a lot of in the back half of last year.

We would have no choice, but to continue to look at price.

Got it understood.

Can we.

Just curious on the technology initiatives I think you mentioned.

For Burger Fi they use of kiosks and.

Anthony has some AI ordering phone ordering can you guys elaborate a little bit on what youre seeing and what youre doing that both of those brands.

Yes, so I'll talk about the kiosks I'll, let Ian talk about on the phone.

So with verify we did a test for about 120 days on four restaurants, where we have three cashier registers and we replaced three of those cashier registers with kiosks.

We saw a number of qualitative and quantitative benefits of doing that the order accuracy and therefore, the customer experience is positively affected.

Through the use of the AI and the and the intelligence within the kiosk system, we end up with an average check lift. So we've made the decision to roll that out to all corporate restaurants and that is underway now we expect that to be complete within the next 60 to 70 days.

As it relates to the.

I should add we are still going to have cashiers with points of sale.

Just adding the kiosks options within the restaurants.

For AI on the telephone for Anthony as I'll, let I'll, let Ian explain.

Not only what we're doing but what we're trying to improve and why it matters right. So anthonys, although we do have.

You said earlier, you know big digital presence in terms of ordering.

And online ordering which continues to increase for us.

Part of you know Anthony as demographic still.

The auto bi via telephone.

And obviously the peak time Friday Friday night as an example.

Five and seven years of peak times so.

Getting those telephone answered.

And also in the order accuracy and the ability of the people answering telephones to upsell.

And at times be challenging so.

We have been testing.

Hi technology.

One answering.

The number of locations now and.

The longer it runs the better it becomes.

Algorithms learn to to respond to what the guests are ordering and then and then upsell.

So early indications are that it is quite a seamless experience and then similarly to the kiosks.

We are seeing an uptick in our in the average check so.

We had experimented with.

This type of tech.

Technology about 18 months ago and quite frankly the.

Part of it.

When was it that time it was a big clunky.

So it has continued to improve.

So where are we going to go get it rolled out in fall locations I'm looking to add noise. So not all of it helps the guest experience, but it also helps our helps our team members and.

Could possibly give us an opportunity to have some labor savings.

Understood very helpful. Okay. A couple more questions on my end and I'll pass it along.

Can you just talk about the confidence and the unit development targets.

For this year.

I know a 15 to 20, but you're already at.

Six units and you've got 14 more in the pipeline.

How confident are you that you guys will hit that 15 to 20. This year is there an opportunity to outperform that number any thoughts there would be helpful.

Yes, I think that we're comfortable we're very comfortable in the range of 15 to 20.

I think that we've had a lot of learnings over the last year about what to expect in the marketplace. When it comes to the contractor at the labor and the equipment process. So I feel we both feel more.

More confident in those ranges and the delivery cycle there, they're not all back loaded towards the last two months of the year.

And then we experienced slippage and that's that's what happened last year.

Having said that given that the majority of our locations are our franchise driven and it's those independent operators that are procuring and staffing and building out their stores.

We took a lens.

We we didn't include all of the franchises that could open this year.

Because we were not in control of what they do so there there could be movement on that within that range of 15 to 20 or above that range, but that would be driven by our franchisees moving a little quicker than we've seen them be able to move over the last six months.

So we put up we put a range out there that we thought that we would not be in a position to.

Understood. Okay, and then just last question.

Yes.

You mentioned Mike.

January sales are volatile, but things have stabilized.

Is there any more color you can provide on <unk> do you care to provide any other color are you within.

Mid single digit same store sales outlook for the full year for the first quarter below that above that.

Details if you'd care to provide it would be helpful.

Yes, I will I will pause to give first quarter kind of market experiences and what's going on for our first quarter results because were in closing now.

Want to be able to comment on them more thoughtfully, but what I will provide us color on the guide.

We put out for the year.

A lot of that is based on a continued stabilization in the marketplace and so it's not an even by quarter, it's a ramping throughout the year. So the first quarter.

Component of our annual revenue guide in the first quarter component of that comp guide is not in the hot is not in the mid single digits.

It's lower than that and we would expect and expect continued improvement.

Note that last year, just as a data point last year at Burger Phi We had very strong comps in February through May.

We're going against that very strong period, where we launched a brand new product, which ended up being about 5% of our menu.

5% of our sales a swag Burger so it's it's it's not all even.

And that's why we have kind of ramping up throughout the quarters.

Does that address your question yes.

Yes, absolutely. Thank you very much I'll pass it along.

Okay. Thank you thanks Pierre.

As a reminder to ask a question. Please press Star then one.

Our next question comes from Lin Orenstein with Drexel Hamilton Your line is open.

Thank you so much and first of all thank you for all that you do for batteries.

And giving back to the veteran community I have a question will you be expanding the locations before go past delivery in South, Florida, and when do you believe mobility payment will be ready for usage.

I think I can I can begin to address the first one while I am.

And it has a response from the second one I don't think either of us do so.

On the first one we are in the beginning of our test period with Copa it's going very well.

Theyre good partner, a great pump and very creative and they have a market. So were together using the learnings of that.

<unk> of that will likely translate into wears next not if next it's worse next.

They do have a strong market in south, Florida, So that would clearly be one of the opportunities we evaluate but I don't think we're at the point together, where we would be calling out exactly where that is.

On the mobility payments I'm, just going to have to pass on that because I just.

I'll look it up I said tell me I don't even know how to respond at this point.

Okay. Thank you.

Yes.

At this time this concludes our question and answer session.

I would now like to turn the call back over to Mr. <unk> for closing remarks.

Thank you Michelle.

We are extremely excited.

About the future of these two synergistic brands.

I'd like to thank everyone for listening to today's call and we look forward to speaking with you. When we report our first quarter results in May Thanks, again for joining us.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Yes.

Sure.

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