Q1 2022 Burgerfi International Inc Earnings Call

Good afternoon, everyone and thank you for participating in today's conference call to discuss Burger <unk> financial results for the first quarter ended March 31 2022.

Joining us today are Ian Baines CEO of Burger fly internationally, and Mike Rabinovich CFO of Burger fly internationally.

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 1095, including statements relating to Burger price estimates of its future business outlook store opening plans same store sales and restaurant operating margin growth plans.

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

Forward 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 are subject to risks and uncertainties.

Which could cause our actual results to differ materially from those reflected in the forward looking statements.

Factors that could cause or contribute to such differences include but are not limited to those discussed in our annual report on Form 10-K for the year ended December 31, 2021, and those discussed in other documents, we file with the Securities and Exchange Commission all subsequent written and oral forward looking.

That's attributable to Burger fight or persons acting on Burger five 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 results of any revision to these forward looking statements except as required by law.

These statements and uncertainties listeners are cautioned not to place undue reliance on such forward looking statements.

The following discussion may contain non-GAAP financial measures for a discussion and reconciliation of these non-GAAP financial measures. Please see our earnings release for the first quarter 2022.

I'd like to remind everyone that this call will be available via telephone replay for two weeks starting today a webcast replay will also be available via the link provided in todays press release as well as the company's website at Www Dot Burger five dot com now I would like to turn the call over to the CEO of certified.

Ian Baines Ian.

Yes.

Joining us today and I'm glad to be here as CEO , Doug <unk>.

I wanted to take a moment to thank our team for their dedication and hard work in this challenging environment I couldnt be more proud of our team.

I couldnt be more proud of our team worked together to deliver our first quarter results in which we opened six new Burger by restaurants grew our total revenues by more than 300% and increased our adjusted EBITDA by over 200%.

During the fourth quarter of 2021 unified completed its acquisition of Anthonys coal fired pizza and wings.

The first quarter of 2022 marks the first quarter that I lead the combined company as CEO .

We are enthusiastic about the way the teams are coming together learning from each other and our ability to realize our planned synergies and continue to grow our two strong brands. It's a very exciting time here at Pogo pie.

Anthony is was a very natural fit for Buckeye pipe both brands have a strong foothold in the Florida market and other parts of the South East.

Which has created instant synergies further and finish with a compelling opportunity given the brand's strong profitability.

Profitability history, and future potential and top tier unit economics.

In addition to the revenues and EBIT contribution from Anthony as core restaurants, we see additional long term growth opportunities through unlocking the franchising growth opportunity.

The acquisition of Anthonys by bug refined and enhanced our profitability provided access to greater competencies between the two brands and leadership teams and expanded our addressable market for future growth.

Sure.

Integration of Anthonys into book into the <unk> system is going very well.

We're on track to realize $2 million in synergies in 2022, which is our first wave of the cost savings.

The acquisition of Anthonys provided us the necessary scale, we needed to continue our strategy of building a strong multi platform growth company in the fast casual and casual dining industries, and we are making significant progress towards that end.

I'll now turn the call over to our CFO , Mike <unk>, who will provide additional commentary on our performance for the first quarter 2022 financial results, Mike I'd like to turn the call over to you.

Thank you Ana and good afternoon, everyone to start I want to mention that our reported first quarter results represent the first quarter that encompasses our full quarter results from both Burger financing.

We're excited to report that our first quarter results were in line with our expectations and we are reiterating our 2022 guidance, which I will discuss in more detail shortly.

Moving first to revenues, while our first quarter total revenue, including both Burger Finance Denise was impacted by the Omnicom variant of COVID-19 in January.

We were able to deliver an impressive 311% increase in revenue to $44 9 million <unk>.

Compared to $10 $9 million in the year ago quarter, driven primarily by a full quarter of operations of Anthonys, which was acquired on November 21, and new Burger five restaurant openings.

Turning specifically to Burger Fi our corporate owned restaurant revenue increased 20%, which was driven by the addition of eight new corporate owned restaurants over the past year.

The brand reported an 8% decline in same store sales during the first quarter for our corporate owned locations and a 5% decline for our franchised restaurants as the omni Kron ferry and weighed on our results.

System wide sales for the <unk> brand in the first quarter increased 2% to $45 million compared to $39 8 million a year ago quarter, primarily due to new restaurant growth, partially offset by the decline in same store sales.

Overall for the verify brand digital channel sales comprised 36% of system wide revenue in the first quarter of 'twenty. Two we're very pleased to retain the vast majority of the digital channel component of our business relative to that of during peak COVID-19.

We will continue to invest in our restaurants, and particularly in technology with the goal of improving our guest experience raising average ticket value and managing our labor costs, while delivering a more frictionless omnichannel experience in.

In May and June we are rolling out self service kiosks to many of our corporate owned <unk> locations with early results are indicating strong increases in our average check as consumers tend to order more add on products when placing an order through a kiosk. We also have several franchisees beginning the implementation of this technology.

<unk> and healthcare experiences will translate into system wide opportunities for our franchise network.

Moving onto verifies margins similar to other restaurant companies, we felt the inflationary effects of food and beverage in labor. This quarter as a result, certifies restaurant level operating expenses were higher by 340 basis points compared to that of the year ago quarter.

Turning specifically to Anthonys, we were very pleased with the brands performance in the first quarter as same store sales rose an impressive 13% over the prior year period.

Comparing same store sales to 2019 before COVID-19.

Sales were still behind by 5%, but they improved sequentially versus the fourth quarter and previous quarters.

We estimate that sales would have been near flat when compared to 2019, excluding the impact of the omnicom variant in January .

Turning to restaurant profitability Anthonys reported a restaurant operating expense ratio of 85, 7%.

Our restaurant level sales during the first quarter.

While the brand's restaurant level margin was below pre COVID-19 levels due to the aforementioned inflation on food and labor as well as lower sales.

We were encouraged to see the first signs of recovery in food costs in five quarters, driven by the stabilization of chicken costs.

The stability and cost structure, coupled with Anthony sales recovery reinforces our view that margins should begin to improve as we move into the second half of 2022.

In addition, with price increases implemented in January and May and the procurement strategies recently implemented.

We believe that we can recapture anthonys strong restaurant level margins of 19% when sales inflationary pressures become normalized.

Moving onto pricing, we took price increases in January at Burger Fi up three 5%.

And at Anthonys in January of 2% and another 2% here in May we also plan another price increase at Burger Fi by June .

And that amount we are still developing.

Okay.

On a consolidated basis, we reported a net loss in the first quarter of $13 6 million compared to a net loss of $8 2 million in the year ago quarter.

This change is primarily the result of higher operating income delivered from restaurant operations.

Offset by higher noncash items, such as depreciation amortization of intangibles share based compensation and interest expense, resulting from the acquisition related debt and to a lesser extent, the annulus Asian of certain investments related to becoming a public company.

Adjusted EBITDA in the first quarter increased 213% to $2 3 million compared to 700 million.

700000 in the year ago quarter.

This year over year improvement was driven by the acquisition of Anthonys and Burger <unk> organic revenue growth, partially offset by the investments related to being a public company and preopening expenses related to the growth and development of corporate owned restaurants.

Moving on to the balance sheet, our cash balance at March 31, 2022 was $13 $3 million.

Compared to $14 9 million at March 31, 2021.

Reflecting capital expenditures of 700000, which primarily related to the construction of new corporate owned restaurant locations and our scheduled quarterly debt repayment.

As it relates to our unit growth.

During the first quarter, we opened six new <unk> restaurants, consisting of three corporate owned and three franchise locations.

Moving on to our outlook.

We remain optimistic about our short term and long term prospects. While January was more volatile sales month, given the surge in the omicron variant.

We saw sales improve as the quarter progressed as such for 2022, we are reiterating our previous guidance, which includes annual revenues of $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.

In total we are expecting capital expenditures to be between $3 million to $4 million for the full year, which compares to $10 7 million in 2021.

At the close of the first quarter, we have completed our new corporate owned restaurant openings for the year.

As all future locations in 2022, our plans to be franchised, we have essentially completed our new restaurants capital expenditures and Preopening costs, which will set us up for accelerating financial performance in the coming quarters.

To summarize I want to highlight that 2022 will be a year in which we focus on driving profitable growth.

Further as our synergies following the acquisition of <unk> are just beginning to ramp up.

And cost of sales at Anthonys are stabilizing we remain confident in meeting our financial guidance for the year.

Now I will 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 who have been instrumental in our success.

Our main focus on providing the guests with a frictionless experience coupled with fantastic high quality food.

To that point as we mentioned on our fourth quarter call. We are thrilled that the bug bite brand was recently recognized for the second year in a row as a top better Burger fast casual chain in USA. Today's 2022, 10, best Reader's Choice survey and the number one brand of the year and fast casuals.

100, and Shakers list for 2021.

Digital technology in off premise dining remains a major priority for us as we aim to enhance the guest experience through greater convenience and accessibility.

We have several initiatives underway to this and including self ordering kiosks and install improving our online and mobile platform amongst others.

We are also focused on building out our loyalty mobile applications and delivery features as well as our payment capabilities.

Here in May and June as Mike mentioned, we are excited to be accelerating the rollout of our state of the us self ordering kiosks to book Goodbye.

This initiative not only adds to the convenience for our guests, but it is an important sales driver as we are seeing strong increases in the check average as consumers are more comfortable and adding one items to that ticket.

Further an added benefit from the kiosk is we will be able to lower labor costs, which will be an important margin driver for us here in 2022 and beyond.

Moving into our development strategy as.

As Mike mentioned, we are very encouraged by the number of new restaurant openings in the first quarter and we believe we are well positioned to meet our new unit opening projections, calling for 15% to 20 new locations.

We also look forward to our asset light strategy of growing through franchising for the remaining units unit openings of 2022.

To this end we are nearing completion of the legal documents necessary to begin franchising one of the Anthonys brands, which we expect to commence here in 2022.

Our process of selecting franchisees has evolved to a more sophisticated selection process, resulting in new franchise partners that are well capitalized have restaurants and retail experience a deep knowledge of the geography, they do business in.

That'd be a good cultural fit for our company.

In closing we are encouraged by our first quarter results.

To continue our growth and meet our financial targets outlined for 2022.

We have two very special brands that represent quality.

Our on trend with the consumer.

And we believe we are in the early innings of our significant growth potential as we actively seek additional brands to add to the portfolio.

Once again.

I'd like to thank all of our team members for their tireless efforts and dedication.

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

Thank you Sir we will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble the roster.

Okay.

Our first question comes from Peter Saleh from <unk>. Please go ahead.

Great. Thanks, Thanks for taking the question.

I just wanted to I wanted to ask about the <unk>.

Mentioned several times.

Then there are implementations you guys are rolling out there.

I think the payback there.

Maybe four or five months, maybe even a little bit better.

Is that accurate.

So what is the governor on growth here.

These kiosks.

With the franchisees get a little more excited about this over the coming months.

Yes, so from from a company perspective, we've left the governor we put the governor opened right. So we're rolling it out to.

A good portion of our company owned locations here over May and June .

And then we've brought some of the franchisees into view and demonstrate the technology and I think like any technology there.

There is a digestion and assimilation period. So there is an early adopting group, where I think we have three or 445 franchisees that are going to be.

Boeing alive, we expect this summer.

And I think that that will then speak volumes to part of the other franchise group just.

Just like <unk>.

You and I were more familiar with it a lot of the franchisees are focused on hospitality.

We want to show them that from from our franchisees perspective.

That they can still have both they can have great great.

Great guest experience, coupled with good upsell and order accuracy.

We expect that that's in the early innings not to reuse that phrase, but I fully expect.

And believe that the franchise network and we'll continue to look at what we're doing.

And adopted because it does have a very fast payback.

Very well very affordable investment.

Excellent alright, so just maybe going back to the conversation around same store sales and you guys mentioned that.

Same store sales.

Throughout the quarter.

I've been on the ground I think nancy's would've been kind of flat to 2000.

19.

Just curious did that improvement continue.

For the second quarter.

Should we assume that.

That trend continued.

I think what I would say is there's a number of things on a versus 2019, we also have Easter and Passover calendar shifts there's a lot of little nuanced differences between March and April .

Rather than giving you our second quarter view the guide that we've provided which calls for same store sales in the mid single digits for the year would imply in order to get that we're going to have to see a continued ramp.

As we get through the year, the price increases and the stabilization.

The consumer.

We need that stability to continue so we're still optimistic.

Okay.

Understood and then is there is there any evidence from what you guys are seeing so far.

Any sort of weakening in the consumer or either trading down within your menu trading out are you seeing any evidence of that so far.

I don't see we don't.

I think we see it as evidence I think just as kind of people out there I think we're all seeing it with gas prices.

Gas prices being as high as they are it takes a chunk of wallet out and as brands like us.

And other brands that are ahead of us on price increases are doing what they need to do to cover the cost of their labor model and their food.

The inflationary environment.

Certainly has an impact we haven't seen any shift.

Average check our overall average check remains remains the same so we haven't seen people stepping down yet to your short term.

Okay understood Alright, and then just lastly on my end before I pass it along.

Can you help us with the progression of restaurant margin.

For the year.

We just reported in the first quarter here.

How should we be thinking about rest of whole margins in the context of all the pricing you're taking with it.

Please go ahead of inflation.

Yeah, Peter there was just a little bit of roughness and the line can you just repeat.

I think I got most of your question can you say it one more time.

Yes, no I just wanted to ask about the progression of restaurant level margins as we went through 2022, given the pricing that you absolutely you guys are taking.

Ongoing inflation, just trying to understand how we should be modeling restaurant level margins.

Yes so.

It's a tough it's a tough call.

I think when you compare it to 2021.

Add Anthony is we saw this they which is are we now.

We saw the food costs spiking in the summer.

And stayed pretty high.

Through the end of the year at Burger Phi we.

We didn't see the price increases much on the food side until late in the year on the labor side both brands.

Only began to really feel the pressure on labor as they moved into the second half of the year.

So when I think about operating margins and 22 by quarter and the price increases we've taken.

I think that there is going to be more improvement.

In the back half of the year.

Then in the first half of the year because the first half of the year really at the second quarter, and then only partially to the third.

It really didn't have that full cost inflation baked in.

So.

I think thats directionally answering your question without specificity, because we really don't put out quarterly guidance.

Understood. Okay, alright, thank you very much I'll pass it along thank you.

Okay.

Yeah.

Again, if you have a question. Please press Star then one.

At this time. This concludes our question and answer session I would like to turn the call back over to Mr. <unk> for closing remarks.

So thank you.

So I'd like to thank everyone for listening to today's call.

We look forward to speaking with you when we report our second quarter results in August Thanks, again for joining.

Ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines at this time.

Thank you for your participation.

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