Q3 2022 Burgerfi International Inc Earnings Call
Good morning, everyone and thank you for participating in today's conference call to discuss <unk> Internationals financial results for the third quarter ended October 3rd 2022.
Joining us today are Ian Baines, CEO and Mike <unk> CFO following their remarks, we'll open the call for your questions before we begin today I want to remind everyone that this conference call may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995. These forward looking.
Statements may be related to Burger fives estimates of its future business outlook liquidity like Lake witty store opening plans same store sales and restaurant operating margin growth plans prospects or financial results, including projected sales restaurant EBITDA or financial results from the company's acquisition of anthem.
These 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 are subject to risks and uncertainties, which could cause the company's 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 the annual report on Form 10-K, and the year ended December 31, 2021 and Theres disclosed in other documents that the company files with the Securities and Exchange Commission all subsequent written and oral forward looking statements.
Attributable to Burger Fi or persons acting on Burger fives behalf are expressly qualified.
In their entirety by the cautionary statements included in this conference call.
The company undertakes no obligation to revise or publicly release the results of any revision to these forward looking statements except as required by law.
Given these statements 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 and reconciliation of these non-GAAP financial measures. Please see the earnings release for the third quarter 2022, I would also 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 today's press release as well as the company's website at Www Dot Burger Fi Dot Com now I would like to turn the call over to Burger Fries CEO , Ian Baines Ian.
Thank you for joining us today and we appreciate your continued interest and goodbye.
I'd like to begin by thanking our entire team franchisees and their employees for their dedication and hard work in this challenging environment.
Now I will recap our third quarter performance and then discuss our current initiatives following that Mike will review the third quarter financials and provide an update on our 2022 guidance.
I am pleased to report total revenue grew 290%.
$43 3 million in the third quarter compared to $11 1 million in the third quarter last year.
A significant increase in revenue over the comparable period was related to the acquisition of 61, corporate Anthonys coal fired pizza and wings in November 2021.
And the addition of new corporate Oh, Bugger Pi locations.
And then he's continues to see a sales uptick with increased sequentially through the third quarter and continued into the month of October .
The brand sales were above that of 2019 for the first time since the pandemic began.
Our third quarter consolidated system wide restaurant sales decreased 1% to $76 million as we saw a 5% decrease at FERC to Fi, which was offset a 4% increase in anthonys.
System wide comparable same store sales decreased 2% for the quarter, consisting of a 7% increase decrease but a good part and a 3% increase.
We grew adjusted EBITDA, almost eight times to one 6 million in the third quarter compared to the prior year quarter.
Bringing our year to date adjusted EBITDA to $6 5 million.
Primarily driven by the acquisition of Anthonys.
However, as a result of the lower than expected sales of drug supply and various cost pressures due to the current economic environment. We are now projecting between $9 million to $10 million and adjusted EBITDA for the full 2022.
As you know hurricane in med landfall in our home state of Florida on September 28.
All restaurants, we opened within a few days and we had them all fully operational since we.
We estimate the Hurricanes had a neutral impact on Anthony sales as the majority of our Florida restaurants are on the East coast.
However, it had a slightly negative impact on further buys revenues as we have a high percentage of sales sorry, a high percentage of restaurants on the west coast of the Florida market.
I would like to express how proud I am about teams and how hard they work after the hurricane to ensure that our restaurants could reopen quickly so that our guests can enjoy and continue all continued to enjoy all food.
As of October 3rd our portfolio consists of 117 verify restaurants 25, corporate owned 92 franchised and 61 corporate Anthonys.
We did close one underperforming anthonys restaurant in October .
Similar to other restaurants.
And the industry permitting and construction delays have affected our franchisee partners ability to open their restaurants on their original timelines.
During the third quarter, we opened one new franchise Burger by restaurant, bringing our year to date openings to nine restaurants by the third quarter.
We plan to open two more franchises in the coming weeks.
Final opening this year is scheduled for late December .
Or a grand total of 13 locations 10 franchise and three corporate.
Yeah.
We are also growing our footprint through virtual kitchens. This growth opportunity enables us to further expand and capture a new customer base, while building brand awareness with no capital investments of our own.
To date, we have opened 22 go pump fresh food halls with plans to open eight additional locations by year end for a total of 30 go Pup fresh food halls.
These units are incremental to our original growth targets.
By acquiring Anthonys last year, we now have the opportunity to cross sell franchising across both brands and foster attractive multi year multi concept franchise deals.
As we look ahead similar to our growth strategy of Burger by future growth at Anthonys will be focused on asset light franchise model.
Which facilitates brand expansion without significant capital investment on behalf of the company.
To this end we're also thrilled to announce we have signed our first multi unit development agreement for Anthonys with one of our largest burger by franchisees or three locations over the next three years.
We expect initial location to open in the spring of 2023, I think co brand dislocation.
This franchisee will be incorporating in anthonys into one of their existing Burger buys located in Kissimmee, Florida.
Co branding is another great opportunity for us to drive sales and leverage margins through combining two of the fastest growing categories burgers and pizza is under one roof.
My team has been focused this year on finding well capitalized franchisees with restaurant retail and hospitality experience.
Bringing these operators into our system will result in a more disciplined and profitable growth over the long term.
We believe Burger finance Denise has a long runway of organic growth ahead, and we are in negotiations with several interested parties for both brands and the pipeline is looking strong for 2023 and beyond.
Looking ahead to 2023 at this time, we plan to open 15 to 20, new restaurants, all of which will be franchised.
Now I would like to update you on some of our other strategic initiatives, starting with BARDA by last quarter, we on boarded a new advertising agency to drive brand awareness.
Capitalizing on Burger by his unique attributes of quality fresh ingredients and our chef inspired offerings I am thrilled to announce it in October in conjunction with our new advertising agency Burger by launched a brand new campaign <unk>.
<unk> your appetite.
To further strengthen our positioning in the better Burger category.
This new positioning will amplify the unique flavors and quality bugger buys fresh preparation.
Premium options and taste of intelligence without the guilt.
The amplify our appetite campaign marks a refreshing of the brand's positioning based on leveraging a better for you all natural Burger experience as a unique differentiator.
The tone and messaging of this campaign followed an in depth customer research study that identifies how guests connect with bug, a pie and what they want into the future.
We also plan to expand our value offerings and L. T O program at Burger Pi to enhance the guest journey.
In August <unk> partnered with well known industry share Cliff Clos and launched the Juicy Lucy bucket, which ran through September 19th.
We plan to continue having fun with menu innovation offering even more variety with new L. T O menu items ideal for anyone who wants to reward themselves with a better Burger.
Now, while it shows a bug or well below our expectations in the third quarter.
As a result of lower sales leverage.
Restaurant level margins continued to be pressured.
We believe our enhanced focus on marketing operations and day to day execution will be effective in translating to stronger financial returns in the coming quarters.
Our guest satisfaction scores continue to improve and we've begun to see a stabilization in labor, which will lead to better operational performance and we are confident we have the right plan in place to drive growth for this brand.
Turning to Anthonys continue to lean into digital marketing and our loyalty reward program to drive awareness Theres had been paying dividends as seen in our increase in same store sales. We're also seeing an increase in sales outside of our home market of Florida, where brand awareness.
Not as powerful.
What do you believe this demonstrates our marketing efforts are resonating with our guests.
As a result of this sales improvement we are continuing to see margin recovery at Anthonys.
While our margins are not yet achieved our pre pandemic levels. We are optimistic that we can improve profitability over the short and long term.
We have also begun to see commodity prices ease in some categories, especially chicken wings. We expect this to continue into the fourth quarter and be a tailwind for our margins.
Across both brands, we have several digital initiatives underway to improve operations and increased sales, including the continued rollout of self ordering kiosks building, a loyalty program and enhance mobile and delivery platforms.
In November we launched our new App, It bugger pie, which features a better guest experience in office more benefits to the guests such as the sale of E gift cards amongst other features.
In addition, the outcome tanja prominent linked toward Anthonys brand website.
We are engaging in a cross brand marketing possibilities.
Technology improvements will also allow <unk> to leverage new data and research to grow and elevate the overall guest experience.
Now turning to kiosks, specifically as of today 22 of our corporate holmberg of buys and 10 franchise owned drug supplies have kiosk available for ordering and we expect more will begin to adopt the technology as time progresses.
He asked can be a high margin channel as they allowed us to market directly to our guests add ons and upsells ensure order accuracy and redeploy or reduce all labor.
But Anthony is we are fully rolled out our AI technology phone entering system for Dol is still liked to call. In August this is especially helpful. During off peak periods.
Early indications are proven that this is a seamless experience and similarly to the kiosks, we are seeing an uptick in the average check by guests to choose to use this channel.
Before turning the call to Mike I'd like to share that for the month of November we joined forces with Marcum LLP.
Set up by one of the nation's leading accounting and advisory firms to provide hurricane in relief to those in need in southwest Florida.
So your financing needs will donate a portion of proceeds along with encouraging guests to dine in and donate to the Red Cross.
I started able to add a dollar to their meal to Burger pie I'll round up but Anthony.
And my complaints to match up to about $10000 in donations.
So in closing.
We have two very high quality brands that are on trend with the consumer and we believe we're in the early innings with both brands since we believe they have significant white space for growth ahead.
Laser focused on enhancing operations and driving sales to achieve profitable growth.
Once again I'd like to thank all of our team members for their tireless efforts and dedication.
I'll now turn the call over to our CFO , Mike Rabinovich, who will provide additional commentary on our third quarter 2022 performance go ahead Mike.
Thank you Ann and good morning, everyone. As a reminder, we acquired Anthonys on November three 2021, I will speak to our reported results which include Anthony for the third quarter of 2022.
Additionally, I'd like to remind you that in July our board of directors approved the company's change to a 50 253 week fiscal year ending on the Monday nearest to December 31 of each year in order to improve the alignment of the financial and business processes. Following our acquisition of Anthonys.
This change is reflected in our fiscal third quarter financials ended October 3rd.
As a result, our current fiscal year will now end on January 2nd two.
<unk> 2023.
Let me start by discussing our financials in greater detail.
Third quarter total revenues were $43 3 million, increasing 290% from $11 $1 million for the same quarter last year.
This increase was due to approximately $31 $5 million of sales contributions from Anthonys, which was acquired late last year.
Shifting to our segments results for the third quarter. The Burger five corporate owned restaurants sales increased $300000 or 4% to $8 $8 million for the third quarter of 2022 compared to $8 $5 million in the same period in the prior year driven by the addition of new corporate owned restaurants over the last year.
Partially offset by a decline in same store sales.
[noise] Burger by system wide same store sales decreased by 7% for the quarter compared to 2021.
For corporate owned Burger by same store sales decreased 11% and franchise restaurant same store sales decreased 6% versus 2021.
System wide sales for Burger find the third quarter decreased 5% $39 1 million compared to $41 $4 million in the year ago quarter, primarily due to the decline in same store sale, partially offset by new restaurant growth.
Certifies restaurant level operating expenses increased 370 basis points to 93, 4% for the quarter compared to $89 seven in the prior year second quarter, primarily due to lost leverage on fixed costs due to the same store sales declines.
Turning specifically to Anthonys restaurant sales were $31 $5 million in the third quarter compared to $34 million in the prior year. This increase was driven by a 3% increase in same store sales when compared to 2021.
Turning to restaurant profitability Anthonys restaurant level operating expenses improved 210 basis points for the quarter compared to the prior year third quarter as Ian noted we are beginning to see a stabilization of commodity cost, especially chicken wing prices and expect margins to continue to improve in the fourth.
Quarter.
Our third quarter results also included $2 $6 million in employee retention tax credits made available through the cares Act legislation.
On a consolidated basis.
We reported a net loss of $3 $3 million in the third quarter compared to a net loss of $5 million in the year ago quarter. The change is primarily due to the employee retention tax credits, partially offset by the net operating result of Anthony.
Adjusted EBITDA in the third quarter increased 755% to $1 $6 million compared to approximately $200000 in the year ago quarter. This year over year improvement was driven by the acquisition of Anthonys.
Moving to the balance sheet, our cash balance at October <unk>, 2022 was $14 1 million compared to $14 $9 million at December 31, 2021.
Moving onto our fiscal year 'twenty two outlook, we are updating our expectations for the full year. Our 2022 guidance is as follows.
Total revenue of between $175 million to $180 million, which assumes a low single digit increase in same store sales for company owned restaurants.
And the addition of 12 to 13, new restaurants, three corporate owned and nine to 10 franchises as well as up to 30 Burger Pie go pop Ghost kitchens. This year.
Adjusted EBITDA of between $9 million and $10 million.
And we are expecting capital expenditures to be approximately $2 million for the full year.
With that operator, please open up the call for questions.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
You're using a speaker phone 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 our roster.
Our first question comes from Peter Cella from B T. I G. Please go ahead.
Great Thanks, and good morning.
I just wanted to.
Circle back a little bit on the.
Maybe the hurricane impact.
You guys said it was a neutral impact on Anthony's slightly negative impact on Burger find any way to tease out or quantify how much of an impact on Burger five sales I'm just curious.
If you had any other impact on.
Cost with labor or anything of the sort that we can.
We should be aware of this quarter.
Sure Peter I'll try to provide a little color.
Anthony <unk> our stores, although we still have 28 stores in Florida, there, they're really well dispersed.
And so although the store the anthonys locations in the West coast and around Orlando had some impact in being closed for a few days, we saw an uptick in other restaurants in other geographies as people migrated away from the storm and enjoyed the anthonys product call. It in Miami or Palm Beach, So that was all.
Most of call it a neutral effect.
I would say that there's probably a very small amount of food that might've had been wasted.
A few locations on the Burger fries side, though.
We don't have the same mass.
In terms of I think we had about six restaurants between Tampa heading south to Naples.
And so they were impacted from anywhere from two days to six days, they certainly had to throw out some of their food and reorder as well we didn't see the same move over a two to the rest of the brand, but I don't think that it quantified off.
To be a notable change in our sales I don't think that it would have exceeded a 1% impact or a 2% impact in the quarterly decline.
So if it was a it was a thing the team worked hard to try to stabilize it.
Certainly an influencer, but not a driver.
Understood Okay very helpful.
Help us understand maybe for Burger Phi in Anthonys, maybe.
Maybe some of the components of same store sales here how much pricing.
Traffic mix, where we're in the comps in the quarter.
Sure. So if you're looking at Q3 versus Q3 in the prior year.
Both brands had taken increases in December which is past the prior year Q3, and then again in June of 2023. So both brands had price I'd say from a burger five perspective, it would be low double digits.
Maybe maybe 10% to 12% on accumulative basis between those two price increases on the Q3 to Q3 and on Anthonys, probably a six to eight.
6% six 6%.
So both brands had price lift.
But on a on a transaction perspective Burger Fi continues to have declines in traffic counts versus the same time last year or last year, we were enjoying a florida as a haven for other markets throughout the U S that were in a more.
Closed restricted manner. So we had a little bit of a bump in traffic and activity.
But even without that.
Our transaction counts were down.
Yeah.
Got it Okay, and then just any.
Any way to.
Just give us a sense on where Burger Phi is relative to 2019 sales and I know you guys mentioned that you were starting to see some uptick at least for Anthony.
The month of October .
Are you seeing any improvement on the broker side as well.
Yes give me just one second here versus 19.
Terrifies negative same store sales is very similar to the trend that we have versus 'twenty, one because 'twenty one because of that phenomenon, we were enjoying with with the consumers coming to Florida, Bert If I was actually flat to 2019 this time last year.
So our decline versus 'twenty, one at Burger Fi on a same store sales is very similar to 2019.
On in Anthonys basis, Anthonys had not recovered in 2021, and we're seeing that continue will recovery through through this year.
Month of October .
Is the high point for Anthonys versus 2019 and that we turned positive.
But we did enjoy a small benefit of a calendar shift with Halloween.
Falling into this fiscal October versus prior but we don't think that that was worth more than a point so even without that.
We're very pleased with Anthonys performance in the month of October .
Yeah.
Great very helpful and then just maybe.
Maybe a couple more just can you talk a little bit about the anthonys franchising deals nice to see that announcement.
You indicated you'll be adding the menu.
To the to the Burger Fi location, just trying to understand how that's gonna look what is the investment required there on the franchisees.
Par and if you could just give us a little bit of sense on.
The royalty rate marketing contribution.
Any sort of details around that initial agreement.
Okay sure first let me frame for you and the other listeners the strategy when we acquired Anthonys, we acquired it with a lens to grow through franchising.
Anthony is in order to begin franchising, we needed to do several administrative things one of them was create and file a franchise disclosure document that document was finalized late this summer and in June and July . We also had to create training materials and operations manual setter and able to be deployed to.
Any any existing or new franchisees would want to launch at Anthonys.
And as we mentioned earlier, we were working on and perfecting a smaller format with an easier to use oven and so all of those pieces came together.
Now we have a great existing franchise network of Burger Phi and so one of our longstanding franchisees stepped up in and as you noted is the first.
And I'll, let Ian remark on how that's being deployed in the location.
Go ahead, yes, so it is a.
Three restaurants.
Deal is we have Chad.
The first one though.
A little different in that the.
The franchisee is taking one of his existing.
So to find locations are situated in semi.
There's a good performing location for his certify franchise and adding some additional space because he has the capabilities to do that no not a significant.
The amount of space, that's about 1000 square feet.
And and putting in.
The gas enhanced coal fired oven.
And everything else.
No that is needed to produce the.
The Anthonys menu.
But the way that one is going to work is primarily for pick.
Pick up and take out.
That is how we're gonna presented to the guests to come in.
However, those guests to come in and choose to then take the pizza.
One of the tables are going to be able to do that.
So it's various.
Very efficient in terms of the use of the space, we already have and a really great awareness and you know in the Orlando market. The Qsymia dislocation is.
A long way from a from the other locations. So we're not worried about any kind of cannibalization for the existing.
Anthony.
The investment.
We haven't done we haven't completed it yet it's we think we can probably open in the.
The spring of next year, but we think in the range of 150 to $200000 investment so.
You know significantly less than you know a full a full anthonys so that location.
We intend on the.
Other two locations with they would be more of a freestanding.
The smaller units that you know that Mike talked about I'm, not you know tied directly into one of his existing bug to find locations and we have at other bugger five franchisees expressing interest.
And.
That first format that I talked about.
So yeah, we're thrilled.
This particular franchisee is one of the earliest franchisees.
Goodbye.
Just a terrific operator and I'm from the very beginning after the acquisition expressed excitement and some way getting involved with that with anthonys because he's been a follower of anthonys for many many years since he's got his face here in Miami.
Peter to your question about the royalty and brand fund right I was looking here in my notes and I don't have them, specifically, so I don't want to say the wrong exact number but they're directionally very similar to the broker Fi economics.
From memory I, just don't remember at that particular deal.
What's exactly at five 5% or four five.
And and the brand fund it could be very similar so.
If if if I get that information before the end of the call I'll provide it but let's just start with its very similar to the broker by economics.
Thanks very helpful on that front can you just remind us what this is.
Will there be any royalty abatement or any like I guess.
Maybe a pause or are not collecting the royalties right at the star or does the agreement call for them to be paying royalties and marketing from day one.
From day, one from day one.
Okay, great. Thank you for that and then.
Just on the the the Burger Phi the change in AD agency and.
It looks like you guys you know with the new campaign launched a bundle.
Can you talk about the economics, there have you guys done this in the past kind of launching something like a bundle like this how does this work.
Or is this accretive to margins dilutive how do we think about this and what has been the initial response I know it's been you know maybe several days or a week or so.
Peter It's good question. So the place that the management team and the agency came from here. It is with everything that's going on in the market with the consumer having pressure with inflation and the cost.
Cost at restaurants have had to absorb and pass through to the customers. We wanted to create an opportunity to drive traffic and transactions and frequency.
So the team experimented in one of our markets in one of our stores three or four different value propositions for the customer. The one that ultimately drove the best combination of impact was the program that we've launched where the customer can.
Essentially bundle with their entre aside and a drink.
For a discounted price and we looked at.
What is that going to do not only to the average sale and the attachment rate of sites and sodas.
Or other drinks.
On the people, who take advantage of the promotion, but what does it do to the existing base of people that were doing sites and what we saw was we had good outcomes from.
A number of attachments and therefore, a number of transactions.
We then and so from a from a dollar profit perspective. It was not in that one test, which was not commercially advertised it was in the restaurant and in market opportunity.
We saw a attachment rate lift of sides of that.
Sides and beverages of between 10 and 20%.
And that that in the totality, we'll we'll be able to drive transaction values in the stores now once we bundle that that transactional behavior in the store and in delivery, where we saw really good outcomes in delivery because now delivery, there's a value opportunity to add the beverage.
Now that we've backed it up with commercial it gives the customer a reason to come back in and frequent to Burger five because now there's a value proposition for them. So the thesis was.
Both attachment and average check totals.
With having a value proposition to drive consumer behavior.
Into our restaurants, and so that's launching now in and we're very hopeful.
Okay, maybe just one more on my end and then I'll pass it along.
Do you anticipate that this will be a permanent fixture on the menu or is this an L. T O at this point.
Well, we did we did the test.
In the in the one market and we were pleased with the outcome and I think we're going to learn here between November at the end of November and December what this is doing with our business. We certainly want to make sure that it's a good a good initiative and if it is then we would we would look at something more permanent but we're in that evaluation page.
<unk> stage.
Great. Thank you very much.
Thanks, Steve.
Again, if you have a question. Please press Star then one on.
Our next question comes from Glenn Stein from Drexel Hamilton. Please go ahead.
Oh, Hi, it's Glen Orange Tien Tsin.
Thanks for taking my question and congratulations.
Hi, Brian .
Franchisee.
I do have a question regarding the pipeline can you tell me.
Ultimately how long it takes for target in the pipeline just sign a development deal and open basically like from beginning to end.
You have a <unk>.
General timeframe.
Timeframe. Thank you.
Oh good morning, it's nice it's nice to hear from you.
I'm going to start with from the middle to the end once once a franchisee.
Has executed their development agreement.
If they have a site pre selected if they have a lease pre negotiated.
You could be looking at a 12 to 16 week cycle too.
Two procure and build and open a restaurant every situation is different if it's a.
Hum.
Our second generation spot that's ready.
Versus one that needs to be constructed by the landlord.
So we see from a development agreement signing.
To opening we could see anything from three and a half months to six months, depending on where the individual location stands with its construction and readiness from a landlord perspective now the timeline from.
From meeting a franchisee.
To signing a development agreement it could be under 30 days it could be six months and a lot of it really depends on that franchisees.
Enthusiasm readiness from a financial perspective operating experience they their own decision on where to be investing a lot of our franchisees.
Our potential franchisees have many choices in the market.
I hope that's not too broad of a statement I'd say six months to one year and then there you know there are.
At times that can depending on the market that can be permitting issues not anything wrong, but it just takes time right depending on the municipality and then and hopefully.
Going to move off this no issues in terms of construction materials equipment.
Which seems to be gradually getting better, though and Lynn let me clarify if the question was framed off of how we view our pipeline for next year. Those are not potential franchisees those are signed agreements with locations identified.
With with some level of progress being made on their execution towards opening.
Yes Stan.
Thank you so much for that answer.
Alright.
This concludes our question and answer session I would like to turn the conference back over to Ian Baines for any closing remarks.
Thanks, Oh I'd like to thank everyone for listening to today's call and we look forward to speaking with you. When we report our fourth quarter and year end results in March 2023, and thanks again for joining today.
Bye bye.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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