Q4 2022 Burgerfi International Inc Earnings Call
Hello, and welcome to the Burger for International Inc. For Q 'twenty two earnings conference call, all participants will be in listen only mode.
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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your House, Tom Ford Jo Sorry. Your question. Please press Star then two please note today's event is being recorded.
Now I would like to teleconference over Ian Baines CEO . Mr. <unk>. Please go ahead.
Thank you. Thank you for joining us today and we appreciate your continued interest in Douglas let me begin by thanking our entire team franchisees and their employees for their dedication and hard work in this challenging environment.
Our plan is to first recap our fiscal year and fourth quarter performance and then discuss our current initiatives.
Following that Mike will review the quarterly financials in greater detail and reiterate our 2023 guidance.
We are pleased to report that total revenue grew 160% to $178 7 million for fiscal year 2022, when compared to the prior year.
Increase in revenue was related to the full year impact from the acquisition of 61 corporate owned Anthonys coal fired pizza and wings in November of 2021.
We also grew our adjusted EBITDA to $9 2 million, a 141% increase from prior year.
Turning to the fourth quarter total revenue increased 29% to $45 2 million, primarily driven from Anthonys results being included for the full quarter compared to nine weeks in the prior year.
Consolidated system wide restaurant sales decreased 2% to $71 6 million as we experienced a 5% decrease of Burger pie that was only partially offset by a 2% increase at Anthony.
System wide comparable same store sales decreased 4% for the quarter.
Assisting with a 1% increase in Anthony and a 9% decrease it certified.
192 was a pivotal year for Burger pie as we integrated the Anthonys acquisition into our system, notably we completed our back office integration of the two company and delivered on our goal of achieving over $2 5 million.
Annualized synergies.
Over the last year, our teams have been laser focused on operations and the customer experience.
With the goal of increased sales and margin improvement at both brands.
As a result, Anthonys grew same store sales, 5% when compared to the prior fiscal year, notably sales are continuing their recovery to pre COVID-19 levels, both in our home market of Florida and in the northeast, where we don't have as strong of a brand awareness. This topline momentum has continued through.
The first quarter of 2023.
With competitive period trends of 2% to 3%, but each brand than those realized in the fourth quarter of 2022 with the continuous strengthening on the top line supported by food cost stability. We are off to a good start for the new year and are expecting good results for our first quarter of fiscal 2020.
Three.
Additionally, margins continue to expand it anthonys, we ended the fourth quarter with the store level operating margin of 15, 2% sequentially Anthonys margins increased 70 basis points from the 14, 5% in the third quarter. The margin improvement in Anthonys is a testament to our sales leverage coupled with a.
Stabilization in commodities.
We are seeing continued margin expansion in the first quarter with positive same store sales trends and continued stabilization in food costs.
<unk> chicken wings make up a meaningful component of our purchasing and entities and we see this as a tailwind for the remainder of 2023 and expect further margin improvements on a comparative basis.
Now turning to <unk>.
As you saw in our earnings release, we ended the fiscal year with a 7% decrease in same store sales when compared to the prior year.
While the sales recovery that we reached pre COVID-19 levels in the summer of 2021 had since lag due to not matching up on the strong tourism experience in that period as a result of Florida being an open market.
We are beginning to see an increasing customer satisfaction scores and a decrease in employee turnover, which we believe will translate to improved sales over time.
Looking at the first quarter comparative period sales trends at 2% to 3% better than the fourth quarter and we believe <unk> has begun a positive turn in terms of top line and operating margin trends.
Additionally, operating margins have begun to improve sequentially when compared to the third quarter operating margins grew 280 basis points to 90, 294% for the fourth quarter. This is a result of cost management supply chain tailwind and reduced employee turnover a bigger pie.
This progress has continued into Q1 2023 and as a result, we are seeing further margin recovery as our first quarter comes to an end.
Now I'd like to update you on some of the strategic initiatives, we are working on to improve sales and operations starting with Burger pie.
At the end of 2022, we on boarded a new advertising agency to drive brand awareness capitalizing on <unk> unique attributes of quality fresh ingredients, our chef inspired offering and the market's continued interest in the better Burger category.
With the help of our new agency in the fourth quarter, we launched a new Burger by App and website, which provides guests with a better experience and has enhanced loyalty benefits.
Conjunction with this launch we launched a new secret menu.
Exclusively for our loyalty members.
Through our loyalty program, we are able to leverage additional consumer data to grow and elevate the overall guest experience. In addition to directly marketing to our members. We believe this will help drive sales.
We are also making good progress enrolling out kiosk program of 35 as of today 23, corporate owned Goodbye and 17 franchise on verifies have kiosk available for ordering more franchisees continue to follow the benefits of this technology and we expect adoption to continue we have.
Believe chaos can be a high margin channel as they allow us to ups as they allow us to upsell, our guests and pure order accuracy and redeploy all reduce our labor.
During the fourth quarter, we lean into value with the limited time bundle called make it a meal this bundle, including an entre aside and fountain drink at a discounted price and was successful in terms of attachment and number of transactions we.
We saw an attachment rate lift of sides and beverages are between 10% and 20%, which translated to an increase in average check we really saw this as an additive and our delivery channel, where we do not typically see beverage attachment as now there is a value opportunity to add a beverage.
We also continue to have fun with our <unk> program of 35 to enhance the guest journey in February we launched the barbecue rodeo Burger, which will be available through mid April the barbecue Rodeo Burger is made from the brand's signature all natural Angus beef see it with chart Jalapenos and top with Pepper Jack cheese.
Homemade crispy haystack, onions, and a tangy Memphis sweet barbecue sauce.
Importantly, we featured the barbecue rodeo Burger in this year's Burger Bash hosted by Emeril Lagasse at the annual South Beach wine and Food Festival in February and won the coveted stride and sons. The very best Burger Award. We are truly proud of our culinary team's hard work and invite you to stop into your <unk>.
Goodbye to try this award winning book now.
Now turning to Anthony as we continue to lean into digital marketing and our loyalty reward program to drive engagement. This has been paying dividends as seen in our increase in same store sales.
Given off premise orders account for nearly 50% of sales of Anthonys with 15% coming in via phone orders. We've implemented converse now AI technology across all 60 corporate owned Anthonys locations. They say iPhone entering system undoubtedly helps the brand meet ordering demand.
And I think can answer 100% of calls while helping to facilitate an average check increase of 10% to 12%.
Additionally, it provides fastest service and an improved customer experience guests can also seamlessly integrated loyalty numbers earn points from rewards and ordering with AI.
Now turning to development as of January 2nd our portfolio consists of 114 Burger five restaurants 25, corporate owned 89 franchised and 660 corporate owned Anthonys.
During the fourth quarter, we opened two franchise Burger by restaurants, bringing our fiscal year 2022 openings to 11 restaurants. We also closed one underperforming company owned Anthonys restaurants, and five franchise Burger by restaurants closed in the pool quarter.
Looking ahead to 2023, we plan to open 15 to 20 new restaurants.
All of which have been franchised included in this number is two to three new franchise anthonys locations in the first quarter of 2023, we have opened two restaurants to date.
We kicked off our 2023 development in January with the opening of a <unk> franchise in Newark Liberty Airport.
<unk> flexible footprint model makes airport locations ideal for introducing the brand to a wider audience, particularly one that values convenience without sacrificing quality airports continue to deliver high volumes at airports.
Airports to continue to grow as part of our development strategy.
We plan to continue strengthening our presence in airports across the country in 2023 with our second location in Fort Lauderdale Hollywood International Airport opening later this year with several others under negotiation.
There is a broad level of interest in our brand from several airport concession is and we see this as a win win for the brand the concession as and most importantly meeting the desire for our products with consumers.
Also this year, we are excited to launch our first ever co branded Anthonys, an burger <unk> location with our franchisee MDM hospitality services in Kissimmee, Florida, we didn't existing Burger.
Our agreement with them calls for three franchise Anthonys locations in Florida over the next two years.
The Anthonys brand already has strong awareness in the Orlando market, while this new kasumi location addresses underserved area with strong tourism.
The second and third Anthonys location through MDM agreement will both be in will both be the freestanding smaller anthonys prototype that we have developed.
In closing we have two very high quality brands that are on trend with consumers and a laser focus on enhancing operations and driving sales to achieve profitable growth.
We further believe we're in the early innings of our growth story with significant white space ahead.
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 call over to our CFO , Mike <unk>, who will provide additional commentary on our fourth quarter 2022 performance go ahead, Mike. Thank you Ian and good morning, everyone I'd like to remind you that in July our board of Directors approved the company has changed to a 50 253 week fiscal year ending on the <unk>.
Monday nearest to December 31 of.
Each year in order to improve the alignment of financial and business processes. Following our acquisition of Anthony. This change is reflected in our fiscal fourth quarter ended on January 2nd as compared to December 31 2021.
Fourth quarter total revenues were $45 2 million, increasing 29% from $35 1 million for the same quarter last year.
Anthony has contributed $33 million to revenues in the period.
Shifting to our individual brands results for Q4, the Burger five corporate owned restaurant sales increased 2% to eight 9% for the fourth quarter of 2022, driven by the addition of new reps, new corporate owned restaurants over the last year offset by a decrease in same store sales.
Burger five system wide same store sales decreased 9% in the fourth quarter compared to the same period in 'twenty one.
Our corporate owned <unk> same store sales decreased 10% and franchise restaurants same store sales decreased 8% versus 2021.
System wide sales for Burger by in the fourth quarter decreased 5% to $38 7 million compared to $40 7 million in the year ago quarter, primarily due to the decline in same store sales, partially offset by new restaurant unit growth.
Certifies restaurant level operating expenses increased 340 basis points to 96 for the quarter compared to 87 two in the prior year fourth quarter, primarily due to lost leverage on fixed costs due to the same store sales decline.
Turning specifically to Anthonys restaurant sales were $33 million in the fourth quarter compared to $22 4 million in the prior year. The increase was driven by a 1% increase in same store sales when comparing the fourth quarter of 'twenty, one and the inclusion of Anthonys results for three months this year compared to nine weeks post.
<unk> in the prior year period rig.
Regarding restaurant profitability Anthonys restaurant level operating expenses increased to 120 basis points to 84, 8% for the quarter.
Compared to the prior year fourth quarter as Ian noted, we are beginning to see stabilization of commodity cost, especially in chicken wing prices, we expect operating margins to continue improving throughout 2023.
On a consolidated basis, we reported a net loss of $26 2 million in the fourth quarter compared to a net loss of $117 3 million in the year ago quarter.
This year's net loss included $18 3 million of noncash impairment charges $1 5 million of restructuring costs $1 2 million of legal settlements within general and administrative expenses and $3 7 million of depreciation and amortization.
Adjusted EBITDA in the fourth quarter was $2 6 million in both the fourth quarter of 'twenty, one 'twenty two.
Moving onto the balance sheet, our cash balance at January 2nd was $11 9 million compared to $14 9 million at December 31 2021 the.
The decrease in cash was the result of term loan repayments and capital expenditures offset by cash produced by operations.
Now turning to our fiscal year 2023 outlook, we are reiterating our 2023 guidance, which is the following total.
Total revenue of $175 million to $180 million, which assumes a low single digit increase in same store sales.
The addition of 15% to 20, new franchise restaurants, including two to three new Anthonys quarter to date, we have opened two franchise prototypes.
Adjusted EBITDA of $10 million to $12 million for the year.
We are expecting capital expenditures to be approximately $1 million to $2 million for the full year.
Before we wrap up today's call I'd like to call. Your attention two announcements we made at the end of February where we received additional shareholder support as we continue to execute on our growth and development plans or fear.
Fear Sternberg, the executive chairman of <unk>, and Lionheart capital Sounder, along with members of the senior Burger <unk> management team, including myself purchased one 5 million shares of Burger fine from an affiliate of L. Catterton.
Following this purchase lionheart together with its founder of fear Sternberg and the Burger <unk> management team are collectively the largest shareholders in the company in.
In turn L. Catterton also provided an additional $5 $1 million of financing through a junior secured promissory note with 4% interest accrued to maturity in September 2027 in.
In connection with this investment we expanded our board of directors to seven members and appointed David Hydrochloric Senior advisor to L. Catterton to serve along side the existing members of the board.
Satisfying the terms of our credit facility highlights our commitment to enhancing our balance sheet and financial flexibility we.
We are pleased to have the support of long term highly respected stockholders such as L. Catterton in line our capital as we continue executing on our growth and development plans with the covenants agreed to in the Companys December bank amendments coupled with the receipt of the additional financing the company is in compliance with all of its debt covenants.
Additionally, we expect to be in compliance with our covenants and can meet our obligations as they become due over the foreseeable future.
I'd like to take a moment.
And read the forward looking statements.
I would like to remind everyone that this conference call may contain forward looking statements as defined in the private Securities Litigation Reform Act.
995. These forward looking statements may be related to <unk> estimates of its future business outlook liquidity store opening plans same store sales restaurant operating margin growth plans prospects of financial results, including projected sales restaurant EBITDA or financial results from the company's acquisition of Anthonys coal fired pizza.
Wings.
Forward looking statements generally can be identified by words, such as anticipates believes estimates expects intends plans predicts projects and will.
We will be will continue will likely result in similar expressions. These.
Forward looking statements are based on current expectations and assumptions and 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 factor.
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 for the year ended January <unk> 2023, and those 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 <unk>.
Results 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.
As required by law.
Given 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 the earnings release for the fourth quarter and fiscal year 2022.
I would also like to remind everyone that this call will be available via telephonic replay for two weeks starting today a webcast replay will be will also be available via the link provided in today's press release as well as the Companys website at Www Dot Burger Fi Dot com.
I'd like to turn it over to you.
Okay, yes. Thank you.
We will begin the question and answer session.
Ask any question you May Press Star then one on your Touchtone phone.
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Time, we will pause momentarily to assemble the roster.
Right.
The first question comes from Peter Saleh with BTG.
Yes, Thank you and good morning, gentlemen, good morning. This is actually been perentie on for Peter This morning.
So couple of questions from our end first I think for probably Ian if you could just go over the sales performance for both brands and how both of those compare to say pre COVID-19 2019 levels.
Moving any realm.
A relevant geographies for both brands being Florida, and how that's performing four Burger Phi and then the northeast for the Anthonys business.
Yes.
Thanks, Ben so.
Each brand for water.
Or sort of negative single digits versus 2019.
That was your question.
Yes, and just some color on that.
That trend was improving throughout the year and that improvement continued for the fourth quarter.
Both brands are as Ian said.
Negative single digits, I would say that theyre in the in the mid single digits for Anthonys and maybe more towards the mid to high single digits for Burger <unk>.
And you also asked a sub part to your question about geography of North and South.
We did see the north to begin an acceleration in closing that gap in the fourth quarter and we're extremely pleased to see that momentum strengthening here in the first quarter.
Got it got it appreciate that and then I also wanted to ask just around the Burger Fi closure activity I think there were about five closures in the fourth quarter.
So either Mike or Ian could you maybe speak to what kind of trends youre seeing on the closure front. If you have an expectation for franchise closures. This year and I think more maybe more qualitatively if you could just.
Speak to maybe the state of the franchise base for their four Burger Fi and some of the efforts you've made there over the last couple of years.
Yes sure. This is Mike I'll start out with some and Ian can chime in if I Miss anything.
Covid had just a profound effect on our on our restaurant business and it's not just the company stores, but the franchise network as well and our franchise network. If you roll back about 18 to 24 months.
That.
It was comprised of mainly single store and two store operators many of which.
From prior years that just did not have the financial wherewithal to whether that Covid storm. Many of those closed during 2020, one, but a few remained but some of those less capitalized.
Franchisees individually or.
Is that maybe didn't have.
A certain level of operating expertise.
Or where in markets, where labor availability really impacted their ability to stay open.
Those some of those continued into the fourth quarter.
<unk> through 'twenty, two and into the fourth quarter as they kind of ran out of cash and closed their businesses.
I think the subpart of your question is whats our what are we seeing now and going forward, we think that theres still some franchise locations that are struggling with labor availability, which then translates into their sales and their financial performance and I think that there likely will be a few closures here in 2023.
But Ian and his team are doing a lot of work to really support them through training.
Menu marketing advice and from a from a business perspective trying to help them out as much as possible, but we.
We stopped the line at helping them financially, we don't help them financially and there is that small subset that remains.
Are not financially strong on the flip side.
The remaining franchise network.
Has some of the stronger performers and Ed we're seeing really outsized performance from some of our better operators.
And it just gives a testament to the strength of the brand.
And they continue to open new locations and look for further locations.
Uh huh.
The interest remains very very strong and our relationship with our franchisees is very strong in fact, we have a franchise summit coming up later in April .
The first one we've had for a couple of years given that given COVID-19 and what have you. So we're looking forward to spending nine spending time with them and as we always do sharing.
Best practices, amongst our franchisees and our corporate locations.
Thank you I certainly appreciate that and then maybe one or two more on my end in terms of the.
The franchise Anthonys openings that you expect for this year I believe you mentioned two or three.
Could you give us a little bit more detail on the potential timing of those openings and the location.
What part of the country are.
Those openings are planned for.
Yes, the first one.
As in Kissimmee.
Florida.
And I expect that to be by June of this year.
So that's one and the other one also is here in southern Florida actually in Miami are more likely to be in the fourth quarter.
Certainly and then the last one for me maybe one for Mike just on the guidance for 'twenty three.
Is there a particular or specific restaurant level margin.
Outlook embedded in the guidance and.
There is or is not maybe you could also speak just qualitatively to some of the pushes and pulls on the restaurant level margin as we're thinking about this year. So.
Commodity inflation labor inflation.
Any other inflationary pressures on the business. If you could just speak on that and I think that'll be it for me then.
Sure happy to so we haven't explicitly given any color at percentage of sales or basis point guidance implied within our our EBITDA guide for the year, but of course, it's an element of coming out with those estimates.
And I can certainly speak qualitatively and directionally into what we're what we're expecting to see.
At Anthonys, where you have same store sales increases planned you gain leverage on your fixed costs. We are seeing continue to see and expecting to see for the year expansion on the food side, primarily as a result of the stabilization in input prices.
Specialty chicken wings, but also as a result of the procurement activities that the team has been very busy on over the course of the last year, which includes things like changing out suppliers.
And are negotiating with existing suppliers to get the best possible price in order to try to manage price increases to the minimal level possible. So we're expecting good things on the top line and on the food side, the wage pressure, though that we experienced in 2022.
From a wages per hour minimum wage increases moves necessary to keep top performing restaurant retention.
Those are going to cause what I would I would say pressure on the labor line.
But overall expecting greater expansion than contraction. So the two tailwind of topline leverage and food cost expansion.
Should should over over encompassed the labor rate pressures.
And also from a labor standpoint.
Still challenging environment when it comes to hiring managers and team members, but significantly better than it was this time last year.
That too helps to stabilize the business because of the stabilization of managers and team members. The restaurants, we've just become that much more productive.
Which helps in terms of fighting against that wage inflation right now for Burger Fi turning to verify.
The same three elements are at play for Burger five, but instead of same store sales increases we have been experiencing same store sales decreases.
Mid to high single digits towards the end of the year really even creeping into the low double digits those trends have improved they've improved sequentially in the first quarter from the fourth quarter.
2% to 3% on a comparative basis.
Even though it's improving it is still negative and that does compress the leverage available on the burger by fixed costs, whether it be occupancy managers or a certain level of operating expenses on the commodity side, though we are seeing an improvement and as we see Burger five sales trends continue.
To improve throughout the year when they eclipse and move into positive compares you would gain back that topline leverage. So we have the same three elements at play, but it Burger five the topline leverage we'll wait until the same store sales turned positive.
And so all of that inputs and intelligence that Mike talked about went into as we looked at putting our plan together for 2023.
Okay definitely appreciate that color that does it for me. Thank you both this morning.
Thanks, Dan.
Thank you and the next question comes from Mike Avenues with pattern.
Good morning, Mike, Hey, Mike Hey, guys. Good luck.
Okay.
Just one quick question from me I wanted to ask about your off premise sales.
Obviously, you picked up a lot of volume in that space during Covid and.
We have certainly made efforts to improve your tech stack to kind of hold on to that volume what.
What are the trends you're seeing across both Burger Bryan Anthonys regarding your off premise sales in all most of that volume and you've really been able to hold onto it.
Normalized for it.
Yes, first I'll talk about Anthonys, an eon may supplement me because he has got some great history with Anthonys before the acquisition Anthony has historically had a very strong off premises business prior to COVID-19 prior to the.
Institutionalizing the delivery providers as a service there was a small delivery component, but a large takeout business.
What we've seen in the fourth quarter and then continuing into the first quarter is a re stabilization into takeout and dine in as.
As a percentage of our business. So we've been able to hold on to a very good percentage call. It 70% to 80% of the delivery penetration that we've had and as that mix shifts back into the takeout and the dine in it's a more profitable equation for us on Burger Fi.
We had.
I would say that the trends are about the same there is probably a small decrease in the delivery business and an increase in the take out business here.
Overall, though not as much of a needle mover as as Anthony said that we've seen and especially with Anthonys, having a full bar.
The in restaurant really allows the brand to.
Exercise all of its attributes to the customer rather than it be handled through a third party delivery provider, which we all know at times can be challenging right.
Got it thanks, that's really helpful. So.
Yes, it was more specific to Anthony but basically.
What youre, saying is yes. It will go into that volume the mix should be more profitable. So this is.
Is this kind of.
This is a margin accretive business off premise sales.
No.
Not necessarily.
There are different pricing.
In terms of some of the off premise business, but certainly as Mike.
<unk> to the.
Getting Anthony get inside the restaurant provides opportunities more opportunities for up selling and provides that opportunity, but you know the very.
Very profitable alcohol sales just to just to.
Put a wrap on that be off Prem business is a profitable channel whether it be the takeout or the delivery providers, but we believe it's more profitable.
For in store dining and takeout.
Yes. It does it the delivery is accretive it is positive it's more it's more profitable when its in store.
Understood got it thank you.
Thank you and this concludes our question and answer session I would like to turn the call Ian Baines for any closing comments.
Thank you Keith.
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 and year end results in May of 2023, Thanks again for joining.
Thank you.
That's all concluded. Thank you for attending today's presentation you may now.
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