BurgerFi International Inc. Q1 2023 Earnings Call

Speaker 1: And any I de I.

Speaker 2: Good afternoon everyone and thank you for participating in today's conference call to discuss BurgerFi International's financial results for the first quarter ended April 3rd, 2023.

Speaker 2: Joining us today are John Iannucci, COO, and Mike Rabinovich, CFO . In the meantime, we'll open the lines for your questions.

Speaker 2: 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 BurgerFi's estimates of its future business outlook, liquidity, store opening plans, and the

Speaker 2: same store sales and restaurant operating margin growth plans, prospects or financial results included in projected sales, restaurant EBITDA, or financial results from the company's acquisition of Anthony's coal-fired pizza and wings.

Speaker 2: 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.

Speaker 2: 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.

Speaker 2: 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 end of January 2, 2023, and those disclosed in other documents that the company files with the Securities Exchange Commission.

Speaker 2: All subsequent written and oral forward-looking statements attributable to BurgerFi or persons acting on BurgerFi's 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.

Speaker 2: any revision to these forward-looking

Speaker 2: Given these statements and uncertainties, listeners are cautioned not to place undue reliance on such forward-looking statements.

Speaker 2: Also, the following discussion may contain non-GAAP financial measures.

Speaker 2: For a discussion and reconciliation of these non-GAAP financial measures, please see the earnings release for the first quarter 2023. 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 also be available via the link provided in today's press release section.

Speaker 2: as well as on the company's website at www.burgerfi.com. As a result, today's call is being recorded.

Speaker 2: Now I would like to turn the call over to Burglify's COO, John Iannucci. John , please go ahead.

Speaker 3: Thank you for joining us today and we appreciate your continued interest in BurgerFi. Let me begin by thanking our entire team, franchisees, and employees for their dedication and hard work in this challenging environment.

Speaker 3: Before I begin today, last week, Ian Bains, our Chief Executive Officer, announced his retirement effective June 7th. As the board searches for a new CEO , I look forward to leading the organization on an interim basis. Over the last year, I've immersed myself into both Anthony's and BurgerFi and believe we have two high-quality brands with great growth potential.

Speaker 3: In this role, I plan to work with our talented teams on driving initiatives as well as continued margin expansion. On behalf of the entire company, I wish him the best in the next chapter of his life.

Speaker 3: My plan this afternoon is to first recap our quarter one performance and then discuss current initiatives.

Speaker 3: Following that, Mike will review the quarterly financials in greater detail and reiterate our 2023 guidance.

Speaker 3: Key highlights for the first quarter include total revenue growth of 2% to 45.7 million. The growth is in line with the first quarter's contribution towards our annual guidance of 175 to 180 million for fiscal 23.

Speaker 3: Consolidated system-wide sales were 73.4 million compared to 73.1 million in the same period of 2022, which includes 40.3 million at BurgerFi and 33.1 million at Anthony's. Restaurant operating margins improved in both brands, more pronounced in Anthony's, where both continued stabilization of food costs and positive same-store sales flow-through was achieved.

Speaker 3: adjusted EVA grew by 12% to 2.6 million. Importantly, we remain confident that we are on track to achieve our guidance of 10 to 12 million adjusted.

Speaker 3: EVADA for fiscal year 2023.

Speaker 3: Our focus remains on continuing to improve operational execution with the goal of increased sales and margin improvement in both brands for the year. During the first quarter, Anthony saw a 3% increase in the same store sales growth. Notably, we are continuing to see sales recover in our locations in the Northeast.

Speaker 3: which previously had lacked the improvement we had seen in our home market in Florida in 2022.

Speaker 3: The top line momentum at Anthony's has translated into margin expansion. At Anthony's we ended quarter one with a store level operating margin of 17.9%, which is 310 basis points above the same period in the prior year. Sequentially Anthony's margin increased 270 basis points from 15.2 in the fourth quarter.

Speaker 3: This margin improvement is a testament to our continued sales leverage coupled with continued stable procurement costs. Both were pillars of our investment thesis underpinning our acquisition rationale.

Speaker 3: Looking at BurgerFi...

Speaker 3: System-wide comparable store sales decreased 4% from prior year. While this is an improvement from the trends we saw exiting 2022, we continue to work on improving the guest experience, marketing and menu innovation to increase frequency. We ended Q1 with the store-level operating margin of 12.6%, and we ended Q1 with the store-level operating margin of 12.6%.

Speaker 3: which is 100 basis points above the same period in the prior year. Sequentially, margins increased 320 basis points.

Speaker 3: basis points above the same period in the prior year. Sequentially, margins increased 320 basis points from 9.4% in the fourth quarter.

Speaker 3: These improvements are resulting from stable procurement, pricing, and controlling store operating expenses.

Speaker 3: Across both brands, we continue to expect a reduction in food costs comparatively and the opportunity to continue operating margins compared to the prior year. This is primarily a result of stabilization in input prices, especially chicken wings and beef prices, but also as a result of the procurement activities that the team has been very busy implementing over the course of the last year.

Speaker 3: These activities include things like changing our suppliers and negotiating an existing

Speaker 3: suppliers to get the best possible price. Now I would like to update you on some of the strategic initiatives we are working on to improve sales and operations starting with BurgerFi.

Speaker 3: We're having a lot of fun with BurgerFi's LTO program. In February we launched the barbecue.

Speaker 3: Rodeo Burger, which won the very best burger award at the 2023 South Beach Food and Wine Festival Burger Bash. As a result of its success, we have extended this LTO and launched a new patty melt version to further drive interest in our brand and our products. The 100% all natural Angus beef burger patty is grilled with charred jalapenos and topped with pepper jet cheese.

Speaker 3: homemade crispy haystack onions, and tangy Memphis sweet barbecue sauce. We served between two pieces of Texas toast for a savory, sweet, and spicy flavor profile. Additionally, ahead of St. Patrick's Day, we launched a new mint shake with Oreo. The sweet and minty flavor profile was a fun take on one of America's top three favorite ice cream flavors, mint chocolate chip.

Speaker 3: and is based on our signature cookies and cream with Oreo custard shake. Around St. Patrick's Day, guests look for fun ways to celebrate their love of green treats. This was the perfect opportunity to revamp our cookies and cream with Oreo custard shake and make it minty green. Recently on May 2nd, we debuted a new Texas Toast Patty Melt LTO. The new Texas Toast Patty Melt features 100% all natural Angus beef, with deliciousourtos o

Speaker 3: melted American cheese, caramelized onions, and burger fried signature fried sauce all pressed between two pieces of Texas toast.

Speaker 3: And finally, in late April , we held a BurgerFi franchisee summit in Kissimmee, Florida for our franchisees, general managers, restaurant support leaders, and our supply partners. This is the first time that we hosted our convention in person since the pandemic began, and the energy level and enthusiasm couldn't have been higher. It was great to see old friends and meet new ones as everyone strategically aligned.

Speaker 3: to bring our love of the brand to our guests in new ways.

Speaker 3: Now turning to Anthony's, 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, especially outside of our home market of Florida, which had lagged in the recovery during 2022.

Speaker 3: In April , we launched a new LTO with Mike's Hot Honey. Hot Honey is a very popular flavor profile, especially when paired with pizza. The new LTO features a thick-cut pepperoni pizza made with fresh mozzarella and the brand's signature imported Italian tomato sauce, topped with a drizzle of Mike's Hot Honey.

Speaker 3: Anthony's famous fresh jumbo coal fired wings were also being tossed in Mike's Hot Honey for the best blend of sweet and spicy.

Speaker 3: Anthony has also introduced the new improved wine menu to all of its locations featuring 11 new wines in per second. We are excited about this new menu launch as wine and spirits are a high margin part of our business. Now turning to development, as of April 3rd, our portfolio consists of 112 BurgerFi restaurants, 27 corporate owned and 85 franchise and 60 corporate owned Anthony's.

Speaker 3: During the first quarter, we opened two new franchise Burgerfly restaurants and two locations transferred from franchisees to corporate homes.

Speaker 3: We kicked off our 2023 development in January with the opening of a BurgerFi franchise in Newark Liberty Airport. Airports continue to deliver high volumes and continue to be a growing part of our development strategy. We plan to grow our presence in airports across the country in 2023 with the second location in Fort Lauderdale Hollywood International Airport opening later this year, with several others under negotiation for later this year and into 2024.

Speaker 3: In February , we opened a beautiful new franchise, BurgerFi, in Orlando's O-Town West, one of Orlando's most desirable destinations featuring restaurant retail and entertainment spaces.

Speaker 3: For the full year, we still plan to open 15-20 new restaurants, all of which will be franchised. Using this number is one new franchise at Anthony's location.

Speaker 3: In the second quarter of 2023, we opened one franchise BurgerFi location with the second franchise BurgerFi location expected by month end.

Speaker 3: As a part of our development plan this year, we're excited to launch our first ever co-branded Anthony's and BurgerFi location with our franchisee NDM Hospitality Services in Kissimmee with an existing BurgerFi expected to be open in the third quarter of this year. Our agreement with them calls for three franchise Anthony's locations in Florida over the next two years.

Speaker 3: The second and third ANTHONY locations through the NDM agreement will both be the freestanding, smaller ANTHONY prototypes slated to open in the Miami World Center development near the Miami Brightline Station.

Speaker 3: In closing, we have two very high quality brands that are on trend with the consumer and are laser focused on enhancing operations and driving sales to achieve profitable growth.

Speaker 3: 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 to our CFO , Mike Rabinovich, who will provide additional commentary on our first quarter 2023 performance. Go ahead, Mike.

Speaker 3: Thank you, John , and good afternoon, everyone. First quarter total revenues were $45.7 million, increasing 2% from $44.9 million for the same quarter last year. Anthony's contributed $33.1 million to revenues in the current period. The increase in revenue is a result of Anthony's positive same-store sales.

Speaker 3: over the last year offset by a decrease in same store sales.

Speaker 3: BurgerFi system-wide store sales decreased 4% for the first quarter compared to the same period in 2022. For corporate owned BurgerFi, same store sales decreased 6% and franchise restaurants same store sales decreased 3%. Market sales for BurgerFi in the first quarter decreased 1%.

Speaker 3: basis points to 87.4% of sales for the quarter compared to 88.4% in the prior year's first quarter, primarily to lower input costs partially offset by loss leverage on fixed costs due to the same store sales declines. Turning to Anthony's...

Speaker 3: Restaurant sales were $33.1 million in the first quarter, compared to $32.5 million in the prior year.

Speaker 3: The increase was driven by a 3% increase in same store sales when compared to the first quarter of 2022.

Speaker 3: Regarding restaurant profitability, Anthony's restaurant-level operating expenses improved 310 basis points to 82.1% for the quarter compared to the prior year's first quarter.

Speaker 3: As John noted, we are beginning to see a stabilization of commodity costs, especially chicken wing prices, and we expect operating margins to continue improving throughout 2023.

Speaker 3: On a consolidated basis, we reported a net loss of $9.2 million in the first quarter compared to a net loss of $13.6 million in the year-ago quarter.

Speaker 3: This year's net loss included $4.7 million of share-based compensation expenses, $3.2 million of depreciation and amortization, $2.1 million of interest expense, $900,000 of restructuring costs. And the next slide, please.

Speaker 3: 300,000 of merger acquisition integration related costs, and 300,000 of legal settlements.

Speaker 3: included within general administrative expenses. Adjusted EBITDA grew 12% in the first quarter to $2.6 million compared to $2.3 million in the prior year's first quarter.

Speaker 3: Moving on to the balance sheet, our cash balance at April 3 was $9 million compared to $11.9 million at January 2, 2023. When considering our available but undrawn $4 million line of credit, we have $13 million liquidity at the end of the quarter.

Speaker 3: The decrease in cash with the result of term loan and line of credit repayments and capital expenditures offset by cash produced by operations.

Speaker 3: We are also in compliance with all debt covenants at quarter end. Now turning to our fiscal 2023 outlook, we are reiterating our 2023 guidance.

Speaker 3: which is the following. Total revenue of $175 to $180 million, which assumes a low single digit increase in same store sales.

Speaker 3: The addition of 15 to 20 new franchise restaurants including one, New Anthony's.

Speaker 3: adjusted epithet of 10 to 12 million dollars.

Speaker 3: And we are expecting capital expenditures to be approximately $2 million for the full year.

Speaker 3: With that, operator, please open the call for questions.

Speaker 2: Thank you, sir. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.

Speaker 2: If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker 2: To withdraw your question, please press star then 2.

Speaker 2: At this time, we will pause momentarily to assemble our roster.

Speaker 4: Great, thanks for taking the question. You know, just wanted to ask about the trajectory on same store sales as we go through the year. I think your, you know, low single digit same store sales guidance suggests, you know, some, I guess, a meaningful improvement here. Can you just talk about what you're expecting?

Speaker 3: You know, our guide for the year of low single digit same store sales is on a consolidated basis. And so when you realize that Anthony's comprises 70% to 80% of that same store sales calculation, we're really looking at the Anthony's numbers.

Speaker 3: So the Anthony's numbers being up 3% for the first quarter is certainly in line with our guide. The improvement in the negative trend experienced by BurgerFi last year is also in line with our plan.

Speaker 3: So both of those would fold together nicely into supporting our guide of low single digits. Kind of answering the second part of your question, do we see that continuing through the year, you know, based on the strength and the recovery and the initiatives in play.

Speaker 4: Great and then can you just give us a little bit more color on the commodity outlook? I know you talked about Wings being you know more stable or maybe even down year over year for Anthony's Could you give us a little bit more color on the decline there and also just thoughts on?

Speaker 4: burger-fi and beef costs for the balance of this year.

Speaker 3: Sure, sure, good question. So on Anthony's, as you noted, chicken wings are a significant part of our food costs and during COVID they had, they had risen from a call it somewhere in the mid two dollar a pound range into the high threes. We started noting in the middle of last year that they were recovering to pre-COVID.

Speaker 3: in the first quarter and we're seeing that tailwind continue in the second quarter. There's other lines, right? So Anthony's also has meat that supports our toppings and our meatballs. That has also behaved relatively well here in the first part of the year. But we also have some inflating items, whether they be our imported tomatoes and some of our dry tomatoes. Thanks for watching.

Speaker 3: We are seeing some modest inflation in beef as we clip through the month here January , February , March and April . But those those rates are significantly better than we experienced last year. So on a comparative basis and even on a looking back to fourth quarter basis.

Speaker 3: we're still getting a tailwind on our beef procurement from BurgerFi. Is there as much confidence that we'll be able to continue that tailwind, maybe a little bit less because we're starting to see a little bit of uptick, but that's very normal for beef. We've seen beef go up in May and June every year for the barbecue holiday season, and then it moderates down. So our outlook for the year on food costs has not come —

Speaker 3: anticipating taking more price as we go through the year? Good question. So first on Anthony's, we took no additional price in the first quarter. We took a very modest price increase mid-second quarter recently, really under 1%. We took a very modest price increase mid-second quarter.

Speaker 3: We did take some price increases last year at Anthony's, one in June and one in February . One in February , one in June . So in terms of how much price is being carried in the first quarter, it might be a few percent. It might be two to four percent.

Speaker 3: In terms of pricing actions going forward on Anthony's, we monitor it every quarter. We are certainly sensitive to our commodity costs and enjoying those tailwinds, but we also want to drive transactions.

Speaker 3: So we, you know, we'll evaluate them one quarter at a time. On BurgerFi, the price increases we took last year were larger than Anthony's. We looked at our competitor set as to what our share of wallet competitors and other Better Burger options were doing, and we brought prices to the appropriate levels to be competitive with those brands.

Speaker 3: In terms of how much have we been carrying, I would say in the first quarter it might be a good 6-8%.

Speaker 3: terms of how much have we been carrying, I would say in the first quarter it might be a good 6 to 8 percent.

Speaker 3: and we don't have any pricing actions at BurgerFi planned for this quarter and we'll evaluate in the fourth quarter.

Speaker 3: You know there's a tie in Peter to pricing but then promotions. So you know we use promotions to drive traffic and transactions into the stores. And so sometimes those promotions can eat away at some of the systemic price increases that we've put in place and that's why you don't necessarily see them.

Speaker 4: in our same store sales completely. Thank you very much. I'll pass it along.

Speaker 4: same store sales completely. Understood. Thank you very much. I'll pass it along. Okay, thank you.

Speaker 3: The next question is from Mike Albanese with EF Hutton. Please go ahead. Mike, John , how are you guys? Good. Thanks for joining, Mike. Yes, absolutely. Yeah, congratulations here on a nice quarter and definitely happy to see you reiterate your guidance. Just a couple of quick ones from me.

Speaker 5: I think just to kind of peel back the onion a little bit more on the unit level, you kind of, you know, level economics, I'll get that both brands, you know, you kind of get into that commodity and That's it.

Speaker 5: food cost, but any updates really in terms of labor efficiency, labor turnover? I know it's something we talked about before. Yeah, I think here in the first quarter and heading into the beginning of the second quarter, I think we've seen some improvements in turnover at the store level. You know, I think we've seen some improvements in turnover at the store level. I think we've seen some improvements in turnover at the store level.

Speaker 5: What I would say is they're directional improvements. They're not material, they're not, sorry, there's a train going by behind me. They're not at the point that they're driving the frequency change that the higher level of guest service would count.

Speaker 5: We're seeing the needle move from increasing to decreasing, and we're very pleased with that. And we believe that as that trend continues, that those guest experiences keep getting higher and those frequencies go back up to where they were.

Speaker 5: Got it, thanks, thank you for the color there. And then my next question, you know, you guys have had some success in the past with LTO offerings and obviously, you know, just using BurgerFi as an example, you're extending the, you know, the rodeo burger, but any notable sales list? I mean, I guess what's the takeaway out of those LTOs? I'm assuming it's positive, sincere.

Speaker 5: continuing to kind of push those forward. Yeah, I think the feedback that our marketing and operations team is getting is that they are really welcomed. Our loyal BurgerFi and Anthony's, if you think about the hot honey promotions, our loyal customers are really enjoying and really, really appreciative of these diversity options.

Speaker 5: Are they really driving a sales lift in terms of incrementality? Probably not. They are probably not moving the needle, but they really give us a great platform to communicate with the customer and continue that love affair that they have with both of our brands.

Speaker 5: I need to try the Rodeo burger that's on my list here. I guess lastly in regards to the franchise based, BurgerFi, what a close for, open to, I mean what is your expectation in terms of further attrition?

Speaker 6: within the BurgerFi franchise base and then, you know, obviously you transfer two of them from franchise to corporate owned. I'm assuming, you know, you, you.

Speaker 6: you like the location. I thought that maybe those could be run a little bit more efficiently. I don't know. I'll let you add color to that, but I'm wondering if there's more room for that essentially.

Speaker 5: Yes, so I'd say that the two additions that were transfers were very unique situations. We had a litigation matter with the former owner of BurgerFi and a significant shareholder and as part of that legal settlement we agreed to take that and own and operate two of the locations that he still had. We had a larger number.

Speaker 5: I think six, but they had mostly closed during COVID. And he had, so he was getting out of the business of that and we agreed to take them on. It's nothing more than that. In terms of the overall health franchise base, you do see that there were four closed during the first quarter. But what I would tell you is that those four were terminations. They had actually closed in terms of business back in 2022.

Speaker 5: So what we saw throughout 2022 and into the first quarter of 2023 is kind of the finalization, those termination, franchise terminations of stores and franchisees that couldn't make it during COVID. If you think about our development plan for the year and you kind of compare it to our closings

Speaker 5: We expect 2023 to be a net unit positive year, you know, with opening 15 to 20, and we're not projecting many more closures. So, we're expecting net unit growth and net revenue growth out of our franchise system.

Speaker 6: And that's a good segue, the 15 to 20 new venues. Obviously you guys, and I really like the strategy of opening locations and, I don't know, we'll call it unique venues such as airports. I mean, of the 15 to 20, what percentage of that is a continuation of that strategy?

Speaker 5: From a count perspective John , in the non-traditional do we have one to two in there? So one to two in there, but we are in LOI and as part of our development plan you are going to see, I would expect that you are going to see a larger proportion of our development being in these high volume, great brand exposure.

Speaker 3: I'll let John comment because he really led that summit. I think that there were some very, very good intangibles that came out of it, but I'll let John . Yeah, it was good. And thanks for the question, Mike. Thanks for being here. It was great participation from our franchisees and our corporate locations. It was our first in four years.

Speaker 3: team in regards to the direction of the brand and the initiatives for the brand and the enthusiasm and excitement about BurgerFi. And it was really good. It was really important. And it turned out to be I think a catalyst for what we expect to see for the rest of the year as far as the excitement for the brand.

Speaker 3: Right, that's awesome. Okay, great. Thanks for all that color and insight there, and again, congrats on a fairly strong quarter here. Thanks for taking my questions. Thank you. The next question is from Lynn Orenstein with Drexel Hamilton. Please go ahead.

Speaker 5: Hi everyone. Thank you so much and congrats on the quarter. Can you please talk about the growth of your kiosks and your strategy there a little bit more? Tim Buesinger Yeah, sure. So, Lynn, thank you for joining and thank you for asking the question. So we launched kiosks last spring in 2022 at the test in three locations.

Speaker 5: Based on its success we rolled it out to almost all of the corporate locations over the fall season. And some of our franchisees began adopting it in the fourth quarter. And the summit that John was just talking about, we actually got a number of franchisees who got to visibly see it that are in remote locations and had not engaged with it.

Speaker 5: a higher average sale because of the AI suggestive offerings that the kiosk system gives the consumer. And it's very interesting if you take our kiosk penetration of in restaurant orders and you add it to our first party and our third party.

Speaker 5: ordering platforms, whether it be BurgerFi.com or ACFP.com or one of our delivery providers, you know, we're at 60 to 70% digital revenue generation. So it's just another compliment. Now, I think that there's still more room to go.

Speaker 5: We'd love to see the kiosks becoming a critical element of all of our franchises. We'd like to see the customer experience continue to improve, because the software on the kiosk is not fixed. It's something that we reintroduce and augment all the time. So it's a very good tool and we're excited with it.

Speaker 2: That's great. Thank you so much. At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Iannucci for closing remarks.

Speaker 3: Thank you, Gary. I'd like to thank everyone for listening to today's call, and we look forward to speaking with you when we report our second quarter results in August of 2023. Thanks again for joining.

Speaker 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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