Q4 2023 BurgerFi International Inc Earnings Call
Yeah.
Good afternoon, everyone and thank you for participating in today's conference call to discuss Burger Fi Internationals financial results for the fourth quarter and fiscal year ended January one 2024.
Joining us today are Carl Bachman CEO, Chris Jones CFO.
Following their remarks, well open the lines for questions.
Well, we began I want to remind everyone. 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 your bona fides estimates of its future business outlook liquidity store opening call same store sales and restaurant operating margin growth plan prospects or financial results, including projected sales pressure on EBITDA.
Forward looking statements generally it can be identified by words, such as anticipates believes estimates expects intends plans predicts projects projects will be will continue will likely result in similar expression.
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 for the year ended January one 2024, which will be filed this afternoon 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 file or persons acting on Burger applies to half.
Especially 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.
Also the following discussion will contain non-GAAP financial measures for a discussion and reconciliation of these non-GAAP financial measures.
Earnings release for the fourth quarter and fiscal year 2023.
I'd like to also 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 or five dot com.
Even though today event is being recorded at this time I'd like to turn the floor over to your Burger CEO Karl Bachman Oh go ahead.
Thank you. Thank you for joining us today and we appreciate your interest in Burger five let me begin by thanking our entire team franchisees and employees for their dedication and hard work.
2023 was a challenging year of both Anthony and Burger five but also no way indicative of the work. This new management team is doing well, where we intend to take the business over time, both Christian I began our leadership in July 2023, and since then I've been working diligently to fix the foundations of both brands to ensure the next best turnaround story.
In the restaurant space is an indisputable success in fact, I'm more convinced than ever that Anthony van Berg of fire high quality brands with great opportunities to add and strong growth potential.
Leveraging my prior experience of turnaround situations that Burger and pizza concepts I implemented five key strategic priorities. When I began eight months ago that I will discuss momentarily and which should ultimately drive long term profitable growth.
Notably.
We have already begun to see early leading indicators that our efforts are taking hold well Anthony it's had a 3% decrease in same store sales growth during the fourth quarter. It did experience a sequential improvement in same store sales and traffic compared to the third quarter and encouraging performance during the holidays and why like most of our peers January was a.
<unk> month trends have improved sequentially with March flat to slightly positive adjusting for the Easter shift.
Performance remained volatile at Burger five during the fourth quarter system wide same store sales decreased 10%. However, we did see sequential improvement from the third quarter and same store sales and traffic at both company and franchise locations. This volatility however continued into the new year, where our results have been more challenging.
We believe that a combination of normalized trends versus COVID-19 and overall softer demand in the Florida market as part of our challenge as stores in the northeast and elsewhere have fared better.
Looking forward with the combination of new unit growth and improving same store sales trends driven by our expanded offerings and more effective marketing messages, we anticipate burger by returning to positive same store sales and positive EBITDA by the second half of 2024. Additionally, we're equally confident Anthony its return.
To positive same store and positive EBITDA growth driven by similar initiatives, including menu modification and aggressive focus on food cost and the benefits from an updated Pos platform.
To give you a sense of why we are confident that we can reach these goals in 2024 I will provide a detailed update on our five strategic priorities.
Number one infrastructure, which is really about the people.
We needed to build the team and create camaraderie around the two brands at the restaurant level and in our corporate office. So our first step was fixing the team element and we've been very successful at that our restaurants are now about 95% staffed with significantly reduced turnover.
Notably turnover at Anthony It is better than industry standards and verify is now in line with the industry. This has significantly reduced training labor needed at the restaurant level. As a result, we expect to see improvement in our labor line throughout 2024.
These efforts have also resulted in higher consumer satisfaction scores as well as faster throughput and ticket times. While these encouraging metrics are not yet reflected in our financial performance. There are leading indicators that we're on the right path towards higher sales and margins.
We have also started to leverage technology at both brands in Q1, we began using an operations management platform at Burger Pie and started rolling it out to Anthony <unk>, which enables us to manage all inventory and labor across our company owned locations. This system will help us drive efficiency and operational excellence across our portfolio.
In April we will be rolling out the toast Pos and management system across our Anthony as locations. We believe this system will improve operations increase sales and create a better guest experience part of this rollout will include handheld tablets for our servers that will allow them to beam orders directly to the kitchen, which will increase accuracy and speed of table turn.
Up until now Anthony It was using paper tickets and did not have KBS, which has been a commonly used back of the house tool across the industry for years. As a result, we had no analytics in speed of service to drive efficiencies in the kitchen or dining rooms by the end of Q2, we expect the new toast Pos system to be in.
But in most if not all 59 company owned Anthony.
Next is taste and quality, we're continually focused on improving the taste and quality of our products at both brands.
Across both brands, we've right sized the menu, while also adding new items with broad appeal at Burger Phi We launched new chicken wings and four different types of Burger five bowls. We also introduced a grilled and crispy chicken sandwich option and 31 company owned stores as we did not previously have any grilled chicken options at Burger five we want to be part of chicken.
And I've already seen a 4% to 5% lift in overall mix.
We continue to innovate with our burgers as well in Q1, we launched two new Burger L. T. OS in January we launched the yes chef Burger and in February we debuted a prime rib Burger at the South Beach wine and Food Festival. These two burgers are already accounting for more than 4% of our overall mix.
Any other things, we launched new classic Italian items, including spinach, and artichoke dip spaghetti and meatballs Fettuccine, Alfredo and a great meet stromboli. We also brought back our original Arugula Burrata salad, we are now testing, new shrimp pasta and pizza and preparation for our first ever Italian shrimp Festival in April finally, we're having fun.
With the new happy hour called the Meatball Martini night.
All new menu items across both brands are well exceeding our expectations are.
Our next initiative is developing gold standards between my prior leash of experiences and feedback from employees and guests at both brands I have determined what our gold standards are and it began holding ourselves accountable to them. So that we can drive long term sales growth.
We've standardized our catering program and are in the process of rolling out system wide is already contributing significant additional revenue. In addition to we established industry, leading gold standards. We've improved the quality of our bonds are all natural Angus beef, our French fry process, and our Houston plant based veggie Burger.
As a result of the work we're doing around gold standards are third party audit scores are already strengthening.
Priority for us telling the world about our brands through an enhanced marketing strategy that is already resonating with customers. Our social media engagement rate continues to improve with 60% net positive sentiment at <unk>, 56% and Anthony.
4% since August of 2023.
Additionally, our online reviews, continuing to improve our five star online reviews have increased from four two to $4 four since July 2023, when Chris and I began our leadership roles the highest in the company's history. These early indicators or signs that the marketing strategy is working.
Finally, I'll end with step five defining the portfolio, which is about both store development and optimization.
We conducted a strategic assessment of our Burger five portfolio to identify locations, where the greatest opportunities for improvement.
We segmented each restaurant location into four performance buckets based on the correlation between online ratings a comp sales growth.
Our assessment validated the high correlation between guest ratings and financial performance, we intend to improve the overall portfolio quality by prioritizing the highest impact locations.
As of January 1st our portfolio consisted of 108 Burger by restaurants, 28, corporate owned and 80 franchised and 60, Anthony 59, corporate owned and one franchised.
As we continue to right size our portfolio, we closed five underperforming franchise Berg of five restaurants during the fourth quarter. We also acquired two franchise broker fees in South Florida in a strategic move to solidify our presence in our core markets. We believe these restaurants can be high volume and margin accretive as we fortress South Florida.
We expanded our footprint using a non traditional space by opening a franchise Burger pie within Apple within Apple cinemas and the Pittsburgh Plaza Apple cinemas in Rochester, New York Dislocation provides in theater service, where guests can cure codes during their movies. They have food delivered directly to their seats. It also.
<unk> third party delivery service capabilities for non theater customers, we believe non traditional spaces will become a larger part of our development story as they represent a great opportunity to grow the brand and get people excited about burger by again within a smaller footprint and lower start up costs.
The franchisees were able to build a 500 square foot kiosk to drive revenue while at the same level of capital expenditure as a 2500 square foot store.
Apple cinema is already working on a second Burger Fi movie Theater location in Warwick, Rhode Island, and we expect to open this year and see an opportunity to expand to most of their locations east of the Rockies.
We continue to grow our presence in airports across the country with a second burger by location in Fort Lauderdale.
International Airport slated to open this year.
In December we opened our first ever co branded Burger financings location with our franchisee MDM hospitality services in Kissimmee, Florida dislocation is off to a very strong start and exceeding expectations.
This year <unk> will open a second co branded locations and then Miami World Center development near the Miami Brightline station and a third location is slated for 2025.
Just last week <unk> reopened our flagship company owned <unk> restaurant, and first ever better Burger lab on the upper East side of Manhattan dislocation offers an exclusive lineup of limited edition offerings not available in other locations and our late night menu with a variety of beer and wine will also serve as a venue for special events. We are.
I'm excited to be back in New York City, the food capital of the World and I look forward to welcoming many of you on this call to this restaurant looks.
Looking ahead, we are targeting other metropolitan cities on the I 95 corridor to grow the <unk> brand. As these are the DMA is Roberta <unk> do extremely well.
We're excited to share. This week, we signed another franchise agreement for three Anthony easing the Jacksonville, Florida area. We expect these restaurants to open in 2025.
One of my main priorities has been finding well capitalized franchisees with restaurant retail and hospitality experience to bring more disciplined and profitable growth to our system.
To conclude I am more confident than ever that I made the right decision to join the company.
Sales and margin improvement will not happen overnight, but we are laying the foundation to grow upon we're making very educated smart decisions using a very simple formula we must win for our guests we must win for the team members and we must win for the shareholders and franchisees with that I will now turn the call over to our CFO Chris Jones.
Who will provide commentary on our fourth quarter 2022 performance and discuss our guidance go ahead Chris.
Thank you Carl and good afternoon, everyone.
As Carl stress, while not evident yet in our financials. Please note that this new management team is working hard every day executing a sound strategy and it will increase sales and improve margins over time.
During the fourth quarter topline softness pressured margins, but that didn't stop us from continuing to drive labor and cost efficiencies as.
As evidenced by the continued decline in payroll and corporate expense dollars bottom line is that the more work, we do driving efficiencies today, the greater margin expansion opportunity, we have as we emerge in the recovery.
So that means moving into positive comps here in March and then even a month roughly flat adjusting for Easter. We are cautiously optimistic that we will start to see some of this positive leverage for our largest brands in 2024.
Now briefly looking at the fourth quarter.
Total revenues were $41 5 million decreasing eight 3% from $45 2 million for the same quarter last year, Anthony as corporate owned restaurants contributed $31 1 million to total revenues in the quarter.
The decrease in revenue primarily attributable to a decrease in same store sales at both brands, partially offset by the additional revenue from two acquired Burger five restaurants for franchisees during the fourth quarter.
Restaurant level profit margin was 12, 5% for the fourth quarter of 2023 compared to 13.9.
Fourth quarter of 2022, the decrease was primarily related to lost sales leverage. However, we continue to see an improvement in food beverage and paper copy costs, a trend that should continue through 2024.
We are also beginning to see an improvement in other operating expenses due to better expense management.
We expect to see an improvement in restaurant level profit margins throughout 2024, as we accelerate the roll out of the inventory control system to Anthony.
Shifting to our individual brand results. The Burger five corporate owned restaurants sales decreased 4% D point $3 million, reflecting a 14% decrease in corporate owned same store sales.
System wide sales for Burger five in the fourth quarter decreased 9% to $33 9 million compared to $38 seven in the year ago quarter, primarily due to the closure of underperforming company stores, coupled with declines in same store sales.
Burger by system wide same store sales decreased 10% for the fourth quarter compared to the same period in 'twenty two.
<unk> same store sales decreased 14% and franchise restaurants same store sales decreased 8%.
Berger fire restaurant level operating margins were two 8% for the fourth quarter of 2023 compared to $9 four in the fourth quarter of 'twenty. Two this was largely the result of lost leverage on fixed costs due to same store sales decline along with higher gains from franchise fees termination fees gift card breakage income from <unk> sales.
That benefited the prior year quarter.
As mentioned earlier food and paper margins continue to be a positive story.
And we expect to continue despite the continued pressure on beef prices.
While we're not immune to these price increases we don't expect to see the same level of increases that others have seen this is because as discussed last quarter. We have secured secured a secondary supplier. It should allow us to insulate ourselves from any volatility in beef prices for 2024 and beyond while giving us an edge on pricing.
We are confident that we will continue to see improvements in food and paper margins due to these benefits and the positive impact from inventory management and procurement systems, we continued to yield improvements.
Going into 2024, we believe the combination of menu enhancements improved marketing and the contribution of new stores return us to positive total growth the Burger side at that point operating leverage of the Burger five business will start to emerge in a compelling way.
Turning to Anthony <unk> corporate owned restaurants sales were down $31 1 million in the fourth quarter compared to $33 million in the prior year fourth quarter. The decrease was driven by a 2%.
Decrease in same store sales when compared to the fourth quarter of 2022.
Staying with Anthony on restaurants profitability restaurant level operating margin was 15% for the fourth quarter of 2023 compared to 15 point too in the fourth quarter of 'twenty two.
This was due to lost leverage on fixed cost because of the same store sales decline through the paper margins improved modestly in the quarter. Despite continued higher coal prices are higher wing prices.
Importantly, we expect to see greater improvements in Anthony is in 'twenty 'twenty four is the inventory management and procurement systems currently positively impacting Burger Fi today start to take hold in Anthonys. Additionally, we expect to start rolling out a new Pos system that Anthony and expect most if not all 59 stores to be converted by the end of second quarter 2012.
Four.
The system is a significant upgrade to the 20 plus year old platform in stores today employ and handheld devices and advanced <unk> technology to drive greater efficiency and customer engagement in the stores.
Joked that Anthony is we will also see in the second franchise location. Hopefully later this year with an expectation for more in 2024 and beyond.
Back to consolidated results.
We reported a net loss of $10 7 million in the fourth quarter compared to a net loss of $26 2 million in the year ago quarter. This quarter reduction in net loss is primarily due to lower goodwill and fixed asset impairments lower depreciation and amortization expenses lowered general and administration expenses, primarily due to lower litigation.
<unk> expenses, partially offset by lower leverage on sales.
Adjusted EBITDA was 671000 in the fourth quarter compared to $2 6 million in the prior year fourth quarter.
The decline in EBITDA was especially evident at Burger five business as we saw layers as we saw lower royalty income in the quarter due to lower franchise sales volume and didn't benefit from the higher franchise termination fees or breakage that we did in the fourth quarter prior year.
Further keep in mind that some of the royalty declines were self inflicted as the company made the right decision to close underperforming stores in the quarter, but some of these declines partially offset by lower food costs and other operating expenses.
Moving onto the balance sheet, our cash balance in January one 2024 was $7 6 million compared to $11 9 million at January <unk> 2023.
Decrease in cash of $4 3 million was primarily due to decreased cash from operating activities of $5 4 million in investing and investing activities of $1 6 million.
Actually offset by cash provided by financing of two six.
Cash used in operating activities include severance payments due to restructuring store closing expenses legal settlements integration costs and a decline in EBITDA, partially offset by receipts of employee retention credits.
Cash outflows for investing activities were $1 6 million due to capital expenditures offset by Brazil.
By proceeds from the sale of assets.
Cash provided by financing activity of $2 6 million was due to proceeds from issuance of common stock and proceeds from related party notes payable, partially offset by term loans and line of credit repayments bookings.
Looking forward as we stabilize top line volumes volumes enroll resolve non refer recurring cash events, we continue to refocus on use of cash for EBITDA growth.
Now before I move to guidance an update on covenant compliance.
Anyone who is familiar with our credit agreement will know that we have $12 5 million cash reserve requirement, which includes a $4 million swing wide. As noted earlier, we are below this level and no longer compliant with their senior lender agreement we are in active.
Patients with our lenders, but cannot provide any more updates at this time.
Additionally, later today or tomorrow morning, and vessels will receive 12 P 25, providing notice the beef Burger Fi will delay the filing of its Form 10-K 10-K.
We were shooting to have a 10-K out by the end of this week and there'll be more details in that filing.
Now turning to our fiscal 2024 outlook, we expect total revenues of $170 million to $180 million, which assumes it assumes a low single digit increase in same store sales for corporate owned locations.
The addition of 10 to 15, new franchise restaurants, as well as including one Anthony <unk> and a new Burger and our New New York City Burger five flagship location.
Continued improvement in our cost of goods driven by increased adoption of inventory management at both brands.
Adjusted EBITDA of between $7 million to $9 million.
Capex spending for between $2 million to $3 million.
With that we'll open up the call for questions. Thank you.
None: Ladies and gentlemen at this time well begin the question and answer session.
To ask a question you May press Star and then one using a touchtone telephone to a draw your questions you May press star and two.
If you are using a speaker phone, we do ask that you. Please pick up your handset prior depressing the numbers to ensure the best sound quality.
None: Once again that is star and then one to join the question queue.
Our question. Our first question today comes from Peter Saleh from <unk>. Please go ahead with your question.
Thank you gentlemen, and good afternoon, its actually been perentie on for Peter This evening.
A couple of questions on our end. The first is if you could just maybe dig into the sales trends in the fourth quarter as well as anything year to date, you're willing to.
The share for both.
Both brands in particular, maybe the monthly cadence during the fourth quarter as well as any geographic differences you saw between the northeast and the Florida market would be would be helpful.
Yes, I can I can start addressing that and Chris Jeff feel free to jump in but.
Definitely weaker weaker performance in Florida, as we saw kind of that seasonality trend come back to normal.
Post COVID-19 trend.
But.
None: Early fourth quarter, where it was.
Slow and then we saw a good a good rebound in in December as we got into the holidays and you started to see kind of an influx in Florida.
As far as both brands outside of Florida, a stronger fourth quarter results, especially in the northeast on Anthony side.
And then as you got into the first quarter I think weather hit a lot in the east coast, both North and South So January was a little disappointing for us, but we saw improve.
Improvement a slight improvement in February and a marked improvement in both brands in March.
As like we talked about Anthony.
When you take into consider Easter flip was actually positive same store sales so.
We are we are right in line with what I believe is our guidance for the year end and.
And moving in that direction, so hopefully that answered your question.
It does thank you.
Thank you very much for that.
Secondly, maybe for you Carl is following the strategic review of Burger five that you did could you maybe comment on the health of the franchise system as you.
Be it today.
Are there any.
Changes or improvements you think need to be made among the franchise system and maybe you can touch on.
<unk> closure.
Relocation and door.
Repurchase activity that you are anticipating for this coming year.
Yes, so in the fourth quarter.
Look.
In the third quarter, we took a really good look at our franchise system.
From two perspectives.
Do we have the right franchisees.
And are we giving them the right level of support.
None: So we've really worked hard to improve our support our communication on that side of it and we got to that <unk> got to work on that early and I think the end result is you are seeing a much better level of communication support between franchise or franchisee as we've elevated the support and communication. We've also determined that there were certain franchise.
He is in the system.
None: That was not a good fit for us and that's why we've made those closures I believe we we noted in the.
On the call we closed.
I believe our franchise Burger files that were underperforming. So we still think there may be a couple out there, but we think we are.
And the herd so to speak and really gotten that behind us and we have some very good strong franchisees that have re engaged and are growing. So we're very excited about that so I think we're in a good place there we have a lot of interest in our non traditional growth side.
Side of Burger Fi from a franchisee perspective.
We believe that the strategy. Today is is is bringing burger Phi to where people are at in life as opposed to just putting a brick and mortar store up and hoping that the market and get them in the door.
So we see the opportunity in airports.
Amusement parks casinos hotels.
The movie theaters, and we have a lot of interest from those groups.
Apple Cinema is one great example of the kind of non traditional franchise growth.
We're negotiating and working with them on.
Opening quite a few stores and we're opening our second store here shortly in Warwick, Rhode Island, So a lot of good franchise growth coming.
None: We're seeing a much.
Better interest from existing franchisees that are really looking for their second or third concept.
None: So franchisees that have operational structure financial structure.
None: And their own infrastructure that they can support.
That's the kind of partners. So that we're looking for and we're engaging and we're starting to see quite a bit of.
None: Quite a bit of new interest as a result of that.
I think that I think that answered it for you.
I think one more thing I'd add to that David asked the question about.
The refranchising the repurchase of existing franchise operations.
It's clearly we should be clear that that's not something that we do a lot of obviously, we did a we did buy two of the operations down in Miami.
We are in strategic locations I think you should look at locations like that has been places, where we might consider that but it.
None: The general rule is certainly not something that we would do but youre again in strategic locations, where we think it's a good opportunity for one where we can grow but it will be and that's something that we would consider certainly if it if the deal is good.
Yeah.
Understood. Maybe my last question then is for you, Chris and then I'll pass on the queue.
Could you just comment on.
Is there a restaurant level margin.
Target or guidance contained within the adjusted EBITDA outlook for this year.
I understand if youre not willing to give any explicit.
Our L M target for the year could you maybe just speak to the puts and takes on some of the line items aside from the cost of goods.
Improvement that you're expecting for the year.
Absolutely. So I think it probably wont shy away from giving a specific margin rate or is that kind of level of detailed guidance, but to your point certainly the cost of goods will continue to food and beverage will certainly be a large part of it but we also do believe that other operating expenses, we will we will be able to get our hands around.
As well as labor costs go one of the things that this organization asset struggle substantially with labor.
Not necessarily see manifested in the numbers today, but.
But I think what we.
We are seeing is a substantial reduction in turnover.
So instead of a big reduction in training hours and social as well so that would be an area, where I think we could see substantial improvement in particularly in the event that we start to get some positive topline.
I'd say that was where you would see that.
None: Most dramatic removing terms overall leverage secondly, I think the corporate G&A will continue to be an important area for us we are holding the line on corporate expenses here.
That's something that trend that we're going to be able to continue as well.
Great.
That does that does it for us.
Evening. So thank you both again and I'll pass it on with that.
None: Thank you.
And ladies and gentlemen, with that we will be concluding today's question and answer session as well as today's presentation. We thank everyone for joining you may now disconnect your lines.
Yeah.