BurgerFi International, Inc. (NASDAQ:BFI) Q1 2023 Earnings Call Transcript

BurgerFi International, Inc. (NASDAQ:BFI) Q1 2023 Earnings Call Transcript May 16, 2023

BurgerFi International, Inc. misses on earnings expectations. Reported EPS is $-0.62 EPS, expectations were $-0.24.

John Iannucci – Chief Operating Officer:

Michael Rabinovitch – Chief Financial Officer:

Operator: 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 3, 2023. Joining us today are John Iannucci, COO and Michael Rabinovitch, CFO. Following their remarks, we’ll open the lines 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 BurgerFi’s estimates of its future business outlook, liquidity, store opening plans, same-store sales and restaurant operating margin growth plans, prospects or financial results, including the projected sales, restaurant EBITDA or financial results from the company’s acquisition of Anthony’s Coal Fired Pizza & Wings.

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 results and 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 for the year ended January 2, 2023, and those disclosed and other documents that the company files with the Securities and Exchange Commission.

All subsequent written and oral forward-looking statements attributed 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 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 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, as well as on the company’s website at www.burgerfi.com. As a result, today’s call is being recorded. Now, I would like to turn the call over to Bergify’s COO, John Iannucci. John, please go ahead.

John Iannucci: 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. Before I begin today, last week, Ian Baines, our Chief Executive Officer, announced his retirement effective June 7. 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. In this role, I plan to work with our talented teams in driving initiatives as well as continued margin expansion. On behalf of the entire company, I wish Ian the best in the next chapter of his life.

My plan this afternoon is to first recap our quarter one performance and then discuss current initiatives. Following that, Mike will review the quarterly financials in greater detail and reiterate our 2023 guidance. 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 million to $180 million for fiscal ’23. Consolidated system-wide sales were $73.4 million, compared to $73.1 million in the same period of 2022, which includes $40.3 million of BurgerFi and $33.1 million of 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.

Adjusted EBITDA grew by 12% to $2.6 million. Importantly, we remain confident that we are on track to achieve our guidance of $10 million to $12 million in adjusted EBITDA for fiscal year 2023. 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’s saw a 3% increase in same-store sales growth. Notably, we are continuing to see sales recovery in our locations in the Northeast, which previously had lagged the improvement we have seen in our home market in Florida in 2022. The top line momentum in 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. 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. Looking at BurgerFi. 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 quarter one with the store level operating margin of 12.6%, which is 100 basis points above the same period in the prior year. Sequentially, margins increased 320 basis points from 9.4% in the fourth quarter.

Photo by Heidi Kaden on Unsplash

These improvements are resulting from stable procurement, pricing and controlling store operating expenses. 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 last year. These activities include things like changing our suppliers and negotiating an existing 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. We are having a lot of fun with BurgerFi’s LTO program.

In February, we launched the Barbecue 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 aversion to further drive interest in our brand and our products. The 100% all-natural Angus beef burger patties grilled with charred jalapenos and topped with pepper jack Cheese, home-made crispy haystack onions and tangy Memphis sweet barbecue sauce. It’s served between two pieces of Texas Toast for savory sweet and spicy flavor profile. Additionally, ahead of St. Patrick’s Day, we launched a new mint shake with Oreo. The sweetened minty flavor profile is a fun take on one of America’s top three favorite ice cream flavors, mint chocolate chip, 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 2, we debuted a new Texas Toast Patty Melt LTO. The new Texas Toast Patty Melt features 100% all-natural Angus beef, melted American cheese, caramelized onions and BurgerFi’s signature Fi Sauce, all pressed between two pieces of Texas Toast. 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 to bring our love of the brand to our guests in new ways. 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 have lagged in the recovery during 2022. 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. Anthony’s famous pressed jumbo coal-fired wings are also being topped with Mike’s Hot Honey for the best blend of sweet and spicy.

Anthony’s also introduced a new improved wine menu to all its locations featuring 11 new wines and Proseccos. 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 3, our portfolio consists of 112 BurgerFi restaurants, 27 corporate owned and 85 franchised and 60 corporate-owned Anthony’s. During the first quarter, we opened two new franchised BurgerFi restaurants and two locations transferred from franchisees to corporate owned. We kicked off our 2023 development in January with the opening of a BurgerFi franchise in Newark Liberty Airport. Airports continued 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.

In February, we opened a beautiful new franchised BurgerFi in Orlando’s O-Town West, one of Orlando’s most desirable destinations featuring restaurant, retail and entertainment spaces. For the full-year, we still plan to open 15 to 20 new restaurants, all of which will be franchised. Included in this number is one new franchised Anthony’s location. In the second quarter of 2023, we opened one franchised BurgerFi location, with a second franchised BurgerFi location expected by month end. 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 opened in the third quarter of this year.

Our agreement with them calls for three franchised Anthony’s locations in Florida over the next two years. The second and third Anthony’s locations through the NDM agreement will both be the freestanding, smaller Anthony’s prototype slated to open in the Miami World Center development near the Miami Brightline Station. 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. 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 Rabinovitch, who will provide additional commentary on our first quarter 2023 performance.

Go ahead, Mike.

Michael Rabinovitch: 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, partially offset by a decrease in same-store sales at BurgerFi. Shifting to our individual brands’ results. The BurgerFi corporate-owned restaurant sales increased 8% to $10.2 million, driven by the addition of new corporate-owned restaurants over the last year, offset by a decrease in same-store sales. BurgerFi system-wide store sales decreased 4% for the first quarter, compared to the same period in 2022.

For corporate-owned BurgerFis, same-store sales decreased 6%, and franchise restaurant same-store sales decreased 3%. System-wide sales for BurgerFi in the first quarter decreased 1% to $40.3 million, compared to $40.6 million in the year-ago quarter, primarily due to the decline in same-store sales coupled with the closure of underperforming franchises. BurgerFi’s restaurant-level operating expenses decreased 100 basis points to 87.4% of sales for the quarter, compared to 88.4% in the prior year’s first quarter, primarily due to lower input costs, partially offset by loss leverage on fixed costs due to the same-store sales declines. Turning to Anthony’s. Restaurant sales were $33.1 million in the first quarter, compared to $32.5 million in the prior year.

The increase was driven by a 3% increase in same-store sales, when compared to the first quarter of 2022. 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. 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. 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. 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, $300,000 of merger acquisition integration-related costs, and $300,000 of legal settlements included within general and 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. 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 of liquidity at the end of the quarter. The decrease in cash was the result of term loan and line of credit repayments in capital expenditures, offset by cash produced by operations. 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, which is the following: 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 franchised restaurants, including one new Anthony’s; adjusted EBITDA of $10 million to $12 million; and we are expecting capital expenditures to be approximately $2 million for the full-year.

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

See also 10 Best Socially Responsible Stocks to Buy and 12 Best Fast Growth Stocks to Buy Now.

Q&A Session

Operator: Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Peter Saleh with BTIG. Please go ahead.

Operator: The next question is from Mike Albanese with EF Hutton. Please go ahead.

John Iannucci: Hey, thank you.

Operator: The next question is from Lynn Orenstein with Drexel Hamilton. Please go ahead.

Operator: 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.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.