BurgerFi International, Inc. (BFI) on Q1 2022 Results - Earnings Call Transcript
Operator: Good afternoon, everyone. Thank you for participating in today's conference call to discuss BurgerFi's financial results for the first quarter ended March 31, 2022. Joining us today are Ian Baines, CEO of BurgerFi International; and Mike Rabinovitch, CFO of BurgerFi International. Following their remarks, we'll open the call for your questions. Before we begin today, I want to remind everyone that this conference call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements relating to BurgerFi's estimates of its future business outlook, store opening plans, same-store sales and restaurant operating margin growth plans, prospects or financial results including projected sales, restaurant EBITDA or financial results from the company's acquisition of Anthony's Coal Fired Pizza & Wings. Forward-looking statements generally can be identified by words such as anticipates, beliefs, estimates, expects, intends, plans, predicts, 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 our 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 our annual report on Form 10-K for the year ended December 31, 2021, and those discussed in other documents we filed with the Securities and Exchange Commission. All subsequent written in forward-looking statements is attributable to BurgerFi or persons acting on BurgerFi behalf are expressly qualified in their entirety by the cautionary statements included in this conference call. We undertake 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 discussion and reconciliation of these non-GAAP financial measures, please see our earnings release for the first quarter 2022. I would 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. Now I would like to turn the call over to the CEO of BurgerFi, Ian Baines. Ian?
Ian Baines: Thank you for joining us today, and I'm glad to be here as CEO of BurgerFi. I want to take a moment to thank our team for their dedication and hard work in this challenging environment. I couldn't be more proud of our team -- I couldn't be more proud of how our team worked together to deliver our first quarter results, in which we opened six new BurgerFi restaurants, grew our total revenues by more than 300% and increased our adjusted EBITDA by over 200%. During the fourth quarter of 2021, BurgerFi completed its acquisition of Anthony's Coal Fired Pizza & Wings. So as such, the first quarter of 2022 marks the first quarter that I led the combined company as CEO. And we are enthusiastic about the way the teams are coming together, learning from each other, and our ability to realize our planned synergies and continue to grow our two strong brands. It's a very exciting time here at BurgerFi. Anthony's was a very natural fit for BurgerFi as both brands have a strong foothold in the Florida market and other parts of the Southeast, which has created instant synergies. Further, Anthony's was a compelling opportunity given the brand's strong profitability -- profitability history and future potential and top-tier unit economics. In addition to the revenues and EBITDA contribution from Anthony's core restaurants, we see additional long-term growth opportunities through unlocking the franchising growth opportunity. The acquisition of Anthony's by BurgerFi has enhanced our profitability, provided access to greater competencies between the two brands and leadership teams and expanded our addressable market for future growth. The integration of Anthony's into the BurgerFi's system is going very well. and we are on track to realize $2 million in synergies in 2022, which is our first wave of the cost savings. The acquisition of Anthony's provided us the necessary scale we needed to continue our strategy of building a strong multi-platform growth company in the fast casual and casual dining industries, and we are making significant progress towards that end. I'll now turn the call over to our CFO, Mike Rabinovitch, who will provide additional commentary on our performance for the first quarter 2022 financial results. Mike, I'd like to turn the call over to you.
Michael Rabinovitch: Thank you, Ian, and good afternoon, everyone. To start, I want to mention that our reported first quarter results represent the first quarter that encompasses a full quarter of results for both BurgerFi and Anthony's. We're excited to report that our first quarter results were in line with our expectations, and we're reiterating our 2022 guidance, which I will discuss in more detail shortly. Moving first to revenues. While our first quarter total revenue, including both BurgerFi and Anthony's was impacted by the Omicron variant of COVID-19 in January, we were able to deliver an impressive 311% increase in revenue to $44.9 million compared to $10.9 million in the year ago quarter driven primarily by a full quarter of operations of Anthony's, which was acquired on November 3, '21, and new BurgerFi restaurant openings. Turning specifically to BurgerFi. Our corporate-owned restaurant revenue increased 20% and which was driven by the addition of eight new corporate-owned restaurants over the past year. The brand reported an 8% decline in same-store sales during the first quarter for our corporate-owned locations and a 5% decline for our franchised restaurants as the Omicron variant weighed on our results. System-wide sales for the BurgerFi brand in the first quarter increased 2% to $40.5 million compared to $39.8 million in the year ago quarter. primarily due to new restaurant growth, partially offset by the decline in same-store sales. Overall, for the BurgerFi brand, digital channel sales comprised 36% of system-wide revenue in the first quarter of '22. We're very pleased to retain the vast majority of the digital channel component of our business relative to that during peak COVID-19. We will continue to invest in our restaurants and particularly in technology, with the goal of improving our guest experience, raising average ticket value and managing our labor costs while delivering a more frictionless omnichannel experience. In May and June, we are rolling out self-service kiosks to many of our corporate-owned BurgerFi locations, which early results are indicating strong increases in our average check as consumers tend to order more add-on products, when placing an order through a kiosk. We also have several franchisees beginning the implementation of this technology and hope their experiences will translate into system-wide opportunities for our franchise network. Moving on to BurgerFi's margins. Similar to other restaurant companies, we felt the inflationary effects of food, beverage and labor this quarter. As a result, BurgerFi's restaurant level operating expenses were higher by 340 basis points compared to that of the year ago quarter. Turning specifically to Anthony's. We were very pleased with the brand's performance in the first quarter as same-store sales rose an impressive 13% over the prior year period. Comparing same-store sales to 2019 before COVID, sales were still behind by 5%, but they improved sequentially versus the fourth quarter and previous quarters. We estimate that sales would have been near flat when compared to 2019 and excluding the impact of the Omicron variant in January. Turning to restaurant profitability. Anthony's reported a restaurant operating expense ratio of 85.7% and a restaurant level sales during the first quarter. While the brand's restaurant-level margin was below pre-COVID levels due to the aforementioned inflation of food and labor as well as lower sales. We were encouraged to see the first signs of recovery in food costs in five quarters, driven by the stabilization of chicken costs. The stability in cost structure, coupled with Anthony's sales recovery reinforces our view that margins should begin to improve as we move into the second half of 2022. In addition, with price increases implemented in January and May and the procurement strategies recently implemented. We believe that we can recapture Anthony's strong restaurant level margins of 19% and when sales and inflationary pressures become normalized. Moving on to pricing. We took price increases in January at BurgerFi of 3.5% and at Anthony's in January of 2% and another 2% here in May. We also plan another price increase at BurgerFi by June, and that amount we are still developing. On a consolidated basis, we reported a net loss in the first quarter of $13.6 million compared to a net loss of $8.2 million in the year ago quarter. This change is primarily the result of higher operating income delivered from restaurant operations, offset by higher non-cash items such as depreciation, amortization of intangibles, share-based compensation and interest expense resulting from the acquisition-related debt and to a lesser extent, the annualization of certain investments related to becoming a public company. Adjusted EBITDA in the first quarter increased 213% to $2.3 million compared to $700,000 in the -- $700,000 in the year ago quarter. This year-over-year improvement was driven by the acquisition of Anthony's and BurgerFi's organic revenue growth, partially offset by the investments related to being a public company and preopening expenses related to the growth and development of corporate-owned restaurants. Moving on to the balance sheet. Our cash balance at March 31, 2022, was $13.3 million compared to $14.9 million at March 31, 2021, reflecting capital expenditures of $700,000 and which primarily and related to the construction of new corporate-owned restaurant locations and our scheduled quarterly debt repayments. As it relates to our unit growth. During the first quarter, we opened six new BurgerFi restaurants consisting of three corporate-owned and three franchise locations. Moving on to our outlook. We remain optimistic about our short-term and long-term prospects. While January was a more volatile sales month given the surge in the Omicron variant, we saw sales improve as the quarter progressed. As such, for 2022, we are reiterating our previous guidance, which includes annual revenues of $180 million to $190 million, which assumes a mid-single-digit increase in same-store sales and the addition of 15 to 20 new restaurants. In total, we are expecting capital expenditures to be between $3 million or $4 million for the full year, which compares to $10.7 million in 2021. At the close of the first quarter, we have completed our new corporate-owned restaurant openings for the year. As all future locations in 2022 are planned to be franchised, we have essentially completed our new restaurant capital expenditures and preopening costs, which will set us up for accelerating financial performance in the coming quarters. To summarize, I want to highlight that 2022 will be a year in which we focus on driving profitable growth. Further, as our synergies following the acquisition of Anthony's are just beginning to ramp up and cost of sales at Anthony's are stabilizing. We remain confident in meeting our financial guidance for the year. Now I'll send it back to Ian to discuss our growth plan and strategic initiative going forward. Ian?
Ian Baines: Thank you, Mike. Our top priority remain the guest experience and our team members who have been instrumental in our success. We remain focused on providing the guest with the frictionless experience coupled with fantastic high quality food. To that point as we mentioned in our fourth quarter call we're thrilled that the BurgerFi brand was recently recognized, for the second year in a row, as a top better burger fast casual chain in USA's today 10 best readers choice survey and the #1 brand of the year in fast casuals top 100 Movers & Shakers list for 2021. Digital technology and off-premise dining remains a major priority for us as we aim to enhance the guest experience through greater convenience and accessibility. We have several initiatives underway to this end, including self-ordering kiosks in store, improving our online and mobile platforms amongst others. We are also focused on building out our loyalty mobile applications and delivery features as well as our payment capabilities. Here in May and June, as Mike mentioned, we're excited to be accelerating the rollout of our state-of-the-art self-ordering kiosk to BurgerFi. This initiative not only adds to the convenience for our guests, but it is an important sales driver as we are seeing strong increases in the check average as consumers are more comfortable in adding on items to their ticket. Further, an added benefit from the kiosk is we will be able to lower labor costs, which will be an important margin driver for us here in 2022 and beyond. Moving into our development strategy. As Mike mentioned, we are very encouraged by the number of new restaurant openings in the first quarter, and we believe we are well positioned to meet our new unit opening projections calling for 15 to 20 new locations. We also look forward to our asset-light strategy of growing through franchising for the remaining unit openings of 2022. We -- to this end, we are nearing completion of the legal documents necessary to begin franchising one of the Anthony's brands, which we expect to commence here in 2022. Our process of selecting franchisees has evolved to a more sophisticated selection process, resulting in newer franchise partners that are well capitalized, have restaurant and retail experience, have a deep knowledge of the geography they do business in and be a good cultural fit for our company. In closing, we are encouraged by our first quarter results, and we are eager to continue our growth and meet our financial targets outlined for 2022. We have two very special brands that represent quality and are on trend with the consumer. And we believe we're in the early innings of our significant growth potential as we actively seek additional brands to add to the portfolio. Once again, I would like to thank all of our team members for their tireless efforts and dedication. With that, operator, please open up the call for questions.
Operator: Thank you sir. We will now begin the question-and-answer session. . Our first question comes from Peter Saleh from BTIG. Please go ahead.
Peter Saleh: Great. Thanks. Thanks for taking the question. I just -- I wanted to ask about the -- you mentioned several times the kiosks and their under implementations that you guys are rolling out there. By my math, I think the payback there on these kiosk is maybe four or five months, maybe even a little bit better. If that's accurate, you thought what is the governor on growth here for these kiosk, and could we see franchisees get a little bit more excited about this over the coming months?
Ian Baines: Yes. So from a company perspective, we've let the governor -- we put the governor open, right? So we're rolling it out to a good portion of our company-owned locations here over May and June. And then we've brought some of the franchisees into view and demonstrate the technology. And I think like any technology, there's a digestion and a simulation period. And so there's an early adopting group where I think we have three or four -- four or five franchisees that are going to be going live, we expect this summer. And I think that, that will then speak volumes to part of the other franchise group. Just like -- you and I were more familiar with it. A lot of the franchisees are focused on hospitality. We want to show them that from a franchisee's perspective, that they can still have both. They can have great guest experience, coupled with good upsell and order accuracy. And we expect that, that's in the early innings, not to reuse that phrase, but I fully expect and believe that the franchise network will continue to look at what we're doing and adopt it because it does have a very fast payback.
Michael Rabinovitch: Very low -- very affordable investment.
Peter Saleh: Excellent. All right. So just maybe going to back to the conversation around same-store stores, I know that you guys that same-store sales improved throughout the quarter, and now has been for Omicron. I think Anthony's would have been kind of flat in 2019. I'm just curious -- is that improvement continue into the second quarter. Should we assume that trend continue?
Ian Baines: I think what I would say is there's a number of things. On versus 2019, we also have Easter and Passover calendar shifts. There's a lot of little nuance differences between March and April. Rather than giving you a second quarter view, the guide that we've provided which calls for same-store sales in the mid-single-digits for the year would imply in order to get that, we're going to have to see a continued ramp as we get through the year. The price increases and the stabilization of the consumer. We need that stability to continue. So we're still optimistic.
Peter Saleh: Understood. And is there any evidence from what you guys are seeing so far of any sort of weakening in the consumer or either trading down within your menu or playing out? Are you seeing any evidence of that so far?
Ian Baines: I don't see we -- I don't think we see it as evidence. I think just as kind of people out there, I think we're all seeing it with gas prices. Gas prices being as high as they are, it takes a chunk of wallet out. And as brands like us, and other brands that are ahead of us on price increases are doing what they need to do to cover the cost of their labor model and their food. The inflationary environment certainly has an impact.
Michael Rabinovitch: We haven't seen any shift in our average check. Our overall average check remains the same. So we haven't seen people stepping down yet to use your term.
Peter Saleh: Okay. Understood. All right. And then just lastly on my end before I pass it along, can you help us with the progression of restaurant margin throughout the year, throughout you reported in the first quarter here. How should we be thinking about restaurant level margins in the context of all the pricing you're taking in the ongoing inflation?
Ian Baines: Yes, Peter, there was just a little bit of roughness in the line. Can you just repeat? I think I got your most of your question. Can you say it one more time?
Peter Saleh: Yes, no, I just wanted to ask about the progression of restaurant level margins as we went to 2022, given the pricing that you actually guys are taking and ongoing inflation? Just trying to understand how we should be modeling restaurant-level margins?
Ian Baines: Yes, so it's a tough call. I think when you compare it to 2021, at Anthony's, we saw this day, which is a we now, we saw the food costs spiking in the summer and stayed pretty high through the end of the year. At BurgerFi, we didn't see the price increases much on the food side until late in the year. On the labor side, both brands only began to really feel the pressure on labor as they moved into the second half of the year. So when I think about operating margins in '22 by quarter and the price increases we've taken, I think that there's going to be more improvement in the back half of the year than in the first half of the year, because the first half of the year really in the second quarter and then only partially to the third, really didn't have that full cost inflation baked in. So I think that's directionally answering your question without specificity because we really don't put out quarterly guide.
Peter Saleh: Understood, okay. All right, thank you very much. I will pass it along. Thank you.
Ian Baines: Okay.
Operator: At this time, this concludes our question-and-answer session. I'd like to turn the call back over to Mr. Baines for closing remarks.
Ian Baines: So thank you. So I'd like to thank everyone for listening to today's call. We look forward to speaking with you when we report our second quarter results in August. Thanks again for joining.
Operator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
