BurgerFi International Inc. (NASDAQ:BFI) Q2 2022 Earnings Conference Call August 11, 2022 8:30 AM ET
Company Participants
Ian Baines – CEO
Mike Rabinovitch – CFO
Conference Call Participants
Peter Saleh – BTIG
Operator
Good afternoon, everyone. And thank you for participating in today’s conference call to discuss BurgerFi International’s financial results for the second quarter ending June 30, 2022.
Joining us today are Ian Baines, CEO; and Mike Rabinovitch, CFO. Following their remarks, we’ll open the call for your questions.
Before we begin today, 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 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 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 the likely results and similar expressions. These forward-looking statements are based on current expectations and assumptions that are risk — 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 December 31, 2021, and those disclosed and other documents that the company files with the Securities and Exchange Commission.
All subsequent written and — 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 second quarter 2022.
Please note the event is being recorded. I would like to remind everyone that this call will be available via telephonic replay for 2 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.
I would now like to turn the conference over to BurgerFi’s CEO, Ian Baines. Ian?
Ian Baines
Thank you for joining us today, and we appreciate your continued interest in BurgerFi. I would like to begin by thanking our entire team, franchisees and their employees, for their dedication and hard work in this challenging environment. I will begin today by recapping our second quarter performance and then discuss our current business initiatives. Following that, Mike will review the second quarter financials and 2022 guidance.
I am pleased to report total revenue grew 285% to $45.3 million in the second quarter compared to $11.8 million in the second quarter last year. The significant increase in revenue over the comparable period was related to the acquisition of 61 corporate-owned Anthony’s Coal Fired Pizza & Wings in November 2021 and the addition of new corporate-owned BurgerFi locations, representing over 50% unit growth when compared to the prior year.
We also grew adjusted EBITDA nearly 9x to $2.6 million in the second quarter compared to the year-ago period, bringing our year-to-date adjusted EBITDA to $4.9 million for the full year 2022. We are still targeting between $12 million to $14 million in adjusted EBITDA.
Our second quarter consolidated system-wide restaurant sales decreased 2% to $74.3 million, which comprised of a 4% decrease at BurgerFi and a 2% increase at Anthony’s. System-wide comparable same-store sales decreased 5% for the quarter, consisting of an 11% decrease at BurgerFi and a 3% increase at Anthony’s.
It is important to note that BurgerFi is lapping a robust system-wide same-store sales of 44% in the prior year quarter related to the strong initial rebound we experienced coming out of the first wave of COVID last year and the debut of our popular SWAG burger during that quarter.
Despite the downtick in same-store sales, we have maintained our average check at both BurgerFi and Anthony’s, which remains consistent and healthy at over $23 at BurgerFi and over $42 at Anthony’s.
Now as you may be aware, I was previously the CEO of Anthony’s Coal Fired Pizza & Wings. And in November 2021 and following the acquisition of Anthony’s, I assumed the role of the combined company’s CEO. In this new position, I am fortunate to be able to draw from over 40 years of experience in the restaurant and hospitality business.
Over the last 9 months, I’ve had the opportunity to visit many of our BurgerFi and Anthony’s locations and meet with our employees, franchisees and guests. I am continually impressed with both brands and remain confident in the opportunities for the growth and value creation that I see ahead. We are in the early stages of a journey with long-term growth opportunities to build a profitable multi-brand platform within the fast casual and casual dining industries. It’s a very exciting time here at BurgerFi.
During my travels and given my background in the restaurant and hospitality industry, I’ve been able to identify corporate- and restaurant-level opportunities that can help improve sales, drive operating efficiencies and thereby increase restaurant margins and deliver further profitability at both brands.
At BurgerFi, we are focused on strengthening our labor model, especially at the management level. Since the pandemic began, this has been one of the toughest hiring environments that I have ever seen in my career. As a result, we have made hiring, training and retention a priority with the goal to reduce employee turnover. Having consistency at the management level helps build stability in our restaurants and allows us to execute at a high level.
As a result of these efforts, during the quarter, we saw a decrease in turnover at both the management and hourly level at BurgerFi, and we’ve begun to see improved operations within our restaurants. Consumer sentiment of BurgerFi, as tracked by Chatmeter, has reached an all-time high. And this typically translates to higher guest counts and sales over time.
Additionally, during the quarter at BurgerFi, we onboarded a new advertising agency to drive awareness for the brand, capitalizing on BurgerFi’s unique attributes, quality fresh ingredients and our chef-inspired offering that continues to resonate with today’s consumer who is looking for a better-for-you premium burger brand. We also plan to launch 3 new LTOs in the second half of the year. We believe these initiatives will help drive additional traffic and grow sales.
Now turning to Anthony’s. We continue to lean into the digital marketing and our reward program to drive awareness. This is especially true for our Northeast region, where brand awareness is not yet as powerful as our home market of Florida. As a result of our recent marketing efforts, we continue to see sequential increases in sales at our Northern Anthony’s locations.
Another focus of my team this year has been finding well-capitalized franchisees with restaurant, retail and hospitality experience. Bringing these operators into our system will result in more disciplined and profitable growth over the long term. We believe both BurgerFi and Anthony’s have a long runway of organic growth ahead.
We are in discussions and negotiations with several interested parties for both brands. The pipeline is looking strong for 2023 and beyond. The Anthony’s acquisition now affords us the opportunity to cross-sell franchising across both brands and foster attractive multiunit, multiconcept franchise deals.
As we look ahead, similar to our growth strategy at BurgerFi, future growth at Anthony will be focused on an asset-light franchise model which facilitates brand expansion without significant capital investment on behalf of the company. We are also currently in the process of creating a new smaller footprint at Anthony’s, which we believe will provide enhanced returns while increasing the addressable market.
Turning to organic growth. During the second quarter, we opened 2 franchised BurgerFi restaurants, bringing our year-to-date openings to 8 new restaurants. As many participants in the restaurant industry are experiencing, permitting and construction delays have affected our franchisee partners’ ability to open their restaurants on their original time lines. So as a result, we now expect 13 to 17 new BurgerFi restaurants to open in 2022 as a few restaurants are moving into the first quarter of 2023. The remainder of our restaurants opening this year will be franchised restaurants as we do not plan to open any more corporate-owned BurgerFis this year.
Additionally, in July, we announced our agreement with Gopuff to bring BurgerFi to up to 30 Gopuff Fresh Food Halls nationally in existing and new markets this year, which is incremental to our previous growth goal targets. This agreement follows a successful pilot program earlier this year.
We estimate that these 30 Gopuff locations will be roughly equivalent to 5 to 10 additional franchised BurgerFi locations from a revenue and EBITDA perspective. This growth opportunities enables us to further expand and capture a new customer base while building brand awareness with no capital investment on behalf of BurgerFi.
During the quarter and consistent with our asset-light strategy, we transferred 2 corporate-owned BurgerFis to franchisees. Our franchisees also closed 4 BurgerFis. So as of June 30, our portfolio consists of 122 BurgerFi restaurants, 25 corporate-owned and 97 franchised, and 61 corporate-owned Anthony’s.
As you know, as a result of the Anthony’s transaction, we identified opportunities to leverage G&A and other cost synergies which we believe will result in about $2.5 million of cost savings. We expect to realize approximately $2 million of these savings in 2022, which begin to ramp up here in the second half of 2022.
Here at our corporate offices in June, we closed the legacy BurgerFi headquarters in Palm Beach, Florida and combined our operations into the Anthony’s headquarters in Fort Lauderdale, Florida. I am impressed by the way the teams are coming together and learning from each other.
We have several digital initiatives underway to improve operations and increase sales, including the rollout of self-ordering kiosks, building a loyalty program and enhanced mobile and delivery platforms. BurgerFi’s digital sales were 33% of system-wide sales and Anthony’s was 36% of the system-wide sales. We are encouraged by the sustained level of sales in this layer of our business, which allows us to accommodate our guests’ preferences for when and where they would like to enjoy our brands.
Looking at kiosks specifically. During the second quarter, we began to roll them out at corporate-owned BurgerFi locations. As of today, 20 of our corporate-owned BurgerFis currently have kiosks available for ordering. Additionally, we’ve brought in some of our franchisees to view and test the technology, demonstrating that the kiosks provide a great guest experience, coupled with the opportunity to upsell guests and provide greater order accuracy. We currently have 3 franchise-owned BurgerFis with kiosks and expect more will begin to adopt the technology as time progresses.
At Anthony’s, we’ve been testing AI technology phone-answering systems for those who still like to call in orders. This helps especially during our peak hours. The longer this test runs, the better it becomes as the algorithms learn to respond to what guests are ordering and then upsell. Early indications prove that this is quite a seamless experience, and similarly to the kiosks, we are seeing an uptick in the average check. As of today, we have AI technology at 5 Anthony’s locations.
Now while digital sales remain strong, we saw a mid-single-digit increase for in-person dining at both brands during the second quarter. Our in-person dining business typically provides superior margins as we have the ability to have our guests more naturally add-on items, like from our bar, appetizers and desserts.
Moving on to the current cost environment. We are currently in a period of historically high inflation, along with supply chain and labor challenges. These headwinds, coupled with soft restaurant sales, pressured restaurant operating profit at BurgerFi this quarter, while restaurant profitability improved slightly at Anthony’s.
While we continue to work with our suppliers for goods at competitive prices, price increases were unavoidable in this environment. We have taken several price increases across both brands this year to help offset inflation and to improve our margins. Additionally, we have also encouraged our franchisees to do the same, and several have begun to do so.
While our margins have not yet achieved our pre-pandemic levels at either brand, we are optimistic that we can improve profitability over the short and long term. As sales trends improve, we expect significant portions to flow to operating profits at both brands. In the meantime, we are working on improving labor and operations at BurgerFi, which we believe will help sales. I also intend to take the best procurement strategies from Anthony’s and apply those across the BurgerFi system to improve margin performance for both our corporate-owned locations as well as our franchisees.
We have recently begun to see commodity prices ease in some categories, especially at Anthony’s, driven by the stabilization of chicken wing costs. So this reinforces our view that margins should begin to improve as we move to the second half of 2022.
So in closing, we have 2 very highly — high-quality brands that are on trend with the consumer, and we believe we’re in the early innings of our significant growth potential. I’m confident there’s still substantial room for further operational progress and profitable growth here at BurgerFi. Once again, I’d like to thank all of our team members for their tireless efforts and dedication.
Now I’ll turn the call over to our CFO, Mike Rabinovitch, who will provide additional commentary on our performance for the second quarter 2022 financial results. Go ahead, Mike.
Mike Rabinovitch
Thank you, Ian, and good morning, everyone. As a reminder, we acquired Anthony’s on November 3, 2021. I will speak to our reported results which include Anthony’s for the second quarter of 2022.
Let me start by discussing our financials in greater detail. Second quarter total revenues were $45.3 million, increasing 285% from $11.8 million for the same quarter last year. The increase was due to approximately $31.8 million in sales contributions from Anthony’s, which was acquired on November 3, 2021.
Now shifting to our segments results for Q2. The BurgerFi corporate-owned revenues increased $1.7 million or 14.4% to $13.5 million for the second quarter of 2022 compared to $11.8 million in the same period in the prior year, driven by the addition of new corporate-owned restaurants over the last year, partially offset by a decrease in same-store sales.
BurgerFi same-store sales decreased 11% for the quarter compared to 2021. For corporate-owned BurgerFi restaurants, same-store sales decreased 14% and franchises restaurants same-store sales decreased 11% versus the same period in 2021. System-wide sales for BurgerFi in the second quarter decreased 4% to $42.4 million compared to $44.2 million in the year-ago quarter, primarily due to the decline in same-store sales, partially offset by new restaurant growth.
BurgerFi’s restaurant-level operating expenses increased 60 basis points to 89.7% of sales for the quarter compared to 89.1% of sales in the prior year second quarter. Similar to the rest of the industry, BurgerFi’s margins continue to feel the inflationary effects of food, beverage and labor in this quarter and lost leverage on fixed costs due to the same-store sales declines.
Turning specifically to Anthony’s. Restaurant sales were $31.8 million in the second quarter compared to $31.3 million in the prior year. This increase was driven by a 3% increase in same-store sales when compared to 2021.
Turning to restaurant profitability. Anthony’s restaurant-level operating profit increased 20 basis points for the quarter compared to the prior year second quarter. As Ian noted, we are beginning to see a stabilization of commodity costs, especially chicken wing prices, and expect margins to improve in the second half of the year. Both Anthony’s and BurgerFi operating margins benefited from significant savings in other operating expenses, primarily driven by improved efficiency of the delivery service provider programs in both brands and other cost management initiatives.
On a consolidated basis, we reported a net loss of $60.4 million in the second quarter compared to net income of $9 million in the year-ago quarter. This loss is primarily the result of a noncash goodwill impairment charge of $55.2 million in relation to BurgerFi and Anthony’s, coupled with higher depreciation, amortization of intangibles, share-based compensation and interest expense all resulting from the acquisition-related debt and assets of Anthony’s.
Adjusted EBITDA in the second quarter increased 883% to $2.6 million compared to $300,000 in the year-ago quarter. This year-over-year improvement was driven by the acquisition of Anthony’s, partially offset by the decline in same-store sales growth at BurgerFi.
Moving on to the balance sheet. Our cash balance at June 30 was $15.7 million compared to $14.9 million at December 31, 2021.
Moving on to our fiscal year ’22 outlook. We remain optimistic about our short-term outlook for 2022 and long-term prospects and are reiterating our adjusted EBITDA expectations for the full year 2022. We are updating our expectations regarding annual revenue, same-store sales, unit growth guidance and capital expenditures.
Total revenue of $175 million to $180 million, which assumes a low to mid-single-digit increase in same-store sales and the addition of 13 to 17 new restaurants, 3 corporate-owned and 10 to 14 franchises, as well as up to 30 BurgerFi Gopuff locations this year. Adjusted EBITDA of $12 million to $14 million. And we are expecting capital expenditures to be approximately $2 million for the full year.
As a reminder, our organic store development strategy for the remaining new locations in 2022 will be franchised restaurants and Gopuff Food Hall kitchens. We have essentially completed our new restaurant capital expenditures and preopening costs, which will set us up for accelerating financial returns in the coming quarters.
Before I conclude, I would like to bring your attention to an 8-K we recently filed. On July 28, 2022, the Board of Directors approved the company’s change to a 52-, 53-week fiscal year ending on the Monday nearest to December 31 of each year in order to improve the alignment of financial and business processes following our acquisition of Anthony’s. This change is effective immediately and will be reflected in our fiscal third quarter report ended October 3, 2022. As a result, our current fiscal year will now end on January 2, 2023.
With that, Operator, please open the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from Peter Saleh with BTIG.
Peter Saleh
Great. I just want to ask if you guys could give us a little bit more color on the same-store sales progression throughout the quarter, more specifically for BurgerFi.
And just curious. When we look at your outlook for low to, call it, mid-single-digit same-store sales for the year, I think that really implies a pretty substantial increase in same-store sales in the back end of the year. So could you just help us out there? Are you seeing an improvement in July and August so far that gives you that confidence? Any details around the comp progression would be helpful.
Mike Rabinovitch
Peter, it’s Mike. Can you hear me okay? We were having audio issues earlier.
Peter Saleh
Yes, I can.
Mike Rabinovitch
So there’s a couple of subparts to that question. If I happen to miss one, please don’t hesitate to ask me because I think I can give color on each of those elements.
When I speak about our guide for same-store sales for the full year period, I am speaking to our combined corporate-owned restaurant sales. Through 6 months, we are plus 6%. So when you think about the full year at a low to mid, that’s just one element I wanted you to think about.
The second element is, in the second quarter of last year at BurgerFi specifically, we had a incremental — we had a huge increase in same-store sales in Q2 ’21 versus Q2 ’20. And it was a combination of the first full quarter coming out of the first wave of COVID, plus the significant launch of the SWAG burger, which had a lot of impact — positive impacts on our business. So in Q2 of this year, we were going against this really hard compare at BurgerFi.
Now as BurgerFi progressed through last year, sales began to wane. And those same-store sales numbers are creating, for this year, a little bit of an easier compare for the third and fourth quarter. So hopefully, that will help you as well.
The next question or part of the question that you asked is, did we see a progression through the quarter? We did. We, like many in the industry, have been talking about is, post Mother’s Day and into June, we did note weakness. We didn’t see weakness in a trading-down in our average ticket. What we saw was a weakness in the number of transactions.
And versus 2019, both brands are operating at a similar level of mid-single digits below 2019 levels. Even though versus ’21, you’re seeing Anthony’s with a 3% increase and BurgerFi corporate stores with a 14% increase, it’s because we’re going against that high compare in ’21. But on a cumulative 2-year basis, both brands are in similar, call it, recovery shape and trajectory.
I think the last part of your question is, have we seen any notable change in business or trends in July? We have seen a stabilization of the sales trends versus the prior year. In other words, they haven’t gotten worse than our Q2 trend, they did get better than our June trend. So we are hopeful that, that trend will continue to improve as well.
Did I miss any pieces?
Peter Saleh
No, I think you covered it. Can you just talk about the level of pricing that you’ve taken at both brands? And just help us understand how much pricing is in the comp in the back end of the year.
Mike Rabinovitch
Okay. Good questions. So we did take price increases at both brands very early in the year. It was December, January. I think we took 2% at Anthony’s and just around 4% at BurgerFi. As a result of the continued pressure on food costs and labor throughout the year, we did take another round of pricing, but only in the mid- to late part of June for the 2 brands. So they’re not really reflected within the reported comps because there was only a few weeks of results in there. We took at the mid-June at Anthony’s a 4% price, overall impact of a 4% increase in price. And at BurgerFi, just under 8%.
Peter Saleh
Okay. And then so given that pricing dynamic and inflation — sorry, I didn’t hear the inflation outlook. Are you — I’m assuming you’re starting to see some improvements at Anthony’s with wings coming down. But what about BurgerFi? Should we continue to expect meaningful inflation in terms of the basket of goods in the back end? And how do we think about restaurant-level margins there?
Mike Rabinovitch
Yes. So it’s a good question. Let’s talk about the 2 brands separately because they are experiencing different trends.
At BurgerFi, we did see some cost inflation through the first half in beef, flour, dairy, produce, oil. A lot of the, call it, macro world environment changes have impacted BurgerFi’s margins. The price increase that we took at the end of the quarter is set to rectify that on a food cost basis. And we are seeing stabilization now, not only on the margin, but on the procurement side. So we are expecting stabilization and improvement in reported food cost margins at BurgerFi.
On Anthony’s, we also saw across-the-board increases throughout the year, but a leveling off and a stabilization in the second quarter. But chicken wings, which make up over 1/3 of our volume, dollar volume of procurement, have recovered fully to essentially pre-COVID levels. And as a result of that, we are going to be enjoying tailwinds on the margin side at Anthony’s.
So on a combined basis, we are — as a result of each of those actions, the stabilization in both brands, the recovery, the chicken wings at Anthony’s and the price increases, we are optimistic about our restaurant operating margins for the back half.
Ian Baines
And there — it’s reported there have been great crops for both potatoes and onions. That affect — obviously affect BurgerFi. And the stabilization of ground beef, there have been quite a lot of cattle that have been slaughtered the first 2 quarters of the year. So we see ground beef prices stabilizing in the coming quarters.
Mike Rabinovitch
And Peter, a great deal of the team’s work this year has been on the procurement side. So it’s not just enjoying the recoveries in commodity prices. There’s also a lot of forward-thinking procurement strategies and vendor selection that has gone into cost management of the business.
And you’ll also notice, in the operating expense line of restaurant operating margins, a lot of work that’s being done within the corporate office and also at the restaurant level to manage those [dollar] costs, so that when sales recover, we get a significant flow-through to the bottom line.
The significant challenge we’ve been facing has been the consumer and everything that they’re dealing with. It’s very hard out there for them, and we certainly felt that in our sales numbers.
Peter Saleh
Great. Appreciate all the color. Just last question for me and then I’ll pass it along. Your CapEx budget came down pretty meaningfully. Can you provide a little bit more color on what changed and where you’re cutting investments for the back end of the year?
Mike Rabinovitch
Sure. So the initial guide that we put out last year was $3 million to $4 million. And we needed to allow the funding to do essentially 3 projects.
One is opening new corporate stores. Based on the inflationary experiences we were having at that time, we felt that there was the possibility that the new stores we were building and the finalization of last year’s costs would possibly come in higher, and they came in at a good level.
The second thing is we did reserve some CapEx for the fourth quarter in case we were going to open another corporate store. So you remember, we were talking about a smaller-format Anthony’s. We see that more as an opportunity for our franchisees to develop. And so we would no longer need that capital.
And then on the break/fix side, we have 61 Anthony’s restaurants, some of them are 15 to 20 years old. And so we needed to keep an allowance in there in case we needed to do any oven replacements. And the business has been operating quite well and we don’t see the immediate need for any this year.
Operator
At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Baines for closing remarks.
Ian Baines
Thank you, Debbie. I’d like to thank everyone for listening to today’s call, and we look forward to speaking with you when we report our third quarter results in November. Thanks again for joining.
Operator
This concludes our conference for today. 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. Thanks again for joining. You may now disconnect.
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