BurgerFi International Inc

Hello, and welcome to the BurgerFi International Inc. 4Q22 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To answer your question, please press star, then two. Please note, today's event is being recorded. I now would like to turn the conference over to Ian Baines, BurgerFi's CEO. Mr. Baines, please go ahead.

Thank you. Thank you for joining us today, and we appreciate your continued interest in BurgerFi. Let me begin by thanking our entire team, franchisees, and their employees for their dedication and hard work in this challenging environment. My plan is to first recap our fiscal year and fourth quarter performance and then discuss our current initiatives. Following that, Mike will review the quarterly financials in greater detail and reiterate our 2023 guidance. We are pleased to report that total revenue grew 160% to $178.7 million for fiscal year 2022 when compared to the prior year. The significant increase in revenue was related to the full year impact from the acquisition of 61 corporate-owned Anthony's Coal Fire Pizza and Wings in November of 2021. We also grew our adjusted EBITDA to $9.2 million, a 141% increase from prior year. Turning to the fourth quarter, total revenue increased 29% to $45.2 million, primarily driven from Anthony's results being included for the full quarter compared to nine weeks in the prior year. Consolidated system-wide restaurant sales decreased 2% to $71.6 million as we experienced a 5% decrease at BurgerFi that was only partially offset by a 2% increase at Anthony's. System-wide comparable same-store sales decreased 4% for the quarter, consisting of a 1% increase at Anthony's and a 9% decrease at BurgerFi. 2022 was a pivotal year for Burger Pie as we integrated the Anthony's acquisition into our system. Notably, we completed our back office integration of the two companies and delivered on our goal of achieving over $2.5 million in annualized synergies. Over the last year, our teams have been laser focused on operations and the customer experience with the goal of increased sales and margin improvement of both brands. As a result, Anthony's grew same-store sales 5% when compared to the prior fiscal year. Notably, sales are continuing their recovery to pre-COVID levels, both in our home market of Florida and in the Northeast, where we don't have as strong of a brand awareness. This top-line momentum has continued throughout the first quarter of 2023 with competitive period trends of 2% to 3% for each brand than those realized in the fourth quarter of 2022. With the continued strengthening on the top line, supported by food cost stability, we are off to a good start for the new year and are expecting good results for our first quarter of fiscal 2023. Additionally, margins continue to expand at Anthony's. We ended the fourth quarter with a store-level operating margin of 15.2%, Sequentially, Anthony's margins increased 70 basis points from the 14.5% in the third quarter. The margin improvement at Anthony's is a testament to our sales leverage coupled with a stabilization in commodities. We are seeing continued margin expansion in the first quarter with positive same-store sales trends and continued stabilization in food costs. As a reminder, chicken wings make up a meaningful component of our purchasing at Anthony's. And we see this as a tailwind for the remainder of 2023 and expect further margin improvements on a comparative basis. Now, turning to BurgerFi. As you saw in our earnings release, we ended the fiscal year with a 7% decrease in same-store sales when compared to the prior year. While the sales recovery that we reached pre-COVID levels in the summer of 2021 had since lagged due to not matching up on the strong tourism experience in that period as a result of Florida being an open market. We are beginning to see an increase in customer satisfaction scores and a decrease in employee turnover, which we believe will translate to improved sales over time. Looking at the first quarter comparative period, sales trends are two to 3% better than the fourth quarter, and we believe Burger Buy has begun a positive turn in terms of top line and operating margin trends. Additionally, operating margins have begun to improve sequentially. When compared to the third quarter, operating margins grew 280 basis points to 9.4% for the fourth quarter. This is a result of cost management, supply chain tailwinds, and reduced employee turnover at BurgerFi. This progress has continued into Q1 2023, and as a result, we are seeing further margin recovery as our first quarter comes to an end. Now I'd like to update you on some of the strategic initiatives we are working on to improve sales and operations, starting with BurgerFi. At the end of 2022, we onboarded a new advertising agency to drive brand awareness, capitalizing on BurgerFi's unique attributes of quality fresh ingredients, our chef-inspired offering, and the market's continued interest in the better burger category. With the help of our new agency, in the fourth quarter, we launched a new BurgerFi app and website which provides guests with a better experience and has enhanced loyalty benefits. In conjunction with this launch, we launched a new secret menu that is exclusively for our loyalty members. Through our loyalty program, we are able to leverage additional consumers' data to grow and elevate the overall guest experience in addition to directly marketing to our members. We believe this will help drive sales. We are also making good progress in rolling out our kiosk program at BurgerFi. As of today, 23 corporate-owned BurgerFis and 17 franchise-owned BurgerFis have kiosks available for ordering. More franchisees continue to follow the benefits of this technology and we expect adoption to continue. We believe kiosks can be a high margin channel as they allow us to upsell our guests, ensure order accuracy, and redeploy or reduce our labor. During the fourth quarter, we leaned into value with a limited-time bundle called Make It a Meal. This bundle included an entree, a side, and a fountain drink at a discounted price and was successful in terms of attachment and number of transactions. We saw an attachment rate lift of sides and beverages of between 10% and 20%, which translated to an increase in average checks. We really saw this as an additive in our delivery channel, where we do not typically see beverage attachment, as now there is a value opportunity to add a beverage. We also continue to have fun with our LTO program at BurgerFi to enhance the guest journey. In February, we launched the BBQ Rodeo Burger, which will be available through mid-April. The BBQ Rodeo Burger is made from the brand's signature all-natural Angus beef, seared with charred jalapenos and topped with pepper jack cheese, homemade crispy haystack onions, and a tangy Memphis sweet barbecue sauce. Importantly, we featured the BBQ Rodeo Burger in this year's Burger Bash, hosted by Emeril Lagasse at the annual South Beach Wine and Food Festival in February, and won the coveted Schwein & Sons The Very Best Burger Award. We are truly proud of our culinary team's hard work and invite you to stop into your local burger bar to try this award-winning burger. 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. Given off-premise orders account for nearly 50% of sales at Anthony's, with 15% coming in via phone orders, we have implemented Converse Now AI technology across all 60 corporate-owned Anthony's locations. This AI phone answering system undoubtedly helps the brand meet ordering demand as it can answer 100% of calls while helping to facilitate an average check increase of 10% to 12%. Additionally, it provides faster service and an improved customer experience. Guests can also seamlessly integrate their loyalty numbers to earn points and rewards when ordering with AI. Now turning to development, as of January 2nd, Our portfolio consists of 114 BurgerFi restaurants, 25 corporate-owned, 89 franchised, and 60 corporate-owned Anthony's. During the fourth quarter, we opened two franchise BurgerFi restaurants, bringing our fiscal year 2022 openings to 11 restaurants. We also closed one underperforming company-owned Anthony's restaurants and five franchise BurgerFi restaurants closed in the fourth quarter. Looking ahead to 2023, we plan to open 15 to 20 new restaurants, all of which have been franchised. Included in this number is two to three new franchise Anthony's locations. In the first quarter of 2023, we have opened two restaurants to date. We kicked off our 2023 development in January with the opening of a BurgerFi franchise in Newark Liberty Airport. BurgerFi's flexible footprint model makes airport locations ideal for introducing the brand to a wider audience, particularly one that values convenience without sacrificing quality. Airports continue to deliver high volumes, and airports do continue to grow as part of our development strategy. We plan to continue strengthening our presence in airports across the country in 2023, with a second location in Fort Lauderdale Hollywood International Airport opening later this year with several others under negotiation. There is a broad level of interest in our brand from several airport concessionaires, and we see this as a win-win for the brand, the concessionaires, and most importantly, meeting the desire for our products with consumers. Also this year, we are excited to launch our first ever co-branded Anthony's and BurgerFi location with our franchisee, NDM Hospitality Services in Kissimmee, Florida, with an existing BurgerFi. Our agreement with them calls for three franchise Anthony's locations in Florida over the next two years. The Anthony's brand already has strong awareness in the Orlando market, while this new Kissimmee location addresses an underserved area with strong tourism. The second and third Anthony's location through NDM agreement will both be the freestanding smaller Anthony's prototype that we have developed. In closing, we have two very high quality brands that are on trend with consumers 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 Rabinovich, who will provide additional commentary on our fourth quarter 2022 performance. Go ahead, Mike.

Thank you, Ian, and good morning, everyone. I'd like to remind you that in July, our board of directors approved the company's change to a 52-53 week fiscal year ending on the Monday nearest to December 31st. of each year in order to improve the alignment of financial and business processes following our acquisition of Anthony's. This change is reflected in that our fiscal fourth quarter ended on January 2nd as compared to December 31st, 2021. Fourth quarter total revenues were $45.2 million, increasing 29% from $35.1 million for the same quarter last year. Anthony's contributed $33 million to revenues in the period. Shifting to our individual brands results for Q4, the BurgerFi corporate-owned restaurant sales increased 2% to 8.9% for the fourth quarter of 2022, driven by the addition of new corporate-owned restaurants over the last year, offset by a decrease in same-store sales. BurgerFi system-wide same-store sales decreased 9% in the fourth quarter compared to the same period in 21. For corporate-owned BurgerFi, same-store sales decreased 10%. and franchise restaurant same-store sales decreased 8% versus 2021. System-wide sales for BurgerFi in the fourth quarter decreased 5% to $38.7 million compared to $40.7 million in the year-over-quarter, primarily due to the decline in same-store sales partially offset by new restaurant unit growth. BurgerFi's restaurant-level operating expenses increased 340 basis points to 90.6 for the quarter compared to 87.2 in the prior year fourth quarter, primarily due to lost leverage on fixed costs due to the same-store sales decline. Turning specifically to Anthony's, restaurant sales were $33 million in the fourth quarter compared to $22.4 million in the prior year. The increase was driven by a 1% increase in same-store sales when comparing the fourth quarter of 21 and the inclusion of Anthony's results for three months this year compared to nine weeks post-acquisition in the prior year period. Regarding restaurant profitability, Anthony's restaurant-level operating expenses increased 120 basis points to 84.8% for the quarter compared to the prior year fourth quarter. As Ian noted, we are beginning to see a stabilization of commodity costs, especially in chicken wing prices. We expect operating margins to continue improving throughout 2023. On a consolidated basis, we reported a net loss of $26.2 million in the fourth quarter compared to a net loss of $117.3 million in the year-ago quarter. This year's net loss included $18.3 million of non-cash impairment charges, $1.5 million of restructuring costs, $1.2 million of legal settlements within general and administrative expenses, and 3.7 million of depreciation and amortization. Adjusted EBITDA in the fourth quarter was 2.6 million in both the fourth quarter of 21 and 22. Moving on to the balance sheet, our cash balance at January 2nd was $11.9 million compared to $14.9 million at December 31st, 2021. The decrease in cash was the result of term loan repayments and capital expenditures offset by cash produced by operations. Now, turning to our fiscal year 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 two to three new Anthony's. According to date, we have opened two franchised BurgerFi's. Adjusted EBITDA of $10 to $12 million for the year. and we are expecting capital expenditures to be approximately $1 to $2 million for the full year. Before we wrap up today's call, I'd like to call your attention to an announcement we made at the end of February where we received additional shareholder support as we continue to execute on our growth and development plans. Ophir Sternberg, the Executive Chairman of BurgerFi and Lionheart Capital, founder, along with members of the senior BurgerFi management team, including myself, purchased 1.5 million shares of BurgerFi from an affiliate of Al Catterton. Following this purchase, Lionheart, together with its founder Ophir Sternberg and the BurgerFi management team, are collectively the largest shareholders in the company. In turn, Al Catterton also provided an additional $5.1 million of financing through a junior secured promissory note with 4% interest accrued to maturity in September 2027. In connection with this investment, we expanded our board of directors to seven members and appointed David Heidekorn, senior advisor to L. Catterton, to serve alongside the existing members of the board. Satisfying the terms of our credit facility highlights our commitment to enhancing our balance sheet and financial flexibility. We are pleased to have the support of long-term, highly respected stockholders, such as L. Catterton and Lionheart Capital, as we continue executing on our growth and development plans. With the covenants agreed to in the company's December bank amendments, coupled with the receipt of the additional financing, the company is in compliance with all of its debt covenants. Additionally, we expect to be in compliance with our covenants and can meet our obligations as they become due over the foreseeable future. I'd like to take a moment and read the forward-looking statements I'd like 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, 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 Fire Pizza and Wings. Forward-looking statements generally can be identified by words such as anticipates, believes, estimates, expects, intends, plans, predicts, projects, and will be, will continue, will likely result in similar expressions. These forward-looking statements are based on current expectations and assumptions and 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 in other documents that the company files with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to BurgerFi or persons acting on BurgerFi's results 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 discussion and reconciliation of these non-GAAP financial measures, please see the earnings release for the fourth quarter and fiscal year 2022. 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 the company's website at www.burgerfi.com. Operator, I'd like to turn it over to you.