8-K: BurgerFi International Reports Preliminary Q4 and Fiscal Year 2023 Results, Faces Credit Agreement Breach

BurgerFi International reported a decrease in revenue and systemwide sales for both the fourth quarter and fiscal year 2023, alongside a breach of their credit agreement, but also showed improvements in net loss and some operational efficiencies.

Summary

• BurgerFi International reported preliminary unaudited results for the fourth quarter and fiscal year ended January 1, 2024.
• Total revenue for Q4 2023 was $41.5 million, down from $45.2 million in Q4 2022.
• Consolidated systemwide sales decreased to $65.0 million in Q4 2023, compared to $71.6 million in the prior year.
• BurgerFi systemwide sales decreased 9% to $33.9 million, and same-store sales decreased 10% in Q4.
• Anthonys same-store sales decreased 3% in Q4, but showed sequential improvement compared to Q3.
• For the full year 2023, total revenue was $170.1 million, down from $178.7 million in 2022.
• Consolidated systemwide sales for the year decreased to $274.4 million from $289.6 million.
• BurgerFi systemwide sales decreased 7% to $148.8 million for the year, with same-store sales down 8%.
• Anthonys same-store sales decreased 1% for the full year.
• The company opened 3 new franchised BurgerFi locations in Q4 and 8 for the full year, including the first dual-brand franchise location.
• Net loss improved to $10.6 million in Q4 and $30.7 million for the full year, compared to $26.2 million and $103.4 million respectively in the prior periods.
• Adjusted EBITDA was $0.7 million in Q4 and $6.1 million for the full year, down from $2.6 million and $9.2 million respectively in the prior periods.
• The company's credit agreement has $51.3 million outstanding and they are not in compliance with the minimum liquidity requirement, constituting a breach and an event of default.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some improvements in net loss and operational efficiencies, but significant declines in revenue, sales, and EBITDA, along with a credit agreement breach. The overall tone is cautiously optimistic but the financial results are concerning.

Positives

• Net loss improved significantly in both Q4 and the full year 2023 compared to the prior year periods.
• Hourly turnover continued to decline significantly, with Anthonys performing better than industry benchmarks.
• Management turnover at BurgerFi continued approaching industry benchmarks.
• Consolidated food, beverage and paper expense margin improved in both Q4 and the full year.
• Anthonys experienced a sequential improvement in same-store sales and traffic compared to the third quarter.
• The company opened new franchised locations, including the first dual-brand franchise location.
• The company is working to improve labor and cost efficiency, with declines in payroll and corporate expense dollars.

Negatives

• Total revenue decreased in both Q4 and the full year 2023 compared to the prior year periods.
• Consolidated systemwide sales decreased in both Q4 and the full year 2023 compared to the prior year periods.
• BurgerFi experienced significant decreases in systemwide and same-store sales in both Q4 and the full year.
• Adjusted EBITDA decreased in both Q4 and the full year 2023 compared to the prior year periods.
• The company is in breach of its credit agreement due to not meeting the minimum liquidity requirement.
• Restaurant-level operating expenses increased as a percentage of sales for both brands in Q4, particularly for BurgerFi.
• The company closed 5 franchised BurgerFi locations in Q4 and 14 for the full year.

Risks

• The company is in breach of its credit agreement, which could have significant financial implications.
• The company's ongoing discussions with lenders to resolve the default are uncertain.
• Continued declines in same-store sales, particularly at BurgerFi, could further impact revenue and profitability.
• The company faces challenges in improving restaurant-level operating expenses, especially for BurgerFi.
• The company's ability to achieve its 2024 outlook is subject to various risks and uncertainties.
• The preliminary financial results are subject to adjustment and may vary materially from actual results.

Future Outlook

The company expects annual revenues of $170-$180 million, low-single digit same-store sales growth for corporate-owned locations, 10-15 new restaurants, and adjusted EBITDA of $7 to $9 million in 2024. They also anticipate continued improvement in cost of goods.

Management Comments

• Carl Bachmann, CEO, stated that 2023 was a challenging year but believes the brands have great opportunities and strong growth potential.
• Bachmann mentioned implementing five key strategic priorities to drive long-term, profitable growth.
• Christopher Jones, CFO, stated that the new management team is working hard to increase sales and improve margins.
• Jones also noted that they are driving labor and cost efficiency and investing in inventory control systems and a new POS platform.

Industry Context

The restaurant industry is facing challenges with sales and profitability, and BurgerFi's results reflect these trends. The company is working to improve its performance through cost efficiencies and strategic initiatives, similar to other companies in the sector. The company is also facing similar challenges to its peers with a difficult January trading period.

Comparison to Industry Standards

• While Anthonys hourly turnover is performing better than industry benchmarks, BurgerFi is still working to reach those benchmarks.
• BurgerFi's same-store sales decline of 10% in Q4 is worse than some of its fast-casual burger competitors, such as Shake Shack, which reported a 2.6% increase in same-store sales in their most recent quarter.
• The company's adjusted EBITDA of $0.7 million in Q4 is significantly lower than some of its peers, such as Wendy's, which reported adjusted EBITDA of $125.8 million in their most recent quarter.
• The company's breach of its credit agreement is a significant concern, as many restaurant chains are facing similar challenges with debt and liquidity.

Stakeholder Impact

• Shareholders may be concerned about the company's financial performance and the breach of its credit agreement.
• Employees may be affected by the company's cost-cutting measures and restructuring efforts.
• Customers may be impacted by changes in the company's operations and menu offerings.
• Suppliers may be affected by the company's financial challenges and potential changes in purchasing patterns.
• Creditors may be concerned about the company's ability to repay its debts.

Next Steps

• The company will continue discussions with its lenders to resolve the credit agreement breach.
• The company will focus on implementing its strategic priorities to drive long-term, profitable growth.
• The company will continue to improve labor and cost efficiency.
• The company will continue to invest in inventory control systems and a new POS platform.
• The company will open 10-15 new restaurants in 2024.

Key Dates

Keywords

BurgerFi, Anthonys, restaurant, sales, EBITDA, same-store sales, franchise, credit agreement, financial results, net loss