BurgerFi(BFI) - 2022 Q3 - Quarterly Report

PART I Financial Information Presents unaudited financial information, including statements, management's discussion, market risk, and controls Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows, with explanatory notes - The unaudited financial statements adhere to U.S. GAAP for interim reporting and should be read with the 2020 Form 10-K[18][19] - The December 16, 2020 Business Combination led to "Successor" and "Predecessor" period presentations[112] Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity at period-end Key Balance Sheet Data (in thousands) | Metric | September 30, 2021 (unaudited) | December 31, 2020 | | :--------------------- | :----------------------------- | :------------------ | | Total Assets | $281,931 | $289,116 | | Cash | $28,295 | $37,150 | | Goodwill | $123,560 | $119,542 | | Total Liabilities | $20,308 | $30,041 | | Warrant liability | $6,111 | $16,516 | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net loss for the three and nine months ended September 30, 2021 and 2020 Revenue Comparison (in thousands) | Metric | 3 Months Ended Sep 30, 2021 (Successor) | 3 Months Ended Sep 30, 2020 (Predecessor) | Change | | :--------------------------- | :-------------------------------------- | :---------------------------------------- | :----- | | Total Revenue | $11,115 | $8,873 | +25.3% | | Restaurant Sales | $8,688 | $6,592 | +31.8% | | Royalty and other fees | $1,861 | $1,770 | +5.1% | | Franchise fees | $95 | $108 | -12.1% | Net Loss Comparison (in thousands) | Metric | 3 Months Ended Sep 30, 2021 (Successor) | 3 Months Ended Sep 30, 2020 (Predecessor) | | :----------------------------------------------------------------- | :-------------------------------------- | :---------------------------------------- | | Operating (Loss) Income | $(7,752) | $(827) | | Net (Loss) Income Attributable to common shareholders (successor) | $(5,018) | $(842) | | Basic Net Loss per common share | $(0.28) | N/A | Nine Months Revenue Comparison (in thousands) | Metric | 9 Months Ended Sep 30, 2021 (Successor) | 9 Months Ended Sep 30, 2020 (Predecessor) | Change | | :--------------------------- | :-------------------------------------- | :---------------------------------------- | :----- | | Total Revenue | $33,827 | $24,280 | +39.3% | | Restaurant Sales | $26,067 | $18,232 | +43.0% | | Royalty and other fees | $5,940 | $4,687 | +26.7% | | Franchise fees | $293 | $307 | -4.6% | Nine Months Net Loss Comparison (in thousands) | Metric | 9 Months Ended Sep 30, 2021 (Successor) | 9 Months Ended Sep 30, 2020 (Predecessor) | | :----------------------------------------------------------------- | :-------------------------------------- | :---------------------------------------- | | Operating (Loss) Income | $(16,105) | $107 | | Net (Loss) Income Attributable to common shareholders (successor) | $(4,237) | $(11) | | Basic Net Loss per common share | $(0.24) | N/A | Condensed Consolidated Statements of Changes in Stockholders'/Members' Equity Outlines changes in stockholders' equity, including accumulated deficit and additional paid-in capital Stockholders' Equity Changes (in thousands) | Metric | December 31, 2020 | September 30, 2021 | | :-------------------------- | :------------------ | :------------------- | | Total Stockholders' Equity | $259,075 | $261,623 | | Accumulated Deficit | $(2,225) | $(6,462) | | Additional Paid-in Capital | $261,298 | $268,083 | - Share-based compensation added $6,657 thousand to Additional Paid-in Capital for the nine months ended September 30, 2021[11] Condensed Consolidated Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2021 (Successor) | 9 Months Ended Sep 30, 2020 (Predecessor) | | :------------------------------------ | :-------------------------------------- | :---------------------------------------- | | Operating Activities | $(813) | $2,282 | | Investing Activities | $(8,217) | $(3,473) | | Financing Activities | $(3,058) | $2,017 | | Net (Decrease) Increase in Cash | $(12,088) | $826 | - Cash, including restricted cash, decreased from $40,383 thousand at the beginning of the period to $28,295 thousand at September 30, 2021[14] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Description of Business and Organization Describes the company's fast-casual restaurant concept and organizational structure - BurgerFi International, Inc. operates as a fast-casual "better burger" concept with 116 franchised and corporate-owned restaurants[16] - The company, formerly Opes Acquisition Corp., consummated a business combination on December 16, 2020, acquiring BurgerFi International, LLC[17] 2. Basis of Presentation Explains the basis of financial statement preparation, GAAP adherence, and COVID-19 impact - The financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information, with certain disclosures condensed or omitted[18] - The COVID-19 pandemic significantly impacted economic conditions, leading to initial sales declines in March-April 2020, followed by steady recovery through September 30, 2021, with systemwide same store sales increasing 17%[25][99][100] - The Delta variant poses ongoing uncertainty[100] Store Activity (Nine Months Ended September 30, 2021) | Store Type | Beginning of Period | Opened | Closed | End of Period | | :------------------ | :------------------ | :----- | :----- | :------------ | | Franchised stores | 97 | — | (4) | 93 | | Corporate owned stores | 17 | 7 | (1) | 23 | 3. Property & Equipment Details the company's property and equipment, net, including leasehold improvements and depreciation expense Property and Equipment, Net (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :--------------------------- | :----------------- | :------------------ | | Property and equipment – net | $15,122 | $8,004 | - Leasehold improvements include approximately $3,972 thousand in construction in progress as of September 30, 2021, which is not yet depreciated[38] - Depreciation expense for the Successor period for the nine months ended September 30, 2021, was $1,042 thousand[37] 4. Intangible Assets Provides information on intangible assets, net, amortization expense, and estimated future amortization Intangible Assets, Net (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :--------------------- | :----------------- | :------------------ | | Intangible Assets, net | $111,437 | $116,824 | - Amortization expense for the Successor period for the nine months ended September 30, 2021, was $5,431 thousand[39] - No amortization was recognized for the Predecessor period as assets were determined to be indefinite life intangibles[39] Estimated Aggregate Amortization Expense (in thousands) | Period | Amount | | :-------------------- | :------- | | Remainder of 2021 | $1,804 | | 2022 | $7,219 | | 2023 | $7,219 | | 2024 | $7,219 | | 2025 | $7,219 | | 2026 and thereafter | $80,522 | | Total | $111,202 | 5. Business Combinations Discusses the Business Combination, aggregate consideration, goodwill adjustments, and earnout shares - The Business Combination was consummated on December 16, 2020, with an aggregate consideration of approximately $236.9 million, including cash, common stock, and contingent earnout consideration[41] - Goodwill increased by $4,018 thousand to $123,560 thousand as of September 30, 2021, primarily due to updating the fair value of lease guarantees[45] - No Earnout Share Consideration price targets were achieved during the nine months ended September 30, 2021[42] 6. Variable Interest Entities Addresses the company's involvement with variable interest entities, including lease guarantees and deconsolidation - The Company is a guarantor for six operating leases for affiliated entities, with a maximum exposure to loss of approximately $5,431 thousand as of September 30, 2021[46] - A franchisee previously consolidated as a VIE was deconsolidated on December 31, 2020, following the termination of the asset purchase and management agreement[49] 7. Related Party Transactions Details transactions with related parties, including amounts due, royalty revenue, and contractor agreements Due From Related Companies (in thousands) | Date | Amount | | :----------------- | :------- | | September 30, 2021 | $83 | | December 31, 2020 | $74 | - The Company received royalty revenue from franchisees related to a significant shareholder totaling approximately $274 thousand for the nine months ended September 30, 2021[53] - In April 2021, the Company entered into an independent contractor agreement with a consultant for strategic advisory services, involving annual cash compensation of $100,000 and an award of 50,000 restricted stock units[56] 8. Other Assets Presents a breakdown of other non-current assets, primarily deposits, for the periods presented Other Assets (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :------------------------------------ | :----------------- | :------------------ | | Deposits and other non-current assets | $246 | $233 | | Total Other Assets | $246 | $251 | 9. Commitments and Contingencies Outlines the company's operating lease commitments, future minimum payments, and ongoing legal proceedings - Rent expense under operating leases for the nine months ended September 30, 2021, was approximately $2,752 thousand[58] Approximate Future Minimum Payments on Operating Leases (in thousands) | Period | Amount | | :-------------------- | :------- | | Remainder of 2021 | $1,020 | | 2022 | $4,080 | | 2023 | $3,870 | | 2024 | $2,880 | | 2025 | $2,580 | | 2026 and thereafter | $0 | | Total | $14,430 | - The Company is involved in several legal proceedings, including disputes with franchisees and former employees, but management does not believe these claims will result in a material unfavorable outcome[62][63][64][65][66][67] 10. Line of Credit Reports on the termination and repayment of the company's revolving line of credit - The $5,000,000 revolving line of credit was terminated in January 2021, and the outstanding balance of $3,012,000 was paid[69] 11. Notes Payable Details notes payable, including the forgiveness of Paycheck Protection Program (PPP) loans Notes Payable (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :-------------------- | :----------------- | :------------------ | | Total notes payable | $677 | $2,960 | | PPP loan | — | $2,237 | - All $2,237 thousand in Paycheck Protection Program (PPP) loans were forgiven by the Small Business Administration during the nine months ended September 30, 2021[70] 12. Supplemental Disclosure of Noncash Activities Provides supplemental information on noncash activities, specifically goodwill adjustments from the Business Combination - During the nine months ended September 30, 2021, the Company recorded $4,018 thousand in adjustments to goodwill to update provisional estimates from the Business Combination date[72] 13. Stockholders' Equity Details common stock, warrants outstanding, warrant liability changes, and Black-Scholes input variables - As of September 30, 2021, there were 17,893,476 shares of common stock outstanding and 15,063,900 warrants outstanding, each exercisable for one share of common stock at $11.50[73][74] - The warrant liability decreased from $16,516 thousand at December 31, 2020, to $6,111 thousand at September 30, 2021, resulting in a non-cash gain of $10,405 thousand for the nine months ended September 30, 2021[77][78] Black-Scholes Input Variables | Metric | 2021 | 2020 | | :-------------------- | :---- | :---- | | Risk-free interest rate | 0.80% | 0.36% | | Expected life in years | 4.21 | 5 | | Expected volatility | 35.0% | 30.0% | | Expected dividend yield | 0% | 0% | 14. Share-based Compensation Reports on share-based compensation expense, unrecognized compensation cost, and awards recognized - Share-based compensation expense for the nine months ended September 30, 2021, was $6,785 thousand[83] - As of September 30, 2021, there was approximately $26,438 thousand of total unrecognized compensation cost related to unvested restricted stock units and performance stock awards, to be recognized over a weighted average period of 3.59 years[83] - For the nine months ended September 30, 2021, $4,090 thousand was recognized for performance condition awards and $1,772 thousand for market condition awards[86][89] 15. Subsequent Events Discloses significant events occurring after the reporting period, including a major acquisition - On November 3, 2021, the Company completed the acquisition of Hot Air, Inc. (owner of Anthony's Coal Fired Pizza) for approximately $156.6 million[93] - The consideration for the AFCP acquisition comprised $53.0 million of non-convertible, redeemable preferred stock, $28.0 million of common stock, and the assumption of $75.6 million of net indebtedness[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses financial condition, operations, and cash flows, highlighting key performance indicators and COVID-19 impact for Successor and Predecessor periods Overview Provides a general overview of BurgerFi's business, restaurant count, and recent industry recognition - BurgerFi is a fast-casual "better burger" concept with 116 restaurants (franchised and corporate-owned) across 2 countries and 22 states and Puerto Rico[96][98] - The company was ranked No. 1 on Fast Casual Restaurant's Top 100 Movers & Shakers for 2021 and Top Better Burger chain in USA Today's 10 Best Readers' Choice for 2021[97] Significant Recent Developments Regarding COVID-19 Addresses COVID-19 impact, business recovery, supply chain, and ongoing Delta variant uncertainty - The company experienced a steady recovery in business during the period ended September 30, 2021, with systemwide same store sales increasing 17% compared to the nine months ended September 30, 2020[99] - No material supply chain difficulties were experienced during the nine months ended September 30, 2021, but future challenges are possible[100] - The emergence of the Delta variant poses ongoing uncertainty, with potential for reinstated restrictions and adverse impacts on business, results of operations, and liquidity[100] Key Metrics Presents key performance indicators including systemwide, corporate-owned, and digital channel sales and growth Systemwide Restaurant Sales & Growth (in thousands, except percentages) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Systemwide Restaurant Sales | $41,407 | $33,165 | $125,420 | $93,644 | | Systemwide Restaurant Sales Growth | 25% | (1)% | 34% | (6)% | | Systemwide Restaurant Same Store Sales Growth | 8% | (8)% | 17% | (15)% | Corporate-Owned Restaurant Sales & Growth (in thousands, except percentages) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Corporate-Owned Restaurant Sales | $8,470 | $6,317 | $25,344 | $17,385 | | Corporate-Owned Restaurant Sales Growth | 34% | 24% | 46% | 7% | | Corporate-Owned Restaurant Same Store Sales Growth | 7% | (10)% | 18% | (17)% | Digital Channel Systemwide Sales & Growth (in thousands, except percentages) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Digital Channel Systemwide Sales | $15,383 | $15,946 | $50,282 | $39,673 | | Digital Channel Sales Growth | (4)% | 116% | 27% | 89% | | Digital Channel Orders % of Systemwide Sales | 37% | 46% | 40% | 40% | Results of Operations Analyzes financial performance, including revenue and expense changes, for the periods presented Comparison of the three months ended September 30, 2021 and September 30, 2020 Compares financial results for the three months ended September 30, 2021 and 2020, highlighting revenue and expense drivers - Restaurant sales increased by $2.1 million (32%) due to eight new corporate-owned restaurants and a 7% increase in same-store sales, driven by price increases and new menu items[114] - General and administrative expenses increased by $1.9 million, primarily due to $1.3 million in M&A-related expenses and $0.5 million in labor costs, reflecting investments for public company operations and growth[125] - Share-based compensation expense was $3.7 million, primarily from restricted stock unit awards, with no comparable awards in the prior period[127] Comparison of the nine months ended September 30, 2021 and September 30, 2020 Compares financial results for the nine months ended September 30, 2021 and 2020, focusing on revenue and expense changes - Restaurant sales increased by $7.8 million (43%) due to eight new corporate-owned restaurants and an 18% increase in same-store sales, supported by higher transaction values and digital channel growth[131][132] - General and administrative expenses increased by $5.6 million, driven by $2.2 million in M&A expenses, $1.9 million in legal/professional/insurance fees, and $1.1 million in labor costs, reflecting public company operations and growth investments[142] - Other income increased by $2.2 million, primarily from the forgiveness of all PPP loans[149] Non-U.S. GAAP Financial Measures Defines and reconciles Adjusted EBITDA, a non-U.S. GAAP financial measure, for the periods presented - Adjusted EBITDA is defined as net (loss) income before the change in value of warrant liability, interest expense, income tax expense, depreciation and amortization, share-based compensation expense, pre-opening costs, PPP loan forgiveness, loss on disposal of property and equipment, legal settlements, merger and acquisition costs, and other non-recurring items[152] Adjusted EBITDA Reconciliation (in thousands) | Metric | 9 Months Ended Sep 30, 2021 (Successor) | 9 Months Ended Sep 30, 2020 (Predecessor) | | :-------------------- | :-------------------------------------- | :---------------------------------------- | | Net Loss | $(4,237) | $(11) | | Adjusted EBITDA | $1,186 | $1,527 | Liquidity, Capital Resources, and COVID-19 Assesses the company's liquidity, capital resources, and the ongoing impact of the COVID-19 pandemic - The company maintained a cash balance of approximately $28.3 million at September 30, 2021[157] - Management believes existing cash and cash flow from operations will be sufficient to fund operating and finance lease obligations, capital expenditures, and working capital needs for at least the next 12 months and the foreseeable future[159] - Cash flows used in operating activities were approximately $0.8 million for the nine months ended September 30, 2021, primarily due to net loss and an increase in net working capital from new restaurant openings and construction[165] - Cash flows used in investing activities were approximately $8.2 million for the nine months ended September 30, 2021, due to the construction and development of new corporate-owned restaurants[166] - Cash flows used in financing activities were $3.1 million for the nine months ended September 30, 2021, primarily due to the termination and repayment of the line of credit[167] Critical Accounting Policies and Use of Estimates Discusses critical accounting policies and estimates, noting no material changes from the prior annual report - The financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions that affect reported amounts[168] - There have been no material changes to critical accounting policies and estimates compared to the 2020 Form 10-K, except as described in Note 2[169] Item 3. Quantitative and Qualitative Disclosures About Market Risk States that no quantitative or qualitative disclosures about market risk are applicable for the current reporting period - This item is not applicable[171] Item 4. Controls and Procedures Discusses disclosure controls, a material weakness in internal control, remediation plans, and changes in internal control Evaluation of Disclosure Controls and Procedures Evaluates the effectiveness of disclosure controls and procedures, concluding they were not effective due to a material weakness - Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, due to a material weakness[172] Previously Reported Material Weakness in Internal Control Over Financial Reporting Identifies a material weakness in internal control over financial reporting due to insufficient corporate personnel - A material weakness in internal control related to the financial close and reporting process was identified, specifically insufficient corporate personnel with appropriate accounting and controls knowledge and experience[173] Remediation Plan for Material Weakness in Internal Control over Financial Reporting Outlines the remediation plan for the material weakness, including new hires and external advisory engagement - Remediation efforts include hiring a new CFO, actively recruiting additional personnel, and engaging external advisors for financial accounting/reporting assistance and internal control evaluation[174] - Despite the remediation plan, there is no assurance that these material weaknesses will be remediated, which could impair the ability to accurately and timely report financial information[175] - Management concluded that, notwithstanding the material weaknesses, the financial statements and other financial information in this report fairly present the company's financial condition, results of operations, and cash flows[177] Changes in Internal Control over Financial Reporting Reports no material changes in internal control over financial reporting, aside from ongoing remediation efforts - Other than the previously described remediation efforts, there have been no material changes in internal control over financial reporting during the three months ended September 30, 2021[178] PART II Other Information Presents other required information, including legal proceedings, risk factors, equity sales, exhibits, and signatures Item 1. Legal Proceedings States no material changes to legal proceedings previously disclosed in the 2020 Form 10-K - There have been no material changes to the legal proceedings disclosed in the 2020 Form 10-K[180] Item 1A. Risk Factors Highlights the ongoing risk posed by the Delta variant of COVID-19 and its potential adverse impact on business and liquidity - The Delta variant of COVID-19, being highly transmissible, caused an increase in cases and poses significant uncertainty regarding its duration, severity, and potential for reinstated government restrictions, which could materially adversely affect the business, financial condition, operating results, and liquidity[182] - Except for the COVID-19 Delta variant, there have been no other material changes to the risk factors disclosed in the 2020 Form 10-K[181] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds States no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities or use of proceeds to report[183] Item 6. Exhibits Provides a list of exhibits filed with the Form 10-Q, including employment agreements, RSU awards, and certifications - The exhibit list includes various employment agreements, restricted stock unit award agreements, and certifications required by the Sarbanes-Oxley Act[186] Signatures Contains the required signatures of the CEO and CFO, certifying the report - The report was signed by Ian Baines (Chief Executive Officer) and Michael Rabinovitch (Chief Financial Officer) on November 12, 2021[187]