Chanticleer Holdings, Inc. (NASDAQ:BURG) Q1 2019 Earnings Conference Call May 15, 2019 4:30 PM ET
Jason Assad - Head of Investor Relations
Michael Pruitt - Chairman and Chief Executive Officer
Patrick Harkleroad - Chief Financial Officer
Fred Glick - President
Conference Call Participants
Welcome to the Chanticleer Holdings’ First Quarter 2019 Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded.
At this time, I would like to turn the conference over to Jason Assad, Investor Relations for Chanticleer Holdings. Please go ahead.
Thank you, operator. Good afternoon, and welcome to Chanticleer Holdings’ 2019 first quarter conference call. With us today are Mike Pruitt, Chanticleer’s Chairman and Chief Executive Officer; Fred Glick, Chanticleer’s President; and Patrick Harkleroad, Chanticleer’s Chief Financial Officer.
Before I turn the call over to management, please remember that during the course of this conference call, we will make certain forward-looking statements. Any statements that are not historical facts contained within this call are considered forward-looking statements as the term is defined under the Private Securities Litigation Reform Act of 1995 that are known as the PSLRA, which statements may be identified by words such as expects, plans, projects, will, may, anticipates, believes, should, intends, estimates and other words of similar meaning.
Such forward-looking statements are based on current expectations involve known and unknown risks, a reliance on third parties for information, transactions or orders that may be cancelled and other factors that may cause our actual results, performance or achievements or developments in our industry could differ materially from anticipated results, performance or achievements expressed or implied by such forward-looking statements.
Factors that could cause actual results to differ materially from anticipated results include risks and uncertainties related to the fluctuation of global economic conditions, the performance of management and our employees, our ability to obtain financing or required licenses, competition, general economic conditions and other factors that are detailed in our periodic reports and on documents we file from time-to-time with the Securities and Exchange Commission.
The forward-looking statements contained in this press release speak only as of the date the statements were made and the Company’s do not undertake any obligation to update forward-looking statements. We intend that all forward-looking statements to be subject to the Safe Harbor provisions of the PSLRA. In addition, certain of the financial information presented on this call references non-GAAP financial measures. The Company’s earnings release which was issued this afternoon presents reconciliations to the Company’s GAAP financial statements.
Finally, this conference call is being webcast. The webcast link is available on the Investor Relations section of our website at chanticleerholdings.com.
With that, I’d now like to turn the call over to Chanticleer’s CEO, Mike Pruitt. Mike?
Thanks, Jason, and thank you, everyone, for joining us this afternoon for our 2019 first quarter conference call. As you know, we previously announced a non-binding letter of intent for an acquisition of a highly complimentary Better Burger brand with industry leading metrics. The acquisition is subject to negotiation and execution of a definitive agreement and achievement of financing goals.
The target company has reported revenues of $10 million per year and historically demonstrated store level EBITDA of approximately 20%. Expected to add significant scope to our current operations for Chanticleer, post acquisition Chanticleer expects to be able to leverage target company strong EBITDA margins, it allow Chanticleer to step further into key markets of target company’s main operation, including North Carolina, South Carolina and Virginia, immediately adds five restaurants and generate significant geographic synergies related to customers menu options and overall dining experience, and it provides the ability for Chanticleer to leverage the target company’s human capital with core burger concepts.
We continued to expect a current and ongoing internal efforts has the potential to yield measurable results to our current portfolios performance. In fact, we expect to generate notable growth in overall revenues and EBITDA throughout the balance of this year. That said, we believe this transaction not only has the potential to compliment our current growth plan, it also has the potential to help accelerate it.
We also previously announced their intention to initiate the process of corporate re-branding, including a name change to better align our brand name with our new core ideology. We have made progress on that front including identifying a new name. We look forward to updating shareholders on this initiative just as soon as possible. With the recent additions of Fred, Patrick and Troy to our management team, I continue to believe we have put together an outstanding executive team capable of stewarding the company's future growth, both operationally and financially.
This new team will allow us not only to reach much greater scale through both organic growth and acquisition, but also to manage it absent a considerable increase in SG&A. I'd like to thank all three for the substantial value they've already created and brought to Chanticleer. Together, we all continue to believe that there has never been a more sizable disconnect between the fundamental value of our assets and our current share price.
With this in mind, we are continuing to explore options with respect to the best unlocking value of certain holdings, including our minority stake in the Hooters parent company. All of us here believe that the best days for Chanticleer lay just ahead of it.
I'd like to now turn over the call to our CFO, Pat Harkleroad for a look at Q1 2019 financial results.
Thanks Mike. Good afternoon, everyone. I hope everyone has had a chance to read the earnings release that was filed earlier this afternoon. For the first quarter, revenues increased by 2% to $10.2 million from $10 million for the first quarter of 2018. This increase was driven by new store openings that began to ramp up in revenue, including the new Little Big Burger in Lake Oswego in the first quarter.
Looking forward to the second quarter, we have two new Little Big Burger’s coming on line, Capitol Hill and Green Lake, both in the Seattle market. Additionally, we have a third location coming on line in the second half of the year in Downtown Portland. We are excited for these upcoming openings as we continue to grow the Little Big Burger brand to drive scale within the Better Burger segment.
Cost of sales as a percent of restaurant sales improved to 33.1% for the first quarter of 2019 compared to 33.5% for the first quarter of 2018. We expect this trend to continue with their announced partnership with Food Service Industry Consultants. As we begin to leverage their comprehensive supply chain transparency, analytic support services and compliance analytics platform, IntelliSpend to enhance profitability into the second half of 2019.
As such, we believe there will be a meaningful improvement in cost of goods sold over the last half of 2019. As we continued down the income statement, one can see that restaurant operating expenses increased to 63.1% for the first quarter compared to 55.9% for Q1 2018. This increase was driven by higher operating expenses for the new stores opened at the end of 2018 as we continue to normalize operations to continuous optimization of our processing.
With three new stores coming on line in Q4 as well as one in Q1, this opening schedule has caused increased pressure on marketing, training, opening labor and occupancy costs. However, we fully expect to get operating expenses to normalize as these new stores seasoned through the honeymoon period.
Additionally, as with many participants in the restaurant industry, we are filling the wage pressure across all our brands and markets. Therefore, we believe that our recent partnership with 7shifts will streamline best labor practices across their entire organization to empower our restaurant managers, and optimize their workforce and better manage employees, resulting in anticipated reduced labor costs.
Lastly, we have had an uptick in restaurant delivery expenses into Q1 due to the increasing level of consumer demand for take out and delivery services. To combat this trend, as announcement in April, we have entered into an exclusive partnership with DoorDash, which will not only reduce our costs related to delivery, but will also provide an entirely new revenue vertical for our brands.
Total G&A increased to 14.7% from the first quarter from 11.9% in Q1 of 2018, which should be no surprise since we transitioned and over called the entire management team and initiated several corporate initiatives to drive revenue and profitability such as the market segmentation study.
As we began to leverage these expenses along with the other strategic initiatives that we have undertaken, since the end of the first quarter such as our partnerships with Restaurant Revolution and Thanx, we believe that total G&A will fall back in line with historical levels and even lower as these initiatives approved successful.
Overall operating loss improved 28.3% to $1.7 million in the first quarter of 2019 compared to an operating loss of $2.4 million in the first quarter of 2018. Non-GAAP restaurant EBITDA was $560,000 in the first quarter of 2019 versus $1.1 million in the first quarter of 2018. However, as described previously, this decline in restaurant EBITDA was driven by the operating spent structure of the new stores coming on line.
Net loss attributable to common shareholders improved 27.6% to $1.9 million for the first quarter of 2019 from a net loss of $2.6 million in the first quarter of 2018. Net loss for common share was $0.51 per share for the previous quarter in 2019 versus a net loss per share of $0.83 in the first quarter of 2018.
We are confident in the direction of the Company and believe that we are positioned to improve our financial performance and cash flow into the second half of 2019, through the execution of the strategic initiatives and partnerships already announced.
Additionally, we believe that the potential acquisition announced in the Better Burger segment if successfully completed would allows Chanticleer to reach the scale needed to leverage our current platform to drive improve cash flow.
Furthermore, I am confident that our current management team has the skill set and acumen to not only integrate successfully this acquisition, but also to execute further add-on and tuck-in acquisitions to drive topline growth and overall company cash flow.
I will now turn the call over to Fred Glick, our President.
Thank you, Patrick. I'm very pleased with our progress since I joined the team approximately six months ago. It's been a busy, but very exciting and rewarding six months here at Chanticleer Holdings. I believe early groundwork continues to set the stage for anticipated measurable results for shareholders, much of which should begin to be realized in our Q3 and Q4 2019 financial filings.
Filings, which we expect will start to show increased year-over-year revenues, decrease costs, and increased EBITDA. Again, this excludes the proposed acquisition, which if completed would be expected to both complement and accelerate our strategic plans. And important part of this strong foundation for the future included two new additions in Q1 to our team in the accounting arena.
I simply could not be happier with our additions of both Patrick and Troy. I'm confident they will contribute to elevated financial processes and accurate and timely financial statements, which should enable our operations team to elevate Chanticleer’s profitability targets.
We are currently investing heavily in our people process, including recruiting, selecting, onboarding, career pathing, training, ongoing development, retaining and engaging team members at all levels with the ultimate goal of building loyal guests, sales and profits.
In Q1, we completed an in-depth employee engagement survey followed by team meetings with our brands leadership. We have identified specific improvements from this survey, including improved onboarding, training and people development as well as improved benefits, rewards and recognition systems.
As such, we have partnered with Paycom for Hris, Thanx for team member assessments and 7shifts for scheduling labor efficiencies, and communication systems. Most importantly, we are finalizing our new core ideology with our team to better define the why, how and what of our brands.
This core idea ideology will define our purpose and values and will permeate everything we do. We are currently finalizing the results of our guests’ segmentation study for all three of our Burger brands, including our franchisees. We received over 8,000 responses.
The key insights we gained from our guests are the building blocks for our core ideology, strategic planning and marketing strategies for each brand. I still believe the biggest consumer trend, driving changed on industry is the rapid evolution from dining in to take out and delivery.
Brands in all segments from QuickServe to Fine dining must carefully navigate how to get consumers their products, how they want it, when they want it, and now where they want it. This demand affects our entire operation. New kitchen designs and expo areas with pick up cubbies, timing standards for delivery, point-of-sale integration for the many delivery companies, delivery driver access, short-term parking, and delivery-specific menus are now table stakes.
We selected DoorDash as our exclusive partner and Restaurant Revolution technologies as our off-premise partner and expect to go live in the upcoming weeks and months ahead. I personally view external delivery company simply as a marketing tactic that allows new guests to try our products through their platform, it will be our focus to transfer those guests to our own loyalty platform to maintain our critical consumer information and further reduce our expenses to deliver our product.
In addition to our cohesive strategy for the growing delivery and takeout marketplace, we're building a best-in-class loyalty platform. We partnered with banks and we'll launch this strategy at the beginning of Q3. These new mobile applications feature rewards, VIP tiers, and an in-app ordering. This only one customer engagement platform will help us leap forward with targeted email marketing and integrated customer feedback tools without buying and implementing multiple different technologies.
Operationally, we partnered with Food Service Industry Consultants, FSIC who I work with closely in the past. FSICs proprietary transparency and compliance platform will help us reduce cost of goods and ensure a consistent guest experience.
We’re also very excited to partner with Beyond Meat. Each Burger brand is designing its own unique burger using fresh local ingredients. The Beyond Burger patty is free from GMOs, gluten and soy and has lower saturated fat than regular beef, but still delivers flame-broiled flavor and 20 grams of protein.
To drive some excitement and traffic in our Charlotte, Little Big Burger locations, we will be setting up a Little Big Burger in the Charlotte Motor Speedway for this year NASCAR Racing Series. We are especially appreciative of the continued support of our partner, brand ambassador Denny Hamlin, the Daytona 500-winning Joe Gibbs Racing No.11 FedEx Toyota Camry driver.
Our latest campaign, when Denny wins, we all win, emphasize opportunities with Denny and our joint partner, Coca Cola and are specifically designed to drive increased customer engagement and loyalty. But we have a lot of work ahead of us. We are making very measurable and positive progress.
I expect tangible results will be present in future earnings releases throughout the balance of the year. I'm very excited to be here and look forward to continuing to work with Mike and our team members to accomplish our collective goals.
That concludes my prepared remarks. Operator, you may now open the call for questions.
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]
Thank you. And now I’d like to turn the call back to Chanticleer’s CEO, Mike Pruitt for closing comments.
I’d like to thank all of you for joining us today and more importantly for your continued support. We are clearly optimistic about our future at Chanticleer. We have the right team now in place and the platform capable of achieving far greater scale in the future.
We expect many of the actions undertaken in the recent months than being taken as we speak until we start resulting in meaningful and measurable results going forward through the remainder of the year.
Thanks again. Look forward to talking to you after Q2.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.