BT Brands, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
BT Brands operates restaurant businesses across the eastern two-thirds of the United States, including Burger Time, Dairy Queen, Keegan’s Seafood Grille, Pie In The Sky Coffee and Bakery, and Village Bier Garten. It also owns approximately 40% of Bagger Dave’s Burger Tavern, which operates six restaurants. The filing inconsistently describes the restaurant count as 17 or 18 when including Bagger Dave’s.
The report covers the 13 weeks ended March 31, 2024, compared with the 13 weeks ended April 2, 2023. BT Brands is a non-accelerated filer and smaller reporting company. As of May 1, 2024, 6,246,118 common shares were outstanding.
Financial performance and condition
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Sales | $3.190 million | $3.071 million | +$119,349, or 3.9% |
| Loss from operations | $(630,829) | $(250,758) | Loss increased |
| Net loss | $(445,700) | $(141,786) | Loss increased |
| Net loss per share | $(0.07) | $(0.02) | — |
| Operating cash flow | $(408,875) | $(474,259) | Improved by $65,384 |
| Restaurant-level EBITDA | $(15,672) | $24,946 | Declined by $40,618 |
Sales increased at most locations, and average sales per Burger Time unit increased to approximately $209,000 from approximately $180,000. Food and paper costs improved to 40.1% of sales from 42.0%, but labor costs increased to 43.5% from 39.2%. Restaurant operating costs increased to 100.5% of sales from 99.2%, resulting in negative restaurant-level EBITDA of 0.5% of sales.
The prior-year period benefited from a $313,688 gain on the sale of an asset. Excluding that gain, management states that the current-quarter operating loss increased from approximately $564,446 in the prior-year period, primarily due to higher wage rates and operating costs. General and administrative expense increased to $454,615 from $425,915, or 14.3% versus 13.9% of sales.
Other significant Q1 2024 items included a $114,763 unrealized gain on marketable securities, $94,500 of equity-method loss from Bagger Dave’s, $27,488 of interest expense, and a $117,500 income tax benefit.
Liquidity, debt, and cash flow
- Cash and cash equivalents were $4.668 million at March 31, 2024, down from $5.300 million at December 31, 2023.
- Marketable equity securities were $1.458 million, bringing cash and marketable securities to approximately $6.1 million.
- Net working capital was approximately $5.3 million, down approximately $0.4 million from year-end.
- Total debt, net of issuance costs, was approximately $2.409 million, consisting primarily of bank notes secured by mortgages on ten BTND locations. Current maturities were $171,782.
- Operating lease obligations totaled approximately $1.765 million, and total future minimum operating lease payments were approximately $2.106 million before interest.
- Investing cash flow was $(62,319), including $112,416 of capital expenditures and net purchases of marketable securities of approximately $94,500.
- Financing cash flow was $(160,957), including $115,899 used to repay a margin loan and $45,058 of long-term debt principal.
- Contractual obligations relating to mortgages and capitalized lease obligations were approximately $4.2 million; required monthly lease and mortgage payments were approximately $49,000.
Material changes, outlook, and unusual items
- The Dairy Queen franchise agreement is scheduled to terminate May 1, 2024. Management plans to redevelop the Ham Lake, Minnesota property into a Burger Time location, with expected operations beginning in June 2024.
- On May 13, 2024, after quarter-end, the Company acquired the operating assets of Schnitzel Haus near Stuart, Florida for approximately $875,000 and assumed the remaining 44 months of a lease requiring approximately $5,400 per month.
- Management reported continued labor shortages, higher wages, intense competition, food-cost inflation, and pressure to balance menu pricing against customer demand. It expects some moderation in food-cost inflation during the remainder of 2024 but cautions that margin improvement may be difficult.
- The Company continues to evaluate restaurant acquisitions. Growth depends on available capital, acquisition execution, integration, and retention of management and employees.
- Management identified food safety, supply interruptions, dependence on a limited number of suppliers and one distribution company, adverse economic conditions, consumer spending, weather, regulatory compliance, cybersecurity, and competition as material risks.
- The Company’s chief executive and chief financial officers concluded that disclosure controls and procedures were not effective at a reasonable assurance level as of March 31, 2024, because of the material weakness previously disclosed in the 2023 Form 10-K.
- The Company reported no pending or threatened legal proceedings of significance and no defaults upon senior securities.
Most important facts for investors to verify
- Whether the planned conversion of the Dairy Queen location to Burger Time began in June 2024 and the related costs, timing, and expected returns.
- The operating contribution, financing impact, and integration progress of the May 2024 Schnitzel Haus acquisition.
- Whether sales growth can offset labor, occupancy, food, and other operating costs, given negative restaurant-level EBITDA in Q1.
- The composition, liquidity, and market-risk exposure of the $1.458 million marketable equity portfolio and the impact of future unrealized gains or losses.
- Progress in remediating the material weakness in internal control over financial reporting.
- Liquidity after funding acquisitions, capital expenditures, debt service, lease obligations, and ongoing negative operating cash flow.
- The financial condition of Bagger Dave’s, which reported approximately $1.893 million of sales and a $226,000 net loss for the comparable quarter, resulting in BT Brands’ $94,500 equity-method loss.