BT Brands, Inc. 2023 Form 10-K Summary
Business context and reporting period
BT Brands owns and operates quick-service, fast-casual, and casual restaurants across the eastern two-thirds of the United States. At December 31, 2023, the Company consolidated twelve restaurants and held a 39.6% equity-method interest in Bagger Dave’s Burger Tavern, which operated six additional restaurants. Fiscal 2023 comprised 52 weeks ended December 31, 2023; fiscal 2022 comprised 52 weeks ended January 1, 2023. The filing is an annual report, not a separate fourth-quarter filing.
The Company’s strategy is to acquire restaurant concepts and properties at attractive valuations, operate them through shared central management, increase same-store sales, and expand brand awareness. In February 2024, BT Brands closed a leased Sioux Falls Burger Time location. It also agreed in October 2023 to sell its Dairy Queen business to an approved buyer while continuing to operate it during the planned sale process.
Financial performance and key metrics
| Metric | Fiscal 2023 | Fiscal 2022 | Change |
|---|---|---|---|
| Sales | $14.08 million | $12.60 million | Up 11.7% |
| Loss from operations | $(1.07) million | $(0.39) million | Loss increased |
| Net loss | $(0.89) million | $(0.56) million | Loss increased |
| Net loss per share | $(0.14) | $(0.09) | Loss increased |
| Restaurant-level EBITDA | $0.87 million | $1.69 million | Down 48.8% |
| Restaurant-level EBITDA margin | 6.2% | 13.4% | Down 7.2 percentage points |
| Operating cash flow | $(0.26) million | $0.21 million | Declined |
Sales growth primarily reflected a full year of revenue from the three restaurants acquired in 2022, which contributed approximately $7.2 million of 2023 sales versus $5.6 million in 2022. BTND sales increased approximately $157,000, and same-store sales for year-end BTND locations increased approximately 2.2%. Average sales per Burger Time unit open at year-end were approximately $821,600, up approximately 6.1%.
Restaurant operating costs rose to 93.9% of restaurant sales from 86.5%. Food and paper costs increased to 39.4% of restaurant sales from 38.5%, while labor costs increased to 38.8% from 32.7%. General and administrative expense was $1.65 million, or 11.7% of sales, compared with $1.63 million, or 13.0%, in 2022. Depreciation and amortization increased to $598,540 from $449,038.
Non-operating items included $300,923 of interest and dividend income, an $80,139 unrealized gain on marketable securities, a $347,081 equity-method loss from the Bagger Dave’s investment, and a $310,182 gain on the sale of assets. The Company recorded a $145,000 income-tax benefit, largely from deferred taxes.
Liquidity, cash flow, debt, and capital resources
| Balance-sheet item | December 31, 2023 |
|---|---|
| Cash and cash equivalents | $5.30 million |
| Marketable securities | $1.39 million |
| Cash and marketable securities | $6.69 million |
| Net working capital | $5.72 million |
| Total assets | $14.61 million |
| Total liabilities | $5.42 million |
| Shareholders’ equity | $9.19 million |
| Long-term debt, including current portion | $2.49 million |
| Broker margin loan | $115,899 |
Operating cash flow was negative $258,787. Investing activities provided $4.71 million, primarily reflecting net sales or maturities of marketable securities and $496,000 of proceeds from the sale of a property, partly offset by approximately $488,000 of capital expenditures. Financing activities used $1.30 million, including $675,471 of broker margin-loan reduction, $378,393 of long-term-debt principal payments, and $250,525 for treasury-stock purchases.
Mortgage debt is secured by ten BTND operating locations, bears a fixed rate of 3.45% through June 2031, and matures in 2036. Contractual obligations totaled $4.27 million, including $1.82 million of restaurant lease commitments; required monthly payments were approximately $59,300. The broker margin loan bears a variable rate, is collateralized by marketable securities, and is payable on demand.
Material changes versus the prior comparable period
- Revenue increased 11.7%, mainly because the 2022 acquisitions contributed a full year of sales.
- Profitability deteriorated despite higher sales: restaurant-level EBITDA fell by approximately $825,000 and margin declined from 13.4% to 6.2%.
- Labor costs increased by approximately $1.33 million, reflecting higher wages, unfavorable utilization of fixed labor, and the higher labor profiles of PIE and Keegan’s.
- Food and paper costs increased by approximately $743,000, while occupancy and other operating costs increased by approximately $226,000.
- Operating loss widened to $1.07 million from $391,164, and net loss widened to $887,368 from $562,285.
- Operating cash flow shifted from positive $211,798 to negative $258,787.
- Debt declined, including a $675,471 reduction in broker margin borrowing and scheduled principal repayments.
- The Company sold the West St. Paul property for $496,000 in the first quarter of 2023, recognizing an approximately $313,000 gain.
- BT Brands purchased 150,000 shares of its common stock for approximately $250,525 during 2023, leaving 215,000 shares in treasury at year-end.
Guidance, outlook, commentary, risks, and unusual items
Management expects continued inflation and volatility in food costs during 2024, particularly for beef and eggs. It expects margin improvement to depend on operational enhancements, equipment improvements, and higher volumes, but cautions that competitive conditions may limit the ability to pass cost increases through menu pricing. Labor availability and wage pressure remain significant operating challenges.
Management intends to continue evaluating acquisitions and may require additional debt or equity financing to fund growth. Future acquisitions could create integration, impairment, lease, dilution, and liquidity risks. The Company has no plans to pay cash dividends and expects to retain funds for operations, expansion, and debt repayment.
- The Company relies heavily on suppliers, including Sysco, which represented approximately 60% of food, paper, packaging, and related purchases in 2023.
- Restaurant performance is exposed to consumer discretionary spending, competition, food and energy costs, labor shortages, supply interruptions, food safety events, adverse weather, and seasonality.
- The business is geographically concentrated, principally in Minnesota, North Dakota, South Dakota, Michigan, and Florida.
- The Company disclosed a continuing material weakness in internal control over financial reporting relating to controls over significant, non-recurring events and complex transactions. Management plans to use accounting experts for certain complex transactions in 2024, but has not yet concluded that remediation is effective.
- The Company reported no material litigation and no cybersecurity incidents through the filing date, but identified cybersecurity, technology, and data-privacy risks.
- The Dairy Queen business is held for sale and has a December 31, 2023 book value of approximately $438,500, including remaining goodwill or franchise-related intangible value as described in the filing.
- The filing includes related-party relationships involving executives and Next Gen Ice, where the CEO and COO hold board or executive positions.
Important facts for investors to verify
- Whether the Company can restore positive operating cash flow and improve restaurant-level EBITDA after the 2023 margin decline.
- The status, timing, proceeds, and accounting treatment of the planned Dairy Queen sale and the impact of the Sioux Falls closure.
- The remediation and independent testing of the material weakness in internal control over financial reporting.
- The liquidity impact of contractual lease payments, mortgage maturities, the demand-based broker margin loan, and future acquisition funding needs.
- The sustainability and valuation of marketable securities, the Bagger Dave’s equity-method investment, and the $304,000 Next Gen Ice investment without a readily determinable market value.
- Whether food, labor, occupancy, and energy inflation can be offset through pricing, volume growth, or operating efficiencies without reducing customer traffic.
- The Company’s ability to manage supplier concentration, seasonal revenue patterns, geographic concentration, and acquisition-integration risks.