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The ONE Group Reports Third Quarter 2022 Financial Results

Revenue and Comparable Sales Increase vs. 2021 and Comparable Sales Increase 45.6% vs. 2019

Opened Company-owned STK San Francisco

Repurchases $3.5 Million in Shares Under $10 Million Buyback Authorization

DENVER, November 03, 2022--(BUSINESS WIRE)--The ONE Group Hospitality, Inc. ("The ONE Group" or the "Company") (Nasdaq: STKS) today reported its financial results for the third quarter ended September 30, 2022.

Highlights for the third quarter compared to the same period in 2021 are as follows:

  • Total GAAP revenues increased 1.6% to $73.0 million from $71.9 million;

  • GAAP net income attributable to The ONE Group was $0.5 million, or $0.01 per share ($0.07 adjusted net income per share) ****, compared to GAAP net income of $11.7 million, or $0.34 per share ($0.11 adjusted net income per share)****

  • Restaurant Operating Profit*** decreased 21.3% to $9.1 million from $11.6 million; and

  • Adjusted EBITDA** decreased 29.0% to $7.1 million from $10.0 million.

Comparable sales* for the third quarter compared to the same periods in 2021 and 2019:

  • Compared to 2021:

    • Consolidated comparable sales* increased 0.5%;

    • Comparable sales* for STK increased 3.5%; and

    • Comparable sales* for Kona Grill decreased 3.6%.

  • Compared to 2019:

    • Consolidated comparable sales* increased 45.6%;

    • Comparable sales* for STK increased 70.6%; and

    • Comparable sales* for Kona Grill increased 22.3%.

"Our comparable sales results reflect strong comparisons from 2019 as we are generating industry leading average unit volumes across both STK and Kona Grill. This quarter, we decided to take modest price increases knowing it would not offset the historic high inflation affecting our industry. Instead, we will be taking additional pricing in the fourth quarter, which is traditionally our strongest, as guests come to celebrate the holidays. As we look ahead, the investments we’ve made in being fully staffed should pay dividends and we will continue to remain laser focused on delivering exceptional and unforgettable guest experiences to drive top-line momentum as we continue to navigate this challenging cost environment," said Emanuel "Manny" Hilario, President and CEO of The ONE Group.

Hilario continued, "During the third quarter, we opened STK San Francisco which is averaging over $350,000 per week and is performing extremely well. Over a 90-day period, we will have opened STK San Francisco, STK Dallas and STK Stratford, a 13% increase in our STK unit count. In addition, we believe we are early in our growth strategy with significant whitespace ahead and our pipeline is the strongest in our history. Looking ahead, we foresee a total addressable market of at least 400 restaurants including 200 STK restaurants globally and at least 200 Kona Grills domestically, and we are targeting best-in-class ROIs between 40% and 50% for new Company-Owned STKs and for Company-Owned Kona Grills."

*Comparable sales represent total U.S. food and beverage sales at owned and managed units opened for at least a full 18-months. This measure includes total revenue from our owned and managed locations. The Company monitors sales growth at its established restaurant base in addition to growth that results from restaurant acquisitions; the Company has presented comparable sales growth from 2019 to illustrate how sales at its restaurant base before the COVID-19 pandemic compare to sales as COVID-19 restrictions have eased and the Company has reopened in-person dining.

** Adjusted EBITDA. We define Adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization, non-cash impairment loss, non-cash rent expense, pre-opening expenses, non-recurring gains and losses including incremental costs related to COVID-19, stock-based compensation and certain transactional costs. Adjusted EBITDA has been presented in this press release and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. Refer to the reconciliation of Net Income to Adjusted EBITDA in this release.

***Restaurant Operating Profit. We define Restaurant Operating Profit as owned restaurant net revenue minus owned restaurant cost of sales and owned restaurant operating expenses. Restaurant Operating Profit has been presented in this press release and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. Refer to the reconciliation of Operating income to Restaurant Operating Profit in this release.

****Adjusted Net Income. We define Adjusted Net Income as net income before gains on CARES Act Loan forgiveness, COVID-19 costs, lease termination expenses, one-time stock-based compensation, other non-recurring costs, non-cash rent during the pre-opening period and the income tax effect of the adjustment. Adjusted Net Income has been presented in this press release and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. Refer to the reconciliation of Net Income to Adjusted Net Income in this release.

Third Quarter 2022 Financial Results

Total GAAP revenues increased $1.2 million, or 1.6%, to $73.0 million in the third quarter of 2022 from $71.9 million in the third quarter of 2021.

Total owned restaurant net revenues increased $1.6 million, or 2.3%, to $69.5 million in the third quarter of 2022 from $68.0 million in the third quarter of 2021. The increase was primarily attributable to the addition of STK San Francisco in August 2022. Consolidated comparable sales* increased 0.5% from the third quarter of 2021 and increased 45.6% from the third quarter of 2019.

Management, license and incentive fee revenues decreased $0.4 million, or 10.8%, to $3.5 million in the third quarter of 2022 from $3.9 million in the third quarter of 2021. The decrease was primarily driven by decreased revenues in our managed properties in London, England.

Restaurant Operating Profit*** decreased $2.5 million, or 21.3%, to $9.1 million and represented 13.1% of Company-owned restaurant net revenues in the third quarter of 2022 compared to $11.6 million and 17.1% of Company-owned restaurant net revenues in the third quarter of 2021. The decrease was primarily due to consolidated higher average wage and operating costs.

General and administrative costs increased $0.4 million, or 8.2%, to $6.4 million for the three months ended September 30, 2022 from $6.0 million for the three months ended September 30, 2021. The increase was attributable to additional investments required ahead of growth, increased accounting and legal fees and increased stock-based compensation expense, partially offset by a decrease in performance-based variable compensation expense. In addition, the Company experienced increased travel expenses due to rising hotel and airfare costs.

Pre-opening expenses were $2.7 million for the three months ended September 30, 2022 compared to $0.6 million for the three months ended September 30, 2021. This increase was primarily related to payroll, training and non-cash pre-open rent for STK San Francisco which opened in August 2022 and STK Dallas which opened in November 2022, and Kona Grill Riverton and Kona Grill Columbus which are currently under construction.

GAAP net income attributable to The ONE Group Hospitality, Inc. in the third quarter of 2022 was $0.5 million, or $0.01 per share, compared to $11.7 million, or $0.34 per share, in the third quarter of 2021.

Adjusted Net Income**** attributable to The ONE Group Hospitality, Inc. in the third quarter of 2022 was $2.4 million, or $0.07 per share, compared to $3.7 million, or $0.11 per share, in the third quarter of 2021.

Adjusted EBITDA** decreased $2.9 million, or 29.0%, to $7.1 million in the third quarter of 2022 from $10.0 million in the third quarter of 2021.

As of September 30, 2022, the Company had $17.5 million in cash and cash equivalents, $24.4 million in term loan debt, and $5.6 million available on its revolving credit facility.

Restaurant Development

In August 2022, we opened an owned STK restaurant in San Francisco, California and a licensed virtual location in conjunction with REEF Kitchens in Austin, Texas that features offerings from Kona Grill and Bao Yum. In November 2022, we opened an owned STK restaurant in Dallas, Texas. We intend to open six additional venues in the fourth quarter of 2022 and the first quarter of 2023. There are three Company-owned Kona Grill restaurants (Riverton, UT, Columbus, OH and Desert Ridge, AZ) and one managed STK restaurant (Stratford, UK) under development. In addition, in conjunction with REEF Kitchens, we plan to test and open two additional licensed units in Texas for takeout and delivery only. These units will feature offerings from Kona Grill and Bao Yum.

Share Repurchase

On September 7, 2022, the Company announced the commencement of a share repurchase program for up to $10 million of its outstanding common stock. As of September 30, 2022, we had repurchased 500,000 shares for aggregate consideration of $3.5 million under this program.

Conference Call and Webcast

Emanuel "Manny" Hilario, President and Chief Executive Officer, and Tyler Loy, Chief Financial Officer, will host a conference call and webcast today at 4:30 PM Eastern Time.

The conference call can be accessed live over the phone by dialing 1-416-981-9038. A replay will be available after the call and can be accessed by dialing 1-412-317-6671; the passcode is 22020936. The replay will be available until November 17, 2022.

The webcast can be accessed from the Investor Relations tab of The ONE Group’s website at www.togrp.com under "News / Events".

About The ONE Group

The ONE Group Hospitality, Inc. (Nasdaq: STKS) is a global hospitality company that develops and operates upscale and polished casual, high-energy restaurants and lounges and provides hospitality management services for hotels, casinos and other high-end venues both in the U.S. and internationally. The ONE Group’s focus is to be the global leader in Vibe Dining, and its primary restaurant brands and operations are:

  • STK, a modern twist on the American steakhouse concept with 24 restaurants in major metropolitan cities in the U.S., Europe and the Middle East, featuring premium steaks, seafood and specialty cocktails in an energetic upscale atmosphere.

  • Kona Grill, a polished casual, bar-centric grill concept with 24 restaurants in the U.S., featuring American favorites, award-winning sushi, and specialty cocktails in an upscale casual atmosphere.

  • ONE Hospitality, The ONE Group’s food and beverage hospitality services business, develops, manages and operates premier restaurants and turnkey food and beverage services within high-end hotels and casinos currently operating 14 venues in the U.S. and Europe.

Additional information about The ONE Group can be found at www.togrp.com.

Cautionary Statement on Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "intend," "anticipate," "believe," "expect," "estimate," "plan," "outlook," and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements, including but not limited to: (1) the effects of the COVID-19 pandemic on our business, including government restrictions on our ability to operate our restaurants and changes in customer behavior, and our ability to hire employees; (2) our ability to open new restaurants and food and beverage locations in current and additional markets, grow and manage growth profitably, maintain relationships with suppliers and obtain adequate supply of products and retain employees; (3) factors beyond our control that affect the number and timing of new restaurant openings, including weather conditions and factors under the control of landlords, contractors and regulatory and/or licensing authorities; (4) our ability to successfully improve performance and cost, realize the benefits of our marketing efforts and achieve improved results as we focus on developing new management and license deals; (5) changes in applicable laws or regulations; (6) the possibility that The ONE Group may be adversely affected by other economic, business, and/or competitive factors; and (7) other risks and uncertainties indicated from time to time in our filings with the SEC, including our Annual Report on Form 10-K filed for the year ended December 31, 2021 and Quarterly Reports on Form 10-Q.

Investors are referred to the most recent reports filed with the Securities and Exchange Commission by The ONE Group Hospitality, Inc. Investors are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited, in thousands, except income per share and related share information)

For the three months ended

September 30,

For the nine months ended

September 30,

2022

2021

2022

2021

Revenues:

Owned restaurant net revenue

$

69,538

$

67,966

$

216,984

$

184,982

Management, license and incentive fee revenue

3,482

3,903

11,342

8,129

Total revenues

73,020

71,869

228,326

193,111

Cost and expenses:

Owned operating expenses:

Owned restaurant cost of sales

17,281

17,733

55,231

46,925

Owned restaurant operating expenses

43,136

38,640

126,818

101,882

Total owned operating expenses

60,417

56,373

182,049

148,807

General and administrative (including stock-based compensation of $1,001, $653, $2,791 and $2,812 for the three and nine months ended September 30, 2022 and 2021, respectively)

6,447

5,959

20,587

17,272

Depreciation and amortization

2,930

2,572

8,571

7,766

COVID-19 related expenses

1,131

2,534

3,776

Agreement restructuring expenses

494

Pre-opening expenses

2,684

587

3,833

842

Lease termination expenses

58

255

352

Transaction costs

51

131

51

131

Total costs and expenses

72,529

66,811

217,880

179,440

Operating income

491

5,058

10,446

13,671

Other expenses (income), net:

Interest expense, net

435

781

1,387

3,262

Loss on early debt extinguishment

600

600

Gain on CARES Act Loan forgiveness

(9,968

)

(18,529

)

Total other expenses (income), net

435

(8,587

)

1,387

(14,667

)

Income before provision for income taxes

56

13,645

9,059

28,338

(Benefit) provision for income taxes

(321

)

1,544

721

2,188

Net income

377

12,101

8,338

26,150

Less: net (loss) income attributable to noncontrolling interest

(105

)

430

(117

)

573

Net income attributable to The One Group Hospitality, Inc.

$

482

$

11,671

$

8,455

$

25,577

Currency translation loss

(87

)

(34

)

(348

)

(44

)

Comprehensive income attributable to The ONE Group Hospitality, Inc.

$

395

$

11,637

$

8,107

$

25,533

Net income attributable to The ONE Group Hospitality, Inc. per share:

Basic net income per share

$

0.01

$

0.36

$

0.26

$

0.83

Diluted net income per share

$

0.01

$

0.34

$

0.25

$

0.75

Shares used in computing basic income per share

32,663,549

31,993,557

32,496,780

30,830,521

Shares used in computing diluted income per share

33,921,498

34,380,573

34,062,661

34,223,857

The following table sets forth certain statements of operations data as a percentage of total revenues for the periods indicated. Certain percentage amounts may not sum to total due to rounding.

For the three months ended

September 30,

For the nine months ended

September 30,

2022

2021

2022

2021

Revenues:

Owned restaurant net revenue

95.2

%

94.6

%

95.0

%

95.8

%

Management, license and incentive fee revenue

4.8

%

5.4

%

5.0

%

4.2

%

Total revenues

100.0

%

100.0

%

100.0

%

100.0

%

Cost and expenses:

Owned operating expenses:

Owned restaurant cost of sales (1)

24.9

%

26.1

%

25.5

%

25.4

%

Owned restaurant operating expenses (1)

62.0

%

56.9

%

58.4

%

55.1

%

Total owned operating expenses (1)

86.9

%

82.9

%

83.9

%

80.4

%

General and administrative (including stock-based compensation of 1.4%, 0.9%, 1.2% and 1.5% for the three and nine months ended September 30, 2022 and 2021, respectively)

8.8

%

8.3

%

9.0

%

8.9

%

Depreciation and amortization

4.0

%

3.6

%

3.8

%

4.0

%

COVID-19 related expenses

%

1.6

%

1.1

%

2.0

%

Agreement restructuring expenses

%

%

%

0.3

%

Pre-opening expenses

3.7

%

0.8

%

1.7

%

0.4

%

Lease termination expenses

%

0.1

%

0.1

%

0.2

%

Transaction costs

0.1

%

0.2

%

%

0.1

%

Total costs and expenses

99.3

%

93.0

%

95.4

%

92.9

%

Operating income

0.7

%

7.0

%

4.6

%

7.1

%

Other expenses (income), net:

Interest expense, net

0.6

%

1.1

%

0.6

%

1.7

%

Loss on early debt extinguishment

%

0.8

%

%

0.3

%

Gain on CARES Act Loan forgiveness

%

(13.9

)%

%

(9.6

)%

Total other expenses (income), net

0.6

%

(12.0

)%

0.6

%

(7.6

)%

Income before provision for income taxes

0.1

%

19.0

%

4.0

%

14.7

%

(Benefit) provision for income taxes

(0.4

)%

2.1

%

0.3

%

1.1

%

Net income

0.5

%

16.8

%

3.7

%

13.5

%

Less: net (loss) income attributable to noncontrolling interest

(0.1

)%

0.6

%

(0.1

)%

0.3

%

Net income attributable to The One Group Hospitality, Inc.

0.7

%

16.2

%

3.7

%

13.2

%

____________________

(1) These expenses are being shown as a percentage of owned restaurant net revenue.

THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)

September 30,

December 31,

2022

2021

ASSETS

(Unaudited)

Current assets:

Cash and cash equivalents

$

17,477

$

23,614

Accounts receivable

8,454

11,356

Inventory

4,988

3,915

Other current assets

2,274

3,666

Due from related parties

376

376

Total current assets

33,569

42,927

Property and equipment, net

85,466

69,638

Operating lease right-of-use assets

84,928

85,395

Deferred tax assets, net

12,096

12,313

Intangibles, net

15,283

15,505

Other assets

4,231

3,199

Security deposits

810

858

Total assets

$

236,383

$

229,835

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

11,557

$

11,094

Accrued expenses

17,613

23,155

Deferred license revenue

79

90

Deferred gift card revenue and other

1,426

2,029

Current portion of operating lease liabilities

6,114

5,396

Current portion of long-term debt

500

500

Total current liabilities

37,289

42,264

Deferred license revenue, long-term

238

298

Operating lease liabilities, net of current portion

105,038

103,616

Long-term debt, net of current portion

27,940

23,132

Total liabilities

170,505

169,310

Commitments and contingencies (Note 15)

Stockholders’ equity:

Common stock, $0.0001 par value, 75,000,000 shares authorized; 32,744,362 issued and 32,231,728 outstanding at September 30, 2022 and 32,138,396 issued and 32,125,762 outstanding at December 31, 2021

...