Market Overview

The ONE Group Hospitality, Inc. Reports Second Quarter 2018 Results

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Domestic Comparable Sales for STK Restaurants Grew 7.5%

Three Investor Events Scheduled for September

The ONE Group Hospitality, Inc. ("The ONE Group" or the "Company")
(NASDAQ:STKS), today reported unaudited financial results for the
second quarter ended June 30, 2018. The Company also announced its
participation in three investor events during September.

Highlights for the Second Quarter ended June 30, 2018:

  • Total GAAP revenue was $20.3 million compared to $19.9 million in the
    same period last year;
  • Domestic comparable sales* at owned and managed STK restaurants rose
    7.5%;
  • GAAP net income from continuing operations before income taxes was
    $483,000 compared to GAAP net loss of $2.0 million for the same period
    last year;
  • GAAP net income attributable to The ONE Group Hospitality, Inc. was
    $181,000 or $0.01 per share compared to GAAP net loss of $2.3 million
    or $0.09 loss per share for the same period last year;
  • Adjusted EBITDA** increased 70.3% to $2.5 million compared to $1.5
    million the same period last year; and,
  • Total owned restaurant expenses decreased 360 basis points to 86.6%
    from 90.2% as a percentage of owned restaurant revenues.

Emanuel "Manny" Hilario, President and Chief Executive Officer, said,
"We extended our record of strong performance to the second quarter and
raised two key 2018 targets based upon our results to date. Our focus on
sales growth and restaurant profitability during the second quarter is
reflected in domestic comparable sales increasing 7.5% and profitability
improving 360 basis points at owned restaurants when compared to the
prior year. We also made significant progress reducing corporate G&A
expenses and increasing our Adjusted EBITDA contribution both in
absolute dollars and as a percentage of total revenue. On a trailing
twelve-month basis, Adjusted EBITDA is $8.2 million. After the quarter
ended, we opened two locations which are both off to encouraging starts:
our second licensed location in Dubai and our owned restaurant in San
Diego, CA. We remain on track to open a total of five STKs in 2018."

*Comparable sales or same store sales ("SSS") represents total food
and beverage sales at owned and managed units opened for at least a full
18-month period. This metric includes total revenue from our owned and
managed STK locations. Revenues from locations where we do not directly
control the event sales force (Royalton Hotel, NY; The W Hotel,
Westwood, CA; and our locations in Europe) are excluded from this metric.

Total food and beverage sales at owned and managed units, a non-GAAP
measure, represents our total revenue from our owned operations as well
as the revenue reported to us with respect to sales at our managed
locations, where we earn management and incentive fees at these
locations. For a reconciliation of our GAAP revenue to total food and
beverage sales at our owned and managed units and a discussion of why we
consider it useful, see the financial information accompanying this
release.

** Adjusted EBITDA, a non-GAAP measure, represents net income
/ loss before interest expense, provision for income taxes, depreciation
and amortization, non-cash impairment loss, deferred rent, pre-opening
expenses, non-recurring gains and losses, stock-based compensation,
losses from discontinued operations and certain transactional costs. Not
all of the aforementioned items defining Adjusted EBITDA occur in each
reporting period but have been included in our definitions of terms
based on our historical activity. For a reconciliation of Adjusted
EBITDA to the most directly comparable financial measure presented in
accordance with GAAP and a discussion of why we consider it useful, see
the financial information accompanying this release.

Unaudited Second Quarter 2018 Financial Results

Total GAAP Revenues were $20.3 million in the second quarter of 2018
compared to $19.9 million in the same period last year. This increase
was primarily driven by comparable sales growth. Domestic comparable
store sales at owned and managed STK restaurants increased 7.5%. This
increase follows similarly strong mid to high single digit comparable
sales increases reported for the first quarter of 2018 and are
indicative of the continued strong performance of the STK brand.

Management, license and incentive fee revenue decreased to $2.7 million
in the second quarter of 2018 compared to $2.8 million in the second
quarter of 2017. The decrease in management, license and incentive fee
revenue was due to the timing and estimation of incentive fee revenue in
the prior year. This was partially offset by the launch of the licensed
STK in Dubai in December 2017.

GAAP net income attributable to The ONE Group Hospitality, Inc. in the
second quarter of 2018 was $181,000 or $0.01 per share compared to GAAP
net loss of $2.3 million or $0.09 loss per share in the second quarter
of 2017.

Adjusted EBITDA rose 70.3% to $2.5 million, an increase of $1.0 million,
from $1.5 million in the second quarter of 2017.

Development Update

Opened - 2018

STK San Diego and STK Dubai- Downtown

Projected Additions - 2018

STK Mexico City, STK Doha, and STK Nashville

2018 Targets

We are providing the following targets for 2018:

  • Total GAAP revenues between $80 million and $85 million;
  • Total food and beverage sales at all our owned and managed units of
    between $170 million and $180 million;
  • Comparable store sales growth of about 3% to 4% (previously 2% to 3%);
  • Total food and beverage costs of approximately 25% to 26%;
  • Adjusted EBITDA between $10 million and $10.5 million (previously $9
    million and $10 million), representing approximately 40% growth
    (previously 30% to 40% growth) compared to the prior year; and,
  • Total capital expenditures, net of allowances received from landlords,
    of approximately $3 million, which is significantly less than prior
    years and reflective of our capital-light strategy.

Long-Term Growth Targets

We are reiterating the following long-term growth targets:

  • Three to five licensed restaurant units and one to two food and
    beverage hospitality deals annually;
  • Comparable store sales growth of 2% to 3%;
  • Consistent Adjusted EBITDA growth of at least 20%; and,
  • Continued focus on our asset light model and disciplined G&A
    management, while benefitting from economies of scale and operating
    efficiencies.

We have not reconciled guidance for Adjusted EBITDA to the corresponding
GAAP financial measure because we do not provide guidance for the
various reconciling items. We are unable to provide guidance for these
reconciling items because we cannot determine their probable
significance, as certain items are outside of our control and cannot be
reasonably predicted since these items could vary significantly from
period to period. Accordingly, reconciliations to the corresponding GAAP
financial measure are not available without unreasonable effort.

Conference Call and Webcast

Emanuel "Manny" Hilario, President and Chief Executive Officer, and
Linda Siluk, Interim Chief Financial Officer, will host a conference
call and webcast to discuss second quarter 2018 financial results,
updated 2018 targets, and long-term growth targets today at 5:00 PM
Eastern Time.

The conference call can be accessed live over the phone by dialing
1-201-493-6780. The replay will be available after the call and can be
accessed by dialing 1-412-317-6671; the passcode is 13682350. The replay
will be available until August 28, 2018.

The webcast can also be accessed from the Investor Relations tab of the
Company's website at www.togrp.com
under "News / Events".

September Investor Events

We will participate in the following September investor events.

On Wednesday, September 5, The ONE Group will hold investor meetings at
the Liolios 7th Annual Gateway Conference in San Francisco,
CA.

On Thursday, September 6, The ONE Group will hold investor meetings at
the Dougherty & Co. Institutional Investor Conference in Minneapolis, MN.

On Thursday, September 13, The ONE Group will hold investor meetings at
Lake Street's 2nd Annual Best Ideas Growth (BIG) Conference in New York
City.

Institutional investors interested in participating in any of these
investor events should contact their representative at the respective
firm.

About The ONE Group

The ONE Group (NASDAQ:STKS) is a global hospitality company that
develops and operates upscale, high-energy restaurants and lounges and
provides hospitality management services for hotels, casinos and other
high-end venues both nationally and internationally. The ONE Group's
primary restaurant brand is STK, a modern twist on the American
steakhouse concept with locations in major metropolitan cities
throughout the U.S., Europe, and the Middle East. ONE Hospitality, The
ONE Group's food and beverage hospitality services business, provides
the development, management and operations for premier restaurants and
turn-key food and beverage services within high-end hotels and casinos.
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. For example, the statements
related to the exploration of strategic alternatives and the potential
results therefrom and the statements related to our strategic review of
our operations targeting sources for 2018 and beyond are
forward-looking. Forward-looking statements may be identified by the use
of words such as "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) 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 our key employees; (2) 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;
(3) in
the case of our strategic review of operations, 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; (4) changes in applicable
laws or regulations; (5) the possibility that the Company may be
adversely affected by other economic, business, and/or competitive
factors; and (6) 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, 2017.

Investors are referred to the most recent reports filed with the SEC
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.

 

Consolidated Statements of Operations and Comprehensive Income
(Loss)
(Unaudited, in thousands, except earnings per share and related
share information)
           

 

   

The following table sets forth certain statements of operations
and comprehensive income data for the periods indicated:

 

 

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Revenues:
Owned restaurant net revenues $ 15,520 $ 14,683 $ 30,596 $ 28,911
Owned food, beverage and other net revenues   2,083   2,431   4,088   6,316
Total owned revenues 17,603 17,114 34,684 35,227
Management, license and incentive fee revenue   2,708   2,784   5,144   5,098
Total revenues   20,311   19,898   39,828   40,325
 
Cost and expenses:
Owned operating expenses:
Owned restaurants:
Owned restaurant cost of sales 4,037 3,838 8,071 7,714
Owned restaurant operating expenses   9,399   9,408   18,777   18,777
Total owned operating expenses 13,436 13,246 26,848 26,491
Owned food, beverage and other expenses   2,025   2,315   3,714   5,252
Total owned operating expenses 15,461 15,561 30,562 31,743
General and administrative (including stock-based compensation of
$344, $324, $668 and $544, respectively)
2,615 3,291 5,670 6,212
Settlements - 795 - 795
Depreciation and amortization 901 805 1,679 1,671
Lease termination expense and asset write-offs 90 208 90 481
Pre-opening expenses 671 722 881 1,192
Transaction costs - 254 - 254
Equity in (income) loss of investee companies (134) 153 (111) 108
Other income, net   (66)   (130)   (177)   (118)
Total costs and expenses   19,538   21,659   38,594   42,338
 
Income (loss) from operations 773 (1,761) 1,234 (2,013)
 
Interest expense, net of interest income   290   220   608   479
 
Income (loss) from continuing operations before provision for income
taxes
483 (1,981) 626 (2,492)
 
Provision for income taxes   169   203   194   186
 
Income (loss) from continuing operations   314   (2,184)   432   (2,678)
 
Loss from discontinued operations, net of taxes   -   -   -   (106)
 
Net income (loss) 314 (2,184) 432 (2,784)
Less: net income (loss) attributable to noncontrolling interest   133   116   20   (82)
Net income (loss) attributable to The ONE Group Hospitality, Inc. $ 181 $ (2,300) $ 412 $ (2,702)
 
Currency translation adjustment   141   139   66   83
Comprehensive income (loss) $ 322 $ (2,161) $ 478 $ (2,619)
 
Basic and diluted earnings (loss) per share
Continuing operations $ 0.01 $ (0.09) $ 0.02 $ (0.10)
Discontinued operations $ - $ - $ - $ -
Attributed to The One Group Hospitality, Inc. $ 0.01 $ (0.09) $ 0.02 $ (0.11)
Weighted average number of common shares outstanding
Basic $ 27,366,322 $ 25,144,932 $ 27,277,483 $ 25,098,040
Diluted $ 27,659,448 $ 25,144,932 $ 27,516,884 $ 25,098,040
 
   

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 

The following table sets forth certain statements of operations
data as a percentage of total revenues for the periods indicated:

 
Three Months Ended June 30,     Six Months Ended June 30,
2018     2017 2018     2017
Revenues:        
Owned restaurant net revenues 76.4 % 73.8 % 76.8 % 71.7 %
Owned food, beverage and other net revenues   10.3 %   12.2 %   10.3 %   15.7 %
Total owned revenues 86.7 % 86.0 % 87.1 % 87.4 %
Management, license and incentive fee revenue   13.3 %   14.0 %   12.9 %   12.6 %
Total revenues   100.0 %   100.0 %   100.0 %   100.0 %
 
Cost and expenses:
Owned operating expenses:
Owned restaurants:
Owned restaurant cost of sales (1) 26.0 % 26.1 % 26.4 % 26.7 %
Owned restaurant operating expenses (1)   60.6 %   64.1 %   61.4 %   64.9 %
Total owned operating expenses (1) 86.6 % 90.2 % 87.8 % 91.6 %
Owned food, beverage and other expenses (2)   97.2 %   95.2 %   90.9 %   83.2 %
Total owned operating expenses (3) 87.8 % 90.9 % 88.1 % 90.1 %
General and administrative (including stock-based compensation of
1.7%, 1.6%, 1.7% and 1.3%, respectively)
12.9 % 16.5 % 14.2 % 15.4 %
Settlements 0.0 % 4.0 % 0.0 % 2.0 %
Depreciation and amortization 4.4 % 4.0 % 4.2 % 4.1 %
Lease termination expense and asset write-offs 0.4 % 1.0 % 0.2 % 1.2 %
Pre-opening expenses 3.3 % 3.6 % 2.2 % 3.0 %
Transaction costs 0.0 % 1.3 % 0.0 % 0.6 %
Equity in (income) loss of investee companies (0.7 )% 0.8 % (0.3 )% 0.3 %
Other income, net   (0.3 )%   (0.7 )%   (0.4 )%   (0.3 )%
Total costs and expenses   96.2 %   108.9 %   96.9 %   105.0 %
 
Income (loss) from operations 3.8 % (8.9 )% 3.1 % (5.0 )%
 
Interest expense, net of interest income   1.4 %   1.1 %   1.5 %   1.2 %
 
(Loss) income from continuing operations before provision for income
taxes
2.4 % (10.0 )% 1.6 % (6.2 )%
 
Income tax provision   0.8 %   1.0 %   0.5 %   0.5 %
 
Loss from continuing operations   1.5 %   (11.0 )%   1.1 %   (6.6 )%
 
Loss from discontinued operations, net of taxes   0.0 %   0.0 %   0.0 %   (0.3 )%
 
Net loss 1.5 % (11.0 )% 1.1 % (6.9 )%
Less: net loss attributable to noncontrolling interest   0.7 %   0.6 %   0.1 %   (0.2 )%
Net loss attributable to The ONE Group Hospitality, Inc.   0.9 %   (11.6 )%   1.0 %   (6.7 )%
(1)   These expenses are being shown as a percentage of owned restaurant
net revenues.
(2) These expenses are being shown as a percentage of owned food,
beverage and other net revenues.
(3) These expenses are being shown as a percentage of total owned
revenue.
 
       

CONSOLIDATED BALANCE SHEETS

 
(unaudited)
6/30/2018 12/31/2017
Assets
Current assets:
Cash and cash equivalents $ 933 $ 1,548
Accounts receivable 5,422 5,514
Inventory 1,199 1,402
Other current assets 1,327 1,299
Due from related parties, net   157      
Total current assets 9,038 9,763
Property & equipment, net 38,058 37,811
Investments 2,653 2,957
Deferred tax assets 72 69
Other assets 407 384
Security deposits   2,092     2,031  
Total assets $ 52,320   $ 53,015  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,147 $ 5,329
Accrued expenses 6,782 6,987
Deferred license revenue 215 115
Deferred gift card revenue and other 932 999
Due to related parties, net 256
Current portion of long-term debt   3,191     3,241  
Total current liabilities 16,267 16,927
 
Deferred license revenue, long-term 1,437 1,222
Due to related parties, long-term 1,197 1,197
Deferred rent and tenant improvement allowances 17,126 17,001
Long-term debt, net of current portion   8,628     10,115  
Total liabilities 44,655 46,462
 
Commitments and contingencies
 
Stockholders' equity:
Common stock, $0.0001 par value, 75,000,000 shares authorized;
27,441,780 and 27,152,101 shares issued and outstanding at June 30,
2018 and December 31, 2017, respectively
3 3
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; 0
shares issued and outstanding at June 30, 2018 and December 31,
2017, respectively
Additional paid-in capital 41,675 41,007
Accumulated deficit (31,621 ) (31,979 )
Accumulated other comprehensive loss   (1,490 )   (1,556 )
Total The One Group Hospitality, Inc. stockholders' equity   8,567     7,475  
Noncontrolling interests   (902 )   (922 )
Total stockholders' equity   7,665     6,553  
Total Liabilities and Stockholders' Equity $ 52,320   $ 53,015  
 

Reconciliation of Non-GAAP Measures

We prepare our financial statements in accordance with generally
accepted accounting principles (GAAP). In this press release, we also
make references to the following non-GAAP financial measures: total food
and beverage sales at owned and managed units and adjusted EBITDA.

Total food and beverage sales at owned and managed units. Total
food and beverage sales at owned and managed units represents our total
revenue from our owned operations as well as the revenue reported to us
with respect to sales at our managed locations, where we earn management
and incentive fees at these locations. We believe that this measure
represents a useful internal measure of performance as it identifies
total sales associated with our brands and hospitality services that we
provide. We believe that this measure also represents a useful internal
measure of performance. Accordingly, we include this non-GAAP measure so
that investors can review financial data that management uses in
evaluating performance, and we believe that it will assist the
investment community in assessing performance of restaurants and other
services we operate, whether or not the operation is owned by us.
However, because this measure is not determined in accordance with GAAP,
it is susceptible to varying calculations and not all companies
calculate these measures in the same manner. As a result, this measure
as presented may not be directly comparable to a similarly titled
measure presented by other companies. This non-GAAP measure is presented
as supplemental information and not as an alternative to any GAAP
measurements. The following table includes a reconciliation of our GAAP
revenue to total food and beverage sales at our owned and managed units
(in thousands):

       
Three Months Ended June 30, Six Months Ended
2018     2017 2018     2017
(unaudited) (unaudited) (unaudited) (unaudited)
Owned restaurant net revenue (a) $ 15,520 $ 14,683 $ 30,596 $ 28,911
Owned food, beverage and other revenue (a)   2,083   2,431   4,088   6,316
Total owned revenue 17,603 17,114 34,684 35,227
Management, license and incentive revenue   2,708   2,784   5,144   5,098
Total revenues (GAAP) $ 20,311 $ 19,898 $ 39,828 $ 40,325
 
Food and Beverage Sales from Managed Units $ 25,366 $ 25,868 $ 48,819 $ 49,530
 
Total Food and Beverage Sales at Owned and Managed Units $ 42,969 $ 42,982 $ 83,503 $ 84,757
 
  (a)   Components of Total Food & Beverage Sales at Owned and Managed Units
 

The following table presents the elements of the domestic comparable
sales measure for Fiscal 2017 and Fiscal 2018 through June 2018 on a
quarterly basis. Note that comparable sales is calculated only for
locations opened for at least a full 18 month period and excludes
revenues from locations where we do not directly control the event sales
force

       
2017 2018
Q1     Q2     Q3     Q4 Q1     Q2
US Owned STK Restaurants -1.8 % 1.2 % -0.9 % 5.8 % 8.7 % 6.2 %
US Managed STK Restaurants 8.3 % 2.5 % 6.5 % 6.6 % 4.9 % 10.1 %
US Total STK Restaurants 2.6 % 1.7 % 1.9 % 6.0 % 7.3 % 7.5 %
 

Adjusted EBITDA. We define adjusted EBITDA as net loss before
interest expense, provision for income taxes, depreciation and
amortization, non-cash impairment loss, deferred rent, pre-opening
expenses, non-recurring gains and losses, stock based compensation,
losses from discontinued operations and certain transactional costs. Not
all of the aforementioned items defining Adjusted EBITDA occur in each
reporting period but have been included in our definitions of terms
based on our historical activity. 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.

We believe that adjusted EBITDA is an appropriate measure of operating
performance, as it provides a clear picture of our operating results by
eliminating certain non-cash expenses that are not reflective of the
underlying business performance. We use this metric to facilitate a
comparison of our operating performance on a consistent basis from
period to period and to analyze the factors and trends affecting our
business as well as evaluate the performance of our units. Adjusted
EBITDA has limitations as an analytical tool and our calculation thereof
may not be comparable to that reported by other companies; accordingly,
you should not consider it in isolation or as a substitute for analysis
of our results as reported under GAAP. Adjusted EBITDA is included in
this press release because it is a key metric used by management.
Additionally, adjusted EBITDA is frequently used by analysts, investors
and other interested parties to evaluate companies in our industry. We
use adjusted EBITDA, alongside other GAAP measures such as net income
(loss), to measure profitability, as a key profitability target in our
annual and other budgets, and to compare our performance against that of
peer companies. We believe that adjusted EBITDA provides useful
information facilitating operating performance comparisons from period
to period.

The following table presents a reconciliation of net income to Adjusted
EBITDA for the periods indicated (unaudited, in thousands):

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
 
Net income (loss) attributable to The ONE Group Hospitality, Inc. $ 181 $ (2,300) $ 412 $ (2,702)
Net income (loss) attributable to noncontrolling interest   133   116   20   (82)
Net income (loss) 314 (2,184) 432 (2,784)
Interest expense, net of interest income 290 220 608 479
Income tax provision 169 203 194 186
Depreciation and amortization   901   805   1,679   1,671
 
EBITDA 1,674 (956) 2,913 (448)
 
Deferred rent (1) (69) (16) (89) (54)
Pre-opening expenses 671 722 881 1,192
Lease termination expense and asset write-offs (2) 90 208 90 481
Loss from discontinued operations, net of taxes - - - 106
Transaction costs (3) - 254 - 254
Stock-based compensation 344 391 668 544
Settlements - 795 - 795
Equity share of settlement costs   -   270   -   270
 
Adjusted EBITDA 2,710 1,668 4,463 3,140
Adjusted EBITDA attributable to noncontrolling interest   206   198   164   61
Adjusted EBITDA attributable to The ONE Group Hospitality, Inc. $ 2,504 $ 1,470 $ 4,299 $ 3,079
 
(1)   Deferred rent is included in owned restaurant operating expenses and
general and administrative expense on the statement of operations
and comprehensive income.
(2) Lease termination and related asset write-offs is related to the
costs associated with closed or abandoned locations.

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