Market Overview

Kona Grill Reports Second Quarter 2018 Results

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- Margin Improvements from Cost-Savings Initiatives Drives Adjusted EBITDA Growth of 90%
- Implements Points-Based Loyalty Program to Drive Guest Frequency

SCOTTSDALE, Ariz., Aug. 09, 2018 (GLOBE NEWSWIRE) -- Kona Grill, Inc. (NASDAQ:KONA), an American grill and sushi bar, reported financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Key Items Compared to Second Quarter 2017

  • Restaurant operating profit*, a non-GAAP measure, improved to $6.1 million or 14.3% as a percentage of revenue compared to $5.1 million or 10.9% as a percentage of revenue.
  • Net loss of $1.0 million, or ($0.08) per share compared to net loss of $4.3 million, or ($0.43) per share in 2017.
  • Adjusted EBITDA improved $1.4 million to $3.0 million compared to $1.6 million in 2017.
  • Revenues decreased 9.9% to $42.3 million.
  • Same-store sales decreased 12.1% compared to a 5.3% decrease from the prior year.

* For a reconciliation of restaurant operating profit, EBITDA and Adjusted EBITDA to the most directly comparable financial measures presented in accordance with GAAP and a discussion of why the Company considers them useful, see the financial information accompanying this release.

"Profitability significantly improved compared to the prior year quarter as cost-savings initiatives implemented earlier this year are taking hold. Four-wall margins improved 340 basis points to 14.3% as a percentage of revenue, our highest level in two years. For the first half of 2018, our adjusted EBITDA more than doubled compared to the same period last year. The higher profitability is a result of our continued focus on driving earnings as this is the key factor to meeting our bank covenants and the ultimate success of Kona Grill. In order to achieve higher profits, we strategically made adjustments to reduce the amount of promotionality within our restaurants," said Jim Kuhn, President and CEO of Kona Grill.

"Given the changes we have made to both our happy hour and closing hours, we expect to see improved profitability on a lower overall sales base on a year-over-year basis. As we lap these changes in 2019, we expect to build same-store sales and further improve the profitability of the brand," he continued.

"With cost-savings measures in place and sustainable, the focus for the remainder of 2018 is on execution and driving guests into our restaurants. We recently revamped our menu with a new design and layout, including the addition of 30 new menu items, and have recently implemented our new Konavore points-based loyalty program to drive guest frequency. These initiatives are framed around our mission to make every experience exceptional for our guests," he concluded.

"We are also continuing to evaluate our underperforming restaurants and engage in discussions with our landlords regarding rent abatement, closing certain locations or strategic alternatives. As a result, we recently closed one of our underperforming restaurants. Our success in addressing these opportunities and issues will put us in a better long-term financial position,"  said Berke Bakay, Executive Chairman of Kona Grill.

"We continue to engage in discussions with potential partners for franchising the Kona Grill brand, both domestically and internationally. We believe that a dual-strategy of both company-owned and franchised restaurants provides us with the best opportunity to grow the brand in the U.S. and we are working to solidify some deals in the second half of the year," he concluded.

Conference Call

Kona Grill will hold a conference call today at 5:00 p.m. Eastern time to discuss its financial results for the second quarter ended June 30, 2018. The Company's President and CEO Jim Kuhn and CFO Christi Hing will host the call, followed by a question and answer session.

The conference call will be broadcast over the internet via the investors section of the Company's website at www.konagrill.com. Additionally, investors may dial 1-323-794-2423 to participate in the call.

About Kona Grill
Kona Grill features a global menu of contemporary American favorites, award-winning sushi, and specialty cocktails in an upscale casual atmosphere. Kona Grill owns and operates 45 restaurants, guided by a passion for quality food and exceptional service. Restaurants are located in 22 states and Puerto Rico. Additionally, Kona Grill has two restaurants that operate under a franchise agreement in Dubai, United Arab Emirates, and Vaughan, Canada. For more information, visit www.konagrill.com.

Forward-Looking Statements
Various remarks we make about future expectations, plans, and prospects for the Company constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events, or performance and underlying assumptions and other statements that are not purely historical. These statements relate to our future financial performance and development plans, including but not limited to those relating to our sales trends, projected earnings, expenses, and capital expenditures for 2018, expectations of new store openings as well as international franchise development in 2018 and beyond and availability of capital. We have attempted to identify these statements by using forward-looking terminology such as "may," "will," "anticipates," "expects," "believes," "intends," "should," or comparable terms. All forward-looking statements included in this press release are based on information available to us on the date of this release and we assume no obligation to update these forward-looking statements for any reason. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements and the discussion of risk factors contained in the company's filings with the Securities and Exchange Commission.

                 
  KONA GRILL INC.        
  CONDENSED CONSOLIDATED BALANCE SHEETS        
   (In thousands)        
                 
    June 30,   December 31,        
     2018    2017        
  Assets (unaudited)            
  Cash and cash equivalents $   5,335   $   5,042        
  Other current assets     3,241       4,002        
  Other assets     1,144       1,116        
  Property and equipment, net      75,305       81,639        
  Total assets $   85,025   $   91,799        
  Liabilities and Stockholders' Equity              
  Current liabilities $   12,901   $   16,603        
  Long-term debt, net     32,604       36,921        
  Deferred rent and other long-term liabilities     31,670       32,612        
  Stockholders' equity     7,850       5,663        
  Total liabilities and stockholders' equity $   85,025   $   91,799        
                 

 

                         
  KONA GRILL, INC.  
  CONSOLIDATED STATEMENTS OF OPERATIONS  
   (In thousands, except per share amounts)  
       
                         
          Three Months Ended   Six Months Ended  
          June 30,   June 30,  
            2018       2017       2018       2017    
                                         
          (Unaudited)   (Unaudited)  
                         
    Revenue     $   42,346     $   46,977     $   84,363     $   92,202    
    Costs and expenses:                    
    Cost of sales          10,722         12,996         21,530         25,549    
    Labor          14,986         17,104         30,385         33,829    
    Occupancy          4,200         4,201         8,428         8,281    
    Restaurant operating expenses          6,363         7,532         12,960         14,815    
    General and administrative          3,154         3,084         6,624         6,716    
    Preopening expense        -         461       -         797    
    Depreciation and amortization          3,359         3,637         6,721         7,295    
    Lease termination costs and other         (75 )       1,384         (75 )       1,384    
    Total costs and expenses         42,709         50,399         86,573         98,666    
    Loss from operations         (363 )       (3,422 )       (2,210 )       (6,464 )  
    Write-off of deferred financing costs       -         472         37         472    
    Interest expense, net         624         408         1,228         714    
    Loss before income taxes         (987 )       (4,302 )       (3,475 )       (7,650 )  
    Income tax (expense) benefit         (13 )       (25 )       15         (50 )  
    Net loss     $   (1,000 )   $   (4,327 )   $   (3,460 )   $   (7,700 )  
                         
    Net loss per share:                    
    Basic and diluted     $   (0.08 )   $   (0.43 )   $   (0.31 )   $   (0.76 )  
                         
    Weighted average shares outstanding:                    
    Basic and diluted         12,117         10,099         11,113         10,138    
                         

 

 
KONA GRILL, INC.
NON-GAAP RECONCILIATIONS
(In thousands)
(Unaudited)
 
We prepare our financial statements in accordance with U.S. GAAP. Within our press release, we make reference to non-GAAP EBITDA, Adjusted EBITDA and Restaurant Operating Profit. Restaurant Operating Profit is defined as revenue minus cost of sales, labor, occupancy and restaurant operating expenses. Restaurant Operating profit does not include general and administrative expenses, depreciation and amortization, asset impairment charge or preopening expenses. We believe Restaurant Operating Profit is an important component of financial results because: (i) it is a widely used metric within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance; and (ii) we use Restaurant Operating Profit as a key metric to evaluate our restaurant financial performance compared to that of our competitors.

EBITDA and Adjusted EBITDA. EBITDA is defined as net income (loss) plus the sum of interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus unusual or non-recurring items, such as impairment, lease termination and exit costs and write-off of deferred financing costs. EBITDA and Adjusted EBITDA are presented because: (i) we believe it is a useful measure for investors to assess the operating performance of our business; (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness; and (iii) we use EBITDA and Adjusted EBITDA internally as a benchmark to evaluate our operating performance and compare our performance to that of our competitors. EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, operating income, or any other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity.
           
  Three Months Ended     Six Months Ended  
  June 30,     June 30,  
    2018       2017         2018       2017    
Net loss $   (1,000 )   $   (4,327 )     $   (3,460 )   $   (7,700 )  
Income tax expense (benefit)     13         25           (15 )       50    
Interest expense, net     624         408           1,228         714    
Depreciation and amortization     3,359         3,637           6,721         7,295    
EBITDA     2,996         (257 )         4,474         359    
Lease termination and exit costs     48         1,384           48         1,384    
Write-off of deferred financing costs   -         472           37         472    
Adjusted EBITDA $   3,044     $   1,599       $   4,559     $   2,215    
General and administrative     3,154         3,084           6,624         6,716    
Preopening Expense   -         461         -         797    
Gain on insurance recoveries     (123 )     -           (123 )     -    
Restaurant operating profit $   6,075     $   5,144       $   11,060     $   9,728    
                   
Restaurant operating profit margin (A)   14.3 %     10.9 %       13.1 %     10.6 %  
                   
(A) Restaurant operating profit margin is calculated as restaurant operating profit divided by restaurant sales        


Kona Grill Investor Relations Contact:
Kona Grill, Inc.
Christi Hing, Chief Financial Officer
(480) 922-8100
investorrelations@konagrill.com

 

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