ONE Group Results

The ONE Group Q3 Owned Unit Net Revenues Increased 27.5 Percent

Total owned unit net revenues increased 27.5% to $13.3 million in the third quarter of 2015 compared to $10.4 million in the third quarter of 2014. The increase was primarily due to the re-opening of our STK in Miami and the food and beverage services at the W Hotel in West Beverly Hills. Comparable sales from owned STK units increased 0.3% for the quarter.

ONE Group

The ONE Group Hospitality, Inc. (NASDAQ:STKS), yesterday announced its financial results for the third quarter ended September 30, 2015.

Highlights for the third quarter ended September 30, 2015 were as follows:

  • The third quarter marked our sixth consecutive quarter of double digit revenue growth;
  • Owned unit net revenues increased 27.5% to $13.3 million;
  • Total GAAP revenue increased 23.1% to $15.3 million;
  • Total food and beverage sales at owned and managed units* increased 9.5% to $36.3 million;
  • Management and incentive fee revenues were $1.9 million for the quarter;
  • GAAP net loss for the quarter was $2.0 million, or ($0.08) per share, and included a one-time transaction costs of approximately $406,000.
  • Adjusted EBITDA was $823,000 compared to $1.75 million for the same period last year**; and
  • Opened STK in Chicago on September 30, 2015.

*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 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 and losses from discontinued operations. 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.

Jonathan Segal, CEO of The ONE Group said, “The third quarter marked our sixth consecutive quarter of double digit revenue growth. During the quarter we opened an STK steakhouse in the heart of Downtown Chicago on the ground floor of The Museum of Broadcast Communications and we are encouraged by the initial results.”

Segal continued, “As we look ahead to 2016, we have an exciting pipeline of anticipated growth through both company owned restaurants and hospitality and licensing deals which require low capital and produce high profit margin EBITDA, a franchise-like income stream. Additionally, 2016 marks the launch of our smaller STK’s designed to operate at both lunch and dinner, developed for smaller markets, which we believe will broaden our long-term development opportunities.”

Third Quarter 2015 Financial Results

Total owned unit net revenues increased 27.5% to $13.3 million in the third quarter of 2015 compared to $10.4 million in the third quarter of 2014. The increase was primarily due to the re-opening of our STK in Miami and the food and beverage services at the W Hotel in West Beverly Hills. Comparable sales from owned STK units increased 0.3% for the quarter.

Management and incentive fee revenues were $1.94 million in the third quarter of 2015, a decrease of 0.2% compared to $1.95 million in the prior year’s quarter. The decrease was driven by the decline in revenue from our UK operations as well as a decline in the currency exchange rates versus the same period a year ago. This was partially offset by an increase in management fees from the ME Hotel in Milan which opened in 2015.

Total food and beverage sales at owned and managed units increased 9.5% to $36.3 million compared to $33.2 million in the third quarter of 2014.

Adjusted EBITDA for the third quarter of 2015 was $823,000 compared to adjusted EBITDA of $1.75 million in the third quarter of 2014. The decrease was driven primarily by an increase in general and administrative expenses of approximately $688,000 and relates directly to the expansion of our infrastructure to help support the growth in 2015 and beyond.

In the third quarter of 2015, we reported a net loss attributable to The ONE Group of $2.0 million compared to a net income of $747,000 in the third quarter of 2014. Net income in 2014 included a one-time non-recurring gain of $1.2 million.

Adjusted net loss for the quarter was $2.0 million, or ($0.08) per share, compared to adjusted net income of $616,000 million, or $0.02 per share, in the third quarter of 2014.

Development Update

As announced during the quarter, we agreed mutually with sbe to terminate the agreements related to the acquisition of sbe’s Katsuya and Cleo brands. We believe that it is in the Company and our shareholders’ best interest to focus on our current development plans.

On September 30th we opened our 10th STK, located in downtown Chicago.

UPCOMING PLANNED OPENINGS

 
OWNED STK UNITS
 
STK Orlando
STK Dallas
STK Rooftop Dallas
 
OWNED REBEL UNITS
 
STK Rebel San Diego
STK Rebel Denver
STK Rebel Austin
STK Rooftop Austin
STK Rebel Edinburgh
 
Managed Units
 
STK Rebel- Miami
ME Hotel Miami - Food and Beverage Services
STK Toronto
 

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. and Europe. STK Rebel, a more accessibly priced STK with a broader menu, is an extension of the STK brand. The ONE Group’s food and beverage hospitality services business, ONE Hospitality, provides the development, management and operations for premier restaurants and turn-key food and beverage services within high-end hotels and casinos. 

       

Results of Operations (in thousands, except share and per share data)

 

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

 
For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2015         2014     2015         2014  
(unaudited) (unaudited) (unaudited) (unaudited)
 
 
Revenues:
Owned unit net revenues $ 13,314.5 $ 10,444.8 $ 35,818.7 $ 28,722.9
Management and incentive fee revenue   1,939.4     1,945.4     6,112.6     6,207.5  
Total revenue 15,253.9 12,390.2 41,931.4 34,930.4
 
Cost and expenses:
Owned operating expenses:
Food and beverage costs 3,346.8 2,811.8 9,082.2 7,482.4
Unit operating expenses 8,807.6 6,245.6 23,898.5 17,661.5
General and administrative 2,610.6 1,922.5 7,647.6 6,024.4
Depreciation and amortization 630.2 327.8 1,620.0 1,000.4
Management and royalty fees 0.3 (35.2 ) 47.0 60.3
Pre-opening expenses 1,634.2 315.9 4,399.2 1,149.1
Transaction costs 405.8 - 506.1 -
Equity in income of investee companies (205.3 ) (268.6 ) (728.5 ) (589.0 )
Derivative income (1,139.0 ) 991.6 (3,917.0 ) (1,793.1 )
Interest expense, net of interest income 1.2 (6.3 ) (4.0 ) 52.2
Other (income) loss   127.7     (1,227.7 )   (476.9 )   (1,157.1 )
 
Total cost and expenses   16,220.2     11,077.4     42,074.2     29,891.1  
 
(Loss) income from continuing operations before (966.3 ) 1,312.8 (142.8 ) 5,039.3
provision (benefit) for income taxes
 
(Benefit) provision for income taxes   922.4     462.9     (5,619.5 )   813.6  
 
(Loss) income from continuing operations (1,888.8 ) 849.9 5,476.7 4,225.7
 
Income (loss) from discontinued operations, net of taxes   62.5     177.1     23.9     (1,094.4 )
 
Net (loss) income (1,826.3 ) 1,027.0 5,500.6 3,131.3
Less: net income attributable to
noncontrolling interest   189.7     279.6     217.0     92.5  
 
Net (loss) income attributable to THE ONE GROUP (2,016.0 ) 747.4 5,283.6 3,038.8
 
Other comprehensive loss
Currency translation adjustment   (30.9 )   (78.2 )   (261.7 )   (33.9 )
 
Comprehensive income $ (2,046.9 ) $ 669.2   $ 5,021.8   $ 3,004.9  
 
Net (loss) income per share attributable to THE ONE GROUP $ (0.08 ) $ 0.03   $ 0.21   $ 0.13  
Shares outstanding - basic   24,972,515     24,940,195     24,956,177     24,942,328  
Shares outstanding - diluted   24,972,515     24,940,195     24,956,177     25,942,328  
 
       

CONSOLIDATED BALANCE SHEET

 

(in thousands)

 
September 30, December 31,
  2015     2014  
(unaudited)

Assets

Current assets:
Cash and cash equivalents $ 1,795.8 $ 7,905.0
Accounts receivable, net 4,285.2 4,408.4
Inventory 1,066.6 1,139.3
Other current assets 2,616.8 1,937.4
Due from related parties   1,369.8     1,157.1  
Total current assets 11,134.3 16,547.2
 
Property & equipment, net 26,199.4 18,815.6
Investments 2,991.6 2,802.4
Deferred tax assets 8,424.6 35.4
Other assets 789.2 793.0
Security deposits   2,358.0     2,368.4  
Total assets $ 51,897.0   $ 41,362.1  
 

Liabilities and Stockholders’ Equity

Current liabilities:
Cash overdraft $ 608.8 $ 85.6
Current portion of long term debt 1,929.2 1,495.0
Accounts payable 3,047.0 3,433.2
Accrued expenses 4,979.8 2,004.7
Due to related parties - 19.6
Deferred revenue   188.1     128.0  
Total current liabilities 10,752.9 7,166.1
 
Other long-term liabilities - 67.3
Derivative liability 2,324.0 6,241.0
Long term debt, net of current portion 9,079.0 5,980.0
Deferred rent payable   11,887.1     9,435.1  
Total liabilities 34,043.0 28,889.4
 
Stockholders’ equity 18,421.7 12,733.0
Noncontrolling interest   (567.7 )   (260.3 )
Total stockholders’ equity including noncontrolling interest   17,854.0     12,472.7  
   
Total Liabilities and Stockholders’ Equity $ 51,897.0   $ 41,362.1  
 

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, adjusted net income 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):

        For the Three Months Ended September 30,     For the Nine Months Ended September 30,
2015     2014 2015     2014
(unaudited) (unaudited) (unaudited) (unaudited)
 
Owned Unit Net Revenues (a) $ 13,314.5 $ 10,444.8 $ 35,818.7 $ 28,722.9
Management and Incentive Fee Revenue   1,939.4   1,945.4   6,112.6   6,207.5
GAAP Revenues   15,253.9   12,390.2   41,931.4   34,930.4
 
Food and Beverage Sales from Managed Units (a)   23,013.4   22,744.0   67,171.9   67,517.0
 
Food and Beverage Sales from Discontinued Operations (a)   -   -   -   102.3
 
Total Food and Beverage sales at Owned and Managed Units   36,327.87   33,188.83   102,990.65   96,342.19
                                 

(a) Components of Total Food & Beverage Sales at Owned and Managed Units

Adjusted EBITDA. We define adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization, non-cash impairment loss, deferred rent, pre-opening expenses, non-recurring gains and losses and losses from discontinued operations. 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 a more appropriate measure of operating performance, as it provides a clearer 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 (in thousands):

    For the Three Months Ended September 30,     For the Nine Months Ended September 30,
  2015         2014     2015         2014  
(unaudited) (unaudited) (unaudited) (unaudited)
 

ADJUSTED EBITDA:

Net (loss) income attributable to THE ONE GROUP $ (2,016.0 ) $ 747.4 $ 5,283.6 $ 3,038.8
Net income attributable to noncontrolling interest   189.7     279.6     217.0     92.5  
Net income (1,826.3 ) 1,027.0 5,500.6 3,131.3
Interest 1.2 (6.3 ) (4.0 ) 52.2
Income taxes 922.4 462.9 (5,619.5 ) 813.6
Depreciation 630.2 327.8 1,620.0 1,000.4
Deferred rent (1) 414.9 102.3 575.3 289.4
Preopening expenses 1,634.2 315.9 4,399.2 1,149.1
Non-recurring gain - (1,200.0 ) - (1,200.0 )
Transaction costs 405.8 - 506.1 -
(Income) loss from discontinued operations (62.5 ) (177.1 ) (23.9 ) 1,094.4
Derivative expense (1,139.0 ) 991.6 (3,917.0 ) (1,793.1 )
Stock based compensation 162.9 159.4 666.9 326.8
       
 
ADJUSTED EBITDA 1,143.9 2,003.5 3,703.7 4,864.1
 
Non-controlling ADJUSTED EBITDA   320.6     252.4     488.3     449.8  
 
THE ONE GROUP ADJUSTED EBITDA $ 823.3   $ 1,751.1   $ 3,215.4   $ 4,414.3  
 

(1) Deferred rent is included in occupancy expense on the statement of operations.

 

Adjusted Net Income. We define adjusted net income as net income before loss from discontinued operations, non-recurring gains and losses, non-cash impairment losses, and stock based compensation. 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. Adjusted net income 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.

We believe that adjusted net income provides a clearer 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.

The following table presents a reconciliation of net income to adjusted net income for the periods indicated (in thousands, except share and per share data):

               

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

 

2015

   

2014

   

2015

   

2014

 

(unaudited)

(unaudited)

(unaudited)

(unaudited)

ADJUSTED NET INCOME:

 

 
Net (loss) income attributable to THE ONE GROUP $ (2,016.0 ) $ 747.4 $ 5,283.6 $ 3,038.8
Net income attributable to noncontrolling interest   189.7     279.6     217.0     92.5  
Net income (1,826.3 ) 1,027.0 5,500.6 3,131.3
Transaction costs 405.8 - 506.1 -
(Income) loss from discontinued operations (62.5 ) (177.1 ) (23.9 ) 1,094.4
Derivative expense (1,139.0 ) 991.6 (3,917.0 ) (1,793.1 )
Non-recurring gain - (1,200.0 ) - (1,200.0 )
Stock based compensation 162.9 159.4 666.9 326.8
Deferred tax allowance reversal   636.4     -     (5,545.2 )   -  
 
Adjusted net (loss) income (1,822.6 ) 800.9 (2,812.5 ) 1,559.4
 
Non-controlling adjusted net income   189.7     184.8     217.0     54.6  
 
THE ONE GROUP adjusted net (loss) income $ (2,012.3 ) $ 616.1   $ (3,029.6 ) $ 1,504.8  
 
Adjusted net (loss) income per share - Basic and diluted $ (0.08 ) $ 0.02   $ (0.12 ) $ 0.06  
Shares outstanding - basic   24,972,515     24,940,195     24,956,177     24,942,328  
Shares outstanding - diluted   24,972,515     24,940,195     24,956,177     25,942,328  



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