The ONE Group Hospitality, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with fiscal 2021. This is an annual filing and does not provide a separate Q4 financial-results breakdown.
Business context
The company operates upscale STK steakhouses, polished-casual Kona Grill restaurants, and food-and-beverage hospitality services for hotels, casinos, and other venues. It uses owned, managed, and licensed locations, with management and licensing described as a capital-light growth strategy. The filing generally reports 63 venues at year-end, though a financial-statement note gives a different brand and hospitality venue breakdown; see investor verification items below.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change or context |
|---|---|---|---|
| Total revenue | $316.6 million | $277.2 million | Up 14.2% |
| Owned restaurant net revenue | $300.9 million | $264.4 million | Up 13.8% |
| Management, license and incentive fees | $15.8 million | $12.8 million | Up 23.5% |
| Operating income | $16.3 million | $19.4 million | Down $3.1 million; operating margin on total revenue was 5.1%, versus 7.0% |
| Net income attributable to the company | $13.5 million | $31.3 million | FY2021 included an $18.5 million CARES Act loan-forgiveness gain |
| Diluted EPS | $0.40 | $0.93 | Lower year over year |
| Restaurant operating profit (non-GAAP) | $50.8 million | $52.4 million | Margin on owned restaurant revenue fell to 16.9% from 19.8% |
| Adjusted EBITDA (non-GAAP) | $41.3 million | $43.2 million | Down about 4.3% |
| Cash from operating activities | $25.3 million | $31.0 million | Down $5.7 million |
| Capital expenditures | $32.6 million | $11.5 million | FY2022 included new restaurant construction and existing-venue investments |
Same-store sales rose 10.8% in 2022: STK increased 17.1% and Kona Grill 2.5%. Average check at comparable STK restaurants rose to $131 from $114; Kona Grill average spend per transaction rose to $61 from $56. Management reported food and beverage costs at 25.0% of owned restaurant revenue, down from 25.5%, while owned restaurant operating expenses rose to 58.1% from 54.7%, reflecting higher wage and operating costs. The company reported a 6.2% effective tax rate.
At December 31, 2022, cash and cash equivalents were $55.1 million, current assets $78.5 million, and current liabilities $45.7 million. Gross debt was $74.3 million, versus $24.8 million a year earlier. The company also reported $10.6 million of revolving-facility availability, subject to conditions. Operating lease liabilities had a present value of $111.6 million. Gross cash capital expenditures exceeded operating cash flow by approximately $7.4 million before landlord contributions.
Material changes versus FY2021
- Revenue growth reflected higher sales, including 10.8% same-store growth, and the opening of owned STK restaurants in San Francisco and Dallas; management also cited stronger North American managed-restaurant revenues.
- Restaurant-level profitability weakened despite sales growth. Inflation in wages and other operating costs increased owned restaurant operating expenses; STK restaurant operating margin fell to 21.5% from 24.7%, and Kona Grill’s fell to 10.8% from 14.4%.
- Operating income decreased, while net income fell more sharply because FY2021 included the $18.5 million CARES Act loan-forgiveness gain. Adjusted EBITDA, which excludes that gain, also declined.
- Operating cash flow declined and capital spending rose substantially. Financing cash flow was positive in 2022, largely reflecting $50.0 million borrowed under a new delayed-draw term facility; the company also repurchased $7.1 million of stock during the year.
- COVID-related expenses declined to $2.5 million from $5.8 million. Pre-opening expenses increased to $5.5 million from $1.0 million, primarily for opened and planned restaurants.
Outlook, risks and unusual items
- Expansion plans: Management expects to open 8–12 new venues in 2023. Its longer-term stated pace is 5–6 STKs and 3–5 Kona Grills annually, plus 1–2 new food-and-beverage hospitality agreements annually. These are plans, not guarantees; execution depends on suitable sites, partners, staffing, construction, and financing.
- Debt and financing: The December 2022 credit amendment added a $50 million delayed-draw facility, which was fully drawn before year-end. Debt bears interest at SOFR, subject to a 1.00% floor, plus a 6.50% margin; the weighted average borrowing rate at year-end was 10.31%. Management said the company was covenant-compliant and expected to remain so for the following 12 months. The debt matures in August 2026, with $69.75 million of scheduled principal payments shown for 2026.
- Capital returns: A stock repurchase program authorized up to $10 million through September 2024. The company repurchased $7.1 million in 2022 and disclosed further purchases of $0.7 million in the first two months of 2023. No cash dividends were declared or expected in the foreseeable future.
- Operating risks: Key exposures include discretionary consumer spending and business travel, competition, wage and labor availability, food and commodity inflation, supply disruptions, weather and seasonality, food safety, regulation, long-term lease commitments, and the ability to execute new openings. Beef represents approximately 23% of food and beverage costs; the company does not hedge food commodity price exposure.
- Contracts and contingencies: Effective January 2023, ME London did not renew Radio, Marconi, and in-room dining services; the company continued managing STK London. The filing describes ordinary-course litigation, including lease and employee-related matters, and says accruals were recorded and management does not expect a material adverse effect, while noting outcomes are uncertain.
- Accounting and audit matters: The Kona Grill trade name was changed to an indefinite-lived asset in 2022. Management estimates this will reduce annual amortization expense and increase annual net income by about $0.9 million, or approximately $0.03 per share. No long-lived asset impairment was recorded. The auditor issued unqualified opinions on the financial statements and internal controls; management reported that previously identified material weaknesses had been remediated and controls were effective at year-end.
Important facts for investors to verify
- Reconcile venue counts: the filing’s main overview reports 25 Kona Grills and 13 food-and-beverage venues, while a financial-statement note reports 24 Kona Grills and 14 food-and-beverage venues; verify the correct year-end count and classification.
- Review the debt amendment, variable-rate exposure, covenant tests, remaining revolver availability, and the large scheduled 2026 principal payment; assess liquidity needs against planned expansion and repurchases.
- Track whether sales growth converts into improved restaurant-level margins as wage, food, occupancy, and other costs evolve.
- Compare actual venue openings and construction spending with the 2023 and longer-term expansion plans, including landlord contributions and pre-opening costs.
- Assess the quality and sustainability of earnings by separating recurring operating performance from the prior-year loan-forgiveness gain, non-GAAP adjustments, and the estimated amortization benefit from the Kona Grill trade-name accounting change.
- Review the detailed commitments-and-contingencies disclosures and the long-term lease obligations, especially for locations that could underperform or close.