ONE Group Hospitality, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is with the three months ended March 31, 2020. The company operates STK and Kona Grill restaurants and provides restaurant and food-and-beverage management and licensing services. At quarter-end, it owned, operated, managed or licensed 54 venues.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $50.5 million | $40.7 million |
| Operating income (loss) | $0.9 million | $(4.4) million |
| Consolidated net income (loss) | $(0.1) million | $(4.9) million |
| Net income (loss) attributable to The ONE Group | $0.07 million | $(4.6) million |
| Operating cash flow | $7.0 million | $(3.1) million |
| Capital expenditures | $2.6 million | $0.8 million |
- Revenue rose 24.0%; owned restaurant revenue increased 27.5% to $49.2 million, while management, license and incentive fee revenue declined to $1.3 million from $2.2 million.
- Comparable restaurant sales increased 23.5% year over year; against Q1 2019, same-store sales increased 3.3%. Management cautions that the year-over-year comparison reflects pandemic-related closures and operating restrictions beginning in mid-March 2020.
- Restaurant operating profit, a non-GAAP measure, was $9.3 million, or 18.8% of owned restaurant revenue, versus $1.9 million, or 5.0%, a year earlier. GAAP operating margin was 1.7%, compared with negative 10.7%.
- Cash and cash equivalents were $28.4 million at March 31, up from $24.4 million at year-end 2020. Current assets were $38.1 million and current liabilities $50.2 million.
- Debt included $47.3 million of long-term debt and $18.3 million of CARES Act/PPP loans. The revolver had $10.7 million available, subject to conditions. Operating lease liabilities totaled $102.3 million; scheduled lease payments were $174.5 million before $72.2 million of imputed interest.
Changes, outlook and risks
- Results improved substantially from Q1 2020 as restrictions eased, dining activity recovered and restaurant-level costs were managed more tightly. Cost of sales fell to 24.4% of owned restaurant revenue from 26.2%; restaurant operating expenses fell to 56.8% from 68.7%.
- General and administrative expense rose 52.3% to $5.2 million, including higher stock-based compensation, legal and professional fees, and travel costs. COVID-19-related expenses were $1.6 million.
- Management said all domestic restaurants were open for in-person dining, though capacity limits remained in major metropolitan markets. It cited improving sales momentum and expected further improvement as restrictions lift, while warning that pandemic effects could materially harm 2021 results and that timing of a return to normal operations was uncertain.
- The company intends to open 13 venues during 2021–2022; three STKs and four managed F&B restaurants were under construction. It reported no formal numerical revenue or earnings guidance.
- The company applied for forgiveness of its $18.3 million PPP loans in February 2021 and expects full forgiveness, but stated that forgiveness is not assured. If repayment is required, payments were expected to begin in August 2021.
- Management reported compliance with credit-agreement covenants at quarter-end and expected continued compliance over the following 12 months based on current projections. The agreement includes leverage, capital-spending and liquidity limits; borrowing availability is conditional.
- Other considerations include $4.1 million of accrued lease-exit costs for unbuilt restaurants still in dispute with landlords, ongoing rent-concession discussions, and ordinary-course legal claims. Management did not expect litigation outcomes to materially adversely affect results, but noted outcomes are uncertain.
Important facts for investors to verify
- Whether PPP loan forgiveness is approved, and the cash-flow and debt implications if any amount must be repaid.
- Recovery in comparable sales and restaurant margins as capacity restrictions change, especially against pandemic-distorted prior-year comparisons.
- Cash generation, lease obligations and the availability of the revolving facility under its covenant and borrowing conditions.
- Execution, timing and funding of planned openings, including the projects under construction and Bellevue capital spending.
- Whether landlord disputes, lease concessions or legal claims result in costs or obligations beyond amounts accrued or disclosed.