ONE Group Hospitality, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; this filing reports full-year results, not standalone fourth-quarter results. The company operates STK and Kona Grill restaurants and provides hospitality food-and-beverage management and licensing services.
Financial performance
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total revenue | $332.8 million | $316.6 million |
| Operating income | $9.3 million | $16.3 million |
| Net income attributable to ONE Group | $4.7 million | $13.5 million |
| Diluted earnings per share | $0.15 | $0.40 |
| Operating cash flow | $30.8 million | $25.3 million |
| Capital expenditures | $53.6 million | $32.6 million |
- Revenue rose 5.1%, mainly reflecting new restaurant openings and a full year of sales from two STKs opened in 2022. Owned restaurant revenue increased 5.5%; management, license and incentive fees declined 2.4% to $15.4 million.
- Same-store sales fell 2.7% year over year: STK down 3.0% and Kona Grill down 2.2%. Compared with 2019, same-store sales were up 43.8% overall.
- Restaurant operating profit, a non-GAAP measure, was $50.4 million versus $50.8 million; its margin on owned restaurant revenue declined to 15.9% from 16.9%. STK restaurant operating margin fell to 20.9% from 21.5%; Kona Grill fell to 9.3% from 10.8%.
- Adjusted EBITDA, a non-GAAP measure, was $39.7 million versus $41.3 million. The company cautions that this measure may not be comparable across companies and is not a substitute for GAAP results.
- Year-end cash was $21.0 million, down from $55.1 million. Net cash used in investing was $53.6 million, primarily for new venues and restaurant improvements; operating cash flow less capital expenditures was negative $22.8 million.
- Gross long-term debt was $73.5 million, versus $74.3 million; the balance sheet reports $70.4 million of long-term debt net of issuance costs and current maturities. The year-end weighted-average borrowing rate was 12.40%. Revolver availability was $10.6 million, subject to conditions.
- Current assets were $46.7 million and current liabilities $58.2 million. Operating lease liabilities had a present value of $127.4 million. The company reported $30.0 million of total lease cost for the year.
Changes, outlook and risks
- Operating income declined by $7.0 million and attributable net income by $8.8 million. Management cited higher pre-opening costs, depreciation from recently opened venues, wage inflation and growth-related investment. Net interest expense increased to $7.0 million from $2.1 million after the company drew a $50 million delayed-term loan in December 2022.
- Food cost as a share of owned restaurant revenue improved to 23.9% from 25.0%, but owned restaurant operating expenses rose to 60.3% of that revenue from 58.1%. Management said inflation outpaced price increases and described initiatives focused on purchasing, scheduling, vendors and travel costs.
- The company opened six owned STK and Kona Grill restaurants and two Bao Yum venues in 2023; it subsequently exited the REEF Kitchens licensing agreement. It plans six to eight new venues in 2024, expects five to six STKs and three to five Kona Grills annually, and targets one to two new hospitality agreements annually. These are plans, not assurances; no numerical earnings or revenue guidance is provided.
- Management expected available resources—including operating cash flow, landlord contributions and credit availability—to fund operations and planned openings for at least 12 months, subject to operating performance. The company reported compliance with credit covenants at year-end and expected continued compliance over the following 12 months.
- Key risks include discretionary consumer spending and business travel, restaurant competition, wage and food-cost inflation, labor availability, long-term lease commitments, construction and opening costs, variable interest rates, covenant compliance, food safety, cybersecurity and litigation. Beef is about 25% of food-and-beverage costs; the company does not hedge commodity or interest-rate exposure.
- The company reported no long-lived-asset impairment charge in 2023. It disclosed ordinary-course lawsuits, including lease and employee matters, and said it did not expect them to materially affect consolidated financial position or results, while noting outcomes are uncertain.
- Management and Deloitte concluded internal control over financial reporting was effective as of December 31, 2023; Deloitte issued an unqualified opinion on the financial statements and controls.
Most important facts to verify
- Venue counts are inconsistent in the filing: the business and MD&A sections generally report 63 venues, while a financial-statement note reports 65 and 27 STKs rather than 28. Confirm the correct year-end count and definitions.
- Assess whether weaker same-store sales and restaurant-level margins, alongside higher operating and interest costs, continue into 2024.
- Check cash generation, capital spending, landlord contributions, debt service and revolver availability against the planned opening schedule and stated 12-month liquidity expectation.
- Review covenant headroom and sensitivity to variable-rate borrowing costs; the filing provides the covenant terms but not a clear numerical year-end headroom figure.
- Track execution and costs of venues under construction or development, and the effect of the REEF exit and hospitality contract changes on future fee revenue.