Name: ONE Group Hospitality, Inc. Q4 2019 Earnings Call
Start: 2020-03-27T01:20:07.000Z

Executive Summary

Q4 2019 revenue rose 102% to $52.2M on Kona Grill consolidation and strong STK comps; Adjusted EBITDA increased 65% to $6.9M, while GAAP diluted EPS jumped to $0.66 on a $11.0M bargain purchase gain and a $10.3M deferred tax valuation allowance release .
Same-store sales remained strong: STK +8.9% and Kona Grill +3.9%; Kona contributed ~$23.7M of sales since the October 4 acquisition close (prelim release cited $24.0M for the quarter) .
Management suspended 2020 guidance on March 17 due to COVID-19, shifting to take-out/delivery (weekly sales ~$300–$400K) and aggressive cost controls; ~45% of U.S. revenues benefited from rent deferrals/percentage rent arrangements; directors/executives took equity in lieu of cash incentives to preserve liquidity .
Near-term stock reaction catalysts: highly optical GAAP EPS uplift from one-time gains; strong pre-COVID comp trajectory; guidance suspension and COVID operating updates; liquidity runway (cash ~$9.5M at call, $10.7M revolver availability; $12.3M cash at 12/31/19) .

What Went Well and What Went Wrong

What Went Well
- Robust top-line and comps: Q4 revenue +102% to $52.2M; STK SSS +8.9%; Kona SSS +3.9%; Adjusted EBITDA +65% to $6.9M .
- Kona outperformed initial expectations in its first quarter under ONE Group ownership (prelim: $24.0M Q4 sales vs earlier expectations) .
- G&A leverage improved materially: G&A fell to 7.2% of revenue in Q4 (down 510 bps y/y) as scale benefits flowed through .
- “2019 was an outstanding year for The ONE Group…” — CEO Manny Hilario, highlighting strong 2019 growth ahead of COVID disruptions .
What Went Wrong
- COVID shock forced closure of dining rooms and 2020 guidance suspension; pivot to take-out/delivery across the footprint with selected temporary closures (e.g., Las Vegas) .
- Restaurant-level cost pressure: total owned operating expenses rose to 86.0% of owned restaurant revenue in Q4 (vs 82.6% y/y), partially offset by G&A leverage .
- Non-recurring noise in GAAP: $11.0M bargain purchase gain, $10.3M deferred tax allowance release, $2.7M impairment and $2.0M transaction costs complicate underlying EPS comparability .

Financial Results

Summary financials

Metric	Q4 2018	Q2 2019	Q3 2019	Q4 2019
Revenue ($M)	$25.813	$23.6	$22.1	$52.200
Diluted EPS ($)	$0.11	$(0.01)	$0.02	$0.66
Net Income Attrib. ($M)	$3.167	$(0.322)	$0.460	$19.839
Adjusted EBITDA ($M)	$4.169	$2.1	$2.6	$6.877

Revenue mix

Revenue Component ($M)	Q4 2018	Q2 2019	Q3 2019	Q4 2019
Owned Restaurant Net Revenue	$22.077	$18.8	$17.1	$48.554
Mgmt/License/Incentive Fee Revenue	$3.736	$2.7	$2.9	$3.646

Margins and cost structure

Margin/Cost Metric	Q4 2018	Q2 2019	Q3 2019	Q4 2019
Owned Restaurant Cost of Sales (% of owned rev)	25.3%	26.9%	26.1%	25.8%
Owned Restaurant Operating Expenses (% of owned rev)	57.3%	63.0%	63.0%	60.2%
Total Owned Operating Expenses (% of owned rev)	82.6%	—	—	86.0%
G&A (% of total revenue)	12.3%	11.5%	10.6%	7.2%

KPIs and operating indicators

KPI	Q4 2018	Q2 2019	Q3 2019	Q4 2019
STK U.S. Same-Store Sales (%)	14.9%	6.4%	9.3%	8.9%
Kona Grill Same-Store Sales (%)	—	—	—	3.9%
Kona Grill Sales Recognized ($M)	—	—	—	$23.7
Total F&B Sales at Owned+Managed ($M)	$47.005	—	—	$86.970
To-go/Delivery Mix at Kona (approx.)	—	—	—	3%–6% (Q4 baseline)

Balance sheet snapshot (12/31/19)

Metric	12/31/2018	12/31/2019
Cash & Cash Equivalents ($M)	$1.592	$12.344
Long-term Debt, net of current ($M)	$7.118	$45.226
Total Assets ($M)	$55.979	$206.585
Total Equity ($M)	$12.062	$33.912

Non-GAAP and notable items (Q4 2019)

Adjusted EBITDA attributable to ONE Group: $6.877M; reconciling items include $11.0M bargain purchase gain, $2.0M transaction costs, $2.7M impairment, $0.421M loss on debt extinguishment, and $10.3M deferred tax allowance release .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Total GAAP Revenue	FY 2020	$200–$210M (11/7/19)	Suspended (3/17/20; reiterated 3/26/20)	Suspended
Consolidated Adjusted EBITDA	FY 2020	$23–$25M (11/7/19)	Suspended (3/17/20; reiterated 3/26/20)	Suspended
G&A (ex-SBC & integration)	FY 2020	6%–7% of revenue (11/7/19)	Suspended (3/17/20)	Suspended
Capital Expenditures (net)	FY 2020	$8–$10M (11/7/19)	Suspended/Deferred projects (3/26/20)	Suspended/Deferred
Same-Store Sales	FY 2020	~2%–3% (11/7/19)	Suspended (3/17/20)	Suspended

Note: FY2019 guidance of $118–$120M revenue (11/7/19) was delivered at $120.681M actual (3/26/20) .

Earnings Call Themes & Trends

Topic	Q2 2019 (Q-2)	Q3 2019 (Q-1)	Q4 2019 (Current)	Trend
COVID-19 operations & liquidity	—	—	Dining rooms closed; pivot to take-out/delivery; weekly sales ~$300–$400K; headcount cut to <100 from ~4,000; cash ~$9.5M; $10.7M revolver availability; rent accommodations across ~45% of U.S. revenue; directors took equity comp	New major headwind
Kona Grill integration & performance	Not acquired yet	Closed Oct 4; strategy to elevate bar and Vibe; expected ~$23–$24M Q4 revenue and >$1M adj. EBITDA	Q4 Kona sales ~$23.7M (prelim $24.0M); SSS +3.9%	Positive execution
Bar/alcohol strategy	Emphasis on premium cocktails and happy hour at STK	Focus on bar as near-term lever at Kona; alcohol mix ~30% with path to ~35%	Marketing pivot (STK/Kona radio) amid COVID; delivery focus	Strategy in place; channel shift
Events/holiday	Holiday bookings “already looking great”	Healthy holiday bookings and event pipeline	Strong holiday buoyed Q4 comps (STK +8.9%)	Sustained strength pre-COVID
Cost & commodities	Shrimp inflation; hedged; patio loss hurt mix	Cost of sales 26.1%; labor efficiencies; currency headwinds	Owned op ex % elevated (86.0% of owned rev); G&A leverage improved to 7.2%	Mixed: leverage vs op ex
Development pipeline	Doha, Nashville; Florence, Puerto Rico, Scottsdale ahead	6–8 2020 openings planned	Scottsdale (managed) built and ready pending clearances; capex halted	Delayed due to COVID

Management Commentary

“2019 was an outstanding year for The ONE Group… [we] have temporarily closed all dining rooms and have shifted operations to provide take-out and delivery service… We have implemented measures to reduce our costs… We… suspended our financial guidance for 2020” — Manny Hilario, President & CEO .
“We are currently generating between $300,000 and $400,000 in sales on a weekly basis [via take-out/delivery]… our workforce [was] approximately 4,000… now operating with less than 100 employees” — Manny Hilario .
“We currently have $9.5 million cash… $10.7 million in availability [on revolver]… arrangements with landlords cover almost 45% of our U.S. revenues [re: base rent]” — Manny Hilario .
“Our non-employee directors have… elected to take 100% of their 2020 compensation in the form of company equity” — Manny Hilario .

Q&A Highlights

Liquidity and cash burn: Weekly delivery/take-out sales ~$300K+; payroll (incl. G&A) held to ~$100–$150K/week; rent largely addressed via deferrals/percentage rent; overall aim to preserve cash and extend runway .
Credit facility draw: Revolver has a $4M minimum cash threshold; can draw if cash falls below ~$4M; availability ~$10.7M at time of call .
Re-open readiness: Core GMs/chefs retained at operating units; systems kept “ready mode”; vendor relationships maintained; cross-functional team to accelerate reopenings .
Sales mix baseline: Kona to-go/delivery historically ~3%–6% of sales; marketing shifted to digital to maximize off-premise .

Estimates Context

Wall Street consensus (S&P Global) for Q4 2019 EPS and revenue could not be retrieved due to an access limit during this session; therefore, we cannot provide an estimates comparison at this time. We attempted to pull “Primary EPS Consensus Mean,” “Revenue Consensus Mean,” and related metrics for Q4 2019, but the request was rate-limited by the provider [SPGI request error].
Implication: Given strong pre-COVID comps and Kona contribution, Street revenue likely trended up into the print; however, GAAP EPS is not comparable due to the one-time bargain purchase gain and deferred tax allowance release. Future comparisons should focus on Adjusted EBITDA and underlying margins once estimates are accessible .

Key Takeaways for Investors

Underlying demand (pre-COVID) remained strong, with STK SSS +8.9% in Q4 despite lapping +15% in Q4’18; Kona SSS +3.9% suggests early traction from integration and Vibe/Bar strategy .
GAAP EPS of $0.66 is inflated by one-time items (bargain purchase, tax allowance release); Adjusted EBITDA (+65% to $6.9M) is a cleaner signal of operating performance .
COVID response prioritized liquidity: significant labor reductions, rent arrangements, halted capex, directors/executives taking equity; weekly off-premise sales ~$300–$400K provide partial revenue bridge .
Balance sheet scaled post-Kona (assets $206.6M; LT debt $45.2M; cash $12.3M at 12/31/19), with additional liquidity via revolver (subject to $4M minimum cash covenant) .
2020 guidance suspended; monitoring cadence of reopenings and off-premise adoption is key for near-term trading; pre-COVID comp/EBITDA trajectory and Kona synergies underpin the medium-term thesis once conditions normalize .
Watch G&A leverage (7.2% in Q4) versus restaurant expense pressure (owned op ex 86.0% of owned revenue) as sales rebuild; bar and events mix will be critical to restoring margins .

Appendix: Additional Data Points

Q4 non-cash/one-time items: $11.0M bargain purchase gain (Kona), $10.3M deferred tax valuation allowance release, $2.7M investment impairment, $2.0M transaction costs, $0.421M loss on early debt extinguishment .
Total food & beverage sales at owned + managed units: Q4’19 $86.97M vs Q4’18 $47.01M .
FY2019 revenue $120.681M; Adjusted EBITDA $14.288M; STK SSS +8.3% .

ONE Group Hospitality, Inc. (STKS)·Q4 2019 Earnings Summary