Q2 2021 One Group Hospitality Inc Earnings Call
72, 8% and the second quarter of 2020.
The decrease was driven by increased sales volumes, coupled with actively managing operating costs, particularly and managing restaurant labor and implementing operating cost savings measures.
Restaurant operating profit was 22, 6% for the quarter a record high for the company.
Again, we have made tremendous progress and running more efficient operations since the beginning of the COVID-19 pandemic and plan to continue to execute the current operating model and do the foreseeable future.
On a total reported basis general and administrative expenses were $6.1 million compared to $2.4 million and the prior year.
This year's results included $1.1 million and stock based compensation driven by substantial increase and our stock price during the quarter.
When adjusted for stock based compensation adjusted General and administrative expenses were $5 million and the second quarter of 2021 and $2 million and at the same quarter last year and this year's number reflects accruals for performance based compensation.
As a reminder, the company minimize general and administrative expenses during the second quarter of last year, while our restaurant operations were limited due to the COVID-19 pandemic.
As a percentage of revenues adjusted general and administrative expenses were 7.1% of total revenue and the second quarter of 2021 compared to 11, 7% of total revenue and the second quarter of 2020.
We incurred approximately $1.1 million of direct costs related to COVID-19. During the second quarter composed primarily of costs for our regular electrostatic cleaning of our venue personal protective equipment and sanitation supplies for event the spread of COVID-19.
And this compares to zero point $7 million of similar path last year.
Interest expense net of interest income was $1.2 million and both the second quarter of 2021, and and the second quarter of 2020.
Income tax expense was 1 million for the second quarter of 2021 compared to an income tax benefit of $3.2 million for the second quarter of 2020.
Net income attributable to the 1 group Hospitality, Inc was $13.8 million or <unk> 41, net income per share compared to a net loss of $2.9 million and the second quarter of 2020, or 10 and net loss per share <unk>.
Included in this quarter's net income and $8.6 million gain related to the for goodness of cares Act loans.
When adjusting for the gain related to the forgiveness of cares Act loan until the 19 related expenses.
Adjusted net income was $6.5 million on 19 net income per share compared to an adjusted net loss of $2.4 million and the second quarter of 2020, or <unk> and net loss per share.
Adjusted EBITDA for the second quarter attributable to the 1 group Hospitality Inc.
$12.9 million and the second quarter of 2021 compared to $1.824000 loss and the second quarter of 2020, our adjusted EBITDA does not include any gains related to the cares Act loan forgiveness and marks the highest adjusted EBITDA quarter and the company's history. We have included a reconciliation of adjusted EBITDA and <unk>.
Adjusted net income or loss, the GAAP net income or loss and the tables on our second quarter earnings release.
Finally to touch on on liquidity as of June 30, and $41.4 million and cash and cash equivalents on our balance sheet and we generated positive cash flow throughout the second quarter and.
In addition on August 6 for the company and amended its current credit facility with Goldman Sachs.
Amended agreement provides for a lower interest rate and extend the maturity day for both the term loan and the revolving credit facility by 5 years.
The amendment provides for a secured revolving credit facility of $12 million and a $25 million term loan.
Other key modifications included the removal of many limiting restrictions and the removal of all financial covenant, except for maximum net leverage ratio of 2 to 1.
Under the amendment and calculated retroactively the company would've been compliant with this covenant throughout 2020, including during the toughest times of COVID-19.
Key headlines with the amendment, we will save $2.5 million and cash interest expense annually and after cash on hand, the only $5 million and net debt.
And lastly on July 13, the company received an award from its bank debt. Its remaining cares act loan of $9.8 million has been fully for given by the SBA.
As a reminder, due to the uncertainty of COVID-19 other than development, we have suspended all financial guidance for this year, but we'll provide further business updates as warranted.
I will now turn the call back to management.
Thank you Taylor and thank you all for your time today.
And we conclude by saying that although COVID-19 is still not fully behind us I am very encouraged with our results to date and our prospects for 2021 and beyond.
Our financial position balance sheet and operating performance has never been better as reflected by our record revenues and restaurant operating profits.
Above all and grateful for our teammates who bring our mission to life every day to be the best restaurant and every market where we operate.
And they do this by delivering exceptional and and for Gamble guest experiences to every guest every time.
I also want to thank our guests have continue with us over this past year and are coming back to our restaurants and enjoying the $5.90 experienced they have been craving and we appreciate everyone. Joining us on the call today, Tyler and I are happy to answer any questions that you may have operator.
We will now begin the question and answer session.
To ask a question you May press Star then 1 on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Nicole Miller with Piper Sandler. Please go ahead.
Thank you good afternoon and and.
Great quarter.
Couple of quick ones.
The top line recovery is amazing can you talk to that relative to capacity, So where do you stand in terms of.
And he mandated restrictions or even just social distancing restrictions, you're placing upon your own stores.
We'd be the first question.
I mean, thanks, Nicole I think from a capacity perspective, I would say for all intents and purposes in the U S where capacity, meaning we can use the majority of our restaurants based obviously, there's still some places where we have to do.
So on social distancing, but in general.
We're we're pretty much where we need to be from a capacity perspective, So I would say no limitation and <unk>.
Any other color on that yes.
Yes.
This is Brian I think what we're seeing in most jurisdictions now.
100% capacity for the time being and.
And so we're we're fully opened and most most places.
And then also on the top line just a day part if you could you know thinking about the strength of Brian right.
Now we should take into consideration I assume is not on the recovery of <unk> and additional so if you could talk about day part or day of week mix and comparisons to.
Total sales are the collared on July that would be helpful as well or even just for the most recent quarter.
Yes, I mean, so the day parts its strong and stronger I mean, I think we've been very strong.
All day parts all days of the week I would say that the strongest day of the week for us would be Friday, while days Friday and Saturday. So we see a tremendous amount of demand for our brands our properties those days of the week and then <unk>.
On day through Wednesday, we've been heavily promoting date nights, which seems to have become a significant rollouts day part.
And we continue to leverage that so so I would say the strength is across and we have seen.
As I mentioned Saturday.
Friday and actually Sunday is now becoming a very significant day for our SDK and clinical <unk> and we believe that our emphasis on branch has really brought that on so so strength across for.
And the much are all day parts and our days and and.
We think that we're still early on branch.
We still have a lot of.
Opportunity and as you know branches habitual so as more people learn about where it could have a great branch.
And we'll work on their frequency, so I think that.
The game relative to branches is very very big and then obviously.
Also we are continue to be encouraged by.
Takeout and delivery business.
Haven't really seen a slowdown whatsoever of that business.
Matter of fact, we.
And look forward to continuing promoting that business and I think thats still a great layer of business. So I would say right now I don't see really anything but strength and all other parts of our business. The only place that theres huge opportunity and probably not a strength is events and I.
I think that as we look out into the fourth quarter, we're starting to see a lot of demand for.
And for all the parties. So I do think that in the fourth quarter that will be the next layer of business that will totally sit on top of the underlying business and will even further drive for our top lines.
And then just the last question, we didn't hear too much on beef and I'm wondering if that's 2 reasons.
You have some option on cuts I imagine and even the presentation, but then also a great beverage mix. So maybe youre getting some help there could you speak to that.
Yes, actually interesting enough I would say that our big help on Cogs has been our emphasis on the premium.
Product line like why do if you go to our restaurants, we have an incredible quality product and we are able to get pretty good price on that product. So we've actually utilize our promoting.
If you will product can really help us offsets on.
On the on that part of the of the many of them as you mentioned there.
Obviously, 1 liquor and the beverage.
Being in that business really helps you on the overall margin. So we've offset some of our pressure on.
And on commodities to there we do have.
If you will pricing commitments on beef. So we did have protection from some agreements with our vendors. So we did benefit from that and the quarter. We do have agreements for pretty much the rest of the year.
We obviously have been flexible with our vendors because we don't want them to and necessarily be put out of business. So we have given some concessions I think thats a good partnership and that's how we approach the business. So.
So overall I think that the.
We've utilized promotions or Pemex, we've added a lot of emphasis on top price for our stakes. If you go to our restaurants Youll notice that we put a lot of sales salesmanship around.
Having people add items to the.
And to the stakes, which we've engineered and to be cost effective to us. So you had all in there and I think overall.
We have seen a lot of erratic behavior out of supply chain, but I think we for all intents and purposes, we've done a good job of managing through that.
Thank you for your time.
Thank you Nicole.
The next question is from Mark Smith with Lake Street Capital markets. Please go ahead.
Hi, guys.
Couple of questions for me the first 1 that I wanted to ask about was just the off premise you guys did a great job over the last year and a half or so of driving off premise sales can you talk about conversion of these customers to die and then are you seeing that do you want that kind of what trends you're seeing from customers.
Thanks, Mark Fantastic questions. So we have seen.
Particularly in markets like San Diego I would consider them to be the mid sized markets we have seen.
The takeout delivery platform as being a great introductory price points.
Offering to those markets and if you look at our menu was very carefully crafted a takeout and delivery many to be and extension of the interim.
Of the dining room, Manny so think of things like the 1.
Offer a cast of DNS.
Short term it's exactly.
Short term on what we have and the dining room. So we've really done a good job of utilizing.
And the St products at a lower price point on takeout and delivery so.
We believe and that we have some.
Anecdotal and some factual data that that people are <unk>.
We introduced to the Brian and then coming in and celebrating their birthday or celebrating and.
And then and frustrated with us because they've got introduced to the brand to the takeout delivery business. So we do think that.
Takeout delivery business has become a compliment to happy hour and remember that we always use happy hour under.
Under the same strategy of introducing guests for the brand and so now would you have and 1.2 punch with.
Takeout delivery and happy hour, providing lower price points to introduce people to the brand and then we're also doing the same thing with branch would you have fantastic price points and our brunch menu that also axes introductions to the brand. So so check the box on that and and the fourth area 1.
And we utilized.
Area for introducing people to the brand as holidays and I think we spoke about that on our prepared remarks, where our continued added emphasis on holidays.
Has really expanded our consumer base and we're starting to see a lot of people who will try us for the.
And the holiday season, and then we'll come back for more.
More regular type of guidance. So I think those are the for areas, but as you astutely pointed out there we are very happy with.
Takeout and delivery is another.
Aero and for will on our ability to introduce people to the brands.
Excellent and then you touched on it a little bit but.
Have you seen any change in trends yet with business travel.
Even for for restaurants, like Las Vegas vacation travel anything Thats, maybe helped sales.
Yeah, I mean, the suits are back on and I was in New York last weekend.
Are you starting to see.
And people coming in and what suits and so.
There is a tremendous and lease so you're starting to see that coming into the restaurants, but and in terms of how we approach our business.
Our core demographic our women's so if you even today if you go to our restaurants.
<unk> been a fantastic job of driving our dining rooms to be 55%.
Female and.
Driven both brands Kona Grill MST K, so that has become.
A big part of our business model and then also women groups have become a significant.
Part of our business model there.
And historically that could have been more of a male groups and for the business dining, but now we're seeing a lot more women groups and social occasions, particularly Friday, and Saturday nights and will it become.
On a very very.
Noticeable and our dining rooms, but yeah. Our business guys are back and ladies are back. So we're starting to see a lift on that and like as I mentioned on my.
Statements there, we're starting to see lots of demand for holiday parties and people are wanting big holiday party and solve the inbound requests.
Our for either take buyouts or some really big dollar event. So I don't think there is some.
Pent up demand for big dollar Vince coming into fourth quarter.
Okay, Perfect and then you touched on commodities, a little bit but could you just talk about any other places receipt and inflationary pressure, primarily labor and what youre doing to kind of retain and hold on to some of your good labor.
Yes, I mean, so we mentioned and B if I may we could have talked about other commodities.
Seafood, we saw a little bit of that and then obviously labor.
And obviously, it's well documented all of the challenges.
And the environments and.
And we are obviously.
And not immune to all those issues, but we have done a very good job.
2 what we call a rapid deployment strategy of being very aggressive.
And and.
Growing recruiting and bringing employees and as a matter of fact.
I just looked at our statistics, we are at about.
100% par on hourly employees and about 105 on salaries for all intents and purposes and im going to knock on wood, we've done a very good job of.
Keeping our restaurants fully staffed to what we need that doesn't mean that every Russian has the ideal number of restaurants of employees or so some geographies, where we have some challenges.
Within the portfolio, but those are few there are many so thats. Good so we can.
Be able to manage with and that's in terms of what's happened from an inflation perspective is all the wages are up I mean, obviously demand for particularly back of the house employees is significant.
There is a lot less of those out and the marketplace. So we'd have to rollout what we call.
On the FERC and the 1 perks program.
Yohji FERC. So we've had to soup up our benefits programs and I think in general those have been very beneficial.
Bringing people to to to the company. So I will now very challenging toughest property environment that we've ever operated and chip in terms of people.
And getting people on board, but.
And we really have gone hard on strategy and then at the end of the day. The last thing on people is the best strategy is to retain your people. So I think I spent a lot of time talking to the management team about making sure that we.
We retain our top talent, and particularly Gms and executive chefs I think that our track record of retaining those key individuals is phenomenal and also at the multi unit level of operations, we have a pretty intact team. There. So I think the ultimate.
Weapon in this environment is retention and keeping employees ramp.
Perfect and then just 1 last 1 for me.
Happy to see some development happening again with Kona Grill and can you give us any rough timeline of when you expect to maybe signed leases.
We have some openings there.
Yes. So so we have so the first 1 I spoke of and the and.
And the.
And the prepared comments, we do have 2 additional ones that are literally.
LOI and getting close here. So we will have 3 within the next several weeks that we will begin and design and.
And the 1 in Salt Lake City, and we should go into construction on here very shortly as we plan to open up that location and May of next year. So we'll be working on there at very aggressive development schedule, there and so we're super excited about that I got to be honest with you I mean, our intense with Kona grill was to really work on volume and margin and I think for that.
The results this quarter GAAP.
And frankly above where I thought we would have been so we are average.
Following is about 103000, a week or $5.4 million annualized and our store level margins.
Are starting to get up there so 17, plus for the quarter and I do see a path here to have 20, plus 20% plus margins for Kona Grill. So if you start doing the math on all of that and.
In fact that the landlords and basically have.
Continue to call us and offer some incredible real estate that some incredible value and Ti. So we're super excited about starting that up again and again that brand.
Is super strong I mean, I think some other things we've done with the bar program for music program and the addition of the.
The branch has been right on because we are and lots of suburban projects, where people on the weekend sneak things to do so with kind of playing off of that and then we're also leveraging our strategy with patios and I think thats, what youll see where the future of Kona grills and emphasis on patios and rooftops.
Like rooftops on Kona Grill, so youre going to see us being able to drive very great economics with a low real estate cost because we'll have rooftops and patties and obviously patients. So we're super excited about that.
Excellent. Thank you guys.
Thanks and Mark.
The next question is from Mitchell sacks, with Grand Slam asset management. Please go ahead.
Hey, guys fabulous quarter by the way.
Thanks.
If you could talk a little bit about kind of the opening schedule on the SDK as you kind of see it rolling out over the next few quarters and then second question has to do with you talked about the restaurant level margins of the Cowen and if you could just kind of talk about.
And what kind of target restaurant level margins you might have at the 1 does teekay is.
And so the schedule I think we mentioned Dallas is under construction.
Construction early construction, but thats under construction and we do have.
On the Stratford also location is also under construction.
And that's a managed location and then we do have.
San Francisco kicking here very soon.
And so it will be a horse race between San Francisco and Dallas.
Who is going to open up there.
First and then we do have.
A couple of 3 other.
Deals that are heavy on.
On leasing.
Lease negotiation so.
So think of Dallas, and San Francisco and strapped for there within the next.
3 months to 6 months and then.
In terms of the margins for SDK.
Zinc Tyler.
And sit on this quarter, we worked at 27%.
Type of margins.
I think that.
It's pretty reasonable too.
I expect that our target is.
Around the 27% to 30% range I do think that as we get up there on the Super high volume restaurants, we're able to break 30, rather easily and we did have a great cost structure. Our cost of goods is fantastic and you probably saw on on the on the financials and then.
And I would just because of the velocity and our chap labor is becoming a pretty small incidents on the P&L. So on.
Our prime costs.
And SDK are probably.
45% switches and Ah.
Probably and oats.
And incredible cost structure. So we're very bullish about that our biggest challenge now as open as fast as we can and that's why we're getting Dallas and San Francisco running and as we mentioned in our prepared comments Bellevue.
There are over 240000 really on its first week of being open and Thats without the patio Patti has another 100 seats, so and we're still keeping and marketing down on that side, because we're getting the operations.
And really wind up for that so I think that with those kind of revenues. The margins are fantastic. So I would say that internally, we will have a target of 30, and we will keep pushing for that.
And then in terms of restaurant design as you do these new restaurants, and you mentioned you had 9 partners for for.
For delivery of your design and deliver differently. So that you can do a larger volume of takeout and delivery.
And so thats another great question, so the Bellevue restaurant.
It was 1 of the first questions that would design within the Covid period. So we did establish a separate takeout delivery area and the and.
And the kitchen, so and if you go to the back of the house Youll see that we have also added some technology back there to help them work on it.
And then we're also utilizing a second line on the kitchen to take pressure off the main lines.
For the for the dining room, so we're adapting our model to.
To take advantage of that and then Dallas.
And there's going to be the first restaurant that we actually open that will have a takeout delivery areas separate from the restaurants and our rationale there is because a lot of people come to estimate a pickup pickup takeout or delivery and some of them may not be dressed up and they walked into the lobby at the restaurant and.
And on a Friday or Saturday night, and day Monoxylous comfortable walking into its picking up kick on delivery. So we do think that having a <unk>.
Separate area within the restaurant dedicated to.
And to take on and wherever it makes a lot of sense and some of our bigger takeout delivery.
Restaurants, we're doing and our annualized over $1 million and takeout and delivery, maybe in some cases and $1 million half and a lot of cases thats almost the same and half volume of casual restaurants. So we were and we're definitely and the takeout delivery business and SDK. So we need to seriously and make sure that our restaurants are able to execute.
It very well.
And final question and ask you around alcohol, if you could kind of compare and contrast.
And how youre dealing with alcohol sales prior to Covid and how youre dealing with it now and then kind of what you think the opportunity might be as things go back to some form of normal.
So I have a mixed feelings about that so and so let me give you a little bit of a background and that so we obviously like the margins on liquor and wine and historically if somebody would ask me I would tell you that we love to encourage people to have the pre and after drawing but right now the demand for the dining room and so high.
And that's frankly.
The alcohol mix to us is important but the way that we have our pricing and our cost structure set up is the advantage on liquor to food is not that much so and the check is dramatically higher on food. So as I would've told you 2 or 3 years ago, how I would've loved to become really big on <unk>.
Liquor sales were a lot more temperate today, because it's really a table turn gain.
And making sure that we can get as many customers with a great experience and the least amount of usable time on the table, so sometimes selling that extra $30.40 join is not on the interest of that table..1 we can make up 1 hundreds of dollars on the next sitting on that table. So youll see us really doing a fine balance now between.
<unk> determining what's.
And what's the right liquor balance or not so what I would have said, 35% liquor was ideal a couple of years ago, I would say that somewhere between 25 and.
<unk> is probably our sweeter mix right now and how that goes out is going to be a long answer just because.
As we as we continue to have these really high volumes and Thats.
1 other things that we really have to weigh into the business model.
Great. Thanks, so much.
Thanks, Mitch and good.
This concludes our question and answer session I would like to turn the conference back over to excuse me Manny Hilario for any closing remarks.
Yes. Thank you everyone for your continued interest and support of the 1 group and as always I'd like to thank the incredible teammates and team.
And that really makes it happen here and the company, they're fantastic professionals and 1 of the best teams and the industry. So I'm very proud to be associated with them. So I appreciate that and then for all other view and look forward to running and to you at our restaurants. So see you all soon thank you everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Okay.
[music].
Yeah.
[music].