Q3 2021 One Group Hospitality Inc Earnings Call
Please standby the conference will begin momentarily. Thank you for your patients as you. Please remain on the line.
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Greetings and welcome to the one group third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
That time, if you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded I would now like to turn the conference over to Tyler Loy. Please go ahead.
Thank you operator, and good afternoon before we begin our formal remarks, let me remind you that part of our discussion today will include forward looking statements.
These forward looking statements are not guarantees of future performance and you should not place undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Please also note that these forward looking statements reflect our opinion only as of the date of this call.
We undertake no obligation to revise or publicly release any revisions of these forward looking statements in light of new information or future events.
We refer you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
During today's call, we will refer to certain non-GAAP financial measures, which we believe can be useful in evaluating our performance.
However, the presentation of these measures or other information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
A reconciliation of these measures such as adjusted EBITDA adjusted net income restaurant operating profit comparable sales and total food and beverage sales in owned and managed and licensed units to GAAP measures.
Along with the discussion of why we consider these measures useful please see our earnings release issued today and with that I'd like to turn the call over to Manny hilarious Manny.
Thank you Tyler and Hello, everyone. Thank you for joining US today, we sincerely appreciate everyone's continued interest in the one group.
I would like to begin by thanking our team members, who continue to work exceptionally hard in driving a world class operation.
It is because of their commitment to operating the best restaurants in the industry and we have been able to strengthen our leadership position in high end and upscale casual dining and then we can move forward with great confidence in the long term opportunity we see for the one group.
Today I'd like to provide some detail on our recent results.
T Chek initiatives and then discuss our robust development plans.
Then I will turn the call over to Tyler, who will walk you through the quarterly financials in greater detail.
Finally, I will provide closing remarks and open up the call for Q&A.
We are thrilled to report that during the third quarter, we achieved record setting revenue with almost $72 million in total GAAP revenue.
<unk> $100 million in total food and beverage sales at owned and managed locations.
We were able to leverage this sales growth to achieve restaurant margins in excess of 17%.
Right commodities headwinds and labor shortages across the industry.
Also we were able to reach over $10 million and adjusted EBITDA, which brings our year to date adjusted EBITDA was $29 4 million.
Our third quarter U S average weekly sales were equally impressive at $285000 for SDK compared to $184000 in the same period in 2019 and.
And 99000 for Kona Grill compared to 78000 in the same period in 2019.
Our recent comparable sales have been extremely strong building on our long history of outperforming the industry.
During the third quarter consolidated comparable sales for the one group increased 44, 7% when compared to 2019 comp.
Comparable sales at SDK increased 63, 8% and Kona Grill comparable sales increased 26, 9% compared to 2019.
Oh, meaning each and every one of our domestic SDK and Kona Grill restaurants were positive for the third quarter versus 2019 sales performance.
This sales momentum continued through October as consolidated comparable sales increased 59, 2% for the mine.
<unk> of 73, 7% increase in SDK, and a 42, 9% increase at Kona well all of these compared to 2019.
This outstanding performance validates our position that guests are looking for the high energy differentiated experience that our vibe dining offering delivers.
Of course without our teams hard work none of this would be possible I mean, we wouldn't be prouder of the outstanding job that they are doing.
Adding more color to the results we are seeing strength across all day parts in days, but especially Thursday to Sunday.
Sundays are becoming increasingly significant from both SDK and Kona Grill. Since the addition of the brunch day parts.
That will drive us to continue to provide opportunities for us to differentiate and introduce guests to our SDK and Kona Grill brand and creates incredible content for a robust digital marketing capabilities.
The first has always been happy hour, where we offer innovative food and drink specials.
SDK, we have compelling culinary options from $2 to $8. In addition to drink special such a task of specialty cocktails.
Kona Grill, we have the $3 $6 and $9 menu. In addition to our very successful Margarita haven't program.
Many of our happy hour gas transition to our main dining room and stay for dinner or get introduced to the brand via a happy hour experience and return to a celebratory occasion, an area, which we truly excel.
Second we are using our takeout and delivery business to reach new and current guests and continue to be encouraged by this highly accretive revenue driver at both SDK and Kona Grill.
Even with the restaurants at full capacity, we haven't seen a slowdown in our off premises business and we continue to market and innovate the business for further growth.
We have carefully crafted to takeout and delivery menu to be an extension of the in dining room manual and it provides a great introductory price points.
<unk> for both SDK and Kona Grill.
You quantified the delivery sales at some of our top performing restaurants, we are generating an annualized rate of one to one $5 million in takeout and delivery revenues.
Third a brunch program continues to grow and provide a great introduction to the brands, where we offer differentiated and unique food and beverage options. We believe that we're still very early on the branch day part with a lot of opportunity ahead.
And lastly, the fourth area of emphasis and an opportunity to introduce guests to the brand is holidays.
<unk> added emphasis on each holiday has really expanded our base. We have seen a lot of people who will try it for a specific holiday meal and then we'll come back for more regular type of dining.
Looking to the fourth quarter, we are excited about our lineup at both SDK in front of Grill for Thanksgiving Christmas and New year's Eve.
Now turning to our events business, which would be an additive layer and high margin business.
This is the area of our model that still hasnt fully recovered from the COVID-19 pandemic, but we are seeing a greater and greater demand as we progress into the fourth quarter. We are focused on balancing this demand with our steady robust Ala carte dining in order to maximize each of our restaurants.
Overall, we believe that both brands have recovered extremely well and we feel optimistic about the opportunities for continued sales growth for the remainder of the year and beyond.
Now turning our focus to developments, we have an exciting pipeline of growth through both company owned restaurants, and managed and licensed deals for the remainder of 2021 and into 2022.
We still plan to open 13, new SDK and F&B venues between 2021 and 2022.
To date in 2021, and we have seven new venues all of which are off to an incredible start. These include our managed SDK in Scottsdale, Arizona, which opened in January.
<unk> SDK at the Los Cabos Airport in Mexico, which opened in May which we believe will be the first of many future airport locations globally.
We opened a managed SDK and two F&B venues in the Western area. One in may at the Western as superior.
On July 21st we opened a company owned SDK in Bellevue, Washington. This is the first SDK to open in the Pacific Northwest Weekly average sales volume of discretion I, surpassing $240000 per week.
And finally in August we entered into a management agreement to manage the operations and the River show Bar and Grill in Oregon City, Oregon.
As a reminder for those restaurants that are managed our license we generate management fee revenue based on top line revenues and incentive fee revenue based on a percentage of location revenues and profits.
As of today, we have three additional SDK under construction. They include a company own SDK in Dallas, Texas accompany an SDK in San Francisco, California, and then manage the SDK into Stratford area of London.
We expect all of these locations to open in late 2021 or early 2022.
Lastly, we have entered into an agreement with <unk> kitchens, two opened pre takeout and delivery only venues featuring offerings from our SDK Kona grill and volume concepts.
These will open either late 2021 or early 2022.
Houston, Texas market.
Turning to Kona Grill, we have set an initial target of three to five new Kona grill locations per year, beginning in 2022 with.
With annual unit volumes exceeding $5 million and strong store level margins Kona grill produces highly attractive unit economics for us with potential 40% plus cash on cash returns on our investments.
We continue to see high demand for new units from some of the most risky.
Landlords in the country.
We have identified the one group's first new opening for Kona Grill, which would be a company owned restaurant in Riverton, Utah, a high profile cyber.
Salt Lake City, Utah.
Dislocation is already leased under construction and we expect that this restaurant to be open by May of 2022.
Frankly, we are early in our growth strategy and lots of white space remains.
Over the long term, we foresee a total addressable market of at least 200, SDK restaurants globally and at least 200, Kona Grill's domestically combined that's over 400 restaurants.
Of this growth will be asset light and all company owned restaurants will be self funded through internally generated cash.
Before I turn the call to Tyler.
Wanted to touch briefly on what you're seeing regarding the labor shortages that our industry is facing while we are not immune to these challenges we have done a very good job of recruiting and retaining employees.
We have prioritized and invested in these areas during the quarter as we anticipate a very busy holiday season, and believe that being fully staffed is a true differentiator and a competitive advantage in the industry today.
Currently we are over 100% staffed at both the manager and crew levels as we go into the busy fourth quarter and our P&L reflects an investment in recruiting training and retention activities in the third quarter.
In terms of what we're seeing from an inflation perspective wages are up across the board, but we are managing these increases carefully we're particularly seeing inflation for back of the house employees as a man is high in the marketplace.
We havent rolled out the <unk> perks program and enhanced benefits program and it hasnt been beneficial and attracting people to us and retaining employees. We have also rolled EOG rapid deployment and internal human resources initiatives, whereby our human resource team works with our restaurant teams and.
Executing a 24 hour from application to interview to offer process for new employment applicants.
And the toughest operating environment that can remember, we're focusing a lot of efforts on attracting and retaining talent our retention levels, particularly for our general managers and executive chefs has been excellent which is critical these days navigating through a complex and quickly changing environment.
To conclude our team has certainly proven their resiliency and they're doing a fantastic job welcoming guests into our restaurants for a great vibe dining experience ultimately our focus on operations and day to day execution has proved effective.
Translating to a strong P&L and we are very hopeful that our trajectory that we've fully on will continue to accelerate in the months ahead now I'll turn the call back to Tyler.
Thank you Manny let.
Let me start by discussing our third quarter financials in greater detail and then provide an update on our cash and liquidity.
For the third quarter total GAAP revenues were a record $71 9 million, increasing 81, 6% from $39 6 million for the same quarter last year <unk>.
Included in our total revenues for the quarter is our owned restaurant net revenues.
The $8 million, which increased 79, 7% from $37 8 million for the same quarter last year.
The increase in revenue is primarily attributable to strong sales momentum, resulting from our high level of execution of our sales initiatives along with the opening of new units.
Domestic consolidated comparable sales increased 44, 7% for the quarter compared to 2019.
Our SDK comparable sales increased 63, 8% versus 2019, and Kona grow comparable sales increased 26, 9% versus 2019.
Management license and incentive fee revenues were $3 9 million, increasing 123, 7% from $1 7 million in the third quarter of 2020.
This increase was primarily the result of sales recovery from the COO.
19 pandemic, coupled with the opening of SDK Scott fill in January SDK, Los Cabos Airport in May and SDK, Westminster with two F&B venues in May and another F&B venue in August.
Owned restaurant cost of sales as a percentage of owned restaurant net revenue increased 210 basis points to 22, 1% in the third quarter of 2021 compared to 24% in the prior year.
As a reminder, our second quarter 2021 cost of sales or 25, 3%. So our quarter over quarter increase was only 80 basis points, reflecting effective cost management in this inflationary environment.
The increase in cost of sales quarter over quarter was primarily driven by beef and shellfish costs. We continue to work with our vendors and supply chain in order to control cost and continue to manage and engineer our product mix towards higher margin items.
Owned restaurant operating expenses as a percentage of owned restaurant net revenue improved 250 basis point to 56, 9% in the third quarter of 2021 from 59, 4% in the third quarter of 2020.
Increased sales volumes, primarily drove the year over year decrease.
Quarter over quarter operating expenses increased 480 basis points as we invested in fully staffing our restaurants, primarily hiring and training cost for new employees.
Also invested in stocking up operating supply anticipation of high demand for those products as fourth quarter sales volume increase.
Restaurant operating profit increased 50 basis points to 17, 1% for the quarter compared to 16, 6% in the prior year third quarter.
On a total reported basis general and administrative expenses were $6 million compared to $3 4 million in the prior year. The increase is related to our restaurants generating strong sales and returning to more normal operations, including normal support staffing level.
When adjusting for stock based compensation adjusted General and administrative expenses were $5 3 million in the third quarter of 2021, and $2 9 million in the same quarter last year.
As a percentage of revenues adjusted general and administrative expenses were seven 4% of total revenue in the third quarter of 2021 and flat compared to the third quarter of 2020.
Additionally, as a percentage of total sales at owned and managed and licensed locations.
Adjusted General and administrative expenses were five 3%, which is right in line with our 5% to five 5% target.
We incurred approximately $1 1 million of direct costs related to COVID-19. During the third quarter composed primarily of costs were regular electrostatic leaning of the venues.
Personal protective equipment and sanitation supplies to prevent the spread of COVID-19. This compares to $1 $7 million of similar costs last year.
Interest expense net of interest income was <unk> 8 million in the third quarter of 2021, and $1 3 million in the third quarter of 2020, reflecting lower average outstanding balance and lower interest rates.
Income tax expense was $1 5 million for the third quarter of 2021 compared to an income tax benefit of <unk> 4 million in the third quarter of 2020.
Net income attributable to the one group Hospitality, Inc was $11 7 million or <unk> 34, net income per share compared to a net loss of.
<unk> 9 million in the third quarter of 2024 <unk> net loss per share included in this quarter's net income of $10 million gain related to the forgiveness of cares Act loans.
When adjusting for the gain related to the forgiveness of cares Act loans and COVID-19 related expenses adjust.
Adjusted net income of $3 7 million or 11 net income per share compared to an adjusted net income of <unk> 4 million in the third quarter of 2020 or a penny net income per share.
Adjusted EBITDA for the third quarter attributable to the one group Hospitality, Inc was $10 million in the third quarter of 2021 compared to $4 7 million in the third quarter of 2020, our adjusted EBITDA does not include any gains related to the cares Act loan forgiveness.
We have included a reconciliation of adjusted EBITDA and adjusted net income or loss, the GAAP net income or loss and the tables in our third quarter earnings release.
Finally to touch on our liquidity as of September 30, we had $19 1 million in cash and cash equivalents on our balance sheet and we generated positive cash flow throughout the third quarter.
As we discussed on our previous earnings call, we amended our credit facility with Goldman Sachs and paid down $22 2 million in debt, resulting in a lower cash balance quarter over quarter.
The amended agreement provides for a lower interest rate and extend the maturity date for both the term loan and revolving credit facility by five years.
The amendment provides for a secured revolving credit facility of $12 million and a $25 million term loan.
Other key modifications include the removal of many limiting restrictions, including the cash accumulation provision that restricted our revolver ability and the removal of all financial covenants, except the maximum net leverage ratio of two to one.
Under the amendment and calculated retroactively, we would've been compliance with this covenant throughout 2020, including throughout the toughest times of COVID-19.
Importantly, as a result of this new amendment will take $2 $5 million in cash interest expense annually and are nearly debt free when taking into account our cash balances.
And lastly, as previously discussed on July 13, the company received notice from a bank that is remaining cares act loan of $9 8 million.
<unk> had been fully forgiven 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 will provide further business updates as warranted.
I will now turn the call back to Manny.
Thank you Tyler and thank you all for your time today.
Let me conclude by saying I'm very encouraged with our results to date and our prospects for 2022 and beyond.
Above all I'm grateful to all our teammates who bring our mission to life every day to be the best restaurants in every market, where we operate.
They do this by delivering exceptional and then forgettable guest experiences to every guest every time.
I also want to thank our customers and.
They try and continue to return to our restaurants and enjoy the vibe dining experience that they have been crazy.
We appreciate everyone joining us on the call today.
Tyler and I are happy to answer any questions that you may have operator.
Thank you if you'd like to register a question. Please press the one followed by the four on your telephone you will hear a three pronged to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three if you are using a speaker phone. Please lift your handset before entering your request.
Once again Thats one four to register for a question on <unk> for the first question.
And our first question is from Nicole Miller with Piper Sandler. Please go ahead. Your line is open.
Thank you and good afternoon appreciate the update.
I was going to ask a numbers question and then a high level question.
Could you speak to the.
October please SDK comp you shared and the Kona.
Comp and could you talk about the equivalent average weekly sales for modeling purposes.
Tyler.
So in terms of the average weekly sales Nicole average weekly sales.
For.
All of North America for SDK for 323000, and then for Kona Grill is about 100000.
And the same store sales for October were.
59, 2% over 2019, Kona Grill is 43%.
Just shy of an SDK was just shy of 74%.
Okay, So uh huh.
74.
<unk> 43, an SDK for the <unk>.
Kona comp.
A 40, yeah, sorry, I guess the comment.
43, I'm just asking what is the average if you feel dollar number associated with that.
That equates to.
About $100000 a week.
Okay understood I got that part and then the.
The yes, the comp up 74% I'm sorry was that the 323 then.
Yes, the 323000 gotcha.
Okay that helps out a lot. Thank you and then.
Big picture I mean, there was an October acceleration I mean, you had some commentary you provided there's some in the press release as well but.
What is the acceleration primarily a function of because it's certainly more than just you know any mandates lifting that were remaining and what does it really suggests for the holiday season ahead.
Book, a reservation come down to it so that takeout delivery promoting is actually bolthouse Bing.
The.
The takeout business as well as the dine in business.
Terms of the fourth quarter I would say that what we've seen in general is that.
The events business demand for November and December has been off the charts frankly, one of the highest I've seen since I've been with the company. So we're seeing a lot of demand.
Parties and we're also seeing a lot of demand for western buyout. So we're starting to see people wanting to spend big premium dollars to get access to the property still host baked parties. So we're very.
Bullish and we're very pleased with how the books has been filling up for the fourth quarter. So I would say that this is one of the one of the biggest demands I've seen and which is one of the reasons why.
As you saw from our prepared comments, we spent a lot of time building up our employee base because we think we're going to get every single one of those employees to make sure that we can take care of the takeout delivery and event business and dynamic so.
All put together, we think our fourth quarter is going to be extraordinary relative to sales and we really geared ourselves up in the third quarter to get there.
All put together, we think our fourth quarter is going to be extraordinary relative to sales and we really geared ourselves up in the third quarter to get there.
Thanks I appreciate it thanks for taking my questions.
My pleasure.
If you'd like to register for a question. Please first one four on your telephone will do have a question from Mark Smith with Lake Street Capital markets. Please go ahead. Your line is open.
Hi, guys first off I, just wanted to dig in a little bit deeper on the restaurant level margins, maybe Tyler if you could just talk about the <unk>.
The labor component.
It sounds like everybody's seen pressure out there, but was any of this in Q3 could it be viewed as kind of one time ish as you invested in systems and ways to kind of keep this labor around.
So mark this is manual get me for the initial part of that question and I'll turn it over to Tyler.
Additional color so.
In the third quarter, we took our hourly employee base.
Matter of be necessarily one time in nature other than the fact that there is investment in what we anticipate to be a very very busy holiday season.
Yes, I mean last point on that is I mean, our average volumes for SDK is 300.
<unk> thousand plus average week per restaurant, so that requires that.
We bring in more employees. So we did have to make sure that we really loaded up.
The employees in the restaurants to take care of that business, particularly when our objective is not just to take care of the business, but we believe in building repeat business and frequency. So we want to make sure that as we bulk up on sales that we continue to deliver.
An outstanding experience in making each one of our restaurants, the best Russian and the markets they're in.
Okay, and then looking at it just other inflationary pressure I think Tyler you called out beef and shellfish. What are you seeing today and then if you can update us on anything that you've got kind of an on contract or anything thats running out.
Yes.
I mean, so seafood was probably the most important or most relevant to us because our seafood platter.
Our our marquee item in the brands, but as you probably saw from our Cogs. If you look at our third quarter comps versus our second quarter cards. I think will only went up 80 basis points as a company. So I would say relative to the pressure I think we did very well managing that and what we're doing to manage it as several things one is <unk>.
So we've looked for alternative products.
To get a better cost of for instance think of rat crap, we switched rat King crab, and we went to Dungeness crab, which is also a premium grade product. So we're using substitution as.
Is a good idea in terms of creating.
Yeah.
July August was okay, with Illinois, and then coming back in September It became strong again I think to go back to school.
Timeframe was very good for us we have a lot of particularly with Kona grill, we have lots of restaurants they have.
Restaurants near major campuses, so I think the back to school a peer.
Period was very strong and then.
As I mentioned earlier, the promoting in October between both takeout and the.
Welcome back Pumpkin features have been very strong for us.
Okay, great. Thank you guys.
Thanks Mark.
Again to register for a question. Please press one four on your telephone we do have a question from David Kennon with Cade Wm. Please go ahead. Your line is open.
Hey, guys congratulations excellent job.
Thank you Sir.
So the first question is in regards to the events business I know historically Q4.
A large chunk of your overall revenue.
How does it look versus 2019 at this point.
The bookings I'm sure it's off the charts versus 2020.
But how would you characterize it versus 2019.
So I'll talk I'll speak about it from a bookings perspective right now.
We're seeing just a superior number of intense being asked for.
Let's see and like I said, it's the best book things I've seen in a while or actually since I've been with the company. So I think that will translate into to an incredible.
Is that the business again I'm only.
You know not you know mitigating is just that as we get into the quarter. We will make sure that we don't lose the Ala Carte business. So we always have to make sure that we can keep a good balance of that so that's really the only.
You know questions the capacity right how much capacity that we have relative to the demand for events and our car timing. So that's gonna be what are very it sees an experienced operations team will be working on making sure that we get the best of both.
Understood and then just getting back to labor so it sounds like and I'm trying to quantify it it sounds like it was some pull in and gearing up for Q4, you wanted to make sure that you are staffed up so do you think that part of.
Your labor expense for Q3 reflected labor that perhaps the warden wouldn't ordinarily have taken on if you knew that you didn't.
Need it on a go forward basis.
Yeah. So it was called one time, but I don't know if that's correct.
Maybe pull in is is that the proper way to look at it.
Yeah, I mean, so David the way I speak about it is that would probably put about a million and a half to two and a half million dollars an investment and just gearing up the hiring process. Because if you think about it. It takes about 60 days to maybe 90 days for our employees to be really proficient and really X.
<unk> both models really well so we didn't want to go into the business fourth quarter that we think will have experienced as a matter of fact I know that's gonna be the case with rookies, an inexperienced staff going through it. So we took the advantage of the lower volume in the in the third quarter and we decided to you know.
Boulevard on hiring so we did hire.
With them as a matter of fact, we are ongoing dialogues with them. So that's great and then on the standby we have a couple of other great operators that we've been talking to who are also interested.
And going into the airport business with us. So we think it's a great opportunity for US we think it can be somewhere between 10 and 20.
Restaurants in airports.
And obviously the big trick is to make sure that the airport business is also very strategic so if you think of Cabo Cabos why that's a strategic play for us and that's because we're a lot of people from Arizona, Nevada, California go for a vacation so that was a great bill.
Billboard.
Type of threshold for us because it keeps the brand top of mind with the travelers. So it's not just about the number of units, but it's also making sure that when we get to airports, it's a strategic business that youre getting to the Reits airports into the right terminals into.
And to the right occasion, so in Cabos, whereby the international gates, which is the.
Place you want to be at so we're super excited about that and.
The business has been very high volume and our partners are very excited about the profitability of the business because of the bark component.
Sounds good and then last question. This is a guess.
Looking out a year from now it seems like youre going to be confronted with the high class problem.
Having net cash pretty soon and generating significant free cash flow given the capital light nature of the business.
And it seems like Capex next year.
Based on development shouldnt be a whole lot higher than this year.
I correct in saying that.
Yes, I mean, we're going to we're going to generate a lot of free cash flow is really the answer there yes.
Okay. So this is the this is the question is the high class problem of generating so much free cash flow, how do you see guys allocating that.
Options being potential M&A accretive M&A.
Dividends stock buyback.
All of the above what are your thoughts there of.
So my answer on that is that.
We that's a good problem as he said high class problem. We were we're anticipating that will happen very soon.
My answer to that is we will always do whats best for the shareholders and maximizing the shareholder return. So if we're in a good place to get the right acquisition. We can do that just like we did with Kona grill and what I mean by that is we can get a great return and we can really make a difference with the asset so that always will be in play. We also have the option.
Of accelerating growth.
And in fact, we just did that we added the three to five Kona grills to a growth model. So that's another lever and level of flexibility that we have and then after those options. We also have the option of <unk>.
Margin was brought down by Kona then.
Yeah that I would say on the overall average I'd say Kona was the bigger proponent of that because that's where we of the 300 employees that we went up I think about 200, plus was Kona grill and about 100 skull was SDK. That's gonna grow was the one where we put the more investment behind on the labor and as I mentioned on David's.
Question about the the range of value I figured about 1 million a half to $2 million of Onboarding, an initial training costs and in terms of how long that lasts I don't think that lasts more than 60 to 90 days so will be a very short term one time investments.
I'm in I'm in labor.
And then it's the whole idea big picture Longterm, no timeline attached that Kona still like a 17 per cent store level margin and and S. T. K with all of its modifications and certainly higher volume enhancement is like a 27% store level margin.
Yeah, I mean, if I adjust for the the labor just this quarter alone for Kona.
We'll probably would've been in the 15 14 15 range once you adjust for everything associated with bringing in individuals and so forth Uhm and but then also remember that the third quarter is an average quarter in volume four corner Grosso seasonally that is not the best quarter for calling.
The Grill I think the second quarter is actually the best border for Kona Grill. So I would I would look at the quarter dip, mostly as a factor of seasonality as well as the investment of labor.
Alright, thanks for clearing that up for me and Ah sorry had to repeat some of it I appreciate it. Thanks.
No worries thank you Michael.
We have a question from Greg Cohen will tremble side. Please go ahead your lines open.
Hey, guys.
Congrats on the.
Raising a performance.
Thanks, Greg.
Question on the.
<unk> Ghost kitchen.
<unk> can you just kind of walk through the.
The economics of that.
Agreement in Houston, just so we can understand.
Understanding of what.
The brand acceptance as when we take an SDK and the Kona grill to a place where really there's not a street stores. So I'm excited Tyler Super excited over here smiling a lot when we talk about this but the reality is as you know, we're very where we take risk and we want to be in.
We're all about growing the business, but we also don't want to overcommit on it but it certainly looks promising there.
They have a lot of places that we can go with them and a lot of places that we probably don't want to take the mortar cost of doing the street store. So this could be a very interesting complementary growth.
Our strategy for our street store strategy.
Economics on it it's all topline so we get a royalty off the revenues.
And.
In line with our typical 5% to 7% deal on top so so there is no risk on the bottom line. If you will from topline deal.
Yeah.
Okay, Great now Thats interesting I mean, if we can grow that.
That's kind of a second franchise.
Pillar.
And given the fact that it's no.
Capital from Us.
Frankly incredibly attractive.
And the 250000 range and we also saw that when we open in Bellevue.
We're also around that $2 50 level. So we're seeing now that frankly this idea of secondary market is really nonexistent for us because I don't think theres other brands in America that opened up $250000 paces and keep it there so right now I'm working from and at least from an SDK perspective.
Thats.
The.
The white space for US is actually wide open right now because once we can be successful in this type of markets.
It just takes it gives us a lot of comfort that markets like Houston, Boston, Washington, D C. Minneapolis, Charlotte Philadelphia, all those markets not really in play for Us and what we're also doing now is we're looking at markets like Denver, and Chicago, which were just destroying and in those markets. We're looking at those markets in the second and third.
Store opportunities. So what we're really seeing kind of frankly, right now a very wide space for SDK.
And I, frankly don't really see anything as a secondary market anymore, it's kind of like really trying to get to market as fast as you can in these markets to have the opportunities then on Kona grill.
Additional franchise and management.
You know.
What do you think the market is.
Is missing or what do you think the company could be doing better to kind of tell that story because the math.
I do Manny.
And I hope that Nicole updates or model to reflect this but we should be doing 70 million in EBITDA next year. If you think about the EBITDA contribution from the franchise channels.
On the new store growth.
And the contributions from Kona and if you look at the recent ipos of various.
Fast casual restaurant chains.
Premium high growth kind of low capex.
Businesses are trading, which frankly have worst unit economics worst margins.
Worst product worst growth et cetera are trading at 15 to 20 times EBITDA.
Out of the gate and if you apply that.
The EBITDA I just mentioned our business should be valued between 1 billion and 1 billion in a house.
Or enterprise.
Enterprise value and that could get you to 30 to $40 of stocks. So I guess the.
The long the short answer to the long question is.
Why are we trading at 15 Bucks 14, Bucks or 13 Bucks a share or whatever it is when we should be trading at least two if not three times that value and what are we going to do about it.
Alright, well, let me answer the question this way.
And this is gonna be my answer to that question. So we as a business you know internally, we focus on strategy and we focus on execution and we focus on driving great results and then we circle back with telling the story, which is what we're doing today. So we can tell you what we're doing and what we plan to do.
We don't you know so what we can do is focus on our business. So that's what we do here.
And we go out and tell the story now relative to <unk>.
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