Q4 2021 One Group Hospitality Inc Earnings Call
[music].
Greetings and welcome to the one group's fourth quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the call over to Tyler Loy Chief Financial Officer. Thank you you may begin.
Thank you operator and good morning.
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.
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 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 conditions.
During today's call, we will discuss 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 of GAAP.
For reconciliations of these measures such as adjusted EBITDA adjusted net income restaurant operating profit comparable sales and total food and beverage sales at owned and managed and licensed units to GAAP measures along with a discussion of why we consider these measures useful please see our earnings release issued today.
With that I'd like to turn the call over to Emmanuel area. Many thank you Tyler and Hello, everyone. Thank you for joining US today, we sincerely appreciate everyone's continued interest in the one group <unk>.
2021 was an outstanding year of performance for both SDK and Kona Grill, and we continue to see this momentum carried into the first quarter of 2022.
I would like to thank our team members, who continue to fulfill our mission to operate the best restaurant in every market that we operate in by delivering an exceptional and unforgettable experience to our guests.
I'm, so proud of their ongoing hard work.
Our key highlights for 2021 record revenues and average weekly revenues.
Profitability, we paid nearly 50% of our bank debt and finished the year with $23 6 million in cash.
And finished the year with a very robust pipeline for 2022 and beyond.
For the full year 2021, we generated over 95% increase in total GAAP revenues compared to 2020.
We were able to leverage this topline growth due to $42 7 million in adjusted EBITDA, an increase of nearly 350% versus 2020.
All of this despite commodity headwinds supply chain challenges and labor shortages affecting the entire industry.
Turning to the fourth quarter, specifically, we reported another quarter of record setting revenue with over $84 million in total GAAP revenue, including $4 6 million of managed license and incentive fee revenue.
We were also able to achieve consolidated restaurant margins of 24% an increase of 440 basis points from 2020 as a result of strong top line performance driven by our sales driving initiatives, coupled with disciplined cost management.
Our comparable sales continued to be among the best in the restaurant industry and during the fourth quarter consolidated comparable sales increased almost 50% when compared to 2019.
Including the increase of 60% of SDK and a 38% increase at Kona Grill.
When looking at our portfolio, it's worth noting that all domestic SDK.
And Kona Grill restaurants achieved positive comparable sales in the fourth quarter as compared to 2019.
Our fourth quarter U S average weekly sales were equally press about 338004 SDK compared to 215000 in the same period in 2019 and 108000 at Kona Grill compared to 78000 in same period in 2019.
We believe our industry, leading performance is a testament to the one of a kind five dining experience will provide our guests.
The consumer is craving this unique experience, which consists of great food and beverages, coupled with exceptional service in our funds and high energy environment.
One component of the vibe dining experience is our culinary program, which is driven by innovation and capability.
The creativity within our food offerings at both SDK and Kona Grill has been a competitive advantage in this challenging environment.
Many of our peers have simplified their menus due to food inflation labor shortages and supply chain issues, but we have been able to continue innovating, which keeps guests coming back to dine with us.
During the fourth quarter, we raised the bar on already we know culinary offerings SDK with some of the finest cutoff stakes from around the world, including why do from Australia, Japan, and the United States.
These delicious wildcards, coupled with a variety of additional seasonal starters and entrees offered our guests a chance to explore unique flavor profiles.
May not get elsewhere.
At Kona Grill, we offered a broad range of freshly prepared dishes from the grow while enhancing existing fan favorite items and featuring how's it inspired dishes like roasted macadamia nut Turkey.
Kona Grill surf <unk> turf primary of specials and lobster pot stickers.
We have historically put a lot of emphasis on promoting our holiday offerings as they create a great opportunity for us to introduce new guests to the brand and thereby broadening our consumer base.
Our promotions for Thanksgiving Christmas and New year's Eve drove record demand for both brands.
We also did a great job protecting margins and increasing average check.
Selling high margin additives items like toppings insights at SDK, along with increasing the beverage mix of Kona Grill easy.
These initiatives were able to help offset some of the inflationary pressures we faced throughout the quarter.
In addition, we have a great value proposition to our happy hour offerings that are used to introduce guests to the brands and providing exceptional entry level layer.
Many of our happy hour gas transition to our main dining room and stay for dinner or get introduced to the brands happy hour experience and return for a celebratory occasion and an area in which we truly excel.
Takeout and delivery has also grown to become a very important part of our business model.
We are able to add sales during our peak times of 638 o'clock when our restaurants are at capacity, especially on Friday and Saturday nights.
We have been using several aggregators for our delivery options, which has also become a marketing vehicle for us gas.
Guests seeing our brands on Aggregators, such as opposed to <unk> and door Dash brings our brands to front of mind.
People try us for delivery and then remember us when they are looking for a memorable nine hours.
Moving on our Brunch program also continues to help drive revenue and brand awareness.
Orange has allowed us to utilize our space earlier on Saturdays and Sundays when the restaurants have some additional capacity.
It also allows us to introduce new customers to our brands and showcase our culinary innovation at compelling price points.
We believe we are still very early and maximizing the branch the day parts with a lot of opportunity to hand.
Now turning to our events business, we had strong demand for events in November and December related to how the gatherings, while large corporate events are not yet fully back where.
We're seeing a lot of demand for more intimate smaller premium events.
Additionally, given our restaurants are off net capacity during peak demand times, we can be selective on the private dining business relative to the average per person spend or using it to fill out the Monday through Wednesday business.
We're also seeing smaller conventions with about 1000 to 2000 people coming back into markets like San Diego, Orlando, and Las Vegas, which is accretive to revenue.
We have not seen the large sized conventions back in full swing, yet, but see that as an opportunity going forward.
Looking ahead, the defense business will be a significant part of our strategy in 2022, and we are aggressively marketing this program.
Throughout 2021, we added seven new venues, including three managed F&B units to manage the SDK as one company one SDK and one license SDK. We are extremely pleased with how this class is performing.
Looking to 2020 to our development pipeline is the most robust we've had in our history.
This year, we plan to open at least nine units, which include two company owned SDK is one in Dallas, Texas, Another in San Francisco, California, and managed SDK into stretched for area of London.
Three company owned Kona grills, one in Remington, Utah, a second in Columbus, Ohio, and the third Kona Grill in the greater Phoenix area.
And finally, we plan to open three license units, which feed conjunction with reschedule <unk> and will provide takeout and delivery only featuring offerings from our SDK Kona grill and volume concepts in Texas.
As a reminder for those restaurants that are managed our license regenerates management fee revenue based on top line revenues and incentive fee revenue based on a percentage of the locations revenues and profits.
As we have stated we are early in our growth strategy with significant white space ahead.
We are excited about our long term opportunity as we believe our units delivered best in class returns.
For new restaurants were targeting between 40, and 50 person Rois for New company owned SDK and from company owned Kona grills.
We foresee a total addressable market of at least 400 restaurants, including 200, SDK restaurants globally and at least 200 Kona Grill's domestically.
Moving on to the current labor environment. The last six months have been some of the toughest in terms of hiring and retaining talent.
I've seen in my career in the restaurant industry.
Sure that we are executing on our five dining experience and are able to open the stellar restaurants. It is extremely important to have our restaurants fully staffed at all levels.
As we previously mentioned during the third quarter, we made hiring training and retention our priority as we went into the fourth quarter are historically busiest quarter.
As a result, we weren't 100% staff throughout the quarter and did not have to modify our hours or the service our customers expect when dining in our restaurants, which we see as a tremendous advantage in this environment.
We have also made a commitment to employee retention and we'll continue to do so throughout 2022.
Having a great employee base in place really allows us to bring innovations and new experiences to the guests, which will continue to be a point of differentiation.
During the fourth quarter, we retained every single general manager and the competence, which I'm extremely proud.
Having consistency at the management level to ensure stability in a restaurant and allow us to execute at a high level.
In an effort to retain employees, we have rolled out the <unk> <unk> program and enhanced benefits program and it has been very beneficial and attracting and retaining employees.
We also offer compelling and bonus programs for all levels and in fact in training to ensure all employees all the way, including the hourly level employees, who are part of our long term business plan.
For 2022, we are committed to investing in our employees to keep us optimally staff throughout the year.
To conclude our team is doing a fantastic job welcoming guests into our restaurants for great five non experiences.
Ultimately our focus on operations and day to day execution as proved effective in translating to a strong P&L and we plan to continue on our current trajectory of industry, leading same store sales disciplined cost management and new store development.
Now I'll turn the call back to Tyler.
Thank you Manny.
Let me start by discussing our fourth quarter financials in greater detail.
Fourth quarter total GAAP revenues were a record $84 1 million, increasing 86, 8% from 45 million for the same quarter last year.
Included in our total revenue is our owned restaurant net revenue of $79 4 million, which increased 81, 7% from $43 7 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 49, 8% for the quarter compared to 2019.
For Teekay comparable sales increased 60% versus 2019, and Kona grill comparable sales increased 38, 2% versus 2019.
Management license and incentive fee revenues were $4 6 million, increasing 262% from $1 3 million in the fourth quarter of 2020.
This increase is primarily the result of the sales recovery from the COVID-19 pandemic, coupled with the opening of SDK Scottsville in January <unk>.
As Teekay, Los Cabos Airport in May and.
An SDK Westminster with two F&B venues in May and adding river shore bar and Grill in August .
Owned restaurant cost of sales as a percentage of owned restaurant net revenue increased 150 basis points to 25, 9% in the fourth quarter of 2021.
Compared to 24, 4% in the prior year, primarily due to increased commodity prices, partially offset by operational and menu management initiatives.
Owned restaurant operating expenses as a percentage of owned restaurant net revenue grew 590 basis points to 53, 7% in the fourth quarter of 2021 from 59, 6% in the fourth quarter of 2020 due to the strong execution of our sales driving initiatives along with actively man.
<unk> operating costs.
Restaurant operating profit increased 440 basis points to 24% for the quarter compared to 16% in the prior year fourth quarter.
On a total reported basis general and administrative expenses were $8 3 million compared to $4 7 million in the prior year.
The increase is related to normalized support activities as our restaurants are generating strong sales volumes increases in professional service costs and an increase in performance based compensation.
When adjusting for stock based compensation adjusted General and administrative expenses were $7 5 million in the fourth quarter of 2021, and $4 2 million in the same quarter last year.
As a percentage of revenues adjusted general and administrative expenses were eight 9% of total revenue in the fourth quarter of 2021.
And down 50 basis points compared to the fourth quarter of 2020.
We incurred approximately $2 million of direct costs related to COVID-19 during the fourth quarter composed primarily of costs of regular electrostatic cleaning of our 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.
Lease termination expenses were $1 6 million during the fourth quarter compared to $2 9 million in the fourth quarter of last year. We closed all at least the skills that originated in 2016 and before anticipate nominal terminix termination expenses going forward.
Interest expense net of interest income was $517000 in the fourth quarter of 2021 compared to $1 7 million in the fourth quarter of 2020. The decrease was driven by lower average outstanding balances and lower interest rates.
Income tax benefit was 602000 for the fourth quarter of 2021 compared to an income tax benefit of $1 2 million for the fourth quarter of 2020.
The benefit in the current year was driven by a lower actual effective tax rate than previously forecasted.
Net income attributable to the one group Hospitality, Inc was $5 8 million or 17 net income per share compared to a net loss of $4 5 million in the fourth quarter of 2020 or 15 net loss per share.
When adjusting for COVID-19 related expenses and lease termination expenses. Adjusted net income was $8 3 million or 24 net income per share.
Compared to an adjusted net loss of $1 2 million in the fourth quarter of 2020 or four net loss per share.
Adjusted EBITDA for the fourth quarter attributable to the one group Hospitality, Inc was.
It was $13 3 million in the fourth quarter of 2021 compared to $4 1 million in the fourth quarter of 2020.
We've included a reconciliation of adjusted EBITDA in the tables in our fourth quarter and full year 2021 earnings release.
To touch on our liquidity as of December 31, we had $23 6 million in cash and cash equivalents on our balance sheet and we generated positive cash flow throughout the quarter.
Now I would like to touch on guidance as it relates to the first quarter of 2022.
We are increasing our revenue targets and reiterating our G&A target for the first quarter 2022, and they are as follows.
Total GAAP revenues of approximately $69 million to $70 2 million.
Owned restaurant net revenue of 66 million to $67 million.
Management license and incentive fee revenue of 3 million to $3 2 million and.
In total G&A of approximately $6 5 million.
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 delighted with our record results for 2021, and our prospects for 2022 and beyond.
Above all I'm grateful to our teammates who bring our mission to life every day to be the best restaurant in every market, where we operate they.
They do this by delivering exceptional and forgettable guest experiences to every guest every time.
I also want to thank our customers and visit and return to our restaurants. So they can 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. They may have operator.
Yeah.
Okay.
Hello, operator.
Okay.
Okay.
Yes.
Ladies and gentlemen, we apologize for the inconvenience, we will now conduct our question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. We do have a question coming from the line of Nick <unk> with Wedbush. Please proceed.
Okay.
Thank you.
Wait to see the Q1 revenue number.
Obviously, it seems like there's some incremental momentum that you're seeing given the rate raise numbers can.
Can you maybe just high level talk about you know.
What's going on how are we just seeing a post all Mcleod recovery ahead of your original expectations.
Theres some worries around you know.
Obviously incremental gas prices.
Wealth levels being down with stock with the stock market volatility et cetera.
Just any any thoughts around that would be very helpful.
Yeah. Thanks, Nick So you know obviously the overall macro environment is still.
Very challenging end and lots of are of course lots of things going on at the macro level. So.
I think probably for us specifically the.
The items, that's been helping us is our emphasis on our initiatives, particularly around branch and bringing back the happy hour I think those things have been.
Helping us and I think we're particularly the latter with our brunch layer right now which has.
Driven incremental interest on both brands on Saturdays and Sundays. So we're seeing a nice lift in our overall performance because of that and then I think just in general. The fact that our focuses on vibe dining is still resonates in the environment really well. So oh, yeah. So we do always remember that there is still.
A pandemic going on but I do think that our brands.
To provide an escape and to provide an opportunity for people to.
Joy themselves and I think that's really what's working and and and.
In helping both Kona grill an SDK.
And as we kind of look forward beyond Q1, obviously with the momentum here how much confidence do you have that.
You'll be able to.
Go over some of the the big numbers you posted in Q T Q2, Q3 et cetera.
This year.
I mean, I think as you could say from our increase in the revenue guidance for Q1.
We clearly see positivity right now, but obviously because of the of the environment, we are only providing one quarter.
In our guidance and so our long term.
You know our outlook just like everyone else, it's it's clearly.
There's a lot of things on the overall macro situations. So we're right now to be blunt and honest about it our focus is on the shorter time, but I think that in the short time I've just emphasis on our initiatives and keeping the team focused on store level execution is really what we're doing and.
I will start out through the macro.
Issues as they present themselves as we have for the last year or two years and the pandemic. So that's one of the things that would have become as very resourceful and we operate in an asbestos we can within each one of those environments, but right now we're keeping our outlook on the short term.
Russia is a longer term just because of all the items on the macro environment.
Okay. Thank you very much.
Thank you. Our next question is come from the line of Joshua long with Piper Sandler. Please proceed with your questions.
Great. Thanks for taking the question I'm curious if you could offer some perspective on obviously the top line is strong and we still seeing a lot of conversation around the commodity side just.
From incremental inflation talked in previous calls how I'm not.
Not to say that you weren't impacted by that but that you were taking it in stride and still really giving the guest a lot of power and ability to manage that experience the way that they wanted to with add ons and your own innovation pipeline, which you talked about in your prepared comments curious on your current thoughts on the inflationary environment and you.
How that feeds into your pricing strategy at the store level.
Yes so.
So on the.
Commodity side, obviously, its still has challenges as it was before I think that there had been some improvement in a couple of commodities, but overall it is a.
The challenges are out there I think as we tell everyone that the you got to be Super flexible in this environment. So flexibility in terms of what to use on your menus meeting that.
You have to be able to change items and do substitution setting your menus, if you want to so.
Flexibility is really important on menu management and then the other thing is that you've got to have several sources of product now under supply chain change. So you can't rely on one singular in our supplier to dig a product.
Relative to pricing our internal philosophy is still to have the best entry price point on stakes. So we preserve value on our menu center and we also obviously is.
Happy hour and branch to continue to keep pricing overall at a reasonable level, but you know we'll take pricing.
Opportunistically because all the competitors have been moving the pricing up so.
Now our our philosophy there is that we keep our gaps to the competitors intact. So so we'll continue to do that so if there's opportunities for pricing we'll take them.
But frankly, our biggest strategy on on the commodities right now is flexibility and making sure that we're you know we changed the menus and and have the right items on our menus and certainly making sure that we're not dependent on one single vendor.
That's helpful. Thank you for that and thinking about some of the labor investments you made going into the quarter and then also in your prepared comments just the continue.
We continue to look at investing in the employee experience just curious if you could touch on that in terms of what your pipeline is now from the manager perspective or kind of where you think the.
The limiting factor is in terms of your growth rate to its usually people not money not sites. So it sounds like you're in a good position. There curious if you could talk about some of the investments you've made how that pipeline setup and then do you think that there's an opportunity to accelerate growth over time are you happy with that.
<unk>, how you've looked at it right now just curious on how you balance that out given the overall macro environment and just doing what's right for the brand.
Yeah, so having people as a competitive advantage in this environment. So.
We have been very thoughtful about making sure that we have.
A healthy pipeline of talent on board so our challenge.
Particularly with development coming on is keeping a deep bench. So we have been investing and management, particularly at the assistant at the.
More entry level manager position, so we have been.
<unk> been very thoughtful in terms of inventory and making sure that we have plenty of.
Of individuals available to support the growth I think the way that we have structured our growth is that we have flexibility in either accelerating or slowing it down so that we can play to the macro environment as.
It's also important they have flexibility to slow down if you have too.
And this type of environment. So we have.
In a several levers there in terms of making sure that we're pacing that so that we don't get ahead of ourselves, but make no mistake that protecting the brand and making sure that we're executing at a high level is priority number one so we will always do that and then we will work the strategy of growth.
After we know that the brands are executing at a super high level. So we will not compromise the execution of the brand relative to growth. So we're very disciplined.
Disciplined on that so that's kind of our strategy in the near terms to really monitor it and make sure that one we have all the people necessary and two that we do thoughtful.
I'm thinking about what the right pace of opening is what we'll continue doing that I think we've done a very nice job we are open to them.
In our restaurants during the pandemic period, so I think we're getting pretty.
We're getting a rhythm is relative to how to judge those factors and getting those restaurants open when it makes sense for the brand.
That makes sense. Thank you for that color and last one for me in terms of thinking about the management license and incentive fee revenue line, we've seen a nice.
Return of that I'm curious if you could talk about just the overall context, maybe it's by geography, maybe it's by kind of underlying venue where site, but kind of what how does that business looking.
Coming back waiting for any more granular detail you can provide in terms of how to.
I'd be thinking about that piece of your business. This as.
Tourism hospitality industry overall strip set to come back both domestically and internationally.
Yeah. So I mean, I think that line has been growing because it's really.
A reflection of our growth strategy in the last several years, obviously you didn't see it during the pandemic periods. When we were shut down because a lot of those restaurants just weren't on since some of them more international So I think the fourth quarter really shows the power of what we've done from a growth perspective, whereas the license and management location.
And I think going forward as he saw from our prepared comments, we still have a nice pipeline of managed and licensed properties coming forward, which is a critical element of our growth. So we expect that that will continue to grow and that is a as we continue to grow.
On an asset light basis so.
So yeah. So it really was a function of just having our restaurants.
All operating in the fourth quarter, and I think that as long as we keep them open and we'll continue to see nice progress on that line.
Thank you.
Thank you. Our next question is coming from the line of Mark Smith with Lake Street Capital. Please proceed with your questions.
Hi, guys, you've talked a fair amount about commodities can you just let us know if you've got anything that's on contractor and if so any contracts that would be rolling off anytime soon.
Yeah.
So on an so contracts, we do contract some of the beef.
What we're doing on smaller.
Time frame. So you know either a 30 60 and 90 days so they're all very short term in nature.
Mostly because of the volatility it doesn't seem to make a lot of sense to.
Go out too far out, particularly with the uncertainty on that so that's what we've done what we've also pre bought.
A lot of shrimp and a lot of our shellfish, which actually.
I think that's very protective to us we do have.
A relatively healthy supply of of shellfish or anything that's frozen right now on stock and as you can see from our cost of goods was kept within 100 basis points of historical performance. So I think we've done a pretty good job of utilizing.
Some of that but make no mistake as I mentioned on the previous Q&A that are big advantages flexibility on the menu for instance, you know we have to switch from.
King craft two dozen scrap protected is certain.
Changes on cuts for beef, where we've emphasized <unk> in the fourth quarter, and and and and stuff like that so having the ability to utilizing promotions and and and.
Working around the mix has been very.
Great.
Beneficial for us so that we're not dependent on you know we only use one commodity and that's all we can do having flexibility on that menu management has been really large for us.
Perfect.
And then you guys are really called out branch takeout delivery, you know as things that have been beneficial to the business can you guys quantify a little bit more maybe what your off premise sales are or any benefit that you've seen from brunch or anything that you can quantify for us.
Yes.
Yeah, I mean, I think SDK.
R R.
Takeout delivery business is in the 5% to 8% of sales for restaurants that have takeout and delivery and that Kona Grill is Linda.
Call it 13% to 17% range, depending on our March quarter ends and restaurants. So that business is really has.
Developed into a very nice layer business and then in a branch is ongoing and developing but.
And I would think over time, it will be in our $30 million plus business later for us for which is that for our size of a company that's a pretty a relatively large.
Layer, so it's making some nice progress and we're encouraged with our progress right now.
Excellent.
And then last one for me.
Think about these this agreement with with a brief kitchens in these new restaurants, how are you thinking about you know return metrics on this.
Yes, those are all license side, so theres very little upfront capital in them. There is some marketing investment with them to market. The brands I am looking at that growth is purely exhilarating.
Or something that is extra two our growth layers. So it's not the fundamental.
In our part of the growth actually right now, we're really I would describe that as a test.
To save where what we can do and a place for instance, Texas, where we really don't have.
An SDK or or other Brian who can go into places with no restaurants I think the next.
<unk> book place, we're going to as Austin taxes, we have no restaurant and there so that they'll give us a good opportunity to test what we can do.
Was it with Grace So again I think it's a very interesting upside exhilarate growth opportunity, but it is not part of our core.
Growth strategy, our core strategy is still capturing.
The 200 opportunities plus for <unk> 200, plus for Conagra.
Perfect. Thank you guys.
Thank you Sir.
Thank you that is all the time, we have for questions today I would now like to turn the call back over Manny Hilario for any closing comments.
Well I'd like to thank everyone's continued interest on the one group and.
Particularly I'd like to thank the teammates.
And the other members of the team that make the one group, but what it is and I also want to thank all our customers that come to our restaurants.
Every day and and and are part of our journey. So I appreciate everyone's.
Support and see you all out in our restaurants. Thank you.
Okay.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.