STKS - Earnings call transcript Q2 2018 | The ONE Group Hospitality, Inc.

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Operator

Greetings and welcome to The ONE Group Hospitality’s Second Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host, Ms. Linda Siluk. Officer. Financial Chief Interim you. Thank

begin. may You

Linda Siluk

Thank you, and Hilario, President afternoon. and joins me good CEO, Manny today. our operator,

forward-looking not note what could also results cause Before we forward-looking as these to you We place a begin to statements, to them. could filings of that recent our refer should of publicly new including undertake that results to formal future our projections, remarks, we we risks the therefore, and numerous more differ call. our are discussion that statements not risks reliance information you revisions today financial future forward-looking reflect performance, part any forward-looking must for our discussions statements statements or on will impact from These include or the statements. expect. our actual and also are opinion guarantees this revise Please release of of only remind of in and no light operating these SEC undue materially These events. detailed future to obligation subject condition. date uncertainties that you of We

other prepared our these accordance believe not During will measures, The we certain measures. in in and in refer isolation can GAAP considered to be measures substitute of performance. evaluating results be with a non-GAAP our which presentation for or other useful should financial to we call, information reconciliations as or GAAP

earlier over why to that, managed these With and like measures licensed turn useful, GAAP reconciliations we sales For units such Manny. measures, and of release I’d the our adjusted earnings measures a total of these and consider discussion call issued see and beverage and to today. as at owned EBITDA food to

Manny Hilario

continued Linda. And ONE in The interest your today for you, for us thank Group. Thank and joining all you

quarter in our of executing clearly plan. the long-term strategy the making continued we’re XXXX, second progress four Our demonstrate results against points

a sales comparable our explain pleased solid expectations upon as raising for year, will EBITDA performance back half adjusted to-date be strong the for store we are and and of outlook to fact, In shortly. Linda based annual our

domestic points our restaurants grew restaurant basis most put we leverage for During a as to the XXX level minimum sales more robust and in and we in increased across profitability cost over savings where wage than strengthen second quarter, an X.X% and topline place, offset jurisdictions operate. initiatives increase STK comparable

We also XX% an EBITDA grew adjusted $X.X impressive million. to

to value. For our to those our the new commitment of on you to that deliver shareholder want driving for might reiterate I Company, strategy

our level; management and One, on and will three, we reminder, four at four, in better seek strategy increase of deals. of: restaurants’ drive G&A profitability. and the As walls, performance, our enhance driving Within efficiencies we plan and improving two, have a four consist points to through opportunities growth focusing sales; the operational restaurants; to corporate continue our reduce comparable license margins

already which made significant reducing waste, our menus, and has have which have scheduling, more mitigated cost has We become at unnecessary labor our adapt we effectively managing hours headway pressures. streamlining reduced

see to where can eliminate also waste. we our contracts evaluated costs have service optimize We various and

not our media our held which growth driving higher yielded counts. small X:XX limited are everyday STK options; Hour these drinks around each through least, near launch frequency compared and of p.m. grow higher building in business; our an X:XX media comparable sales primarily guest Social scores, relationships restaurants operating offering each at management, some promote hotels at events by numerous hours restaurants; last guest of leadership select brunch Gift focused guests to our with begin time plate STK high-profile social our centralizing scores; tying initiatives extending social promoting offering [ph] our has but or at Happy higher includes in food Cards. these to and our to Hour Next, at expenses GM which [ph] to to previously; p.m. restaurants; delivering initiatives experience compensation dining our have driving to sales, exceptional and on Example

with been a past also reminder, over testing As delivery have at we delivery select different several restaurants year. partners the

awareness While from an of no in-restaurant incremental business. believe delivery small, authentic there’s since brand, without stemming We profitable experience. our sales cannibalization STK of business it to it and a obviously of is the to this lot the replaces is percentage potential channel in very truly our expand our way

the brand remain comparisons reducing item. quarter encouraged demonstrate, professional fees, headway, we With corporate still to have this But, meaningful long untapped made the office rightsizing it level, at So, what respect space by our are clearly mean including there reduction, we service opportunities in headcount G&A consolidation. yet term. us second year-to-date for potentially could some and and

month. for incredibly the believe and and After we in operating seen desirable is STK historical local area In Andaz last existing anticipation, Diego well in STK nightlife [ph] is terms this of opened already for restaurant. cultural of hotel the offerings San start evident Gaslamp The that Gaslamp This fits to its the in much lively is license Quarter, encouraged known the we by Gaslamp with the seamlessly restaurant development. the addition Hotel San rooftop. Quarter at and STK Diego the Quarter

the offers. deals but STK growth are investment. a unique remainder, to everywhere management Restaurant long-term, As dining without on appreciate the capital full vibe to guests experience signature world, focusing dining and license on the hospitality, enable us light differentiated cities our that around and brand asset significant our and we over bring and

leads program superior top-rated Our just peers strong we menu and because to for after STK fine to more this The listen guests is upscale and hospitality experiences, that believe our into lounge defining concepts and very dinner large locations. that to enjoy estimate steakhouse global a and We vibrant we DJs STK dining fine the demand apart far includes their other over dining drinks, than developers. and dining. quality to [indiscernible] want us extend hotels setting addressable market to from last the night, and a brand advantage, longer XXX from combine therefore call around is hang experience competitive our evening with innovative global open a which

Dubai, for We licensed and confident efficiently heart we that entertainment five In the our STK renovated STK we hospitality one at Dhabi and in district two Out dining are Address hotel. will later voted year. intended therefore dining STK’s the of deals year, and are STK opened Doha downtown on XXXX. to to located Dubai’s this year beverage food Abu five to open July, fine hotel STK Downtown slated we this the a Dubai the three and can was in manage in for restaurant locations. per second And new open the located XXXX. Dubai projects of new best is STK restaurant licensed region. marks Dubai track Time as Ritz-Carlton This in by Recently

We are to partnered successful branded Group operate market. have STK in to excited Dubai with the Solutions our the restaurants highly Leisure

Additionally, region. of expand STK into our during we will quarter the one third the footprint the for licensed Mexico, planned four with

locations this on open in for is and month. expected XXXX. slated remaining Masaryk later Presidente are City to location The two XXXX Mexico First

continues two in that Rico Puerto major to occurred from XXXX. work hurricanes in partner license hard, Our recovering the

believe our open we However, that of both planned will restaurants in now XXXX.

area make will and to Tennessee in a investments it a Finally, since new STK we to operated and asset in taking will is be open location, restaurant an STK. company This letter downtown. which Nashville, intent we light the and minimal Music signed a contributions over but between upscale landlord will have conjunction an Row still owned be of this meaningful we’re property existing with into

to be like next STK that, as fact, of estimate financial quarter detail I but end Linda XXXX. the In would the now, Nashville We as the soon With turn our hosting for and the who for provide and of that we including discuss quarter XXXX, in performance up second expenses. approximately to more Linda? as later we well preopening running guidance be guests for back will to no hope year. as than can first the call $XXX,XXX,

Linda Siluk

Manny. you, Thank

GAAP were XXXX June XX, for $XX.X ended representing quarter year. last quarter million, second the comparable increase X.X% total For the revenues

quarter. prices. million an the by the second driven incentive X.X% at comparable commodity XXXX. for the for cost increased net revenues XXXX. $X.X by particularly, and second license year. the for sales quarter to sales $X.X savings held initiatives quarter of restaurant Company This our driven cost revenue million launch offset which quarter revenues second of primarily XXXX compared of decreased quarter XX.X% Manny to operating restaurant licensed of Owned the approximately was was the comparable The decrease quarter X.X% in in the quarter of approximately year. in of of in offset in primarily in the the store owned increase of timing incentive at the Management XXXX. was for comparable in X.X% in is place both second XXXX estimation December increased $X.X fee of percentage XXXX The the the million beef restaurant by partially store XX% cost XXXX. million million and the STK decreased as second Owned restaurants. mentioned net owned total the to a decrease revenue owned STK year-over-year items, fee revenues our and an in second XXXX, $XX.X quarter restaurant prior earlier, of domestic second increased As quarter to flat sales in compared by of compared increase put $XX.X level, restaurant Included in expense of to partially the was Dubai X.X% last The by to due of

offset cost the XXXX a and the for impact restaurant management, and savings quarter owned of percentage to operating maturing wage of owned the quarter due $X.X expenses is decrease the XX.X% minimum owned restaurant basis, level, points XXXX. second compared the restaurants several our revenues, of primarily the On XXXX. at to million put labor the of in the This increases. million decreased, in of expenses restaurant by $XXX,XXX to of in basis of net general operating second administrative reported second to a to of expenses compared decreased as quarter second approximately revenue percentage partially in a quarter As owned net initiatives primarily in $X.X in total XXX of XXXX XX.X% restaurant place

XXX $XX,XXX interest quarter a of stock-based basis, from of total the approximately of tax percentage result as revenues, in $XXX,XXX leverage administrative to additional the second $XXX,XXX, an over decrease for to result and expense million, to in as a of of in in increase excluding preopening the STK XXXX was a of to the the G&A in $X compared expenses San be rate Diego. second of of general XXXX, continue of second revenue. and forward expect The income to of decreased second incurred decrease points we XXXX for the $XXX,XXX the overhead XXXX about Restaurant prior was a was of compared an $XXX,XXX second On revenue. XXXX. non-cash quarter to a $XXX,XXX go quarter a net tax year. costs followed in of result compensation. timing annual approximately of the G&A quarter Interest the a structure of the second for the year Income basis As opening of expense XX.X% last the quarter reductions the quarter is $XXX,XXX income expense

$X.X per was net quarter a ONE attributable per loss the Inc. compared Adjusted over XX.X% the share. to Hospitality, second to million second Group prior share million, income year the the was The in ONE $X.X EBITDA of increase of $X.XX million. an for adjusted XXXX For attributable loss to XXXX, $XXX,XXX net $X.X or The of Group $X.XX EBITDA of or quarter

filings. factors to have of and the past, and remind risks and commentary business. given any and factors and forward-looking to outlook to updated quarter Based licensing EBITDA net with associated our We and authorities. of as million have discussed operations earnings SEC on continue beverage for income as predict subject our food GAAP release. for as including properties managed actual in now information the as conditions number the available and $XX of We a here’s to with second reconciliation This I’d and expectations sales on our and commentary the tables control, revenue some to we from always, line, of is like statements uncertainties under in the Company’s total we Beginning be total forward-looking adjusted included million. between in XXXX. today, $XX GAAP weather provide to continuing is a to at our top licensees investors the of in contractors, owned and the GAAP landlords, numbers timing control restaurant subject our of regulatory new openings outside period revenues

to continue owned and will and $XXX sales million. our between that total also beverage We at million food units and estimate $XXX managed be

store However, grow from up we previously is at which to to now expect about X% X%, guided. sales comparable the to X% X%

We to beverage continue food be and to total to XX% costs estimate XXXX. for XX% approximately

our is time. XX% current with that with base not for or commodity estimate of contract elected is unable fresh of on conditions concerning to approximately coupled based periods contract other the expected As and suppliers currently current either items under and market and we are negotiations longer

together now allowances less open to related is in received San one landlords million Nashville, generate X in in and this call company-owned $XX be will total XX% expenditures, to XX% XXXX, I Diego, EBITDA for which than XX% between approximately existing which modeling of level. XX% is intention are XXXX, our net maintenance previous expenditures our in XXXX, up Putting to is from turn our significantly and $X if adjusted in We million. our can We expectation $XX.X and strategy. all venues. million up now capital target million between million of remarks. which to from expect original be we EBITDA from and expect at the our of adjusted of guidance now restaurant capital of years in reflective back of these is and to This capital-light closing growth achieved, to prior to $XX Manny

Manny Hilario

Thank you, Linda.

sales, like value. and are and will great Before see to market be Group the delever group that our any our restaurant reduce who for truly our business margins, would P&L, the drive of and a to you we plan Operator? for our I enhance The to lasting I reiterate go on are committed provide entire exceptional today. world-class guests. thank ONE possible efforts that if team you Thank you organization, Linda our of myself the us our not opportunities may grow they making helping the and call manner execution answer sheet happy to people team, to asset-light as on of a shareholder Company. joining Q&A, hospitality this strategy tremendous of real balance have. questions enhance us are in None all G&A, to for our strengthening impact is our a long-term to

Operator

Management. [Operator Dave Instructions] line Our first proceed [Ph] question question. comes from the Please your of Cannon from Cannon Wealth with

Unidentified Analyst

questions operations housekeeping what for QX? of couple So, cash from In Linda. the flow was just CapEx quarter, for and

Linda Siluk

I from $X.X about have and that. don’t I QX, was flow cash million think for just it operations, For CapEx;

Manny Hilario

It’s $X.X million.

flow So, million $X.X David $X.X and million in cash CapEx. in

Unidentified Analyst

look expense but GAAP that of -- a at was item, it preopening San forward for was as nonrecurring I what CapEx as XXX one-time And that X.X, go a the kind should -- the basis? guess okay. like a Diego, looks EPS, about penny, far on so, there I was not was as

Manny Hilario

Nashville, got be what in preopening Diego for of we albeit opening With on probably as tremendous the learning amount San did less expenses, a will the opening. timing of have the than will we Yes. activities it we

we in little San would So, less Diego. will have Nashville have than for bit we

Unidentified Analyst

X,XXX,XXX. beverage It relate a revenue. owned Okay. Linda, was down food year-over-year to? versus there’s And line then, and that does X,XXX,XXX other net item, what

Linda Siluk

the it QX, Super year-to-date. remember, event. you Bowl largest share have the In a on we of That’s

quarter, operation, restaurant well. food as have that’s in the that a and location where and a -- So, the and in the included beverage location other we is

Manny Hilario

a with [Indiscernible] that’s what’s And That’s California. California.

Unidentified Analyst

some you to there you for There fees. could a of was if terms in better? then, license explanation, that the grasp. timing. parts there didn’t explain was just guess I quite an I just And see. Could moving clarify I little me

Linda Siluk

began year. we on Yes. last In And those that accrual And to the basis have some historical on of locations, we our basis, Company agreement. not the year. profit until recognize a end share a the has of an reported

was quarter little this a choppy. So,

Manny Hilario

year’s. quarter, second this year’s Last not

Unidentified Analyst

Okay. just into queue. I’ll then, jump question, then And last and back

and in at Could expense year-over-year. year Is EBITDA of position debt? I see to we’re million on debt. speak our next in we something over or It rate are stronger. up existing half of so, there? the as that? terms happening a credit in going you well for million you facility as refinancing the see there pretty financial strong is year, adjusted And what second mezzanine with Interest that like actually $XX $XX.X being run looks Given your

Linda Siluk

Yes.

I think statements, that capitalized less as well year think that of in financial on building of this as we the warrant put the was in [indiscernible]. [ph] that because we have the went that interest year of amount of last interest some have I some

As drain financing, mean, far I think, of is as how now. a the cash openly understand existing much debt our are I we

depending we you refinancing to want on are anything? add opportunities. So, at our looking -- Manny, do

Manny Hilario

position, from trailing north I our $X of is think just million. XX-month a EBITDA general

very So, from a profile, that we credit a are attractive a now in company. position we’re

is, looking. with I in So, for And this. interest doing the answer are absolutely there lot is we appetite and something out think

can overall, service $XXX,XXX And reduce a because So, debt amount a of reduce month north debt. small now we earlier, we’re per interest in our Linda our expense. of service to mentioned cash month, right paying as

an that we overall, from a think and credit stable and much a best I liquidity So, think creates get the both opportunity, better long-term it’s for do a value, shareholder facility. I it interest

Operator

from Capital your is Lake Markets. Please Our Chris question. the of Street proceed next line with from question Krueger

Chris Krueger

sales When impact the quarter, there you for quantifying? look from Easter worth was that’s shift any the at same-store your

Manny Hilario

because at the particularly day. think, slightly mean, shifting end to might of the overall, I calendar in been weekend quarter the a us, we’re beneficial I have

the -- in But, any that’s wasn’t anything it meaningfully number, changed way. would have So, directionally I favorable. or think that was

was to the say calendar So, overall, nothing I any fine, talk would material about.

Chris Krueger

looking then, your sales through half remaining same-store territory? at trends third in the are positive And way quarter, solid

Manny Hilario

for doing look in be to you half. positive. year, half And extremely there if guidance of the we we’ve well mean, at look it our been I year you somewhat flat I the is implicit the outlook, just if first believe our will think at for second --

say we of second the momentum a that in of quarter had particularly good. momentum, some of events, came is I strategy other place. out we’ve that And lot with So, would the in the

very large confident overall of But, comping the we’re positive. a I have initiative, in feel year. at the we from previous positive would the doing we very overall, in Obviously, we that So, say of stuff sales. fourth against are social that the also confidence quarter, very is lots hotels all

of year. I amount say sales we the initiatives the So, would continue that tremendous rest will a I of to think carry positive have for

Chris Krueger

mentioned just You efforts early year talk about? for making you holiday already the that this events, is at just time of guys season, too the are or to

Manny Hilario

of it’s early terms about of year -- last in we have talk year, early to in York. have New our we’ve from is into We York structural of centralizing events, personnel think this helping Yes. made the late New do office. changes don’t that the terms too that a centralization fourth terms But, as quarter. earlier, of visibility described events managing really I And from some payoff those how management here and the of field in seeing we’re

new I to important because a the event I for extremely exposes that’s is that net think brand. people us. been believe it business positive And

think really continue strong sales for it building in we as long are, we builds term. in that comp the which strength I So, strategy,

early for in it’s have very talk very still But not to and demand all the important honestly we books, Long-term year about. continuously right quarter we the it’s events of very robust now. short-term. strategy, fourth have too seen So, robust -- a in terms

be that continued think do the I business. for will positive So a

Chris Krueger

sales, you changed, bar, the is percentage should like margin of at alcohol When mix look how your coming at look anything type for sales, the sales that? or of the we high from of

Manny Hilario

XX-XX in mix through the seasonally that do that we’ve go in I overall, So, a whine. think seen. historically I we I bar little more you mix. think the we we around pick summer think as still the it’s at though, XX-XX a holiday up but also our and pick still seasonal, well when because is months, is do season, very But, bit right well

Chris Krueger

Okay.

two opportunity year. pipeline the haven’t is mentioned have deals, guys or to you you to visible one do But, year? one hospitality two there the with you said mentioned You you see next per -- year. open this know, enough think think, any I I to for

Manny Hilario

our I have pipeline in mean, that, We providing on without some deals guidance the I robust. super say pipeline. that would is high-quality really, actually

the the do make turn which now, I with spend and time pipeline. So, really we hit sure want is have defining actually, quality we team do which we from ones right job want to that our to in because some that higher

a So, which really after. I rationalization that the a we want strong would year, of very actually picking choosing to year do pipeline say more and deals next and it’s do the

answer very want going I’m we that a deals pipeline. we one the And just encouraged prioritize. of that is, team, in are the So, going which is through through, management to by the quality as

Chris Krueger

are any by a base units last margin the the meaningful margin? underperforming base meaningful And are or that question, specific there by outperforming

Manny Hilario

think, answer the question we’ve by saying that up. bottom I I’ll brought

were encouraged and through the by Diego. we what sales taken been in really that Chicago well profitability, in the People city. It’s brand on as starting in are have restaurants incredible. really to San our come as to super we on like Denver are the markets and saw So,

to it’s site. the So, off with has see incredible block how that much momentum came

how that open we to as careful very being We’re site.

that diner. sure I business really STK call of making We’re core building qualified we’re what

the [indiscernible] that But So, program. component vibe the of different the is with we people bar the through dining, are something more for activities serious that we careful. preopening about did are -- we very that’s really being San and driving Diego probably

company-owned Nashville super like to terms in actually had over Diego why bodes to build consumer one store almost a deal. were as very license And San opportunity the the and market. think base looking and management of high quality an in the well market bring were that in time we I So, super when excited we reasons we

was our great of point maybe well. Nashville actually San performances on as a terms it Diego that us that appetite was -- for So, good in opportunity thinking based starting is a

So, we’re that. about super excited

So, in the are top and and both Vegas York is top all in sales of And answer extremely performing profitability. locations a perspective, bottom-up. from our New well

Operator

of like I Ladies the question-and-answer And to call would session. end closing and gentlemen, turn back we Manny the have reached Hilario to for the remarks.

Manny Hilario

thank to today. attending everyone obviously and for the Group. your And running you forward The you at I call Well, And into look for appreciate we Linda support ONE our restaurants.

So, see you at one one hotel properties. of our of STKs our or Thank you.

The ONE Group Hospitality, Inc. (STKS) 14 Aug 182018 Q2 Earnings call transcript