The ONE Group Hospitality(STKS) - 2021 Q3 - Quarterly Report

PART I – Financial Information Financial Statements The company's Q3 2021 financial statements reflect significant revenue growth, positive net income, and a strengthened balance sheet Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2021, reflects stable assets, significantly reduced liabilities, and doubled equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $19,078 | $24,385 | | Total current assets | $33,095 | $34,376 | | Total assets | $217,115 | $215,569 | | Total current liabilities | $37,451 | $40,747 | | CARES Act Loans | $0 | $18,314 | | Long-term debt, net | $23,196 | $45,064 | | Total liabilities | $163,277 | $193,590 | | Total equity | $53,838 | $21,979 | Condensed Consolidated Statements of Operations Q3 2021 operations show an 81.6% revenue increase and a shift to positive net income, significantly influenced by loan forgiveness Key Performance Indicators (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $71,869 | $39,567 | $193,111 | $96,950 | | Operating Income (Loss) | $5,058 | $20 | $13,671 | ($9,614) | | Gain on CARES Act Loan forgiveness | $9,968 | $0 | $18,529 | $0 | | Net Income (Loss) Attributable to Company | $11,671 | ($875) | $25,577 | ($8,346) | | Diluted EPS | $0.34 | ($0.03) | $0.75 | ($0.29) | Condensed Consolidated Statements of Cash Flows Nine-month cash flows reflect $23.0 million from operations, $8.1 million used in investing, and $20.2 million used in financing Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $23,030 | ($675) | | Net cash used in investing activities | ($8,112) | ($2,660) | | Net cash provided by financing activities | ($20,188) | $17,607 | | Net (decrease) increase in cash | ($5,307) | $14,221 | Notes to Financial Statements Key disclosures cover business operations, COVID-19 impact, CARES Act loan forgiveness, and segment performance, including lease obligations - As of September 30, 2021, the company operated 60 venues, including 23 STKs and 24 Kona Grills, with all restaurants open for in-person dining[18][19] - CARES Act Loans totaling approximately $18.3 million were fully forgiven in Q3 2021, resulting in an $18.5 million gain recognized[47] - The Credit Agreement was amended in August 2021, extending maturity to 2026, with a $22.2 million prepayment and more flexible terms[37][38][39] Segment Operating Income for Q3 2021 (in thousands) | Segment | Total Revenues | Operating Income (Loss) | | :--- | :--- | :--- | | STK | $40,018 | $9,996 | | Kona Grill | $31,177 | $2,258 | | ONE Hospitality | $578 | $369 | | Corporate | $96 | ($7,565) | | Total | $71,869 | $5,058 | Management's Discussion and Analysis (MD&A) Management attributes strong Q3 2021 performance to robust sales, eased restrictions, and strategic growth, improving liquidity and capital structure Business Overview and Growth Strategy The company's growth strategy centers on expanding STK and Kona Grill, developing new F&B projects, and increasing same-store sales across its 60 venues - The company's growth model is driven by four key strategies: STK and Kona Grill expansion, new F&B projects, increased same-store sales, and acquisitions[96] - The company plans to open thirteen new STK and F&B venues in 2021-2022 and three to five Kona Grill locations in 2022[93] Venue Count by Brand as of Sep 30, 2021 | Brand | Domestic | International | Total | | :--- | :--- | :--- | :--- | | STK | 14 | 9 | 23 | | Kona Grill | 24 | 0 | 24 | | ONE Hospitality | 3 | 10 | 13 | | Total | 41 | 19 | 60 | Results of Operations Q3 2021 revenues surged 81.6% to $71.9 million, driven by strong same-store sales and improved operating margins - Q3 2021 same-store sales increased 78.9% year-over-year and 44.7% compared to Q3 2019, with STK up 63.8% and Kona Grill up 26.9%[98] Restaurant Operating Profit Margin by Brand | Brand | Q3 2021 Margin | Q3 2020 Margin | | :--- | :--- | :--- | | STK (Company owned) | 22.6% | 18.6% | | Kona Grill | 11.0% | 15.6% | Adjusted EBITDA Reconciliation (in thousands) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net Income (Loss) | $12,101 | ($910) | | EBITDA | $16,998 | $2,675 | | Adjusted EBITDA | $10,174 | $5,175 | Liquidity and Capital Resources Liquidity significantly improved with $19.1 million cash, full CARES Act loan forgiveness, and a favorable credit agreement amendment - As of September 30, 2021, the company held $19.1 million in cash and $10.7 million available on its revolving credit facility[135] - CARES Act PPP loans totaling approximately $18.3 million were fully forgiven in Q3 2021, resulting in an $18.5 million recognized gain[145][147][149] - Capital expenditures totaled $8.1 million in the first nine months of 2021, primarily for new STK and Kona Grill construction[136][154] - The Credit Agreement was amended in August 2021, extending maturity to 2026 and prepaying $22.2 million of the term loan[141][156] Quantitative and Qualitative Disclosures About Market Risk The company is not required to provide this information as it qualifies as a "smaller reporting company" under SEC regulations - As a "smaller reporting company," the company is exempt from providing quantitative and qualitative disclosures about market risk[158] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls during Q3 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[159] - No material changes in internal control over financial reporting occurred during Q3 2021[160] PART II – Other Information Legal Proceedings The company is subject to ordinary course legal claims, with management expecting no material adverse effect on financial results - The company is subject to ordinary course legal claims, with management not expecting a material adverse effect on financial statements[161] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes have been made to the risk factors from the Form 10-K for the year ended December 31, 2020[162] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[163] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements, and required certifications - Filed exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents[164]