The ONE Group Reports Second Quarter 2024 Financial Results

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Aug 06, 2024

The ONE Group Hospitality, Inc. (“The ONE Group” or the “Company”) (Nasdaq: STKS) today reported its financial results for the second quarter ended June 30, 2024.

Highlights for the second quarter 2024 compared to the same quarter in 2023 are as follows (the prior year quarter excludes any contribution from the recent acquisition of Benihana, which closed in May 2024):

  • Total GAAP revenues increased 106.8% to $172.5 million from $83.4 million;
  • Comparable sales* decreased 7.0%;
  • GAAP net loss available to common stockholders was $11.5 million, or $0.36 net loss per share ($0.08 adjusted net income per share) ****, compared to GAAP net income available to common stockholders of $0.6 million, or $0.02 net income per share ($0.06 adjusted net income per share) ****
  • Restaurant Operating Profit*** increased 151.3% to $30.0 million from $11.9 million;
  • Restaurant Operating Profit Margin*** increased 280 basis points to 17.7% from 14.9%; and
  • Adjusted EBITDA** increased 180.6% to $23.9 million from $8.5 million.

"We are pleased to be building lasting relationships with our guests through unforgettable VIBE dining experiences while generating industry leading AUVs. Notably, the cost-saving initiatives we put in place last year coupled with our strong new restaurant performance drove restaurant level profit and restaurant level margin to increase at Kona Grill and stay relatively flat at STK, despite the challenging same store sales environment.”

“In May, we completed our acquisition of the Benihana and RA Sushi brands and welcomed nearly 6,500 new teammates. We have since begun integrating them into our Company and have already started realizing synergies in G&A, purchasing and operations. To date, we have realized approximately $9 million in G&A synergies since the closing and over the next two years, we expect to achieve another $11 million in G&A, supply chain and other operational synergies for a total of $20 million in annual synergies as we leverage our larger scale, combine our expertise, and enhance our capabilities to develop a best-in-class supply chain across our now-expanded portfolio.”

Hilario concluded, “We have a strong pipeline for unit growth in 2024 and beyond. We recently opened a RA Sushi in Plantation, Florida that is off to a strong start and there are another six to nine additional new venues that should open this year. Our expansion story points to significant opportunity ahead.”

*Comparable sales represent total U.S. food and beverage sales at owned and managed units opened for at least a full 24-months. This measure includes total revenue from our owned and managed locations. The Company monitors sales growth at its established restaurant base in addition to growth that results from restaurant acquisitions and new restaurant openings.

**We define Adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization, non-cash impairment loss, non-cash rent expense, pre-opening expenses, non-recurring gains and losses, stock-based compensation, transaction and exit costs and transition and integration expenses. Adjusted EBITDA has been presented in this press release and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. Refer to the reconciliation of Net Income to Adjusted EBITDA in this release.

***We define Restaurant Operating Profit as owned restaurant net revenue minus owned restaurant cost of sales and owned restaurant operating expenses. Restaurant Operating Profit has been presented in this press release and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. Refer to the reconciliation of Operating income to Restaurant Operating Profit in this release.

****We define Adjusted Net Income / (Loss) to Common Stockholders as net income / (loss) to common stockholders before transaction and exit expenses, transition and integration expenses, non-cash rent during the pre-opening period, other non-recurring costs and the income tax effect of any adjustments. Adjusted Net Income / (Loss) to Common Stockholders has been presented in this press release and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. Refer to the reconciliation of Net (Loss) / Income to Common Stockholders to Adjusted Net Income / (Loss) to Common Stockholders in this release.

Acquisition of Benihana Inc. Owner

On May 1, 2024, the Company announced it had completed its previously announced acquisition of Safflower Holdings Corp., the owner of Benihana Inc. (“Benihana”), for $365 million in cash. The transaction was financed with a portion of a new $390 million term loan and revolving credit facility and $160 million in preferred equity primarily issued to an affiliate of Hill Path Capital LP.

Restaurant Development

The Company intends to open eight to eleven new venues in 2024 consisting of three to four STKs, two to three Kona Grills, one to two Benihanas, one Salt Water Social and one RA Sushi.

In March 2024, the Company opened an STK restaurant in Washington, DC and in July 2024, the Company opened a RA Sushi in Plantation, Florida.

There are currently two Company-owned STK restaurants, one Company-owned Kona Grill restaurant, one Company-owned Salt Water Social restaurant and one Company-owned Benihana restaurant under construction in the following cities:

  • Owned STK restaurant in Aventura, Florida
  • Owned Kona Grill restaurant in Tigard, Oregon
  • Owned Salt Water Social restaurant in Denver, Colorado
  • Owned STK restaurant in Topanga, California
  • Owned Benihana restaurant in San Mateo, California

Share Repurchase Program

In March 2024, the Company’s Board of Directors authorized a $5 million share repurchase program. During the second quarter of 2024, the Company spent $0.9 million for the repurchases of 0.2 million shares.

2024 Targets

The Company is reaffirming its 2024 targets, which are inclusive of the acquisition of Benihana.

Financial Results and Other Select Data

US$s in millions

2024 Guidance

1/1/2024-12/31/2024

Total GAAP revenues

$700 to $740

Managed, license, franchise and incentive fee revenues

$17 to $19

Total owned operating expenses as a percentage of owned restaurant net revenue

Approx. 83.0%

Consolidated Total G&A excluding stock-based compensation

Approx. $40

Consolidated Adjusted EBITDA

$95 to $100

Consolidated Restaurant pre-opening expenses

$7 to $9

Consolidated Effective income tax rate

5% to 10%

Consolidated Total capital expenditures, net of allowances received by landlords

$50 to $60

Consolidated Number of new system-wide venues

Eight to Eleven

Guidance Analysis

US$s in millions

2023 (1)

2023 Pro Forma (2)

Guidance

Growth %

The ONE Group Pre-acquisition

$40.1

$40.1

$45

12.2%

Benihana Pre-acquisition

$61.0

$41.0

$50 to $55

22.0% to 34.1%

Consolidated

$101.1

$81.1

$95 to $100

17.1% to 23.3%

(1)

$61 million is the latest full fiscal year for Benihana, adjusted for full bonus payout as of 3/31/2024

(2)

Benihana is adjusted for eight months of The ONE Group ownership (May through December)

Conference Call and Webcast

Emanuel “Manny” Hilario, President and Chief Executive Officer, and Tyler Loy, Chief Financial Officer, will host a conference call and webcast today at 4:30 PM Eastern Time.

The conference call can be accessed live over the phone by dialing 412-542-4186. A replay will be available after the call and can be accessed by dialing 412-317-6671; the passcode is 10190088. The replay will be available until Tuesday, August 20, 2024.

The webcast can be accessed from the Investor Relations tab of The ONE Group’s website at www.togrp.com under “News / Events.”

About The ONE Group

The ONE Group Hospitality, Inc. (Nasdaq: STKS) is an international restaurant company that develops and operates upscale and polished casual, high-energy restaurants and lounges and provides hospitality management services for hotels, casinos and other high-end venues both in the U.S. and internationally. The ONE Group’s focus is to be the global leader in Vibe Dining, and its primary restaurant brands and operations are:

  • STK, a modern twist on the American steakhouse concept with restaurants in major metropolitan cities in the U.S., Europe, and the Middle East, featuring premium steaks, seafood, and specialty cocktails in an energetic upscale atmosphere.
  • Benihana, a leading operator of highly differentiated experiential brands that owns the only national teppanyaki brand in the US. The Company also franchises Benihanas in the U.S., Caribbean, Central America, and South America.
  • Kona Grill, a polished casual, bar-centric grill concept with restaurants in the U.S., featuring American favorites, award-winning sushi, and specialty cocktails in an upscale casual atmosphere.
  • RA Sushi, a Japanese cuisine concept that offers a fun-filled, bar-forward, upbeat, and vibrant dining atmosphere with restaurants in the U.S. anchored by creative sushi, inventive drinks, and outstanding service.
  • ONE Hospitality, The ONE Group’s food and beverage hospitality services business, develops, manages, and operates premier restaurants and turnkey food and beverage services within high-end hotels and casinos currently operating venues in the U.S. and Europe.

Additional information about The ONE Group can be found at www.togrp.com.

Cautionary Statement on Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, including with respect to the impact of the Safflower Holdings acquisition, restaurant openings and 2024 financial targets. Forward-looking statements may be identified by the use of words such as “target,” “intend,” “anticipate,” “believe,” “expect,” “estimate,” “plan,” “outlook,” and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements, including but not limited to: (1) our ability to integrate the new or acquired restaurants into our operations without disruptions to operations; (2) our ability to capture anticipated synergies; (3) our ability to open new restaurants and food and beverage locations in current and additional markets, grow and manage growth profitably, maintain relationships with suppliers and obtain adequate supply of products and retain employees; (4)factors beyond our control that affect the number and timing of new restaurant openings, including weather conditions and factors under the control of landlords, contractors and regulatory and/or licensing authorities; (5) our ability to successfully improve performance and cost, realize the benefits of our marketing efforts and achieve improved results as we focus on developing new management and license deals; (6) changes in applicable laws or regulations; (7) the possibility that The ONE Group may be adversely affected by other economic, business, and/or competitive factors; and (8) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed for the year ended December 31, 2023 and Quarterly Reports on Form 10-Q.

Investors are referred to the most recent reports filed with the Securities and Exchange Commission by The ONE Group Hospitality, Inc. Investors are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except earnings per share and related share information)

For the three months ended June 30,

For the six months ended June 30,

2024

2023

2024

2023

Revenues:

Owned restaurant net revenue

$

169,021

$

79,923

$

250,529

$

158,502

Management, license, franchise and incentive fee revenue

3,473

3,470

6,960

7,447

Total revenues

172,494

83,393

257,489

165,949

Cost and expenses:

Owned operating expenses:

Owned restaurant cost of sales

35,877

19,215

54,591

38,070

Owned restaurant operating expenses

103,192

48,784

152,830

95,611

Total owned operating expenses

139,069

67,999

207,421

133,681

General and administrative (including stock-based compensation of $1,495, $1,234, $2,853 and $2,554 for the three and six months ended June 30, 2024 and 2023, respectively)

10,622

8,039

18,156

15,523

Depreciation and amortization

8,025

3,506

13,285

7,162

Transaction and exit costs

6,826

8,349

Transition and integration expenses

3,794

3,794

Pre-opening expenses

2,504

1,609

5,418

2,908

Other expenses

195

32

352

Total costs and expenses

170,840

81,348

256,455

159,626

Operating income

1,654

2,045

1,034

6,323

Other expenses, net:

Interest expense, net of interest income

7,865

1,642

9,943

3,429

Loss on early debt extinguishment

4,149

4,149

Total other expenses, net

12,014

1,642

14,092

3,429

(Loss) income before provision for income taxes

(10,360

)

403

(13,058

)

2,894

(Benefit) provision for income taxes

(3,268

)

(13

)

(3,536

)

148

Net (loss) income

(7,092

)

416

(9,522

)

2,746

Less: net loss attributable to noncontrolling interest

(163

)

(152

)

(524

)

(428

)

Net (loss) income attributable to The ONE Group Hospitality, Inc.

$

(6,929

)

$

568

$

(8,998

)

$

3,174

Series A Preferred Stock paid-in-kind dividend and accretion

(4,538

)

(4,538

)

Net (loss) income available to common stockholders

$

(11,467

)

$

568

$

(13,536

)

$

3,174

Net (loss) income per common share:

Basic

$

(0.36

)

$

0.02

$

(0.43

)

$

0.10

Diluted

$

(0.36

)

$

0.02

$

(0.43

)

$

0.10

Weighted average common shares outstanding:

Basic

31,424,938

31,782,783

31,376,951

31,730,299

Diluted

31,424,938

32,673,457

31,376,951

32,779,821

The following table sets forth certain statements of operations data as a percentage of total revenues for the periods indicated. Certain percentage amounts may not sum to total due to rounding.

For the three months ended June 30,

For the six months ended June 30,

2024

2023

2024

2023

Revenues:

Owned restaurant net revenue

98.0

%

95.8

%

97.3

%

95.5

%

Management, license, franchise and incentive fee revenue

2.0

%

4.2

%

2.7

%

4.5

%

Total revenues

100.0

%

100.0

%

100.0

%

100.0

%

Cost and expenses:

Owned operating expenses:

Owned restaurant cost of sales (1)

21.2

%

24.0

%

21.8

%

24.0

%

Owned restaurant operating expenses (1)

61.1

%

61.0

%

61.0

%

60.3

%

Total owned operating expenses (1)

82.3

%

85.1

%

82.8

%

84.3

%

General and administrative (including stock-based compensation of 0.9%, 1.5%, 1.1%, and 1.5%, for the three and six months ended June 30, 2024 and 2023, respectively)

6.2

%

9.6

%

7.1

%

9.4

%

Depreciation and amortization

4.7

%

4.2

%

5.2

%

4.3

%

Transaction and exit costs

4.0

%

%

3.2

%

%

Transition and integration expenses

2.2

%

%

1.5

%

%

Pre-opening expenses

1.5

%

1.9

%

2.1

%

1.8

%

Other expenses

%

0.2

%

%

0.2

%

Total costs and expenses

99.0

%

97.5

%

99.6

%

96.2

%

Operating income

1.0

%

2.5

%

0.4

%

3.8

%

Other expenses, net:

Interest expense, net of interest income

4.6

%

2.0

%

3.9

%

2.1

%

Loss on early debt extinguishment

2.4

%

%

1.6

%

%

Total other expenses, net

7.0

%

2.0

%

5.5

%

2.1

%

(Loss) income before provision for income taxes

(6.0

)%

0.5

%

(5.1

)%

1.7

%

(Benefit) provision for income taxes

(1.9

)%

%

(1.4

)%

0.1

%

Net (loss) income

(4.1

)%

0.5

%

(3.7

)%

1.7

%

Less: net loss attributable to noncontrolling interest

(0.1

)%

(0.2

)%

(0.2

)%

(0.3

)%

Net (loss) income attributable to The ONE Group Hospitality, Inc.

(4.0

)%

0.7

%

(3.5

)%

1.9

%

__________________________________

(1)

These expenses are being shown as a percentage of owned restaurant net revenue.

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)

June 30,

December 31,

2024

2023

ASSETS

(Unaudited)

Current assets:

Cash and cash equivalents

$

32,247

$

21,047

Credit card receivable

10,979

7,234

Restricted cash and cash equivalents

552

Accounts receivable

9,287

10,030

Inventory

9,164

6,184

Other current assets

4,849

1,809

Due from related parties

376

376

Total current assets

67,454

46,680

Operating lease right-of-use assets

271,160

95,075

Property and equipment, net

260,385

139,908

Goodwill

145,162

Intangibles, net

146,193

15,306

Deferred tax assets, net

45,236

14,757

Other assets

8,639

4,636

Security deposits

1,635

883

Total assets

$

945,864

$

317,245

LIABILITIES, SERIES A PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

26,723

$

19,089

Accrued expenses

52,474

28,333

Current portion of operating lease liabilities

16,523

6,897

Deferred gift card revenue and other

6,715

2,077

Current portion of long-term debt

3,500

1,500

Other current liabilities

559

266

Total current liabilities

106,494

58,162

Long-term debt, net of current portion, unamortized discount and debt issuance costs

330,861

70,410

Operating lease liabilities, net of current portion

294,171

120,481

Other long-term liabilities

5,116

832

Total liabilities

736,642

249,885

Commitments and contingencies (Note 17)

Series A preferred stock, $0.0001 par value, 160,000 shares authorized; 160,000 issued and outstanding at June 30, 2024 and 0 issued and outstanding at December 31, 2023

143,481

Stockholders’ equity:

Common stock, $0.0001 par value, 75,000,000 shares authorized; 33,765,978 issued and 31,297,200 outstanding at June 30, 2024 and 33,560,428 issued and 31,283,975 outstanding at December 31, 2023

3

3

Preferred stock, other than Series A preferred stock, $0.0001 par value, 9,840,000 shares authorized; no shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Treasury stock, at cost, 2,468,778 shares at June 30, 2024 and 2,276,453 shares at December 31, 2023

(15,939

)

(15,051

)

Additional paid-in capital

71,656

58,270

Retained earnings

15,348

28,884

Accumulated other comprehensive loss

(2,987

)

(2,930

)

Total stockholders’ equity

68,081

69,176

Noncontrolling interests

(2,340

)

(1,816

)

Total stockholder's equity

65,741

67,360

Total liabilities, Series A preferred stock and stockholders' equity

$

945,864

$

317,245

Reconciliation of Non-GAAP Measures

We prepare our financial statements in accordance with generally accepted accounting principles (GAAP). In this press release, we also make references to the following non-GAAP financial measures: total food and beverage sales at owned and managed units, Adjusted EBITDA, Restaurant Operating Profit and Adjusted Net Income (Loss).

Total food and beverage sales at owned and managed units. Total food and beverage sales at owned and managed units represents our total revenue from our owned operations as well as the revenue reported to us with respect to sales at our managed locations, where we earn management and incentive fees at these locations. We believe that this measure represents a useful internal measure of performance as it identifies total sales associated with our brands and hospitality services that we provide. Accordingly, we include this non-GAAP measure so that investors can review financial data that management uses in evaluating performance, and we believe that it will assist the investment community in assessing performance of restaurants and other services we operate, whether or not the operation is owned by us. However, because this measure is not determined in accordance with GAAP, it is susceptible to varying calculations and not all companies calculate these measures in the same manner. As a result, this measure as presented may not be directly comparable to a similarly titled measure presented by other companies. This non-GAAP measure is presented as supplemental information and not as an alternative to any GAAP measurements. The following table includes a reconciliation of our GAAP revenue to total food and beverage sales at our owned and managed units (in thousands):

For the three months ended June 30,

For the six months ended June 30,

2024

2023

2024

2023

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Owned restaurant net revenue (1)

$

169,021

$

79,923

$

250,529

$

158,502

Management, license, franchise and incentive fee revenue

3,473

3,470

6,960

7,447

GAAP revenues

$

172,494

$

83,393

$

247,489

$

165,949

Food and beverage sales from managed units (1)

32,090

30,001

60,194

60,703

Total food and beverage sales at owned and managed units

$

201,111

$

109,924

$

310,723

$

219,205

______________________

(1)

Components of total food and beverage sales at owned and managed units.

The following table presents the elements of the quarterly and annual Same Store Sales measure for 2023 and 2024:

2023 vs. 2022

2024 vs. 2023

Q1

Q2

Q3

Q4

YTD

Q1

Q2

US STK Owned Restaurants

1.0%

(10.1)%

(7.8)%

(6.5)%

(6.0)%

(6.0)%

(11.9)%

US STK Managed Restaurants

15.4%

2.5%

0.7%

0.7%

4.9%

(8.6)%

(7.4)%

US STK Total Restaurants

5.3%

(6.8)%

(5.5)%

(4.6)%

(3.0)%

(6.8)%

(10.6)%

Benihana Total Restaurants

(1.0)%

Kona Grill Total Restaurants

(4.3%)

(1.5)%

1.1%

(3.9)%

(2.2)%

(9.7)%

(14.0)%

RA Sushi Total Restaurants

(10.3)%

Combined Same Store Sales

1.6%

(4.7)%

(3.0)%

(4.3)%

(2.7)%

(7.9)%

(7.0)%

Adjusted EBITDA. We define Adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization, non-cash impairment loss, non-cash rent expense, pre-opening expenses, non-recurring gains and losses, stock-based compensation, certain transactional and exit costs and transition and integration expenses. Not all the aforementioned items defining Adjusted EBITDA occur in each reporting period but have been included in our definitions of terms based on our historical activity. Adjusted EBITDA has been presented in this press release and is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP.

The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated (in thousands):

For the three months ended June 30,

For the six months ended June 30,

2024

2023

2024

2023

Net (loss) income attributable to The ONE Group Hospitality, Inc.

$

(6,929

)

$

568

$

(8,998

)

$

3,174

Net loss attributable to noncontrolling interest

(163

)

(152

)

(524

)

(428

)

Net (loss) income

(7,092

)

416

(9,522

)

2,746

Interest expense, net

7,865

1,642

9,943

3,429

(Benefit) provision for income taxes

(3,268

)

(13

)

(3,536

)

148

Depreciation and amortization

8,025

3,506

13,285

7,162

EBITDA

5,530

5,551

10,170

13,485

Pre-opening expenses

2,504

1,609

5,418

2,908

Stock-based compensation

1,495

1,234

2,853

2,554

Transaction and exit costs

6,826

8,349

Transition and integration expenses

3,794

3,794

Non-cash rent expense (1)

(429

)

(123

)

(691

)

(154

)

Loss on early debt extinguishment

4,149

4,149

Other expenses

195

32

352

Adjusted EBITDA

23,869

8,466

34,074

19,145

Adjusted EBITDA attributable to noncontrolling interest

(71

)

(65

)

(333

)

(254

)

Adjusted EBITDA attributable to The ONE Group Hospitality, Inc.

$

23,940

$

8,532

$

34,407

$

19,400

_______________________________

(1)

Non-cash rent expense is included in owned restaurant operating expenses and general and administrative expense on the consolidated statements of operations and comprehensive income.

Restaurant Operating Profit. We define Restaurant Operating Profit as owned restaurant net revenue minus owned restaurant cost of sales and owned restaurant operating expenses.

We believe Restaurant Operating Profit is an important component of financial results because: (i) it is a widely used metric within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance, and (ii) we use Restaurant Operating Profit as a key metric to evaluate our restaurant financial performance compared to our competitors. We use these metrics to facilitate a comparison of our operating performance on a consistent basis from period to period, to analyze the factors and trends affecting our business and to evaluate the performance of our restaurants.

The following table presents a reconciliation of Operating income to Restaurant Operating Profit for the period indicated (in thousands):

For the three months ended June 30,

For the six months ended June 30,

2024

2023

2024

2023

Operating income as reported

$

1,654

$

2,045

$

1,034

$

6,323

Management, license and incentive fee revenue

(3,473

)

(3,470

)

(6,960

)

(7,447

)

General and administrative

10,622

8,039

18,156

15,523

Depreciation and amortization

8,025

3,506

13,285

7,162

Transaction and exit costs

6,826

8,349

Transition and integration expenses

3,794

3,794

Pre-opening expenses

2,504

1,609

5,418

2,908

Other expenses

195

32

352

Restaurant Operating Profit

$

29,952

$

11,924

$

43,108

$

24,821

Restaurant Operating Profit as a percentage of owned restaurant net revenue

17.7

%

14.9

%

17.2

%

15.7

%

Restaurant Operating Profit by brand is as follows (in thousands):

For the three months ended June 30,

For the six months ended June 30,

2024

2023

2024

2023

STK restaurant operating profit (Company owned)

$

9,114

$

8,463

$

20,221

$

18,854

STK restaurant operating profit (Company owned) as a percentage of STK revenue (Company owned)

18.3

%

18.6

%

20.0

%

20.2

%

Benihana restaurant operating profit (Company owned)

$

16,734

$

$

16,734

$

Benihana restaurant operating profit (Company owned) as a percentage of Benihana revenue (Company owned)

21.4

%

21.4

%

Core Kona Grill restaurant operating profit

$

3,308

$

3,296

$

5,625

$

5,628

Core Kona Grill restaurant operating profit as a percentage of Core Kona Grill revenue

12.1

%

11.0

%

10.3

%

9.9

%

Non-core Kona Grill restaurant operating profit

$

(171

)

$

98

$

(427

)

$

267

Non-core Kona Grill restaurant operating profit as a percentage of Non-core Kona Grill revenue

(5.2

)%

2.3

%

(6.7

)%

3.3

%

Core RA Sushi restaurant operating profit

1,034

1,034

Core RA Sushi restaurant operating profit as a percentage of Core RA Sushi revenue

11.1

%

11.1

%

Non-core RA Sushi restaurant operating profit

(71

)

(71

)

Non-core RA Sushi restaurant operating profit as a percentage of Non-core RA Sushi revenue

(5.3

)%

(5.3

)%

__________________

(1)

Non-core restaurants are restaurants in which the Company is strategically evaluating through lease negotiations, rebranding, or closure.

Adjusted Net Income. We define Adjusted Net Income as net income before transaction and exit costs, transition and integration expenses, lease termination expenses, one-time stock-based compensation, non-recurring costs, non-cash rent during the pre-opening period and the income tax effect of any adjustments.

We believe that Adjusted Net Income is an appropriate measure of operating performance, as it provides a clear picture of our operating results by eliminating certain one-time expenses that are not reflective of the underlying business performance. Adjusted Net Income is included in this press release because it is a key metric used by management, and we believe that it provides useful information facilitating performance comparisons from period to period. Adjusted Net Income has limitations as an analytical tool and our calculation thereof may not be comparable to that reported by other companies; accordingly, you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

For the three months ended June 30,

For the six months ended June 30,

2024

2023

2024

2023

Net (loss) income available to common stockholders as reported

$

(11,467

)

$

568

$

(13,536

)

$

3,174

Adjustments:

Transaction and exit costs

6,826

8,349

Transition and integration expenses

3,794

3,794

Loss on early debt extinguishment

4,149

4,149

Non-cash pre-opening expenses(1)

367

1,122

708

1,548

Other expenses

195

32

352

Adjusted net income before income taxes

3,669

1,885

3,496

5,074

Income tax effect on adjustments(2)

(879

)

(81

)

(1,277

)

(119

)

Adjusted net income available to common stockholders as reported

$

2,790

$

1,804

$

2,219

$

4,955

Adjusted net income per share: Basic

$

0.09

$

0.06

$

0.07

$

0.16

Adjusted net income per share: Diluted

$

0.08

$

0.06

$

0.07

$

0.15

Shares used in computing basic income per share

31,424,938

31,782,783

31,376,951

31,730,299

Shares used in computing diluted income per share

33,104,542

32,673,457

33,398,219

32,779,821

________________________________

(1)

Non-cash pre-opening expenses relate to non-cash rent expense during the pre-opening period.

(2)

Reflects the tax expense associated with the adjustments for the three and six months ended June 30, 2024, and June 30, 2023. The Company uses its estimated normalized annual tax rate.

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