The ONE Group Hospitality, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Segment Reporting

Segment Reporting

6 Months Ended

Jun. 30, 2019

Note 16 – Segment Reporting

The Company operates in three segments: “Owned restaurants,” “Owned food, beverage and other,” and “Managed and licensed operations.” The Owned restaurants segment consists of leased restaurant locations and competes in the full-service dining industry. The Owned food, beverage and other segment consists of hybrid operations, such as where the Company has a leased restaurant location and also has a food and beverage agreement at the same location, typically a hotel, and offsite banquet offerings. The Managed and licensed operations segment includes all operations for which a management, incentive or license fee is received. Management agreements generate management fees on net revenue and incentive fees on operating profit as defined in the applicable management agreement. License agreements generate revenue primarily through royalties earned on net revenue at each location. Revenues associated with developmental support for licensed locations are also included within this segment.

The Company’s Chief Executive Officer (“CEO”), who has been deemed the Company’s Chief Operating Decision Maker, manages the business and allocates resources via a combination of restaurant sales reports and segment profit information (which is defined as revenues less operating expenses) related to the Company’s three segments, or sources of revenues, which are presented in their entirety within the consolidated statements of operations and comprehensive income.

The Company’s operating results by segment were as follows (in thousands):


	For the three months ended June 30, 2019								For the three months ended June 30, 2018
			Owned food,		Managed and						Owned food,		Managed and
	Owned		beverage and		licensed				Owned		beverage and		licensed
	restaurants		other		operations		Total		restaurants		other		operations		Total
Revenues:
Owned net revenues	$	18,809	$	2,134	$	—	$	20,943	$	15,520	$	2,083	$	—	$	17,603
Management, license and incentive fee revenue		—		—		2,656		2,656		—		—		2,708		2,708
Total revenues		18,809		2,134		2,656		23,599		15,520		2,083		2,708		20,311

Cost and expenses:
Owned operating expenses:
Cost of sales		5,068		—		—		5,068		4,037		—		—		4,037
Other operating expenses		11,856		—		—		11,856		9,399		—		—		9,399
Owned food, beverage and other expenses		—		2,225		—		2,225		—		2,025		—		2,025
Total owned operating expenses		16,924		2,225		—		19,149		13,436		2,025		—		15,461
Segment income (loss)	$	1,885	$	(91)	$	2,656	$	4,450	$	2,084	$	58	$	2,708	$	4,850

General and administrative								2,704								2,615
Depreciation and amortization								1,004								901
Interest expense, net of interest income								218								290
Loss on early debt extinguishment								437								—
Equity in income of investee companies								—								(134)
Other								265								695
(Loss) income before provision for income taxes							$	(178)							$	483


	For the six months ended June 30, 2019								For the six months ended June 30, 2018
			Owned food,		Managed and						Owned food,		Managed and
	Owned		beverage and		licensed				Owned		beverage and		licensed
	restaurants		other		operations		Total		restaurants		other		operations		Total
Revenues:
Owned net revenues	$	36,629	$	4,407	$	—	$	41,036	$	30,596	$	4,088	$	—	$	34,684
Management, license and incentive fee revenue		—		—		5,339		5,339		—		—		5,144		5,144
Total revenues		36,629		4,407		5,339		46,375		30,596		4,088		5,144		39,828

Cost and expenses:
Owned operating expenses:
Cost of sales		9,637		—		—		9,637		8,071		—		—		8,071
Other operating expenses		22,771		—		—		22,771		18,777		—		—		18,777
Owned food, beverage and other expenses		—		4,484		—		4,484		—		3,714		—		3,714
Total owned operating expenses		32,408		4,484		—		36,892		26,848		3,714		—		30,562
Segment income (loss)	$	4,221	$	(77)	$	5,339	$	9,483	$	3,748	$	374	$	5,144	$	9,266

General and administrative								5,354								5,670
Depreciation and amortization								1,946								1,679
Interest expense, net of interest income								487								608
Loss on early debt extinguishment								437								—
Equity in income of investee companies								—								(111)
Other								572								794
Income before provision for income taxes							$	687							$	626

The Company’s total assets by segment for the periods indicated were as follows (in thousands):


	June 30,		December 31,
	2019		2018
Total assets:
Owned restaurants	$	74,424	$	42,971
Owned food, beverage and other operations (1)		15,848		7,274
Managed and licensed operations		5,205		5,734
Total	$	95,477	$	55,979

(1)

Includes corporate assets and unallocated corporate assets

The Company’s total assets increased $39.4 million as of June 30, 2019 compared to December 31, 2018 as a result of adopting ASC Topic 842 during the first quarter of 2019. Refer to Note 12 for additional information regarding the adoption of ASC Topic 842.

The Company’s capital asset additions by segment for the periods indicated were as follows (in thousands):


	For the six months ended June 30,
	2019		2018
Capital assets additions:
Owned restaurants	$	2,530	$	1,837
Owned food, beverage and other operations (1)		387		89
Managed and licensed operations		—		—
Total	$	2,917	$	1,926

(1)

Includes corporate capital asset additions and unallocated corporate additions