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

9 Months Ended

Sep. 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 (loss).

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


	For the three months ended September 30, 2019								For the three months ended September 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	$	17,120	$	2,065	$	—	$	19,185	$	15,312	$	1,960	$	—	$	17,272
Management, license and incentive fee revenue		—		—		2,921		2,921		—		—		2,688		2,688
Total revenues		17,120		2,065		2,921		22,106		15,312		1,960		2,688		19,960

Cost and expenses:
Owned operating expenses:
Cost of sales		4,472		—		—		4,472		4,050		—		—		4,050
Other operating expenses		10,783		—		—		10,783		9,779		—		—		9,779
Owned food, beverage and other expenses		—		1,971		—		1,971		—		2,068		—		2,068
Total owned operating expenses		15,255		1,971		—		17,226		13,829		2,068		—		15,897
Segment income (loss)	$	1,865	$	94	$	2,921	$	4,880	$	1,483	$	(108)	$	2,688	$	4,063

General and administrative								2,352								2,266
Depreciation and amortization								1,103								896
Interest expense, net of interest income								230								294
Transaction costs								358								—
Other								292								565
Income before provision for income taxes							$	545							$	42


	For the nine months ended September 30, 2019								For the nine months ended September 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	$	53,749	$	6,472	$	—	$	60,221	$	45,908	$	6,048	$	—	$	51,956
Management, license and incentive fee revenue		—		—		8,260		8,260		—		—		7,832		7,832
Total revenues		53,749		6,472		8,260		68,481		45,908		6,048		7,832		59,788

Cost and expenses:
Owned operating expenses:
Cost of sales		14,109		—		—		14,109		12,121		—		—		12,121
Other operating expenses		33,554		—		—		33,554		28,556		—		—		28,556
Owned food, beverage and other expenses		—		6,455		—		6,455		—		5,782		—		5,782
Total owned operating expenses		47,663		6,455		—		54,118		40,677		5,782		—		46,459
Segment income (loss)	$	6,086	$	17	$	8,260	$	14,363	$	5,231	$	266	$	7,832	$	13,329

General and administrative								7,706								7,937
Depreciation and amortization								3,049								2,575
Interest expense, net of interest income								717								902
Transaction costs								510								—
Loss on early debt extinguishment								437								—
Equity in income of investee companies								—								(111)
Other								712								1,359
Income before provision for income taxes							$	1,232							$	667

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


	September 30,		December 31,
	2019		2018
Total assets:
Owned restaurants	$	73,753	$	42,971
Owned food, beverage and other operations (1)		16,204		7,274
Managed and licensed operations		5,463		5,734
Total	$	95,420	$	55,979

(1)

Includes corporate assets and unallocated corporate assets

The Company’s total assets increased $39.8 million as of September 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 nine months ended September 30,
	2019		2018
Capital assets additions:
Owned restaurants	$	2,861	$	2,792
Owned food, beverage and other operations (1)		648		446
Managed and licensed operations		—		—
Total	$	3,509	$	3,238

(1)

Includes corporate capital asset additions and unallocated corporate additions