ONE Group Hospitality, Inc.: Form 10-Q for the period ended Sep 30, 2023

This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Forward-looking statements speak only as of the date thereof and involve risks and uncertainties that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include the risk factors discussed under Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. 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 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 our key employees; (2) 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; (3) 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; (4) changes in applicable laws or regulations; (5) the possibility that The ONE Group may be adversely affected by other economic, business, and/or competitive factors; and (6) other risks and uncertainties. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “ongoing,” “could,” “estimates,” “expects,” “intends,” “may,” “appears,” “suggests,” “future,” “likely,” “goal,” “plans,” “potential,” “projects,” “predicts,” “should,” “targets,” “would,” “will” and similar expressions that convey the uncertainty of future events or outcomes. You should not place undue reliance on any forward-looking statement. We do not undertake any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required under applicable law.

General

This information should be read in conjunction with the condensed consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

As used in this report, the terms “Company,” “we,” “our,” or “us,” refer to The ONE Group Hospitality, Inc. and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.

Business Summary

We are an international restaurant company that develops, owns and operates, manages and licenses upscale and polished casual, high-energy restaurants and lounges and provides turn-key food and beverage (“F&B”) services and consulting service for hospitality venues including hotels, casinos and other high-end locations. Turn-key F&B services are food and beverage services that can be scaled, customized and implemented by us for the client at a particular hospitality venue. Our vision is to be a global market leader in the hospitality industry by melding high-quality service, ambiance, high-energy and cuisine into one great experience that we refer to as “Vibe Dining”. We design all our restaurants, lounges and F&B services to create a social dining and high-energy entertainment experience within a destination location. We believe that this design and operating philosophy separates us from more traditional restaurant and foodservice competitors.

Our primary restaurant brands are STK, a multi-unit steakhouse concept that combines a high-energy, social atmosphere with the quality and service of a traditional upscale steakhouse, and Kona Grill, a polished casual bar-centric grill concept featuring American favorites, award-winning sushi, and specialty cocktails in a polished casual atmosphere. Our F&B hospitality management services are marketed as ONE Hospitality and include developing, managing and operating restaurants, bars, rooftop lounges, pools, banqueting and catering facilities, private dining rooms, room service and mini bars tailored to the specific needs of high-end hotels and casinos. We also provide hospitality advisory and consulting services to certain clients. Our F&B hospitality clients operate global hospitality brands such as the W Hotel, ME Hotel, Hippodrome Casino, and Curio Collection by Hilton. For those restaurants and venues that are managed or licensed, we generate management fee revenue based on top-line revenues and incentive fee revenue based on a percentage of the location’s revenues and net profits.

We opened our first restaurant in January 2004 in New York, New York. As of October 31, 2023, we owned, operated, managed or licensed 64 venues including 25 STKs and 27 Kona Grills in major metropolitan cities in North America, Europe and the Middle East and 12 F&B venues operated under ONE Hospitality in six hotels and casinos throughout the United States and Europe. In

October 2023, we consolidated STK operations in London, United Kingdom to STK Strand and STK Stratford which resulted in the closure of our operations within the Westminster London Hotel.

As our footprint increases, we expect to benefit by leveraging system-wide operating efficiencies and best practices through the management of our general and administrative expenses as a percentage of overall revenue.

We intend to open eight new venues in 2023. The six venues that have opened thus far in 2023 are below:

• Owned Kona Grill restaurant in Columbus, Ohio
• Owned Kona Grill restaurant in Riverton, Utah
• Owned STK restaurant in Charlotte, North Carolina
• Owned Kona Grill restaurant in Phoenix, Arizona
• Two Bao Yum venues through a licensing agreement with Reef Kitchens

There are currently three Company-owned STK restaurants under construction in the following cities:

• Owned STK restaurant in Boston, Massachusetts
• Owned STK restaurant in Salt Lake City, Utah
• Owned STK restaurant in Washington, D.C.

The table below reflects our current venues by restaurant brand and geographic location:

(1) Locations with an STK and STK Rooftop are considered one venue location. This includes the STK Rooftop in San Diego, CA, which is a licensed location.

(2) Includes concepts under the Company’s F&B hospitality management agreements and other venue brands such as ANGEL, Bao Yum, Heliot, Hideout, Radio and Rivershore Bar & Grill.

Our Growth Strategies and Outlook

Our growth model is primarily driven by the following:

• Expansion of our STK and Kona Grill Restaurants
• Expansion through New F&B Hospitality Projects
• Increase Same Store Sales and Increase Our Operating Efficiency
• Acquisitions

Executive Summary

Total revenues increased $3.9 million, or 5.3% to $76.9 million for the three months ended September 30, 2023 compared to $73.0 million for the three months ended September 30, 2022 primarily due to the opening of four new venues since August 2022 (STK San Francisco, STK Dallas, Kona Grill Columbus and Kona Grill Riverton). Same store sales decreased 3.0% in the third quarter of 2023 compared to the third quarter of 2022. STK same store sales decreased 5.5% while Kona Grill same store sales increased 1.1%. Compared to 2019, our pre-pandemic base year, same store sales for the third quarter of 2023 increased 41.7% compared to the third quarter of 2019; STK same store sales increased 61.0%, which consisted of a 40.0% increase in traffic and a 21.0% increase in average check, while Kona Grill same store sales increased 23.7%.

Restaurant operating profit was $9.1 million for both the three months ended September 30, 2023 and September 30, 2022. Operating income decreased $2.5 million to an operating loss of $2.0 million for the three months ended September 30, 2023 compared to operating income of $0.5 million for the three months ended September 30, 2022 primarily due to higher pre-opening expenses associated with the increased number of venue openings in 2023, increased depreciation expense associated with four venues opened since August 2022 and higher labor costs driven by wage inflation and investments in human capital in anticipation of growth.

Total revenues increased $14.5 million, or 6.4% to $242.8 million for the nine months ended September 30, 2023 compared to $228.3 million for the nine months ended September 30, 2022. Restaurant operating profit decreased $1.0 million to $33.9 million for the nine months ended September 30, 2023 compared to restaurant operating profit of $34.9 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, operating income was $4.4 million compared to $10.4 million for the nine months ended September 30, 2022, primarily due to higher pre-opening expenses associated with the increased number of venue openings in 2023 compared to 2022, increased depreciation expense associated with the incremental number of new restaurants and investments in human capital for new restaurants expected to open in the next six months.

Typically, the third quarter is our lowest revenue quarter of the year due to seasonality of our business. We have implemented several initiatives to improve restaurant operating profit and overall profitability of our company. These initiatives are focused on purchasing efficiencies for both food and operating supplies, maximizing productivity through smart scheduling, evaluating third-party vendor relationships and reducing travel costs. We believe these initiatives will improve profitability without impacting the guest experience.

Results of Operations

The following table sets forth certain statements of operations data for the periods indicated (in thousands):

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.

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

The following tables show our operating results by segment for the periods indicated (in thousands).

(1) Capital asset additions for the Corporate segment include furniture, fixtures, and equipment for restaurants that the Company plans to open in the future.

EBITDA, Adjusted EBITDA and Restaurant Operating Profit are presented in this Quarterly Report on Form 10-Q to supplement other measures of financial performance. EBITDA, Adjusted EBITDA and Restaurant Operating Profit are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America (“GAAP”). We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization. We define Adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization, non-cash rent expense, pre-opening expenses, lease termination expenses, stock-based compensation, COVID-19 related expenses and non-recurring gains and losses. Not all of the items defining Adjusted EBITDA occur in each reporting period but have been included in our definitions of these terms based on our historical activity. We define Restaurant Operating Profit as owned restaurant net revenue minus owned restaurant cost of sales and owned restaurant operating expenses.

We believe that EBITDA, Adjusted EBITDA and Restaurant Operating Profit are appropriate measures of our operating performance because they eliminate non-cash or non-recurring expenses that do not reflect our underlying business performance. 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. Adjusted EBITDA has limitations as an analytical tool and our calculation of Adjusted EBITDA 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. Adjusted EBITDA is a key measure used by management. Additionally, Adjusted EBITDA and Restaurant Operating Profit are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use Adjusted EBITDA and Restaurant Operating Profit, alongside other GAAP measures such as net income, to measure profitability, as a key profitability target in our budgets, and to compare our performance against that of peer companies despite possible differences in calculation.

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

(1) Amount relates to lease exit costs for 2016 leases for restaurants never built. All amounts were paid as of June 30, 2022.

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

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

Restaurant operating profit by brand is as follows (in thousands):

Results of Operations for the Three Months Ended September 30, 2023 and 2022

Revenues

Owned restaurant net revenue. Owned restaurant net revenue increased $4.2 million, or 6.0%, to $73.7 million for the three months ended September 30, 2023 from $69.5 million for the three months ended September 30, 2022. The increase was primarily attributable to the opening of four owned venues since August 2022. Comparable restaurant sales decreased 3.0% for the third quarter of 2023 compared to the third quarter of 2022.

Management, license and incentive fee revenue. Management, license and incentive fee revenues decreased $0.3 million, or 8.6% to $3.2 million for the three months ended September 30, 2023 from $3.5 million for the three months ended September 30, 2022. The decrease was primarily attributable to the non-renewal of the management agreement for Radio by the ME London hotel.

Cost and Expenses

Owned restaurant cost of sales. Food and beverage costs for owned restaurants increased $0.9 million, or 5.5%, to $18.2 million for the three months ended September 30, 2023 from $17.3 million for the three months ended September 30, 2022. As a percentage of owned restaurant net revenue, cost of sales decreased 20 basis points from 24.9% in the three months ended September 30, 2022 to 24.7% for the three months ended September 30, 2023 primarily due to product mix management, pricing and operational cost reduction initiatives partially offset by increased commodity prices.

Owned restaurant operating expenses. Owned restaurant operating expenses increased $3.2 million to $46.4 million for the three months ended September 30, 2023 from $43.1 million for the three months ended September 30, 2022. Owned restaurant operating expenses as a percentage of owned restaurant net revenue increased 90 basis points from 62.0% for the three months ended September 30, 2022 to 62.9% for the three months ended September 30, 2023 primarily due to higher labor costs driven by wage inflation and investments in anticipation of growth, increased marketing expenses and general operating cost inflation.

General and administrative. General and administrative costs increased $0.8 million, or 12.9%, to $7.3 million for the three months ended September 30, 2023 from $6.4 million for the three months ended September 30, 2022. The increase was attributable to increased stock-based compensation expense and additional investments required ahead of new restaurant openings. As a percentage of revenues, general and administrative costs were 9.5% for the three months ended September 30, 2023 compared to 8.8% for the three months ended September 30, 2022.

Depreciation and amortization. Depreciation and amortization expense was $3.7 million and $2.9 million for the three months ended September 30, 2023 and 2022, respectively. The increase was primarily related to the opening of four new owned venues since August 2022 and capital expenditures to maintain and enhance the guest experience in our restaurants.

Pre-opening expenses. For the three months ended September 30, 2023, we incurred $3.1 million of pre-opening expenses primarily related to payroll, training and non-cash pre-open rent for Kona Grill Riverton which opened in July 2023, STK Charlotte and Kona Grill Phoenix, both of which opened in October 2023 and STK and Kona Grill restaurants currently under development. Total pre-opening expenses related to non-cash pre-open rent was $0.5 million.

Pre-opening expenses for the three months ended September 30, 2022 were $2.7 million, primarily related to payroll, training and non-cash pre-open rent for STK Dallas, STK San Francisco and Kona Grill Columbus. Detail of pre-opening expenses by category is provided in the table below for the three months ended September 30, 2023 and 2022 (in thousands).

(1) Includes Kona Grill Riverton, STK Charlotte, Kona Grill Phoenix and other venues under development.

(2) Cash rent paid was $64 and $105 for the three months ended September 30, 2023 and 2022, respectively.

(3) Includes STK San Francisco, STK Dallas, Kona Grill Columbus and other venues under development.

Interest expense, net. Interest expense, net was $1.7 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively. We borrowed $50.0 million on the delayed draw term loan facility in December 2022. The weighted average interest rate for the three months ended September 30, 2023 was ­12.1% compared to 6.8% in the same period of 2022.

(Benefit) provision for income taxes. For the three months ended September 30, 2023, income tax benefit was $0.4 million compared to income tax benefit of $0.3 million for the three months ended September 30, 2022.

Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest was $0.2 million for the three months ended September 30, 2023 compared to net loss of $0.1 million for the three months ended September 30, 2022.

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

Revenues

Owned restaurant net revenue. Owned restaurant net revenue increased $15.2 million, or 7.0%, to $232.2 million for the nine months ended September 30, 2023 from $217.0 million for the nine months ended September 30, 2022. The increase was primarily attributable to the opening of STK restaurants in San Francisco and Dallas in the second half of 2022 and the opening of Kona Grill Columbus in January 2023 and Kona Grill Riverton in July 2023. Comparable restaurant sales decreased 2.1% during the nine months ended September 30, 2023 compared to the same period in 2022.

Management, license and incentive fee revenue. Management, license and incentive fee revenues decreased $0.7 million, or 6.3% to $10.6 million for the nine months ended September 30, 2023 from $11.3 million for the nine months ended September 30, 2022. The decrease was primarily attributable to the non-renewal of the management agreement for Radio by the ME London hotel.

Cost and Expenses

Owned restaurant cost of sales. Food and beverage costs for owned restaurants increased $1.1 million, or 1.9%, to $56.3 million for the nine months ended September 30, 2023 compared to $55.2 million for the nine months ended September 30, 2022. The increase was due to the incremental sales increases noted above from the opening of four new venues since August 2022, partially offset by the initiatives noted below. As a percentage of owned restaurant net revenue, cost of sales improved 130 basis points from 25.5% in the nine months ended September 30, 2022 to 24.2% for the nine months ended September 30, 2023 primarily due to product mix management, pricing and operational cost reduction initiatives partially offset by increased commodity prices.

Owned restaurant operating expenses. Owned restaurant operating expenses increased $15.2 million to $142.0 million for the nine months ended September 30, 2023 from $126.8 million for the nine months ended September 30, 2022. Owned restaurant operating expenses as a percentage of owned restaurant net revenue increased 270 basis points from 58.4% in the nine months ended September 30, 2022 to 61.1% for the nine months ended September 30, 2023 primarily due to higher labor costs driven by wage inflation and investments in anticipation of growth, increased marketing expenses and general operating cost inflation.

General and administrative. General and administrative costs increased $2.2 million, or 10.8%, to $22.8 million for the nine months ended September 30, 2023 from $20.6 million for the nine months ended September 30, 2022. The increase was attributable to increased stock-based compensation expense and additional investments required ahead of new restaurant openings. As a percentage of revenues, general and administrative costs were 9.4% for the nine months ended September 30, 2023 compared to 9.0% for the nine months ended September 30, 2022.

Depreciation and amortization. Depreciation and amortization expense was $10.9 million and $8.6 million for the nine months ended September 30, 2023 and 2022, respectively. The increase was primarily attributable to the opening of four new owned venues since August 2022 and capital expenditures to maintain and enhance the guest experience in our restaurants.

Pre-opening expenses. For the nine months ended September 30, 2023, we incurred $6.0 million of pre-opening expenses primarily related to payroll, training and non-cash pre-open rent for Kona Grill Columbus and Kona Grill Riverton which opened in January 2023 and July 2023, respectively, STK Charlotte and Kona Grill Phoenix which opened in October 2023 and STK and Kona Grill restaurants currently under development. Total pre-opening expenses related to non-cash pre-open rent was $1.2 million.

Pre-opening expenses for the nine months ended September 30, 2022 were $3.8 million primarily related to costs associated with two STK restaurants that opened in the second half of 2022 and one restaurant that opened in the first quarter of 2023. Detail of pre-opening expenses by category is provided in the table below for the nine months ended September 30, 2023 and 2022 (in thousands).

(1) Includes Kona Grill Columbus, Kona Grill Riverton, STK Charlotte, Kona Grill Phoenix and other venues under development

(2) Cash rent paid was $215 and $211 for the nine months ended September 30, 2023 and 2022, respectively.

(3) Includes STK San Francisco, STK Dallas, Kona Grill Columbus and other venues under development

Interest expense, net. Interest expense, net was $5.1 million for the nine months ended September 30, 2023 compared to $1.4 million for the nine months ended September 30, 2022. We borrowed $50.0 million on the delayed draw term loan facility in December 2022. The weighted average interest rate for the nine months ended September 30, 2023 was ­11.8% compared to 6.4% for the nine months ended September 30, 2022.

(Benefit) provision for income taxes. The benefit for income taxes for the nine months ended September 30, 2023 was $0.3 million compared to provision for income taxes of $0.7 million for the nine months ended September 30, 2022. The effective income tax rate for the first nine months of 2023 was 30.9% compared to 8.0% for the first nine months of 2022. The Company’s projected annual effective tax rate for fiscal year 2023 is expected to be approximately 5.0%.

Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest was $0.6 million for the nine months ended September 30, 2023 compared to a net loss of $0.1 million for the nine months ended September 30, 2022.

Liquidity and Capital Resources

Executive Summary

Our principal liquidity requirements are to meet our lease obligations, working capital and capital expenditure needs and to pay principal and interest on outstanding debt. Subject to our operating performance, which, if significantly adversely affected, would adversely affect the availability of funds, we expect to finance our operations for at least the next 12 months, including the costs of opening currently planned new restaurants, through cash provided by operations and construction allowances provided by landlords of certain locations. We also may borrow on our revolving credit facility or issue equity, including preferred stock, to support ongoing business operations. We believe these sources of financing are adequate to support our immediate business operations and plans. As of September 30, 2023, we had cash and cash equivalents of $22.1 million and $74.0 million in long-term debt, which consisted of borrowings under our Credit Agreement. As of September 30, 2023, the availability on our revolving credit facility was $10.6 million, subject to certain conditions.

Our operations have not required significant working capital, and, like many restaurant companies, we may have negative working capital during the year. Revenues are received primarily in credit card or cash receipts, and restaurant operations do not require significant receivables or inventories, other than our wine inventory. In addition, we receive trade credit for the purchase of food, beverages and supplies, thereby reducing the need for incremental working capital to support growth. Due to the seasonality of our business, we typically generate a greater proportion of our cash flow from operations during the fourth quarter.

Our future cash requirements will depend on many factors, including the pace of expansion, conditions in the retail property development market, construction costs, the nature of the specific sites selected for new restaurants, and the nature of the specific leases and associated tenant improvement allowances available, if any, as negotiated with landlords. We have made significant investments in our training and development teams to support new restaurants openings. We believe these investments are necessary to support the successful opening of our new restaurants. If we modify our growth plans, the personnel that comprise our training team could be deployed to operate existing restaurants.

To help manage future cash requirements, we limit the number of owned company venues under construction at any given time to four restaurants. We also set a maximum number of signed leases for new restaurant development to twelve in order to minimize our cash rent commitment to approximately $3.0 million to $4.0 million annually for restaurants under development.

Capital Expenditures and Lease Arrangements

When we open new Company-owned restaurants, our capital expenditures for construction increase. For owned restaurants, where we build from a shell state, we have typically targeted an average cash investment of approximately $3.8 million for a 10,000 square-foot STK restaurant and anticipate approximately $2.5 million for an 8,000 square-foot Kona Grill restaurant, in each case, net of landlord contributions and excluding pre-opening costs. For STK locations where we may be the successor restaurant tenant, we anticipate total cash investment in the $2.0 million to $3.0 million range. We are currently testing various Kona Grill prototypes with different size layouts, equipment packages and features such as rooftops and mezzanines which may result in the buildout costs being higher than the anticipated costs stated above. Typical pre-opening costs, excluding non-cash rent, are $0.6 million to $0.8 million per restaurant assuming ten restaurant openings during the year. In addition, some of our existing restaurants will require capital improvements to either maintain or improve the facilities. We may add seating or provide enclosures for outdoor space in the next twelve months for some of our locations, which we expect will increase revenues for those locations.

Our hospitality F&B venues typically require limited capital investment from us. Capital expenditures for these projects will primarily be funded by cash flows from operations depending upon the timing of these expenditures and cash availability.

We typically seek to lease our restaurant locations for periods of 10 to 20 years under operating lease arrangements, with a limited number of renewal options. Our rent structure varies, but our leases generally provide for the payment of both minimum and contingent rent based on sales, as well as other expenses related to the leases such as our pro-rata share of common area maintenance, property tax and insurance expenses. Many of our lease arrangements include the opportunity to secure tenant improvement allowances to partially offset the cost of developing and opening the related restaurants. Generally, landlords recover the cost of such allowances from increased minimum rents. However, there can be no assurance that such allowances will be available to us on each project that we select for development.

For the nine months ended September 30, 2023, capital expenditures were $38.4 million of which $31.0 million related to the construction of new STK and Kona Grill restaurants and $7.1 million for existing restaurants. We have opened four Company-owned restaurants in the first ten months of 2023 and expect to open an additional three to five Company-owned restaurants over the next six months. Net capital expenditures, inclusive of $1.8 million in landlord contributions, was $36.6 million for the nine months ended September 30, 2023. We expect to receive between $4.0 million to $4.4 million in landlord contributions in the next three months. Capital expenditures by type for the nine months ended September 30, 2023 is provided below (in thousands).

(1) Includes inventory of restaurant equipment for venues under development.

Credit Agreement

On October 4, 2019, in conjunction with the acquisition of Kona Grill, we entered into a credit agreement with Goldman Sachs Bank USA (the “Credit Agreement”). On August 6, 2021, we entered into the Third Amendment to the Credit Agreement to extend the maturity date for both the term loan and revolving credit facility to August 2026, to eliminate all financial covenants except a maximum net leverage ratio of 2.00 to 1.00, and to eliminate restrictions on the maximum amount of capital expenditures, the maximum number of Company-owned new locations, and credit extensions under the revolving credit facility. As amended, the Credit Agreement provides for a secured revolving credit facility of $12.0 million and a $25.0 million term loan (reduced from $48.0 million). The term loan is payable in quarterly installments of $0.1 million, with the final payment due in August 2026.

On December 13, 2022, we entered into the Fourth Amendment to the Credit Agreement that:

• Allows for a new $50.0 million delayed draw term facility, available to draw for twelve months and subject to a 1.75x Net Leverage Ratio incurrence test (as defined in the Credit Agreement) for permitted acquisitions, stock repurchases and new restaurant capital expenditures;
• Allows us to redeem, repurchase or otherwise acquire its own capital stock in an aggregate amount of up to $50 million subject to a 1.75x Net Leverage Ratio incurrence test and no default or event of default; and
• Changed the interest rate from London Interbank Offered Rate (“LIBOR“) plus a margin to Secured Overnight Financing Rate (“SOFR”) plus an applicable margin.

We borrowed $50.0 million on the delayed draw term facility on December 28, 2022. The delayed draw term loan is payable in quarterly installments of $0.25 million beginning March 31, 2024, with the final payment due in August 2026.

Loans under the amended Credit Agreement bear interest at a rate per annum using the SOFR rate subject to a 1.00% floor plus an interest rate margin of 6.50%.

As of September 30, 2023, we were in compliance with the covenants under the amended Credit Agreement. Based on current projections, we believe that we will continue to comply with the covenants in the Credit Agreement, as amended, throughout the twelve months following the issuance of the financial statements.

Refer to Note 5 and Note 15 to our condensed consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the terms of our long-term debt arrangements and information regarding our commitments and contingencies.

Cash Flows

The following table summarizes the statement of cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):

Operating Activities. Net cash provided by operating activities was $15.2 million for the nine months ended September 30, 2023, compared to net cash provided by operating activities of $16.3 million for the nine months ended September 30, 2022. The decrease in net cash provided by operating activities was primarily attributable to the timing of collections on accounts receivables and payments on accrued expenses.

Investing Activities. Net cash used in investing activities for the nine months ended September 30, 2023 was $38.4 million primarily for the construction of STK restaurants in Charlotte, North Carolina; Boston Massachusetts; Salt Lake City, Utah and Washington D.C. and Kona Grill restaurants in Columbus, Ohio; Riverton, Utah and Phoenix, Arizona and several restaurants that were under development as of September 30, 2023, as well as capital expenditures for existing restaurants compared to $21.3 million for the nine months ended September 30, 2022. We intend to open six Company-owned restaurants in 2023, of which four restaurants have opened, compared to opening two Company-owned restaurants during 2022.

Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2023 was $9.6 million compared to $0.8 million for the nine months ended September 30, 2022. We purchased $7.7 million in common stock under our share repurchase program and used $1.8 million to pay employee taxes for shares withheld upon the vesting of restricted stock units during the nine months ended September 30, 2023. During the nine months ended September 30, 2022, we purchased $3.5 million in common stock under our share repurchase program and used $2.0 million to pay employee taxes for shares withheld upon the vesting of restricted stock units, partially offset by net borrowings on our credit facility of $4.6 million.

Recent Accounting Pronouncements

See Note 1 to our condensed consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for a detailed description of recent accounting pronouncements. We do not expect the recent accounting pronouncements discussed in Note 1 to have a significant impact on our consolidated financial position or results of operations.

As a “smaller reporting company,” as defined in Item 10 of Regulation S-K, we are not required to provide this information.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as our controls are designed to do, and management necessarily applies its judgment in evaluating the risk and cost benefit relationship related to controls and procedures.

Our Chief Executive Officer and Chief Financial Officer, have reviewed the effectiveness of our disclosure controls and procedures as of September 30, 2023 and, based on this evaluation, have concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Controls

There have been no changes in internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes to the risk factors contained in Item 1A of our Form 10-K for the year ended December 31, 2022.