It's afternoon now. Good afternoon, everybody. My name is Jim Salera. I'm the restaurant analyst here at Stephens. And with us today from The One Group Hospitality are Manny Hilario, CEO, and Tyler Loy, CFO. Thank you both for joining us today.
Thanks, Jim. Thanks for inviting us.
Manny, I want to start with you and a quick overview of the business, and for those who might not be as familiar, STK went public back in 2013, suffered from some operational missteps while expanding. You actually eventually took over in 2017 and since then added a lot of other concepts to the portfolio: Kona Grill, obviously more recently Benihana, RA Sushi. How should investors think about the growth potential for this brand portfolio that you put together?
Thanks. Again, thanks for inviting us. A little bit of a backdrop. The One Group was founded in 2004 in New York City. Our first big business was STK, and our first restaurant was STK and Meatpacking. So we've been around for quite a while, over 20 years. As Jim pointed out, I joined the company in 2017. And when I came on board, we were about a $100 million revenue company, about somewhere sub $10 million in EBITDA. Now we're looking at a company that's about $900 million in revenues, about $110 million in run rate EBITDA based on our latest projections and guidance that we issued. And so we've gone through a lot of growth in that time period. I think we've grown two ways. We've grown organic through the expansion of the STK brand. We are now at 29 STKs.
We're getting close to opening our 30th STK, and it's become a global or actually an international/global steakhouse brand. We have been very pleased with that brand. As a matter of fact, we believe that brand can be a 200-unit potential or white space for that brand. We're still early, although we've grown it a lot. We still think that that's a big opportunity ahead of us. As you pointed out, we've had some acquisitions in the way. We picked up Kona Grill in 2019. We paid $25 million for 24 restaurants. We've actually made a significant amount of money off that acquisition in the last four years. We probably tripled our money through that time period there. We've done very well with that acquisition over time. I'll give you a little bit more detail about it a little bit later.
And then, as you also mentioned, we picked up Benihana earlier this year. In May, we picked up over 100 units. And so we added Benihana to the family. Also came with RA Sushi, which is another brand that was with the company. And we picked up about 20 units of RA Sushi. What are we doing with that portfolio? Well, we look at Benihana itself. There's about 80-ish Benihanas in operations in the U.S. We think that can be 400. So we have a tremendous amount of white space with Benihana. AUVs for Benihana is around $6.5 million. So a significant AUV. So there's a lot of market share or market that we can pick up growing that brand domestically. We also plan to open or grow some additional units in Latin America. We have some Benihanas that we operate through franchising agreements in Latin.
So we think there's an opportunity to grow that as well. And then Kona Grill and RA, we now call them together the Grill. So there's like the two of them together. There's about 40 of them. We think there's enough White Space to have about 200 of those over time. So that's kind of our third arrow, if you will, from a growth perspective. And then the other stuff that we do, we have a group called One Hospitality. So think of it as when we get an STK in a hotel, sometimes we have to pick up room service and other F&B businesses within that hotel. So it's kind of our way of getting more businesses within hotel operations. And then we also have retail. We do grocery with Benihana. We also have some retail business with the online businesses. We have the STK Meat Market.
And then we just also operate Benihanas in big sports venues like Yankee Stadium and stuff. And we think that there's also an opportunity to keep licensing that business. So all in all, I think we are, as we tell everybody, we are on our path to $5 billion when you start doing the math on all the white space opportunities and the brands that we have. We think we're still very early on our growth. So we have an opportunity here to grow the company four to five times with the current brands that we have.
Great. And I appreciate all the color there. Maybe one follow-up before we move on to some of the near-term environment for restaurants. Do you think that the brand portfolio as it's currently constructed gives you any strategic capabilities that otherwise wouldn't happen if you just had one brand or kind of one concept or theme that you catered to?
Yeah, I mean, that's a great question. So I think obviously the first one is leverage. We have a platform in terms of our back office operations and what we do. We have a call center that we use to manage reservations and operational logistics. So that's an advantage that I see with that. The second advantage is we become really meaningful to landlords because we have a breadth of different brands and we cater to different occasions. So we've become very desirable to landlords. As a matter of fact, every time I meet with a landlord, they want to know when we're going to bring a new Benihana to their project or in particular in the most scenarios, people love Kona Grill because they have a broad menu and they also bring in the sushi component. So we've become really an important tenant to landlords.
I think the other thing that I'm picking up now is that with the multiple brands, even on the hospitality side, like casinos and hotels, they see the potential of us now coming in, and instead of just having STK to offer, I think that they like the fact that they can have a Benihana or Kona Grill in addition to that. So it's just a much more desirable footprint for us for these partners that we have. The other thing is with the current portfolio, we can do urban and suburban markets, whereas before with STK, we tended to be more interested in the big DMAs and big urban markets. This gives us a little bit more flexibility in going to smaller markets. With RA, Kona Grill, STK, and Benihana, we can do high-quality real estate of any size.
So before we were kind of limited to the 10,000 sq ft positions, but now with RA and Kona Grill and all these other opportunities there, we can go to much smaller, high-quality real estate that we probably couldn't take a look in the past. So I think that we've become a more dynamic company that way. And then last but not least, I think loyalty is big in today's restaurant environment. I think you've seen all the big players like Cheesecake and anybody who's really in the restaurant business, the Landry's of the World, all these guys who are really good at what they do is you got to have a compelling loyalty program. And I think loyalty program in today's environment, you're not going to eat STK every night.
So having a Benihana or, and by the way, I would eat STK every day, but I'm not recommending that as a strategy. But having those multiple brands gives you an opportunity to go out. So your wife may want to go to sushi tonight instead of steak or having teppanyaki for a birthday occasion. So it really provides a much stronger platform for loyalty, which really matters to consumers today. I mean, loyalty creates a pathway of providing a one-on-one connection with the customers and the brand. So we look forward to the opportunity of leveraging that portfolio. So I can go on and on about the.
No, no.
A lot of obviously strategic advantages of having those brands.
Yeah. No, that's all very helpful. So if we zoom in kind of 2024, it's been a challenging year for restaurants, consumers being more cautious with their spending, seeing a lot of promotion in the channel. What type of changes have you noticed from your core consumer? And what do you see in kind of the full-service category of how they're trying to adapt to this, let's say, more value-conscious consumer?
I mean, I think probably the biggest changes have been how the consumer goes out. I think Thursday, Friday, and Saturday have become the days that people go out for dining. So I think that we've had a little bit of a shift on Monday, Tuesdays, and Wednesdays. I think there's a lot less people going out on those days. And I also think that lots of dining decisions have become last minute because our reservations have gone down and walk-ins have gone up. So you can see that there's a shift on that business. And I think as we go around asking people about that and talk to customers, I think customers are waiting until a little bit of the last minute to make a decision if they're going to go out or not and spend money on the dining occasion.
So I think that's really more visible and more noticeable in today's environment. Sundays is a school night again. I think that during COVID, that was one of the things that wasn't that clear was that people weren't going to the office on Mondays. So you could see that the late-night business on Sundays was a lot more present. So I think people are going a little bit less on Sunday nights. And I just think in general, the late-night business has changed. I think that the consumers during COVID started going out earlier and restaurants were closing a lot earlier. So it kind of educated the population to be a much earlier dining population. So I think all those are kind of the. I'm not sure that's really an economic situation. It's maybe more of just a general cycle profile for the consumer.
But so those are some of the more noticeable things. Tyler has actually done a really good job of looking at sales by time of the month. And we noticed that people spend less at the beginning of the month. I mean, that's become kind of a little bit obvious that the first week, same-store sales are usually challenged more than the other three weeks. And as you get out in the month, sales get better. I think Tyler's theory on that is that you're closer to paying rent and mortgage, and people seem to be a lot more cautious on the spend on the early parts of the week. And so those things kind of been noticeable there. And clearly, if there's one trend, which I probably should have started my answer with, is people are trading down. I mean, you're seeing that, particularly you're seeing that at STK.
STK, we were down about four points in traffic, whereas the industry for fine dining in that category is probably down 10 or more in traffic. We were only down four in traffic for STK. But what we're seeing is we're seeing check trade down. So people, instead of ordering the $85 premium steak, they still want to have the steak, but they'll order the $50 steak. So there's a very noticeable trade down impact that you see on that sector. And I'm super delighted that we are able to retain that traffic at STK because, as I tell everyone, as people will come back to spending again, it's a good competitive advantage to keep your market share. So I feel really good about the turn.
Once people have more money and feel a little bit more wealthy, I think that that will be a tremendous upside for us on the recovery side of the economic trends right now.
So?
Anything I missed on that?
I was going to say, Manny, you said something interesting there. And Tyler, be curious on some of the work you've done in kind of the front month versus the back of the month. So if I understood that correctly, mortgage payments, things that come in the front of the month, you want to make sure you have cash to pay that. And then as you get close to the end of the month, you have a sense of how much extra you have left. And so you're more willing to spend that incremental dollar because you know you're going to get paid and then roll into the next month.
I also think just to add to that too is I think that lots of people get paid at the end of the month, so as they get closer to the end of the month, they kind of feel like a little better about spending that in the middle of the month, so I think there's a bunch of other things happening there too.
So that's interesting in kind of pulling on that thread. If we think about what normalizing consumer spending behavior would look like, would it be kind of a more? And if you go back pre-COVID or kind of whatever you want to use as your baseline, would it look like more consistent spending throughout the month? And what do you think we would need to see from where we are today to kind of return to that normalized spending, let's say?
Yeah. I mean, I think, again, I think that's just, I mean, this year has been a very interesting year. Not only do we have the economic headwinds or the perceived economic pressure there, but the election year was very interesting in its own. There was a lot of, I think, consumer anxiety about, in general, what happened with what was going to happen with the election. So it was a very unusual election year. I mean, and I don't have to retell this. Everybody knows that because everybody reads the newspaper or sees Fox or CNN. So everyone knows that it was a very unusual election cycle. But in general, I think that if we were looking back in the days where there's more stable economic cycles, you would see that the in-between spending in the month is not as dramatically different as we see it today.
As we hopefully are on a path to kind of normalization from the consumer standpoint, do you have any particular concept that you would think is seeing kind of a return to normal the quickest?
Yeah. I mean, STK will pop up the fastest. I mean, STK, the frequency in our guests is six to seven times a year. So we have a very high-frequency customer base, and we're retaining them, as I mentioned earlier, on the traffic. So I think that one is just a matter of as soon as the consumer feels a little bit more wealthier, they'll go back to ordering the $85 steaks versus the entry-level steaks. So I think that's a natural fit. I think that with Benihana, I think right now we're still getting the birthday occasion and kind of that one time that you go out to celebrate because it's a celebratory brand. But I think as the consumer feels a little bit more willing to spend, we also will get that non-celebratory visit out of the guest.
So I think Benihana is kind of like number two on that. And then I think the grills, I think what happens with the grills is sushi and seafood is the least consumed proteins. And from a consumer perspective, everybody eats a lot of beef and chicken. So seafood is like the third component of your diet, if you will. So when money is tight, people will go to whatever the most frequent or most used proteins are. So I think chicken and beef hold up pretty well. And then seafood kind of becomes very discretionary in down cycles. I think when the cycle turns the other way, sushi and seafood come back. So we'll see a bit of a recovery on that. So I think the grills will be number three on that sequence of recovery.
Great. Thinking about the different offerings that you have across your concepts, what type of value offerings are you finding consumers are engaging with the most? Maybe if you go through a couple of offerings that you guys have in the channel right now that you think are getting the best response from consumers.
Yeah. So I mean, our history as a company has been, we always been in the value business. Value has been a fundamental part of our business. And for us, value started with Happy Hour, 369. So all of our brands now are on 369 offerings, including RA and Benihana. So that's one of the things that we made sure, particularly with RA and Benihana, that we did right away. So that's an immediate layer of value in it. And then so we're complementing that with the dinner side. We have a $39 deal at the grills and also Benihana. And the $39 deal at Benihana that we put in place is that Benihanas tend to have 20 tables, teppanyaki tables with eight people. So they kind of, if you will, capacity at about 160 customers. But the bars and bistros are usually open.
We put the $39 on the bar and bistro. So if you come in and you don't want to wait 45 minutes for your teppanyaki table, we have a $39 option, which works really well on Fridays and Saturdays because we're moving people into the bistros and not having to wait for tables. So that actually establishes two things. It adds value messaging and also helps you with capacity management in the restaurant. So that's been really good for us. The other place where we have value is for takeout and delivery. We have $9.99 cheeseburgers across all the brands. So I think that's a significant value that we have. And then STK, we do a $69 night-out deal. So you can get a steak or an entrée, a salad, appetizer. And if you have two people, a whole bottle of either wine or Prosecco.
So for $138, you can have a full meal for two. And then at STK, so I think that's a very strong value proposition. And then we also have lunch. We have what we call Power Lunch. So at Kona Grill, that's a $19 meal. So you can come in for the lunch day part at $19. And STK Power Lunch is at $39. So we have value in all day parts. And then the last level of value for us comes through brunch. Brunch allows us to provide a lot of the same product that we have at dinner, but we provide it at a much lower price point.
Great. You mentioned something, Manny, about the $9.99 for takeout. Can you just offer any thoughts on different types of buying behavior from the in-restaurant versus off-premise channels and any noticeable difference in the consumer behavior there?
Yeah. I mean, takeout delivery, customers love cheeseburgers and fries. That's like that. And they love sushi, sushi rolls. So anything to do with those categories sells really well. And then they tend to buy shareables. So think of things that like mac and cheese or fried rice, anything that comes in bulk that can be used as a group opportunity. So we see a lot of intent in buying those shareable type of dishes. And the takeout and delivery is also a little higher on the overall check. But if you probably look in there, how many people are actually using the product probably tends to be, in our view, a little bit lower per head. So there's a little bit of a value play on takeout and delivery as well. And so but we also sell add-ons.
Like for instance, in the urban markets, we do see that people like steaks on a takeout basis. So if you can provide a steak program in cities like Chicago and New York, you will see that at kind of a second level of real preference where after 8:00 P.M., we seem to sell a lot of the premium items in the bigger city. So there's a little bit of a bifurcation in that business, which is lots of bulk, lots of possible value, but then you also get the premium and the late hour. I hope that answers it.
Yeah, yeah. No, that's helpful. As we head into what typically kind of seasonally stronger holiday period, how should we think about the level of private party bookings as compared to prior years, especially as the experiential dining is kind of a key component to your value offering?
Yeah. I mean, so the demand in bookings is up. So if I look at this year versus last year in terms of the number of bookings, that's definitely up. What we do have is like when, let's say, Tyler was booking an event with us, he gives us a number of people, what menu he's interested on. The one thing that we don't get a really good view on him is what happens when he goes to the event. Does he take the premium drinks or not? So obviously, he's asking for it to take the $100 menu instead of the $125. But then we're always very successful at trading you up either on alcohol or even on the packages when you get there.
So I think the X factor in terms of how that converts into revenue dollars will be based on the consumer sentiment, if you will, during the holiday season. Depending on what Fox News and CNN are talking about, it will kind of drive, I think, a little bit of that. Will Tyler buy the $100 bottle of wine or will he buy the $60 bottle of wine? So I think that kind of makes a really big difference in terms of in the group difference and the group events. But I would say that since COVID, this has been the most engaged fourth quarter demand season that we've had. And so we've seen a lot of people making bookings right now.
Great. As we think about, you talked a lot about value offerings in terms of having a broad assortment of products for different day parts, different consumers. Just thinking about pricing and how the One Group is positioned across the brand portfolio on pricing as we go into 2025, do you think that there's appetite or maybe appetite's the wrong word, but room for more pricing at concepts like STK and Benihana, even against a consumer that obviously in 2024 was very value-oriented?
Sure. Yeah. I mean, I think that we'll take and look at taking very moderate pricing across all the brands. Moderate would mean kind of low single digits. I think historically, we've been very conservative on price. So I mean, specifically in the STK and Kona Grill businesses, I think we were very conservative on price even when we saw a pretty high inflationary environment. And then in terms of just like Kona Grill and RA, I think across all the businesses, really, I think we're looking at a relatively moderate inflationary environment. And so I think we're just looking at taking enough price to just kind of offset that inflation.
Yeah. I would only add to that answer that as we talked about in our conference call, when you get into environments like this, margin is critical. Having continued to have a great margin, particularly for, I mean, I guess all businesses, but restaurants specifically is they're very sensitive to sales differentials on the margin side. And I think one of the things you'll probably notice about our performance is our consistency on the margins. As a matter of fact, if you looked at our third quarter performance, you would notice that Benihana margins actually went up if you compare them to before we even owned them. And that was on a slightly down same-store sale. So I think the margin preservation and the ability to preserve margin in down cycles is really critical for restaurants.
So I think that's one of the areas that we've actually shown a lot of success. As a matter of fact, our trailing EBITDA for 12 months now is around 16.5-17. And that's what we've guided people to for this full year. And I always tell people that if restaurant companies can keep a 17% margin, it's always a good thing. So I think that's kind of critical. So in our case, coming back to the pricing, I don't feel pressured to take a lot of pricing right now. And I think that the consumer is in a space that they're hypersensitive to any kind of pricing increases. So I think that just being very thoughtful and purposeful on prices, if it doesn't really impact your margins dramatically, you're better off being very modest right now.
So taking some of those comments and kind of dovetailing into what hopefully is a more benign 2025, if we see traffic come back and you kind of have some modest pricing, is it reasonable to assume that in kind of a normalized consumer environment, we could see restaurant-level margins expand again in 2025?
Yeah. I mean, particularly for us, I mean, we are a fine dining company. If you really think about our price points and where we fit in the spectrum of consumer spend, I mean, obviously, STK is at the highest level. And then anything over $50 is pretty up there, at least in the way we look at it. So we're in that category. I think for the folks who follow this industry, and now I'm really going to start showing my age, is that there are cycles in this business. It's a very cyclical business. There was the 2001 cycle with September 11th, and then there was the 2008, 2009 cycle. And I think probably the thing that you learn out of these cycles is that the higher end always goes in first in terms of it's the more discretionary dining.
And then, so we kind of feel that. But unlike QSR and the other guys, we actually really feel it. When it goes down, it goes down. But then the side of that is when it comes up, it comes really up. So if you look at kind of, and you guys would be better equipped at doing this analysis than I am because you got all the data. But if you do all the comp analysis and anybody who's been in that category of fine dining is just as the up cycle is good. So one of my awesome responsibilities working with our team is that I always remind them that, remember these days. And then in these days, if you're able to maintain the margins like we are in that really good range, your upside is dramatic because your flow through on those incremental sales is huge, right?
Because your fixed cost structure really doesn't change that dramatically on the up cycles, particularly on the short term. So you're able to really maximize your profitability on this side. So I'm not making any bullish predictions, but I'm just saying that if we follow a typical cycle on our category of dining, the other side of the cycle usually means really good, really good things. And so I'm readying ourselves and making sure that we protect that. That's one of the reasons why we're being super cautionary on pricing is because take enough pricing to offset inflation. That's certainly a safe thing to do. But be conservative on the other side because you will get rewarded with traffic on the upside. So that's kind of like our longer-term strategy is to be modest right now on pricing.
When it comes back, we expect our margins will expand significantly out of there because the incremental profit in those new transactions can be 40, 30, 40, 50%. It's really important that we are ready to bring on that incremental profitability to the margins.
One of the variables on the margin front is obviously commodity basket, what you guys are seeing in particular key commodities like beef. From what we can see right now, at least, it looks like beef could potentially be a source of pressure in 2025, but maybe some favorability on some other commodities. Just how should we think about that? Is there anything we should keep an eye on other than beef, obviously, as we go into next year that might be, again, a source of benefit or headwind?
Yeah. I mean, I think that the basket seems relatively just mixed right now. I think there's potentially some favorability in chicken. But I think that, and so far, coming into kind of the fourth quarter, beef has been okay for us. But then I think to the point that you were just making, our restaurant-level margins are 6.5%, 17%, which are already very good. And then we've got, I think, the offset to any inflationary pressure is also the work on the synergies that we're doing. And so I think you started to see that last quarter at Benihana as margins went up on slightly negative same-store sales. And I think we feel really good about the $20 million in synergies, both from a support perspective and from a restaurant-level margin perspective.
So I think that's a little bit of we do have an offset there in case there is any commodity pressure. And then obviously, there's going to be any kind of policy decisions. We'll see what the impact of that may be, but hard to predict right now.
Yeah. I mean, to just add a little bit, just addition on that is that beef is not all the same. I mean, there's the, and then demand makes a difference on the pricing on beef. What I mean by that is that the higher-end beef right now, there's a little bit more. There's less demand, which makes the pricing a little bit more flexible there. That's one of the reasons why our Wagyu strategy really plays right now. We actually have really stable sources of the Wagyu product, which helps us maintain that a little bit stable. And just in general, I think the demand for the premium product has been a little bit less. And then the other two things that bode well for us is, I think, fuel. The outlook is pretty positive for fuel. And fuel is a big input cost into the commodities basket.
And then also labor has somewhat stabilized relative to what we saw in 2022 and 2023. So I think there's a little bit of an offset on that. So I think, as Tyler mentioned, I think our outlook on inflation for 2025 is in the 2%-3% range, possibly, but not a lot more than that.
Manny or Tyler, just one of the last things you mentioned there on labor. Just give us a sense for as you're integrating Benihana into the portfolio, is there any challenges on training retention, both as part of that integration and then against the backdrop of just kind of the current macro environment?
I mean, I think that I'll answer that by saying that training is critical. I think that's the thing that we found out is that, and we know that, is that having a compelling training program is absolutely paramount in our restaurant space. So I think that we've put a lot of resources behind doing that. And training is critical not only because of the effectiveness of the individuals, but also people like working for companies that invest in them. So it creates a really good bond between the employees and the employer. So I think we're and we've been seeing that we're 100% staffed as a company. So if I looked at all brands combined, I think we're about 101% to par on workforce. So I think that we're going into the fourth quarter, or we're in the fourth quarter looking really good from a people perspective.
Going forward, it's about retention. It's retention. Training will be a critical component of that equation. Then the other thing, and if when you have a chance to tour restaurants with us, you will see this is we've been committed to a significant amount of technology in the back of the house. So we've tried to take as many hours out of manual labor in our restaurants. For instance, in our category, having sauté stations and burners and sauté pans is kind of like becoming a little thing of the past. We're kind of working in a method right now where the less sauté pans we have in the kitchen, the better off it is because they require hands to operate. So we've been really thoughtful about that.
And so if you look at some of our newer restaurants, we've invested significantly in the equipment packages that we're putting in there. And then the other thing that we've done is all our new restaurants, we put a lot of thought into the perfect flow so that the employees are moving fluidly through the restaurant. So we're very sensitive about where's the kitchen entry, where's the kitchen exit, and really planning out the flow of employees in the restaurant. So that really helps us take labor off the table. So we're replacing hours with technology and design and flow in the restaurant.
Now that you've had a couple of months to get more familiarized with Benihana, outside of obviously commodity and more traffic helps with just better incremental margin dollars, are there any other opportunities at Benihana to improve the margin profile of the business?
Yeah. I mean, the most obvious one is liquor mix is only 12%-13%. So when I saw that number, I was like, "Whoa, that's kind of just pure, I mean, just pure math is we can probably do 20% of beverage." So you'll see us a little bit doing evolving the bar program there. And it's not just on the offerings, but if you go to Benihana today, some of the restaurants, good luck finding the bar. I mean, because the bar has always been kind of a second thought within the development of the brand. It's always been about the, rightfully so, about the teppanyaki table and the exposure of what you do when you're in the dining room. So you'll see us putting a lot more thought into really opening up the restaurants so you could see the bars.
And that's one of the reasons 369 is super critical, is to really build up happy hours and really bring in more of that sales. So that's an opportunity. Even look at the table sizes of a Benihana. You'll notice that the restaurants, there's the grill, and then there's tables about only 14 inches deep. And so even small things like that, it's hard to do wine and beer service when your table space is really that limited. So those are some of the opportunities that we frankly will work on. So table size, the look of the bars, and that should get us closer to 20% on that. And then we just added Wagyu. So we put Wagyu offering in all Benihanas now. And so what that does is a lot of our sales is filet.
I don't know if you guys order filet or not when you go to Benihana, but a large portion of our customers do. And so Wagyu is a natural trade-off point. So you can either get the regular choice product, or if you want to impress your date or whoever you're with, then you go out to the Wagyu side. And we get a $20+ for every person that goes up to the Wagyu category. And then the incremental margin of that is very good for us. So we make a lot of money selling Wagyu. So those are some of the examples of some of the low-hanging fruit opportunities that will help us with furthering the margin there.
Yep. That's great. Shifting focus to unit growth. Recently updated your unit growth guidance to, I think, it was around six openings for this year. That was down from a prior guide of eight to 11. Can you just talk about what you're seeing in the permitting environment right now? And maybe as a second part to that question, would we expect some of those units to get pushed into 2025, or should 2025 kind of be relatively in line with this year, around six units?
Yeah. So I mean, our updated guidance is more a reflection on balancing the signed leases because we do have. We usually keep about 12 signed leases and just working out the timing on those. So that's important for us that we open all the leases that we sign. So we make sure that we do that. And then the other thing that's critical for us in our development plan is that coming out of COVID, hotels and casinos and airports, nobody was really interested in building new brands or new ideas into their properties. And since then, that's kind of normalized. So our pipeline and demand for licensing, management, and franchising business has gone up dramatically. So now what we found out is that we have a lot of inbounds who want to do an STK or in a hotel.
There's a lot of demand for Benihana and casinos. There's been some demand for Kona Grill and airports. So there's a lot of other people who want to license and franchise the brands from us. So really, our change in guidance is a reflection of, if you will, a shift in people who now want to do more licensing and franchising. The permitting cycle has been difficult since COVID, and nothing really there has changed. So we just really have just seen long cycles everywhere. So we really haven't. I wouldn't say that us as a team have experienced additional time on that. So that's a function. And the fourth thing is we also want to work on cash. So our priority right now is balance sheet. So I think that kind of tempering a little bit of the company-owned development is also a function of Tyler wants more cash.
We want more cash. So we're kind of trying to figure out a great balance between balance sheet and a great balance with developing and growing the company.
Circling back on some of the comments you made on non-company-owned stores and that asset-light growth model, would you expect that growth to, especially thinking like Benihana, would you expect that growth to come from operators already within your system, or are you looking to really attract new partners to bring into the system that can help you reach some of those hospitality venues?
Yeah. I mean, it's a great question. So it's a 50/50 mix. I think we've seen a lot of our existing partners now saying, "Hey, we think it's time for a second opportunity." We've also had a lot of interest coming in on the Benihana side on franchising because we've been talking about franchising for many years. Benihana didn't really talk about franchising as a real option. It was more kind of it was not a priority from a development perspective. So what I found out is that people actually want to grow those franchisees.
And then as I start talking to our existing franchisees, I noticed that there was a lot of them that were asking the questions, "When can I have my next franchise unit?" And the answer is, "We don't know because the company's up for sale." So the company was up for sale for a period of time. And during that time period, there was pent-up demand in the franchising business that just wasn't really filled. So I think we're just tapping a little bit into it. And then on the hotel side, I think that, frankly, I think the hotel business went through an adjustment period where they basically were in survival mode. They were just trying to get rooms open. Sometimes they couldn't even really get room service, or they couldn't even get people to maintain rooms.
So I think that that's stabilized a bit where now you're starting to see a little bit of the normalization of that. So people now are looking at refreshing their offerings because now they're figuring out, "Well, now I can actually get a housekeeper to do your bed." So now what do we do with the next level of attracting more guests and drive the ref bars in the restaurants in the property? So they're now looking at F&B again as a great alternative to drive the revenues out of the hotel. So there's a lot more emphasis, lots more inbound increase about that. And we're not happy to talk to them about that, so.
Manny, you mentioned Tyler's demand for more cash and him coming to you and making sure that's a priority. How should we think about priorities for Free Cash flow? Debt pay down obviously is one, but balance between maybe unit development, dividends, buybacks, etc. Any thoughts on that?
Yeah. So first, I mean, there's a tremendous amount of Free Cash flow generated from this business. When you think about on a run rate basis and taking out pre-opening, which is really kind of a development cost, we're generating between $150 and $120 million Free Cash flow. We have some maintenance CapEx, and you've got interest expense. And so after those two things, we have a really considerable amount there even in the current environment. So I think first, we have to prioritize kind of what's most important to the shareholder and really prioritizing long-term shareholder value creation. I think Manny touched on it right now. Even though our current facility doesn't have any financial covenants, so obviously that's a significant protection, but I think the balance sheet right now is just the first priority.
But I think that based on the level of Free Cash flow that we have, we can do both things. We can actually grow, and we can shore up the balance sheet or bulletproof the balance sheet. And so we can balance both of those things.
Yeah. I mean, I think just in any environment, so let's start off with that, is I think building cash is always a good thing. So I think that kind of from an investor and returning value to our shareholders, I think building cash is a really good strategy right now. And Tyler brought up a really good point is about leverage. So when we did the Benihana, RA transaction, obviously we took on leverage. And then I always tell people there's leverage, and then there's real leverage. So what I mean by that is there's like stressful leverage. So if you're having a credit facility where you have to file covenants every quarter, whatever that is, that's tougher leverage. In our case, we don't have covenants. So it's leverage. We have to pay it back, and we'll work towards getting that done as soon as practical.
Our leverage is one that is not stressful. As long as you can pay your interest, which in our case is about $30 million-$40 million, you really don't have that much of a burden over that because you don't have the covenants that sit on top of that. So our run rate EBITDA is about $110 million+ . So we have over three times coverage on your debt service right now. So that's a pretty good situation to be for a restaurant company. But sometimes investors don't. They put you on the leverage category, and then they say, "Well, leverage is leverage. I got that. That's true." But then there's different types of profiles. So I think we have a really good setting here where we have a very flexible facility.
But putting cash on the balance sheet will be good because then on a net debt basis, we'll make us look less leverage. I think that's a good strategy to build shareholder confidence and really show how powerful of a Free Cash flow company we are, so.
I think that's a great place to leave it. Manny, Tyler, thank you for your time today. And thank you, everybody, for joining us.
Thank you, everyone. Thanks for taking the time.
Yeah. Thanks, Jim.
Great questions. Thank you Sir.