The ONE Group Hospitality, Inc.

Greetings, and welcome to the One Group second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. A brief question and answer session will follow the formal presentation. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. As a reminder, this conference is being recorded. I would now like to turn the conference over to Tyler Loy. Please go ahead.

Thank you, Operator, and good afternoon. Before we begin our formal remarks, let me remind you that part of our discussion today will include forward-looking statements. These forward-looking statements are not guaranteed of future performance, and you should not place undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Please also note that these forward-looking statements reflect our opinion only as the date of this call. We undertake no obligation to revise or publicly release any revisions of these forward-looking statements in light of new information or future events. We refer you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. During today's call, we will refer to certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. However, the presentation of these measures or other information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. For reconciliations of these measures, such as adjusted EBITDA, adjusted net income, restaurant operating profit, comparable sales, and total food and beverage sales at owned and managed and licensed units to GAAP measures, along with the discussion of why we consider these measures useful, we see our earnings relief issued today. With that, I'd like to turn the call over to Manny Hilario. Manny?

Thank you, Tyler, and hello, everyone. Thank you for joining us today. We sincerely appreciate everyone's continued interest in the one group. I would like to begin by thanking our team members who worked so diligently under challenging circumstances during the height of the pandemic and now continue to work exceptionally hard through the recovery period as guests seek out our restaurants. It is because of their commitment to operating the best restaurants in the industry that we move forward today with confidence in the long-term opportunity we see for the one group. Today, I'd like to provide some detail on our recent results and strategic initiatives and then discuss our robust development plans. Finally, I'll turn the call over to Tyler who will walk you through the quality financials in greater detail. We are thrilled to report that our restaurants continue to accelerate their performance as capacity restrictions have been eased, coupled with the focused execution of our sales drive for initiatives. We continue to experience industry-leading same-store sales improvements, which for the second quarter resulted in an increase of 38% when compared to 2019. a truly remarkable metric. Same store sales at SDK increased 54.3%, truly impressive considering the already strong performance in 2019. And Kona Grill same store sales increased 23%, both compared to 2019. In addition, same store sales increased 59.5% in July, including a 92.8% increase at SDK and a 31.9% increase at Kona Grill. All of these compared to 2019. The stellar performance validates our position that guests are looking for the high energy, differentiated experience that our vibe dining offering delivers. As I said earlier, our teams are doing a phenomenal job providing this experience and I couldn't be more proud of them. Also impressive, our second quarter US average weekly sales were $288,000 for SDK compared to $197,000 in the same period in 2019, and $103,000 for Kona Grill compared to $84,000 in the same period in 2019. We were then able to leverage our top-line growth into a 22.6% restaurant-level profit margin. For the quarter, STK restaurant-level margins were 27.4%, and Kona Grill restaurant-level margins were 17.2%. These strong margins are a result of our focused sales initiatives, strength in execution, and strategic cost management within our four walls. Additionally, we recorded $12.9 million in adjusted EBITDA for the quarter. This is the highest quarterly adjusted EBITDA we have achieved in the history of our company and brings our year-to-date adjusted EBITDA to 19.4 million. Turning to our sales initiatives, celebratory occasions have always been a driver of the business and have allowed us to showcase our innovation in culinary and our strength in digital marketing. Throughout the second quarter, we ran several promotions around Easter, Mother's Day, and Father's Day at Kona Grill and SDK. As a result of these efforts, we achieved record-breaking sales during these holidays. Additionally, we continue to drive sales through our elevated brunch program. Brunch is now a core business in both of our concepts, as it allows us to use our capacity to capture strong daytime demand on Saturdays and Sundays. Prior to the pandemic, Monday through Wednesdays were typically for business travel diners and corporate private events, especially at SDK. Due to the lower levels of business travel, we have been able to adapt by focusing on social occasions, particularly date nights. In addition, we continue to innovate our activations and culinary offerings, such as our Wagyu from around the world menu at SDK to drive interest and repeat visits. These social occasions have been highly successful in more than replacing lost sales from business dining. Over the long term, we do expect business events will return and further enhance our unit volumes, and we have already began to see bookings for the fourth quarter holiday events. As more restaurants are open at full capacity, our off-premise business still remains a strong and additive layer of sales at both SDK and Kona Grill. We'll look at delivery as a huge opportunity for the brand with the goal of converting these guests to long-term loyal customers. We attribute our off-premise success to the investments we have made in state-of-the-art technology, people, operational execution, and the marketing initiatives we have in place. Our guests are now able to order for curbside pickup or delivery from nine separate delivery partners. During the quarter, we have several marketing initiatives around delivery targeting trial. We launched a takeout Tuesday event at SDK, which features our popular Wagyu burger and fries, for just $9.99. At Kona Grill, we offered a $7.99 KG burger and fries for the National Burger Month in May. Both of these events were extremely successful in driving up-premise sales. Overall, we believe that both brands have recovered extremely well, and we feel optimistic about their opportunities for continued sales growth for the remainder of the year and beyond. Now turning our focus to development, we have an exciting pipeline of growth through both company-owned restaurants and managed and licensed deals for the remainder of 2021 and into 2022. We still plan to open 13 new SDK and F&B venues between 2021 and 2022. To date, in 2021, we have opened six new venues, all of which are off to an incredible start. These include a managed SDK in Scottsdale, Arizona, which opened in January, a licensed SDK at the Los Cabos Airport, Mexico, that opened in May, which we believe will be the first of many future airport locations globally. We continue to be super excited about this platform as weekly sales volume near 200,000 a week. We opened a managed SDK in two F&B venues in the Westminster area of London in May at the Curio Hotel. And finally, on July 21st, we opened a company-owned SDK in Bellevue, Washington. This is the first SDK to open in the Pacific Northwest, and it's truly one of the most beautiful restaurants in our portfolio. Last week, still operating under soft opening protocols, we generated over $240,000 in revenues. As of today, there are two additional SDKs under construction. They include a company-owned SDK in Dallas, Texas, and a managed SDK in the Stratford area of London. Finally, we have identified the one group's first new opening for Kona Grill, a company-owned restaurant in the South Lake City, Utah market, specifically in the Riverton area, a high-profile suburb. Long-term, we see over a 200-restaurant growth opportunity for Kona Grill and we begin our growth journey by establishing the initial target of three to five new Kona Grill locations per year. Kona Grill's now annual unit volumes of near 5.4 million, top quartile store-level margins, and high demand for new units from high-profile landlords provide a very attractive 40% plus return on investment suburban growth platform for dive dining. For SDK, we continue to see our total addressable market of at least 200 restaurants globally. And we now believe that Kona Grill, as I discussed earlier, can be at least another 200 restaurants domestically. All of this growth will be asset lights, and any and all company-owned activity will be self-funded through internally generated cash. To conclude, our team has certainly proven their resiliency, and they are doing a fantastic job welcoming guests back into our restaurants for a great vibe dining experience. Ultimately, our focus on operations and day-to-day execution has proved effective in translating to a strong P&L, and we are very hopeful that the trajectory that we're going on will continue to accelerate in the months ahead. Now I'll turn the call back to Tyler.