The ONE Group Hospitality, Inc.

Greetings and welcome to the one group third quarter 2021 earnings conference call. At this time, all participants are in the listen only mode. A brief question and answer session will follow the formal presentation. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. 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 guarantees 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 in owned and managed and licensed units, the GAAP measures, along with the discussion of why we consider these measures useful, please see our earnings release 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 continue to work exceptionally hard in driving our world-class operations. It is because of their commitment to operating the best restaurants in the industry that we have been able to strengthen our leadership position in high-end and upscale casual dining, and that we can move forward with great confidence in the long-term opportunity we see for the one group. Today, I'd like to provide some detail on our recent results, strategic initiatives, and then discuss our robust development plans. Then I'll turn the call over to Tyler, who will walk you through the quarterly financials in greater detail. Finally, I will provide closing remarks and open up the call for Q&A. We are thrilled to report that during the third quarter, we achieved record-setting revenue with almost $72 million in total GAAP revenue, reflecting $100 million in total food and beverage sales at owned and managed locations. We were able to leverage this sales growth to achieve restaurant margins in excess of 17% despite commodities headwinds and labor shortages across the industry. Also, we were able to reach over $10 million in adjusted EBITDA, which brings our year-to-date adjusted EBITDA to 29.4 million. Our third quarter U.S. average weekly sales were equally impressive at $285,000 for SDK compared to $184,000 in the same period in 2019, and 99,000 for Kona Grill compared to 78,000 in the same period in 2019. Our recent comparable sales have been extremely strong, building on our long history of outperforming the industry. During the third quarter, consolidated comparable sales for the one group increased 44.7% when compared to 2019. Comparable sales at FTK increased 63.8%, and Kona Grill comparable sales increased 26.9% compared to 2019. all meaning each and every one of our domestic SDK and Kona Grill restaurants were positive for the third quarter versus 2019 sales performance. The sales momentum continued through October as consolidated comparable sales increased 59.2% for the month, including a 73.7% increase at SDK and a 42.9% increase at Kona Grill. All of these compared to 2019. This outstanding performance validates our position that guests are looking for the high energy, differentiated experience that our vibe-guiding offering delivers. Of course, without our team's hard work, none of this would be possible, and we wouldn't be prouder of the outstanding job that they are doing. Adding more color to the results, we are seeing strength across all day parts and days, but especially Thursday through Sunday. Sundays are becoming increasingly significant for both SDK and Kona Grill since the addition of the brunch day part. Several drivers continue to provide opportunities for us to differentiate and introduce guests to our SDK and Kona Grill brands and create incredible content for our robust digital marketing capabilities. The first has always been happy hour where we offer innovative food and drink specials. At SDK, we have compelling culinary options from $2 through $8 in addition to drink special, such as half-off special cocktails. At Kuna Grill, we have the $3, $6, and $9 menu in addition to our very successful Margarita Heaven program. Many of our happy hour guests transition to our main dining room and stay for dinner or get introduced to the brands via happy hour experience and return for a celebratory occasion an area which we truly excel. Second, we are using our takeout and delivery business to reach new and current guests and continue to be encouraged by this highly accretive revenue driver at both SDK and Kona Grill. Even with the restaurants at full capacity, we haven't seen a slowdown in our off-premises business, and we continue to market and innovate the business for further growth. We have carefully crafted the takeout and delivery menus to be an extension of the in-dining room menu and it provides a great introductory price point offering for both SDK and Kona Grill. To quantify the delivery sales at some of our top performing restaurants, we are generating an annualized rate of 1 to 1.5 million in takeout and delivery revenues. Third, our brunch program continues to grow and provides a great introduction to the brands where we offer differentiated and unique food and beverage options. We believe that we're still very early on the branch day part with a lot of opportunity ahead. And lastly, the fourth area of emphasis in an opportunity to introduce guests to the brand is holidays. Our added emphasis on each holiday has really expanded our base. We have seen a lot of people who will try us for a specific holiday meal and then will come back for more regular type of dining. Looking to the fourth quarter, we are excited about our lineup at both SDK and Pune Grill for Thanksgiving, Christmas, and New Year's Eve. Now turning to our events business, which will be an additive layer and high margin business. This is the area of our model that still hasn't fully recovered from the COVID-19 pandemic, but we are seeing a greater and greater demand as we progress into the fourth quarter. We are focused on balancing this demand with our steady, robust a la carte dining in order to maximize each of our restaurants. 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 seven 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 in Mexico, which opened in May, which we believe will be the first of many future airport locations globally. We open a managed SDK and two F&B venues in the Westminster area of London in May at the Westminster Imperial. On July 21st, we open a company-owned SDK in Bellevue, Washington. This is the first SDK to open in the Pacific Northwest. Weekly average sales volume of this restaurant are surpassing $240,000 per week. And finally, in August, we entered to a management agreement to manage operations in the River Shore Bar and Grill in Oregon City, Oregon. As a reminder, for those restaurants that are managed or licensed, we generate management fee revenue based on top line revenues and incentive fee revenue based on a percentage of location revenues and profits. As of today, we have three additional SDKs under construction. They include a company-owned SDK in Dallas, Texas, a company-owned SDK in San Francisco, California, and a managed SDK in the Stratford area of London. We expect all of these locations to open in late 2021 or early 2022. Lastly, we have entered into an agreement with Reef Kitchens to open pre-takeout and delivery-only venues featuring offerings from our SDK, Kona Grill, and Valium concepts. These will open either late 2021 or early 2022, in the Houston, Texas market. Turning to Kona Grill, we have set an initial target of three to five new Kona Grill locations per year beginning in 2022. With annual unit volumes exceeding $5 million and strong store level margins, Kona Grill produces highly attractive unit economics for us with potential 40% plus cash on cash returns on our investments. We continue to see high demand for new units from some of the most prestigious landlords in the country. We have identified the one group's first new opening for Kona Grill, which would be a company owned restaurant in Riverton, Utah, a high profile suburb of Salt Lake City, Utah. This location is already leased under construction and we expect that this restaurant to be open by May of 2022. Frankly, we are early in our growth strategy and lots of white space remains. Over the long term, we foresee a total addressable market of at least 200 SDK restaurants globally and at least 200 corner grills domestically. Combined, that's over 400 restaurants. Much of this growth will be asset-like and all company-owned restaurants will be self-funded through internally generated cash. Before I turn the call to Tyler... I wanted to touch briefly on what we are seeing regarding labor shortages that our industry is facing. While we are not immune to these challenges, we have done a very good job of recruiting and retaining employees. We have prioritized and invested in these areas during the quarter as we anticipate a very busy holiday season and believe that being fully staffed is a true differentiator and a competitive advantage in the industry today. Currently, we are over 100% staffed at both the manager and crew levels as if we're going to the busy fourth quarter, and our P&L reflects an investment in recruiting, training, and retention activities in the third quarter. In terms of what we're seeing from an inflation perspective, wages are up across the board, but we are managing these increases carefully. We are particularly seeing inflation for back-of-the-house employees as demand is high in the marketplace. We have rolled out the TOG perks program, an enhanced benefits program, and it has been beneficial in attracting people to us and retaining employees. We have also rolled TOG rapid deployment, an internal human resources initiative whereby our human resource team works with our restaurant teams in consistently executing a 24-hour from application to interview to offer process for new employment applicants. So in the toughest operating environment I can remember, we are focusing a lot of efforts on attracting and retaining talent. Our retention level, particularly for our general managers and executive chefs, has been excellent, which is critical these days, navigating through a complex and quickly changing environment. To conclude, our team has certainly proven their resiliency, and they're doing a fantastic job welcoming guests 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 our trajectory that we're fully on will continue to accelerate in the months ahead. Now I'll turn the call back to Tyler.