The ONE Group Hospitality, Inc.

Greetings, and welcome to the One Group's fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Tyler Lloyd, Chief Financial Officer. Thank you. You may begin.

Thank you, Operator, and good morning. 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 risk that could impact our future operating results and financial conditions. During today's call, we will discuss 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 as owned and managed in licensed units to 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. 2021 was an outstanding year of performance for both SDK and Kona Grill, and we continue to see this momentum carried into the first quarter of 2022. I would like to thank our team members who continue to fulfill our mission to operate the best restaurant in every market that we operate in by delivering an exceptional and unforgettable experience to all our guests. I'm so proud of their ongoing hard work. Our key highlights for 2021, record revenues and average weekly revenues, record profitability, repaid nearly 50% of our bank debt and finished the year with $23.6 million in cash, and finished the year with a very robust pipeline for 2022 and beyond. For the full year 2021, we generated over a 95% increase in total GAAP revenue compared to 2020. We were able to leverage this top line growth into 42.7 million in adjusted EBITDA, an increase of nearly 350% versus 2020. All of this despite commodity headwinds supply chain challenges, and labor shortages affecting the entire industry. Turning to the fourth quarter specifically, we reported another quarter of record-setting revenue with over $84 million in total gap revenue, including $4.6 million of managed, licensed, and incentive fee revenue. We were also able to achieve consolidated restaurant margins of 20.4%, an increase of 440 basis points from 2020 as a result of strong top-line performance driven by our sales-driving initiatives, coupled with disciplined cost management. Our comparable sales continue to be among the best in the Russian industry, and during the fourth quarter, consolidated comparable sales increased almost 50% when compared to 2019, including the increase of 60% at SDK and a 38% increase at Kona Grill. When looking at our portfolio, it's worth noting that all domestic SDK and Kona Grill restaurants achieved positive comparable sales in the fourth quarter as compared to 2019. Our fourth quarter US average weekly sales were equally impressive at 338,000 for SDK compared to 215,000 in the same period in 2019. and 108,000 at Kona Grill, compared to 78,000 in the same period in 2019. We believe our industry-leading performance is a testament to the one-of-a-kind five-dining experience we provide our guests. The consumer is craving this unique experience, which consists of great food and beverages, coupled with exceptional service in a fun and high-energy environment. One component of the Vibe Dining experience is our culinary program, which is driven by innovation and craveability. The creativity within our food offerings at both SDK and Cone of Royal has been a competitive advantage in this challenging environment. Many of our peers have simplified their menus due to food inflation, labor shortages, and supply chain issues. But we have been able to continue innovating, which keeps guests coming back to dine with us. During the fourth quarter, we raised the bar on our already renowned culinary offerings at SDK with some of the finest cuts of steaks from around the world, including Wagyu from Australia, Japan, and the United States. These delicious Wagyu cuts, coupled with a variety of additional seasonal starters and entrees, offered our guests the chance to explore unique flavor profiles they may not get elsewhere. At Kona Grill, We offered a broad range of freshly prepared dishes from the grill while enhancing existing fan favorite items and featuring holiday inspired dishes like roasted macadamia nut turkey, corner grill surf and turf, prime rib specials, and lobster pop stickers. We have historically put a lot of emphasis on promoting our holiday offerings as they create a great opportunity for us to introduce new guests to the brands and thereby broaden our consumer base. Our promotions for Thanksgiving, Christmas, and New Year's Eve drove record demand for both brands. We also did a great job protecting margins and increasing average check by upselling high margin additive items like toppings and sides at SDK, along with increasing the beverage mix at Kona Grill. These initiatives were able to help offset some of the inflationary pressures we face throughout the quarter. In addition, we have a great value proposition through our happy hour offerings that are used to introduce guests to the brands and provide an exceptional entry-level layer. Many of our happy hour guests transition to our main dining room and stay for dinner or get introduced to the brands via a happy hour experience and return for a celebratory occasion, an area in which we truly excel. Takeout and delivery has also grown to become a very important part of our business model. We are able to add sales during our peak times of 6.30 and 8 o'clock when our restaurants are at capacity, especially on Friday and Saturday nights. We have been using several aggregators for our delivery options, which has also become a marketing vehicle for us. Guests seeing our brands on aggregators such as Postmates and DoorDash brings our brands to the front of mind. People try us for delivery and then remember us when they are looking for a memorable night out. Moving on, our brunch program also continues to help drive revenue and brand awareness. Brunch has allowed us to utilize our space earlier on Saturdays and Sundays when the restaurants have some additional capacity. It also allows us to introduce new customers to our brands and showcase our culinary innovation at compelling price points. We believe we are still very early in maximizing the brunch to day part with a lot of opportunity ahead. Now turning to our events business, we have strong demand for events in November and December related to holiday gatherings. While large corporate events are not yet fully back, we are seeing a lot of demand for more intimate, smaller premium events. Additionally, given our restaurants are often at capacity during peak demand times, we can be selective on the private dining business relative to the average per person span or using it to fill out the Monday through Wednesday business. We're also seeing smaller conventions with about 1000 to 2000 people coming back into markets like San Diego, Orlando and Las Vegas, which is accretive to revenue. We have not seen the large size conventions back in full swing, yet, but see that as an opportunity going forward. Looking ahead, the event business will be a significant part of our strategy in 2022, and we are aggressively marketing this program. Throughout 2021, we added seven new venues, including three managed F&B units, two managed SDKs, one company-owned SDK, and one licensed SDK. We are extremely pleased with how this class is performing. Looking to 2022, our development pipeline is the most robust we've had in our history. This year, we plan to open at least nine new units, which include two company-owned SDKs, one in Dallas, Texas, another in San Francisco, California, a managed SDK in the Stratford area of London, three company-owned Kona grills, one in Riverton, Utah, a second in Columbus, Ohio, and a third Kona grill in the greater Phoenix area. And finally, we plan to open three license units, which would be in conjunction with Reef Kitchens, and we'll provide takeout and delivery-only featuring offerings from our FTK, Kona Grill, and Valium concepts in Texas. 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 the location's revenues and profits. As we have long stated, we are early in our growth strategy with significant white space ahead. We are excited about our long-term opportunity as we believe our units deliver best-in-class returns. For new restaurants, we're targeting between 40% and 50% ROIs for new company-owned SDK and front company-owned Kona grills. We foresee a total addressable market of at least 400 restaurants, including 200 SDK restaurants globally and at least 200 corner grills domestically. Moving on to the current labor environments, the last six months have been some of the toughest in terms of hiring and retaining talent I have seen in my career in the restaurant industry. To ensure that we are executing on our vibe dining experience and are able to open these stellar restaurants, it is extremely important to have our restaurants fully staffed at all levels. As we previously mentioned, During the third quarter, we made hiring, training, and retention a priority as we went into the fourth quarter, our historically busiest quarter. As a result, we were 100% staffed throughout the quarter and did not have to modify our hours or the service our customers expect when dining at our restaurants, which we see as a tremendous advantage in this environment. We have also made a commitment to employee retention and will continue to do so throughout 2022. Having a great employee base in place really allows us to bring innovations and new experiences to the guests, which will continue to be a point of differentiation. During the fourth quarter, we retained every single general manager in the company for which I'm extremely proud. Having consistency at the management level ensures stability in our restaurant and allow us to execute at a high level. In an effort to retain employees, we have rolled out the TOG perks program and enhanced benefits program, and it has been very beneficial in attracting and retaining employees. We also offer compelling bonus programs for all levels and invest in training to ensure all employees all the way, including the hourly level employees, feel part of our long term business plan. For 2022, we are committed to investing in our employees to keep us optimally staffed throughout the year. To conclude, our team is doing a fantastic job welcoming guests into our restaurants for great 5-9 experiences. Ultimately, our focus on operations and day-to-day execution has proved effective in translating to a strong P&O, and we plan to continue on our current trajectory of industry-leading same-store sales, disciplined cost management, and new store development. Now I'll turn the call back to Tyler.