The ONE Group Hospitality, Inc.

Good morning, everyone, and welcome to the One Group First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Tyler Loy, Chief Financial Officer. Sir, please go ahead.

Thank you, Operator, and hello, everyone. 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 uncertainty that could cause actual results to differ maturely 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 at total food and beverage sales at owned and managed and licensed units to gap 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. We sincerely appreciate you joining us today and for your interest in the one group. Let me begin by saying that I'm thrilled by the extremely strong start to 2022, despite the challenges affecting the industry. Key highlights for the quarter include continued strong sales performance versus 2021 and 2019, which exceeded the high end of our revenue guidance. Achieved $10.8 million in adjusted EBITDA, a $4.3 million or 65.5% increase versus the same quarter last year. This brings our trailing 12-month adjusted EBITDA to approximately $47 million. And we finished the quarter with $28.3 million in cash, which exceeds our debt and can be used to fund our rapidly expanding and robust pipeline of future developments. I thank our entire team for these results and for providing our guests with exceptional, unforgettable dining experiences each and every day. I'm also proud of their ongoing hard work. Our comparable sales continue to be among the best in the restaurant industry. During the first quarter, consolidated comparable sales increased 45.1%, consisting of an increase of 66.5% at SDK and 21.9% at Kona Grow. Impressively, and also among the best in the industry, when compared to 2019, our pre-pandemic base year, consolidated comparable sales increased 45%. consisting of an increase of 62.9% at SDK and a 27.5% increase at Kona Grill. Our first quarter US average weekly sales were equally impressive at 311,000 for SDK compared to 212,000 in the same period in 2019 and 101,000 at Kona Grill compared to 79,000 in the same period in 2019. The sales momentum proves that interest in dining at our highly differentiated, upscale, and polished cattle restaurants remains strong even in an uncertain environment. Our focus on strong operational execution, innovative culinary offerings, and vibe dining continues to resonate with our guests as we provide exceptional and unforgettable dining experiences with opportunities for guests to enjoy themselves. We continue to build and emphasize occasions with available capacities such as brunch and happy hour. We are particularly encouraged by our growing brunch day part, which has driven incremental interest in both Kona Grill and SDK on Saturdays and Sundays. Both our brunch and happy hour offerings showcase our commitment to culinary innovation and an incredible value in a fun and vibrant atmosphere. This allows us to expose our brands to new guests at approachable price points with an opportunity to convert those guests into the dining room on evenings. While we are happy with our progress so far, we believe we still have lots of opportunity to grow the brunch and happy hour day parts. In addition, we continue to focus heavily on holidays, another way in which we introduce new guests to the brands and thereby broaden the consumer base. During the first quarter at both FTK and Kona Grill, we had a very successful Valentine's Day and the Super Bowl weekend featuring special menus that our guests truly enjoyed. We also kicked off the second quarter with activations featuring specialty Easter dishes and beverage promotions. We celebrated National Tax Day with $10.40, signature cocktails all day long, and look forward to celebrating Mother's Day, which traditionally is a strong day for both Kona Grow and SDK. Our takeout and delivery business continues to be a meaningful part of the business, and we're encouraged by our sales in this additive layer. For the SDK restaurants that have takeout and delivery, it's approximately 5% of sales, and at Corner Grill, it's approximately 13% of sales. In addition to takeout and delivery, we are building our catering capabilities as offices reopen and larger gatherings have resumed. We are also seeing bookings for private dining increase, which is a tremendous opportunity as private dining and business dining has been a missing layer of business over the past couple of years. Moving on to development, the 2022 development pipeline is the strongest we've ever had in our history today. This year, we plan to open at least nine new venues, which include two company-owned SDKs, Dallas, Texas, and San Francisco, California. a managed SDK in Stratford, London, UK, three company-owned Kona grills, a Kona grill in Riverton, Utah, a Kona grill in Columbus, Ohio, and a Kona grill in Paradise Valley, Arizona. And finally, we plan to open three licensed units in a partnership with Reese Kitchens, and we'll provide takeout and delivery-only featuring offerings from our SDK, Kona grill, and Valiant concepts in Texas. 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 are targeting between 40% and 50% ROIs for new company-owned SDKs and for company-owned Kona Grows. 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 cost environment, we continue to deliver best-in-class restaurant operating margins. We are managing through this historically high inflation, along with supply chain challenges, and yet are still delivering cost of goods in the 25% to 26% range. We've been able to accomplish this by being flexible with our menu and supply chain and emphasizing and executing our margin and sales-driving initiatives such as toppings and sides at SDK and beverage sales at Kona Grill. This has allowed us to provide our entire breadth of offerings at both SDK and Kona Grill, cut no corners, and still deliver world-class margins. Turning to labor, being fully staffed is a competitive advantage in this environment in order to protect the brand and ensure high levels of execution at our restaurants. We are happy to report that we continue to be fully staffed and we continue to invest in hiring and retention for all levels in our restaurants. To conclude, our team is doing a fantastic job welcoming guests into our restaurants for great, exceptional, and unforgettable dining experiences. Ultimately, our focus on operations and day-to-day execution has proved effective in translating to a strong P&L, and we plan to continue on our current trajectory of industry-leading same-store sales discipline cost management, and new store development. Now I'll turn the call back to Tyler.