The ONE Group Hospitality, Inc.

Greetings and welcome to the One Group Second Quarter 2002 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question and answer will follow the formal presentation. Whenever the question session begins, you may ask a question by pressing star then 1. Press star then 2 to remove yourself from the list. As a reminder, this conference call is being recorded. And now I'd like to turn the conference over to your host today, Tyler Loy. 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 guarantees 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 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 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 at owned, managed, and licensed units to GAAP measures, along with a 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. Our focus on strong operational execution, innovative culinary offerings and vibe dining continues to resonate with our guests and I'm extremely pleased with our top line business performance during the second quarter despite the ongoing challenges facing our industry. I thank our entire team for these results and for providing our guests with exceptional and unforgettable dining experiences each and every day. The strong sales momentum we experienced in the first quarter continued into the second quarter. Our total revenue grew nearly 15% to $81.1 million when compared to the prior year's second quarter. Our comparable sales continue to be among the best in the restaurant industry. Consolidated comparable sales increased 12.8%, consisting of an increase of 19.8% at SDK and a 3.7% increase at Corner Growth. Impressively, and also among the best in the industry, when compared to 2019, our pre-pandemic base year, consolidated comparable sales increased 53.5%, consisting of an increase of 81.9% at SDK and a 27.6% increase at Kona Grow. Our second quarter U.S. average weekly sales were equally impressive at $331,000 for SDK compared to $288,000 in the same period in 2021 and $107,000 at Kona Grow compared to $103,000 in the same period in 2021. We are also pleased with delivering over $4 million in net income and $10.4 million in adjusted EBITDA for the quarter. Since before the pandemic, we embarked on a mission to diversify our sales mix away from being heavily focused on corporate and event-driven business. Instead, we have been strategically capturing the special occasion business, which includes date nights, holidays, ladies' night out, brunch, happy hours, and other social occasions. This strategy continues to pay dividends as reflected in our industry-leading results. However, after two years of limited corporate gatherings, we are now seeing group events and conventions return, and we have been able to capture that demand. In addition, we continue to build our catering capabilities and believe that private events and catering offer tremendous opportunities for the brands. We also focus our attention on creating incredible value offerings for both SDK and Pinnacle World. This allows us to expose our brands to new guests at approachable price points. Guests then remember us for their celebratory occasions and come back and join us in our dining rooms. It also allows us to capture demand during times when there is excess capacity. At both brands, we are currently running several value-driven programs, such as our weekday power lunch, midweek date night promotions, pre-theater menus, and several takeout and delivery specials. For the more, we continue to leverage the important brunch day part with bottomless mimosas and our new 369 happy hour menu. Throughout the second quarter, we captured demand for holidays with our promoting round Easter, Mother's Day and Father's Day at Kona Grill and SDK. As a result of these efforts, we achieved some record-breaking sales during these holidays. Now turning our focus to development, we have an exciting pipeline of growth for both company-owned and managed and licensed deals this year, consisting of nine new SDK Kona Grills and F&B venues. In July, we opened our first of three virtual locations through a licensed deal with Reef Kitchens in Austin, Texas. Guests in Austin can now enjoy delivery of select menu items from our award-winning dining concepts, Kona Grill and Bao Yang. This partnership enables us to further expand and capture a new consumer base with limited capital investments. For the remainder of the year, we plan to open two company-owned SDK locations, one in Dallas and one in San Francisco. I manage SDK in Stratford, London, UK. Three company-owned corner grills, one in Riverton, one in Columbus, and last but not least in Paradise Valley, Arizona. And finally, we plan to open two additional license units in partnership with Beef Kitchens, which will provide takeout and delivery-only offerings from our corner grill and value-add concepts. 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 SDKs and company-owned Kona grills. We foresee a total addressable market for at least 400 restaurants, including 200 SDK restaurants globally and at least 200 Kona grills domestically. Moving on to the current cost environments. As you are aware, we are currently in a period of historically high inflation across our industry. That said, I'm pleased that we were able to deliver cost of goods sold at 25.8%, only slightly higher than the first quarter. We were able to accomplish this through product mix engineering, selling high-margin additive check items such as toppings and sides, and committing to our beverage and bar programs. Turning to labor, we've seen noticeable increases in average wage year-over-year in both manager and hourly workforces. In addition, we have made investments to hire, train, and retain the best out in the industry. And we believe these strategies have allowed us to keep the significant market share we've captured. We're committed to remaining fully staffed in order to support our new unit growth and sales-driving initiatives. Lastly, we have taken modest price increases this year. With our strong traffic performance during the second quarter, along with our great value proposition for both brands, we believe we have significant pricing power and will strategically take some price increases in the back half of the year. To conclude, our team is doing a fantastic job providing our guests exceptional and unforgettable dining experiences. Ultimately, our focus on operations and day-to-day execution has proven effective in translating to a strong P&L, and we plan to continue our current trajectory of industry-leading comfortable sales, disciplined cost management, and new store development. Now I'll turn the call back to Tyler.