The ONE Group Hospitality, Inc.

Please and welcome to the One Group third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. As a reminder, this conference is being recorded. I would like now to turn the conference over to 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 uncertainties that could cause actual results to differ materially from what we expect. We'd also note that these forward-looking statements reflect our opinion only as of the date of this call. We undertake no obligation to revise or publicly release any revisions of these four 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 condition. 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 with owned and managed and licensed units to GAAP measures, along with the discussion of why we consider these measures useful, we see our earnings release issued today. With that, I'd like to turn the call over to Manny Hilario.

Thank you, Tyler, and hello, everyone. We sincerely appreciate you joining us today and for your interest in the One Group. First, I would like to express my gratitude to our amazing team members for their continued commitment to our mission, which is to be the best restaurant in every market that we operate in by delivering exceptional and unforgettable guest experiences to every guest every time. Their dedication gives me tremendous confidence in our ability to become the global leader in live dining. During the third quarter, total revenue grew 5.2% to $76.9 million, and our company-owned revenue grew 6%, which was driven by our new restaurant openings over the past 12 months. We are on track with our long-term growth objectives. In October, we opened a new SDK in Charlotte, North Carolina, and a new corner grill in Phoenix, Arizona. our third corner of the world in the area. Both restaurants are off to strong starts, and they bolster our belief in the long-term EBITDA and earnings power of our developing pipeline as we demonstrate industry-leading ROIs for our shareholders. We plan to open two new SDKs in the fourth quarter of this year and three additional SDKs towards the beginning of next year, one of which will be a licensed location. We have established incredible flexibility to our pipeline, and we are now in a position to open restaurants in a cadence that meets the needs of the business. Despite the softening sales environment, our same-store sales improved sequentially versus the second quarter. Our consolidated comparable sales decreased 3% in the quarter, consisting of an increase of 1.1% at Funagro and a decrease of 5.5% at SDK. When compared to 2019, our pre-pandemic base year, consolidated comparable sales increased 41.7%, reflecting an increase of 61% at SDK, consisting of a 40% increase in traffic and a 20% increase in average check, and a 23.7% increase at clinic growth. Clearly, even against a more challenging backdrop in the near term, we have retained our market share increases at both brands. As we look to the fourth quarter, our event bookings are building, and we have an incredible slate of sensational holiday and seasonal menu offerings planned. Our guests love to celebrate their holidays and special occasions with us, and our venues really come to life during the holiday season. We are excited about our lineup at both FTK and Puneb World for Thanksgiving, Christmas, and New Year's Eve. Along with holiday programming, we are laser focused on promoting our everyday value offerings at both FTK and Puneb World. We believe that our $3, $6, and $9 happy hour program is one of the most compelling in the industry as we offer similar culinary offerings as our main menu, but at attractive entry price points. We are seeing the velocity of the state part accelerate, and it's a key initiative for the company in this challenging sales environment. Another exciting value layer is our nine-ounce menu, which features wine or bubbles, an appetizer, an entree, such as a 14-ounce New York strip, sides, and dessert for only $69 per person at SDK. We feature a similar offering for $39 per person at Puna Grill. We believe this to be one of the best values in the industry and are promoting it along with our happy hour throughout our digital marketing efforts. Turning now to restaurant level margins, restaurant operating profit was 12.3% in the quarter compared to 13.1% in the prior year. In dollars, restaurant operating profit was flat year over year. During the quarter, we faced margin pressure due to our continued investments in labor for new restaurant openings. Because we have some of the highest average unit volumes in the restaurant industry, we prefer to open them with management and staff who have experience working at volume in our existing restaurants. We anticipate this impact to lessen during the fourth quarter with the new store openings upcoming. Additionally, we continue to invest in our digital marketing channel to drive broad customer awareness and promote our just-in-time marketing efforts. For example, during some of the nice fall days in New York City, we were able to drive traffic to our beautiful new patio at SDK Midtown and our wonderful rooftop at SDK Downtown. While this investment may have a short-term impact on margins, It's allowed us to retain the robust market share we've gained over the last several years. Going forward, we are committed to our sales growth and margin driving initiatives. Number one, continue to delight our guests at both SDK and Puneb Royal with exceptional and unforgettable experiences. This is our mission and focus and what allows us to differentiate ourselves from the competition. Our fantastic operating team create the fun and vibe dining experiences that are truly memorable, and our customer satisfaction metrics continue to be the highest we've seen at the company. Number two, keep investing in digital marketing. Focus on our everyday value offerings such as brunch, power lunch, happy hour, night out, and late night happy hour. We are very focused on driving attention and awareness to our valuators, as we believe they are some of the best in the industry, especially to those who may be more wallet-conscious. Number three, optimize our pricing relative to our peers and inflationary add-ons. We've been conservative in our pricing and plan to take a bit more pricing heading into the holiday season, about 3 to 4 percent at each brand to offset the persistent inflation that we've seen across the industry. The high customer satisfaction scores discussed earlier give us confidence in our pricing strategy. Number four, open new restaurants at a consistent pace for the foreseeable future. Number five, improve restaurant operating profit and overall profitability without impacting the guest experience. through mainly focusing on purchasing efficiencies for both food and operating supplies, maximizing productivity through smart scheduling, and evaluating third-party vendor relationships and reducing travel costs. Make no mistake, we understand fully the need to improve restaurant-level margins, and we plan to do so. Moving on to development, during the second half of the year, we continue to execute on our robust unit growth. In July, we opened a corner grow in Riverton, Utah, and as previously discussed in October, we opened an SDK in Charlotte, North Carolina, and a corner grow in Phoenix, Arizona, in the Desert Ridge Marketplace. For the full year, we expect to add eight new units, of which six are already opened. For the remainder of the year, we are on track to open two new company-owned SDKs in the following cities. Boston, Massachusetts on Berkeley Street in the Back Bay, and Suffolk City, Utah in the West Quarter across the street from the Delta Center. Early in 2024, we plan to open a company-owned SDK in Washington, D.C. at the Marriott Grand Marquis, a company-owned SDK in Aventura, Florida at the Aventura Mall, and a licensed SDK. Over the long term, we view our addressable market as 200 SDK restaurants globally and 200 corner grills domestically with best-in-class ROIs of between 40 and 50%. There is clearly a long runway of opportunity ahead of us that we are just beginning to act on. Now, I'll turn the call over to Tyler.