The ONE Group Hospitality, Inc.

Greetings and welcome to the one group fourth quarter and full year 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a comfort specialist by pressing star then zero on your telephone keypad. A brief question and answer will follow the formal presentation. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like 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 guaranteed for 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 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 an isolation or as a substitute for results of current accordance with GAAP. The reconciliations of these measures, such as adjusted EBITDA, adjusted net income, restaurant operating profits, comparable sales, and total food and beverage sales at owned and managed and licensed units to GAAP measures along with the discussion of why we consider these measures useful. Please share earnings relief issues today. With that, I would 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. To begin, I would like to express my gratitude to each of our dedicated team members. Our results would not be possible without their unwavering commitment to being the best restaurant in every market we operate by delivering exceptional and unforgettable experiences to every guest every time. Thanks to our remarkable teams, we have solidified our leadership position in Vibe Dining in both high-end and polished casual. Let me begin by discussing our fourth quarter financial highlights. First, we delivered record quarterly revenue of nearly $90 million and record quarterly EBITDA of $14.5 million, a 11.5% increase versus last year. A Russian-level margin increased 40 basis points to 19.3%, driven by 120 basis point improvement in cost of goods and other cost savings initiatives we have put in place. G&A has a percentage of revenue improved by 80 basis points, driven by cost management of controllable expenses. All of this drove adjusted EBITDA expansion of 140 basis points to 16.1% of revenue. Also, during the quarter, we opened four new company-owned restaurants, reinforcing our ability to open restaurants every four to six weeks. In October, we opened an SDK in Charlotte, North Carolina, and a Kona Grill in Phoenix, Arizona, our third Kona Grill in the area. In December, we opened an SDK in Boston, Massachusetts, and an SDK in Salt Lake City, Utah. These restaurants are off to strong starts and their success bolsters our belief in the long-term EBITDA and earnings power of our development pipeline as we demonstrate industry-leading ROIs for our shareholders. These four restaurants, along with the addition of the other venues early in the year, allow us to increase our consolidated revenues 5.1% for 2023 and deliver $40.1 million in adjusted EBITDA. In addition, they will deliver more run rate EBITDA into the future. We are also pleased with the addition of STK Washington, DC, which just opened today. Now looking towards 2024, I would like to discuss our key priorities for the year. First, continue to drive sales. The first few months of the year have pointed to a choppy and challenging sales environment, which will require a sharp focus on value and execution. As a result, we have placed an emphasis on value with a focus in our $3, $6, and $9 happy hour and launch of Steak Night America, priced at $69 per person at SDK and $39 for Kona Gold. both of which are exceptional values. Our happy hour program is one of the most compelling in the industry as we offer a sampling of offerings from our main menu at attractive entry price points. The velocity of the state park continues to accelerate, and it is a key initiative for the company. In addition, we will continue to own the holidays and special occasion business. As you probably know, our guests love to celebrate with us, and our venues really come to life for these occasions. During the first quarter, we had a record Valentine's Day, and we are looking forward to Easter, Mother's Day, as well as the many birthdays and anniversaries to be celebrated with us. To emphasize these messages, we will overlay our robust digital marketing capabilities across these strategies, along with fantastic guest experiences. Our culinary innovation and premium product lines such as Wagyu from around the world and our Bounties of the Seven Seas promotions. Our second key priority for the year is to improve Kona grill margins. Remember that we purchased the brand in the fourth quarter of 2019, and within six months, we were in the grips of the COVID-19 pandemic. 2023 was the first year we had the opportunity to assess what we consider to be normalized operations in a more normal environment. Of the 24 restaurants we purchased, we have 18 locations with an AOV of 5.6 million and approximately 13% restaurant-level margins, both of which we consider to be healthy, although we believe further revenues and margin improvement exist at those restaurants. When added to the new corner grill restaurants we have built in our building, we believe a 17% restaurant-level margin is possible for the future. Conversely, we have six corner grills whose AOVs are 3.9 million and generate modest restaurant-level margins. These restaurants created an approximate 300 basis point impact to the overall margin profile of the brand in 2023, and we plan to address these restaurants on a case-by-case basis. For both brands, we have implemented several initiatives to improve restaurant operating profit and overall profitability for our company. These initiatives are focused on purchasing efficiencies for both food and operating supplies, maximizing productivity through smart scheduling, and evaluating third-party vendor relationships and reducing travel costs. As you can see from the four-quarter performance, these initiatives have started to positively impact the margins. We believe the momentum will continue into 2024. Our third key priority for the year is to rely on self-funded growth for company-owned restaurants and renew our asset life development focus. Coming to 2024, we believe we can sustain all of our development and investment activities through only cash flow generated from operations. This year, we expect to open six to eight new venues, with one or two of them being managed or licensed. This is inclusive of the SDK in Washington, D.C., located at the Marriott Grand Marquis that opened today. There are currently three additional company-owned restaurants under construction in the following cities, which we anticipate will open in the near future. An SDK restaurant in Aventura, Florida, at the Aventura Mall, a Kona Grill restaurant in Tigard, Oregon, at the Bridgeport Village, and a Saltwater Social restaurant a seafood high-end vibe restaurant in Denver, Colorado, in the Cherry Creek neighborhood. Circling back to our managed and licensed business, we are seeing increased growth in opportunities in the managed and licensed side of the business, and we will be spending more time developing our outside light pipeline. One thing that might be difficult to understand is how the COVID-19 pandemic impacted the F&B model for hotels. Hotel guests were trying to use delivery service providers to provide their hotel F&B needs, and it has taken some time for hotels to revert back to their previous models. That said, we are seeing increasing inbound interest for brands that cater as a net attractive for hotels, which both FDK and Kona Grill are. In addition, like our award-winning restaurant in Los Cabos Airport, we are seeing increased interest in both brands for airport locations. Lastly, our fourth key priority for the year is to continue to return value to our shareholders through share repurchases. As previously mentioned, we generate significant cash flow from operations, and we believe there's an opportunity to leverage that to create balance between growth and shareholder value via share count reduction. To this end, the company's board has authorized an additional $5 million in share repurchases to be added to the $15 million in repurchases, which we concluded during the fourth quarter of 2023. To conclude, I'm pleased with our 2023 results, despite a particularly challenging restaurant environment, managed well by our team, which continues doing a fantastic job, successfully dealing with challenges every day. Now I'll turn the call back to Tyler.