The ONE Group Hospitality, Inc.

Greetings and welcome to the one group first quarter 2024 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. If at any time during this call you require immediate assistance, please press star zero for the operator. As a reminder, this conference is being recorded. I would now like to turn the conference call over to Tyler Roy. 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. Please 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 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 and managed and 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.

Thank you, Tyler, and hello, everyone. We sincerely appreciate you joining us today and for your interest in the One Group. To begin, I'd like to express my gratitude to each of our dedicated team members, including the nearly 6,500 new teammates who joined the One Group last week with the closing of the acquisition of Safflower Holdings Corp. the parent company of the Benihana and Rasushi restaurant brands. For the remainder of this call, we will be referring to Sapphire Holdings as Benihana. Thanks to our remarkable teams, we have solidified our leadership position in high-end and polished casual vibe dining. Let's discuss highlights from this first quarter, 2024, and provide an update on the strategic initiatives that shaped the quarter. First, despite a challenging sales environment, we grew sales 3% to $85 million, driven by the strength of our company-owned new restaurants, which contribute significant revenues at margins above the rest of the system. Second, with only moderate pricing and stickier than expected inflation, we kept restaurant-level margins intact at 16%. This was enabled by the cost-saving initiatives that we enacted in the fourth quarter of last year, which generated approximately $3 million in restaurant operating profit throughout the quarter. Next, we managed G&A effectively as G&A, excluding stock-based compensation, as a percentage of revenue improved by 20 basis points year over year. All of this resulted in $10.5 million in adjusted EBITDA, nearly in line with last year despite the tough consumer environment experienced throughout the industry. During the quarter, we celebrated the opening of our 28th SDK Steakhouse. The restaurant is located in Washington, D.C., across from the Walter E. Washington Convention Center and inside the Marriott Marquis Hotel. The opening of this new SDK marks an important step in the one-group strategic expansion initiatives and long-term growth strategy. We are thrilled to be welcoming new guests to this exquisitely designed restaurant and providing them with a truly memorable dining experience. Looking ahead, we remain laser-focused and continue to drive top-line growth while further enhancing operational efficiencies. Key strategic priorities for 2024 include, first, a focus on driving sales. Similar to others in the industry, during the first quarter, we experienced a decrease in comparable store sales from a choppy and challenging consumer environment. And as a result, we have focused on efforts on delivering value coupled with strong execution. We continue to promote our $3, $6, and $9 happy hour menu at both brands and our $69 and $39 SteakNet America offerings at SDK and Kona Grill, respectively. In addition, to cater to folks looking for higher-end experiences, we continue to innovate on our culinary program with premium product lines. To amplify these value-driven and experiential offerings, we are leveraging our robust digital marketing capabilities, supporting these strategies, coupled with a relentless focus on delivering fantastic guest experiences. We are confident that we can successfully navigate the current challenging sales environment and drive sustainable sales growth. Our second key priority is to improve corner grill margins. At the end of 2023, we performed an in-depth review of our Kona Grill portfolio of restaurants and determined that about a quarter of the 24 restaurants we acquired are underperforming due to challenging real estate. The bifurcation of performance continued into the first quarter as our core base of restaurants saw significantly healthier margins than these other locations. As previously mentioned, we will address each of these locations on a case-by-case basis. As we look at our pipeline of new units, we expect the new Kona grills to have a target AUV of $5 million and a 17% restaurant-level margin. For both the SDK and Kona grill brands, we have implemented several key initiatives to improve restaurant operating profit and overall profitability. Managing menu and product mix is one. Enhancing purchasing efficiencies for both food and operating supplies. maximizing productivity through smart scheduling practices, evaluating all third-party vendor relationships, and reduce travel costs. We saw these initiatives take hold during the quarter as we were able to maintain margins. We are confident that this momentum will continue throughout 2024 as we further optimize operations. Our third key priority is to rely on self-funded growth for company-owned operations. As I previously mentioned, this year we have opened one company-owned SDK in Washington, D.C. For the remainder of the year, we expect to open an additional five to seven new SDK and Kona Grill venues, which includes one to three company-owned SDKs, two company-owned Kona Grills, and one to two managed or licensed units. We also plan to open one to two company-owned Benihana and one company-owned Rock. There are currently four company-owned restaurants under construction in the following cities. An SDK restaurant in Aventura, Florida at the Aventura Mall. A Saltwater Social, which is a high-end seafood vibe dining restaurant. They'll be located in Denver, Colorado in the Cherry Creek neighborhood. a Kona Grill restaurant in Tigard, Oregon at the Bridgeport Village, and a Rasushi restaurant in Plantation, Florida. Over the long term, we plan on growing three to five new units of each of our growth brands, SDK, Kona Grill, and Benihana. We view this as a proven and scalable international platform with compelling white space. We see an addressable market of over 800 venues, which includes 400 restaurants for Benihana in the US alone, 200 SDKs, and 200 Kona grills. We are clearly in the early innings of a robust growth strategy. Our fourth key priority is the successful integration of Benihana. This acquisition not only aligns with our vision of being the undisputed global leader in vibe dining, but it will also generate tremendous synergies. From our ability to manage commodity cost at scale drive many mix through culinary innovation, leverage our combined digital databases and digital capabilities, and utilize our robust reservation management system, we have a tremendous opportunity to create value for our shareholders through this combination of top entertainment brands. Lastly, our fifth key priority is to continue to return value to our shareholders through share repurchases. We generate tremendous cash flow and we believe there's an opportunity to leverage our internally generated cash to create balance between growth and shareholder accretion via share count reduction. To this end, earlier this year, the company's board of directors authorized a $5 million share repurchase program on top of the $50 million program that was already completed last year. To conclude, I'm pleased with how we have kicked off the new year despite navigating a particularly challenging restaurant environment. This is a testament to the fantastic job our team is doing. We believe that our strong leadership team, combined with our strategic initiatives, positions us well to navigate the evolving market conditions and capitalize on growth opportunities. We are excited for the future and we will remain focused on executing our strategy and enhancing shareholder value. I will now turn the call over to Tyler.