The ONE Group Hospitality, Inc.

Greetings and welcome to the One Group Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. A brief question and answers session 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to Tyler Loy, Chief Financial Officer, The One Group Hospitality, Inc. 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 know 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 reconciliation for these measures, such as adjusted EBITDA, adjusted net income, restaurant operating profit, comparable sales, and total food and beverage sales as owned and managed licensed and franchised units to GAAP measures, along with a discussion of why we consider these measures useful. Please share Ernie's beliefs and issues today. With that, I'd just like to turn the call over to Manny Hilario.

Thank you, Tyler, and hello, everyone. Thank you all for joining us today and for your continued interest in the ONE Group. Let me begin by recognizing our amazing team members, their unwavering commitment to our mission. Creating great guest memories through exceptional and unforgettable experiences to every guest every time is what gives me confidence in our vision of becoming the global leader in vibe dining. This is the first call we've been able to report a full quarter's results for our recent acquisition of Benihana and Rasushi. And we are excited by the combined potential of our platform of exciting vibe and experiential-centric dining brands. Let me start by sharing some highlights for the third quarter. First, with a full quarter of Benihana and Rasushi, we increased our revenues by $117 million, or 152%, to a record $194 million. Secondly, and equally important, we increased our restaurant operating profit by 90 basis points. driven by robust Russian-level margins of 17% at Benihana, which improved 20 basis points versus their pro forma prior performance, and tight cost management at our pre-existing businesses. Next, during the second quarter update, we discussed the $9 million in run rate savings related to duplicate support costs. Since then, we have implemented an additional $10 million in annualized run rate synergies and we've already begun to see their impact on the Benihana restaurant level margins. And finally, we finished the third quarter with over $70 million in resources between cash on hand, short-term credit receivables and revolver availability, which is currently undrawn. Looking ahead, our key strategic priorities for the balance of the year remain. First, a focus on driving sales at all of our brands through the execution of our strategic pillars. Like others in the fine dining category, we're experiencing a dynamic environment driven by macro headwinds and consumer uncertainty. As you look around the restaurant landscape from all-you-can-eat to all-day happy hours, the industry is chasing traffic through deep discounting and promotional activity. Yet, our mission continues to be to create great guest experiences and memories by operating the best restaurants in all of our markets and delivering exceptional and unforgettable guest experiences to every guest every time. We do that through our focus on our three strategic pillars of operations, marketing, and culinary. We continue to see robust demand on Fridays and Saturdays across all of our brands, and we are focused on maximizing reservations, turn times, and throughput during our peak days and peak hours. In addition, we continue to emphasize local store outreach to ensure we are top of mind with concierges, hotels, and businesses in the four block radius around each of our restaurants to drive business dinners, happy hours, power lunches, weekend brunches, and late night visits across our portfolio brands. We know we're executing at a high level as we continue to see some of the highest guest satisfaction metrics across all of our restaurants. From a marketing perspective, we are leveraging our digital marketing capabilities and ever-growing digital database to drive one of our many everyday value messages such as $3, $6, and $9 happy hour, which has also been launched at Benihana and Rasushi. Customer loyalty continues to be a key focus of ours and in the coming quarters, we will roll out a loyalty program across our brands with a special emphasis on birthday celebrations and personalized rewards for all our guests' special occasions. This enhanced approach to customer appreciation marks a significant evolution in our retention strategy as we know our guests love to celebrate with our brands And we plan to convert those guests who may come to our restaurants once or twice a year to more frequent visitors. Moving on to culinary, we continue to be extremely focused on culinary innovation and enhancing the guest experience. For example, at Benihana restaurants, we rolled out our Waigu program for guests seeking a premium offering, and the early read is very positive. We believe there's tremendous upside for menu innovation at Benihana and we have only just begun. We are excited about our exceptional lineup of holiday and seasonal menu offerings as our venues truly come alive during the holiday season. Our second key priority is the successful integration of Benihana and Rasushi and delivering on our cost initiatives. We've made significant strides in achieving our post-acquisition synergies target, and we began to see the impact this quarter on the Benihana restaurant level margins. We are nearing $19 million in run rate synergies across both restaurant level and support costs by eliminating duplicate costs and achieving improved pricing through contract consolidations. Areas we've seen significant progress and plan to deliver at least $20 million in annual synergies. Eliminate duplicate hat counts. Eliminate duplicate professional services. Capturing insurance synergies. Leverage broad line purchasing and improve commodities and operating supply costs. As part of the Kona grill and raw sushi integration, we have evaluated our portfolio of existing restaurants with the goal to optimize overall performance. After careful consideration in October, we closed four raw sushi locations, three of which are in markets with existing Kona grills. We expect to retain a substantial amount of the delivery and takeout business for these restaurants generated through our nearby Kona grill locations. supporting improved margins in our growth concepts. In addition to the closures, we are working on a number of sales driving and operating efficiency initiatives at Kona Grow. For example, we are testing Benihana virtual takeout and delivery in markets where Benihana is currently not present, and the early results are very encouraging. We're also streamlining hours of operations in order to maximize staffing for revenue during our peak hours and reduce shoulder period hours in order to capture labor efficiencies. Above and beyond cost savings, we have overlaid our strategic pillars of operations, marketing, and culinary to the Benihana and Rasushi brands. We are leveraging our logistics, reservations, digital marketing, and culinary core competencies to drive sales and performance at Benihana and Rasushi. In addition, from a restaurant support perspective, we have integrated human resources, payroll, financial reporting, development, and many other internal systems and processes. Thirdly, we are focused on our next phase of growth, balancing company-owned development and asset-like growth. We plan to open six new venues by the end of 2024, consisting of five company-owned restaurants, two SDKs, one corner grill, one raw sushi, and one soft water social. In addition, we also plan to open one managed SDK. In September, we opened our first corner grill in Oregon in the city of Tigard at Bridgeport Village. Then in October, we opened an SDK in Aventura, our third SDK in the state of Florida. Today, we open our new concept, Softwater Social, in Denver, Colorado, within the Cherry Creek neighborhood. With Softwater Social, we are combining the best-in-class experience and a matched atmosphere of SDK in a refreshed setting that places a focus on the delectable premium seafood offerings. In the fourth quarter, we plan to open a managed SDK in the Niagara Falls Embassy Suites on the Canadian side of the Falls. Moving forward, we plan to open five to six company-owned restaurants annually, and we'll balance this with asset-like growth of managed and licensed SD Kin on the Grows and franchise Benihana's. In addition, we'll continue to explore opportunities for Benihana and stadium concessions, where we have five locations, and we plan to grow the retail grocery business. Lastly, our fourth key priority is balance sheet flexibility and returning value to our shareholders. We finished the quarter with over $70 million in liquid resources when combining our cash on hand, short-term credit card receivables, and the availability under the revolving credit facility, which remains undrawn. Under the current conditions, a term loan is not subject to any financial covenant. This quarter, we returned approximately $2.3 million to shareholders to share repurchases, and we will continue to evaluate opportunistic share repurchases under our already board authorized program. We are laser focused on our balance sheet and are prioritizing cash flow generation, balance sheet flexibility, and maximizing shareholder returns. As you can tell, we've been very busy and are now on our path to $5 billion in system-wide sales. Our strong free cash flow generation, combined with our disciplined pipeline of new locations, proven unit economics, and asset-light strategies provide us with multiple avenues for growth. We are excited for the future, and we will remain focused on executing our strategy and creating long-term shareholder value. I will now turn the call over to Tyler.