Greetings and welcome to The ONE Group Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Linda Siluk, CFO. Please proceed.

Thank you, operator, and good afternoon. Manny Hilario, our President and CEO, joins me today. Before we begin our formal remarks, we must remind you that part of our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, 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, including projections, reflect our opinion only as of the date of this call. We undertake no obligation to revise or publicly release any revisions to 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 on the risks that could impact our future operating results and financial condition. During our call, we will refer to certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. 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 and reconciliations to other GAAP measures. For reconciliations of these measures, such as adjusted EBITDA and total food and beverage sales at owned and managed and licensed units to GAAP measures and a discussion of why we consider these measures useful, see our earnings release issued earlier today. With that, I'd like to turn the call over to Manny Hilario. Manny?

Thank you, Linda. And thank you all for joining us today and for your continued interest in The ONE Group. I'm pleased to report that we substantially improved our financial performance during the third quarter versus the prior year period. Specifically we generated double-digit increase of 12% in total revenue inclusive of comparable sales growth for domestic STK restaurants of 6.9%. We then leveraged this top line expansion into a 330 basis points increase in restaurant level margin and an impressive 41% increase in adjusted EBITDA. On a GAAP basis, income from operations was approximately $300,000, compared to a loss from operations of approximately $500,000 last year. These results show the continued progress towards the execution of our long-term strategy. We have focused on executing this plan over the past year and we see ourselves taking advantage of significant opportunity ahead of us to capitalize and expand our signature vibe dining experience. We remain laser focused on our four key strategic initiatives. Number one, improving operational efficiency in our restaurants; first, we are making progress, realizing operational efficiency inside the 4-walls of our restaurants. This is evident by the 330 basis point decrease in owned restaurant operating expenses during the quarter and 370 basis points decrease on a year-to-date basis. Our traction in executing cost controls is a testament to the steps we take every day to streamline operations and run more efficient restaurants. Specifically, these actions are more than offsetting the labor headwinds that the industry and we are currently facing. We're pleased that we experienced solid performance in recently opened venues. For example, STK San Diego open in the quarter and is showing that a fine dining restaurant can operate profitably in its first quarter of operations. Number two, driving comparable sales. Next we continue to focus on…

Thank you, Manny. For the quarter ended September 30, 2018 total GAAP revenues were $20 million representing a 12.1% increase from a comparable quarter last year. As Manny mentioned earlier, domestic comparable sales at owned and managed STK restaurant rose 6.9% consisting of a 7.7% increase in domestic owned restaurant and a 5.4% increase in domestic managed restaurant. On an adjusted basis excluding the positive impact from lapping Hurricane Irma, domestic comparable store sales at owned and managed STK restaurants still increased 5.6%. Both these results were obviously very strong outcomes and reflect the strength of our STK brand. Included in our total revenues for the third quarter 2018 is our owned restaurant net revenues of $15.3 million which increased approximately 16.1% compared to $13.2 million in the third quarter of 2017. The increase was primarily due to an increase of 7.7 comparable store sales for domestic company owned STK restaurant coupled with the opening of STK San Diego in July 2018. Managed and licensed and incentive fee revenues increased approximately 8.4% to $2.7 million in the third quarter of 2018 compared to $2.5 million in the third quarter of 2017. The increase was driven by the launch of the license STK in Dubai in December 2017 and to lesser extent the two license restaurants that opened during the third quarter STK Dubai downtown in July 2018 and STK Mexico in August 2018. Owned food beverage and other net revenues decreased to $2 million in the third quarter of 2018 from $2.1 million in the third quarter of 2017. This decrease was the result of fewer movie premiers at STK at the W Hotel in Los Angeles. Owned restaurant cost of sales as a percentage of owned restaurant net revenue increased to 26.4% in the third quarter of 2018 compared…

Thank you, Linda. Before we look to Q&A, I would like to reiterate the tremendous market opportunity that we see for the company. As you know, STK is globally recognized for artfully blending the modern steak house and she crowned our brand is highly regarded for contemporary take on classic American cuisine with an emphasis on an energetic vibe dining. The STK difference of vibe dining is defining competitive advantage setting us apart from my peers and leads to strong demand for STK brand and mobile hospitality program from top rated hotels and upscale developers. We believe we are a global leader in that category and as I said earlier there's a large addressable market opportunity for approximately 200 locations including company owned STKs, licensed STKs and Management F&B hospitality venues. So to conclude, we had a great quarter, we expect strong finish to the year and we are very excited about 2019. Of course none of this would be possible if not for the great efforts of our entire The One Group team, a truly exceptional group of people who are as committed to our plan as they are to providing the world class hospitality to our guest. Thank you, team and thank you all for joining us on the call today. Linda and myself are happy to answer any questions they may have. Operator?

I think you indicated on the - in your comments that the current quarter trends have seen the momentum continue that you've seen all year. With that are there any new kind of holiday party initiatives or corporate party kind of stuff? I know you mentioned a little bit but…

I think for the fourth quarter we do have a great amount of emphasis on the corporate events businesses as you know that's been a very important component of our fourth quarter sales. We're putting a lot of emphasis on that event. This year we will have all our venues open for Thanksgiving, so that's a new initiative for us. In the past I think about 50% of the units were open. So we put more added emphasis on that. And then as always in the fourth quarter we put a lot of emphasis on gift card which we believe is a great way of driving our business for the first quarter. So we will have a lot of activity and promotion within our restaurants, as well as the social media highlighting the gifting opportunity of utilizing STK gift cards to give our brand to your friends and family.

Then on new units you expect to open in the fourth quarter, little confused because in the press release you mentioned three different units but on the table on Page 3 it only shows two additions for the fourth quarter. Just want to make sure I understand what the real number is.

Yes, so we have STK Doha and then the F&B deal includes - it's actually it's a deal with the one operator for two venues. One is the Victory House Hotel, the other one is Indigo Hotel. So we'll be having three venues with two different - one F&B agreement and one new STK license deal.

And then I didn't quite hear what you said about Nashville, what's the timing on that one opening?

Yes, so Nashville, when we talked about Nashville last quarter, we were either shooting for late in the fourth quarter or if we can hit the window before the last two weeks in December we're going to push it out. So we decided to do it in the first quarter just to make sure that we open up and have an opportunity not to launch during this full season of January and February. So it was more of a strategic in-call to make sure that we open at the right time.

And how many STKs are in operation right now?

We have right now 21 STK venues in operations.

Last, I ask this every time but you guys still intend to pay down debt by about $300,000 per month going forward?

Yes, Chris.

[Operator Instructions] Our next question comes from the line of Dave Cannon with Cannon Wealth Management. Please proceed with your question.

First question is, I see you're finding ways to reduce G&A moving New York some of your operations over to Denver. How about on the restaurant level side, are there any opportunities I mean with your new COO, Connie Collins, are you identifying opportunities to reduce restaurant level G&A where we can expect some higher margins there going forward?

So at the restaurant level our number one initiative still remains around managing labor and the labor side we were looking at some ideas for instance looking at our sauce productions and maybe centralizing production of those. And then from a G&A perspective on the operating expenses we’re reducing some costs in areas like IT costs and we will be doing some of our fixed contracts with vendors so the answer is yes Connie in conjunction with Tyler who was also taking over the leadership of the supply chain group, I think there is still tremendous amount of initiatives to continue driving to level margin going forward by reducing some of those fixed G&A costs in the Russian P&Ls.

And then in the first quarter last year I remember we had a difficult comp because we did not do an event last year for the Super Bowl. How was it looking this year for Q1, will we be I know it's in Atlanta we have a store there do we have an event booked this year to kind of help the comp on that one item?

Yes, so great question. So we in 2017 we had Super Bowl event that added about $1.9 million in revenues and about $700,000 in EBITDA. In 2018 in the first quarter we did not but for 2019 in conjunction with Celeste going to her new role, we've already secured a couple of events in conjunction with the Super Bowl. They won't be as big as the $1.9 million that we had in 2017 but we’ll probably recover about 25% to 30% of that business in 2019, and as we go forward we will continue to build off that base and hopefully continue to build that Super Bowl time of the year business. The other good stuff about the Super Bowl this year it’s in Atlanta where we do have a restaurant with a great catering or I should say with great event facility. So we should be able to take advantage of the Super Bowl event because it's in one of our core market. So we’re super excited about that and then with Celeste in her new role in addition to the Super Bowl there will be opportunities to grow a lot of other sporting events and she is out there currently already heavily marketing the addition of those events. So we’re super excited about her taking that role and all the potential that we can see in that type of business for us.

And then as far as the numerous license deals that we've added and will be having for example in the Middle East and then Mexico City for example let's say the two stores in Dubai and then Mexico City. What type of stores are they, are they in the $5 million range or are these significantly higher pushing 10 million and I know each one is different you can give me some color there, so I can model out what type of a royalty we would perceive that would be helpful?

So right now in our plan for next year, we have restaurant from [Polanco], Mexico City. We have Puerto Rico, we have Abu Dhabi in that class and those are all license units. We expect those to be probably in the $5 million to $6 million range in addition to that we got one management deal restaurant maybe two which is Dallas and maybe one in Vancouver, Canada. We expect those management deal restaurants to be around probably the $6 million to $8 million revenue range. And then we have our STK, Nashville which we think will be in that $5 million to $6 million range and that’s going to be company owned store. So hope that helps you kind of the ranges of and again the license deal we always tend to get at least $5 million to $6 million on the revenue side. And then the management deals because a lot of them will be in hotels and we tend to get a much higher volumes than we would get some of the license deals.

But what category does Mexico City I mean it’s a huge city but then again I guess the demographics are not like New York City what kind of bracket do you think Mexico City is in?

I think Mexico City is in a $5 million range for revenue store and our licensor.

Here is my last question Manny, it were adding these nice deals nice pipeline but when I look at a managed deal obviously there is only one Las Vegas but it’s almost like 12 license deals is the equivalent of one really good managed deal perhaps it might even be up to 15 or 20. Are there opportunities out there globally for larger managed deals that could really move the needle, I mean at the high level can you speak to that?

I do think as I mentioned even on the 2019 plan if you look at that particular year, we’re looking about two out of the deals that we have already being management deals. So to your point as we will try to skew as not as many of those management deals as possible as you know those are also asset live so they definitely within our asset live strategy of license only. So to the degree that they are available and people are interested in doing the management deals, we obviously prefer those because we get to get the royalty stream out of those if you will on the license side and we also get control of the brand because we actually managing the property and we feel lot more comfortable with those type of deals. Keeping in mind that you know license deals are really only available for people who have deep experience in restaurants. So we're looking for people who have 14, 15 other type of restaurants and fine dining. So either way I think we protect the brand that way by having really expert operators on the license side, but then on the other side where people may want to have only or two STKs and they won’t other Russian experience would probably would like to do those with a management deal. So yes there is tremendous amount of opportunity and as we work deals out today we tend to be prefer to try to skew towards the management deal.

Okay. You know what, I'm sorry because I said that was my last question. I have got a couple of like housekeeping questions for Linda. During the quarter - could you tell me what was cash flow from operations for the quarter and CapEx I am trying to come up with a free cash flow number because the Q wasn’t filed yet?

That going to be filed - operating cash in the quarter is $1.1 million and our CapEx for the period is $1.3 million.

So we paid down debt so that was really from working capital that we’re able to reduce debt?

Yes, it is correct keeping in mind our third quarters is our slowest cash quarter, the fourth quarter as you know will be our real cash making quarter as well as the first and second quarter.

Ladies and gentlemen we have reached the end of the question-and-answer session. And I would like to turn the call back to Manny Hilario for closing remarks.

Thank you all for participating in our conference call today. It was exciting to talk to you about our third quarter and to update our 2018 guidance as well as long-term preliminary 2019 guidance. We always appreciate your interest in The ONE Group and Linda and I are really excited to see you all in our venue. So thank you very much and I’ll turn it back over to you operator.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.