The ONE Group Hospitality, Inc. (STKS) Q4 2018 Earnings Report, Transcript and Summary

Greetings and welcome to The ONE Group Fourth 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 you, Linda Siluk. Thank you. Please begin.

Thank you, operator, and good afternoon. Joining me today are Manny Hilario, our President and CEO, as well as Tyler Loy, our incoming Chief Financial Officer. 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 your continued interest in The ONE Group. I would like to welcome Tyler as our new Chief Financial Officer as we announced earlier today. I have worked with Tyler in the past at several restaurant companies and most recently Tyler has reported directly to me as Vice President of Strategy. We determined his significant industry, financial and strategic experience makes him the right candidate to take on the permanent role of CFO. We are also pleased that Linda Siluk has agreed to become a permanent member of The ONE Group family as our Chief Administrative Officer and reposition at the company where she will be responsible for overseeing legal, risk management and tax matters. I look forward to continue working with her in this capacity. Through these appointments our executive leadership is now in place, and together we intent to capitalize on the available wide space opportunity for unique VIBE dine experiences that have made STK a truly differentiated brand across the globe. Looking back now on my first full year CEO, I could not be more proud of the progress we have made and continue to make with respect to our four key strategic initiatives that I will explain in this call. It is truly a testament to the hard work of our teams each and every day. Throughout last year, I had the pleasure of visiting our families and meeting with our team members and guests. I remain impressed by the strength of our STK brand and owning the VIBE dines experience and the quality of our team in executing flawlessly. This is an exciting time for STK and I look forward to continue leading us to this next chapter of robust profitable growth. As you have already seen from our earnings press release, 2018 was undoubtedly an outstanding year for The ONE Group. We significantly increased revenue which included a 9.4% increase in comparable store sales. We achieved an impressive 50% increase in adjusted EBITDA as a result of strong growth in revenue, and we maintained a discipline approach to costs and allocation of capital allowing us to reduce debt by $3 million. We also continued to expand our footprint with the opening of two new international license STKs and one domestic company owned STK. Turning to the fourth quarter specifically, we reported an increase in total revenue of 20% which includes a 15% increase in comparable store sales. We leveraged this into an impressive 68% increase in adjusted EBITDA. We are also particularly impressed with our national level profitability which increased 350 basis points. These outstanding results continue to validate the success of our four key strategic initiatives. We will continue execute against these strategic initiatives throughout 2019. Number one, driving comparable sales. We are focused on driving and increasing comparable sales across all of our restaurants. Since joining The ONE Group, my team has implemented numerous sales driving tactic aimed at delivering an exceptional dining experience for each guest that highlights our differentiated VIBE dining experience. As a result of these initiatives, during the fourth quarter our comparable sales increased an impressive 15% on top of a 6 % increase in the prior year. That's a two year stat comp of 21%. More importantly, all the stores included in our same store sales base had positive comparable store sales which clearly demonstrate our ability to drive consistency across our whole portfolio of restaurants. Additionally, we have achieved this growth in comparable sales primarily through an increase in traffic and mix while taking modest price increases in 2018. While we will lack tougher comparisons, we are further encouraged that our momentum has continued into the first quarter of 2019. The significant sales improvement has been achieved as a result of being laser focused on our highly differentiated VIBE dining experience which provides our guests with great memories of their night out. One way in which we include the guest experience is through our elevated food program. We saw the positive impact to an increase in food scores and more importantly through social media as we regularly track presence of the STK brand to our guest social media presence. Our elevated food offerings, premium menu items and unique seasonal handcrafted cocktails create Instagram -able moments for our guests and we love when they post pictures of their VIBE dining experience on social media. This is such a crucial element to the brand that last year we began tying a portion of general management incentive compensation to higher social media scores because we know social media plays a significant role in driving guests into our restaurants. During the fourth quarter, we experienced a significant increase in our high margin event business. As you know, during 2018 we centralize the leadership of the event sales function in our home office and spent a lot of time defining the event business model. During the holiday season we began to see the success of this hard work in terms of our ability to book and provide great event dine experiences. We think there's a lot more opportunity because our unique dine experiences are perfectly suited for events or group dining. Our increased marketing efforts have paid dividends. We launched our happy hour in May of 2018, it's not only provides great price points to guests but also leverages our shorter periods. We have been successful converting our happy hour guests to sit down table guest for 6 and 6.30 reservations utilizing our capacity in the off peak period. Number two, improving operational efficiency in our restaurants. In addition to grow into top line throughout 2018, we made significant progress in creating operation efficiencies within the four walls of our restaurants. These efforts resulted in an impressive 350 basis points improvement in owned restaurant margin for 2018. This was accomplished through the significant headway we made in streamlining our menus which reduce waste while we became more adept at effectively managing labor scheduling which helped us mitigate the macroeconomic labor headwinds. Notably our restaurants have experienced significant lower turnover than the industry because our service benefit from the high volumes and generate which in turn creates fantastic income opportunities for them. We also continue to reevaluate our various service contracts to see where we can optimize costs and eliminate waste. We are still early in our margin expansion program and we expect to see continued leverage throughout the business in 2019 as we benefit from growing economies of scale. Number three, producing G&A at the corporate level. With respect to reducing G&A at the corporate level, our fourth quarter and full year comparisons demonstrate we have made meaningful headway right sizing this critical line item. G&A declined 360 basis points and 12.3% of total revenues in the fourth quarter of 2018. On an adjusted basis, G&A decreased approximately a 180 basis points to 11.1% of total revenues. Even more importantly for the full year 2018, G&A decreased 190 basis points to 11.2% of total revenues. We have achieved G&A leverage in part to a reduction in headcount and better hiring practices across all key positions as we set the company for future growth. Additionally, we consolidated our New York office occupying half space we previously used and moved several employees to our lower cost Denver, Colorado office. We expect G&A to be approximately $2 million per quarter on the go-forward basis excluding stock-based compensation. Number four, focusing on asset led growth. Finally, we continue to focus our development growth on high margin act of ideas. We have a very robust pipeline of managed and licensed restaurants as well as F&B opportunities ahead of us. Driving this demand is unique guest dining and hospitality experiences that we are able to create. During 2018, we open two international licensed- STK, our second STK in Dubai and our STK in Mexico City. We also open one company owed STK restaurant in San Diego in addition to the already existing licensed STK rooftop. We are encouraged that all premium restaurants have opened successfully and are meeting or exceeding their initial target. 2019 is off to a robust start. In January, we opened our third STK restaurant in the Middle East region with an international-licensed STK in Doha at the newly renovated Ritz-Carlton hotel. Just recently in March, we open a company owed STK in Nashville, Tennessee, downtown in the Gulch neighborhood between Lisa Quill and downtown. While it's still very early, we are encouraged to see the initial success these restaurants are demonstrating. In the second half of 2019, we plan to open additional 2 to 4 STK restaurants and 1 to 2 food and beverage venues. And if you look into our longer-term pipeline, we have a tremendous amount of projects that we are working on for 2020 and 2021 to continue expanding our company and brand. With the right team, right size cost structure and strong operational performance at the restaurant level; we are continuing growth mode as we are in the early stage of our global opportunity. We are committed to leveraging our STK brand strength by expanding our presence both domestically and internationally, and we believe there's a global addressable market opportunities for at least 200 locations including company owned STKs, licensed-STKs and managed F&B and STK locations. This represents an excess of a $1 billion system-wide food and beverage revenue opportunity. With that I like now to turn the call back to Linda. Linda?

Thank you, Manny. For the fourth quarter ended December 31, 2018. total GAAP revenues were $25.8 million representing a 19.9% increase from the comparable quarter last year. As Manny mentioned earlier, comparable sales at owned and managed STK restaurants rose 15%. Included in our total revenues for the fourth quarter of 2018 is our owned restaurant net revenues of $20 million which increased approximately 20.7% compared to $16.6 million in the fourth quarter of 2017. The increase was primarily due to an increase of 14.9% comparable store sales for domestic company owned-STK restaurants, coupled with the opening of STK San Diego in July 2018. Management, license and incentive fee revenues increased approximately 16.7% to $3.7 million in the fourth quarter of 2018 compared to $3.2 million in the fourth quarter of 2017. The increase was driven by the launch of the licensed-STK Dubai downtown in July 2018 and STK Mexico in August 2018, coupled with an increase in performance at existing location. Owned food, beverage and other net revenues increased 18.2% to $2.1 million in the fourth quarter of 2018 from $1.8 million in the fourth quarter of 2017. The increase was a result of increased sales in the holiday and year-end period. Owned restaurant cost of sales as a percentage of owned restaurant net revenues decreased 100 basis points to 25.5% in the fourth quarter of 2018 compared to 26.5% in the comparable quarter last year. The year-over-year decrease was due to the cost savings initiatives put in place at the restaurant level across all other company owned units, partially offset by the opening of STK San Diego. We typically run higher costs from the first six to nine months of a restaurants opening. Owned restaurant operating expenses as a percentage of owned restaurant net revenues increased approximately a 150 basis points to 55.2% in the fourth quarter of 2018 compared to 56.7% in the fourth quarter of 2017. The decrease is due primarily to the cost savings initiatives put in place at the restaurant level primarily in labor management along with the leverage provided by our sales increased. These however were partially offset by the impact of minimum wage increases and the opening of STK San Diego. On a total reported basis, general and administrative expenses including stock based compensation for the fourth quarter of 2018 decreased to $3.2 million as a percentage of total revenues general and administrative expenses decreased 360 basis points to 12.3% of total revenues. The decrease in the G&A rate is a result of reductions in the overhead structure over the last year and additional leverage as a result of an increase in revenues. On a go-forward basis, we would expect annual G&A to run about $8 million or $2 million per quarter excluding non-cash stock based compensation. When adjusting for items we find one time in nature adjusted general and administrative costs increased slightly to $2.9 million in the fourth quarter of 2018 reflecting substantial additional bonuses on a year-over-year basis based on the strength of the company's performance. As a percentage of revenues, however, general and administrative expenses decrease 180 basis points to 11.1% of total revenues. Restaurant pre-opening costs for the fourth quarter of 2018 were $35,000, a decrease of $274,000 from the $309,000 incurred in the fourth quarter of 2017. This decrease was related to the timing of the opening of STK San Diego and STK Nashville. Interest expense net of interest income was approximately $291,000 in the fourth quarter of 2018 compared to $363,000 in the fourth quarter of the prior year, reflecting lower outstanding debt balances. Note that our total outstanding debt current and long-term is now approximately $10.3 million compared to total debt outstanding of $13.4 million at the end of December 2017. Income tax expense for the fourth quarter of 2018 was approximately $268,000 compared to an income tax expense of $235,000 for the fourth quarter of 2017. For the fourth quarter of 2018, net income attributable to The ONE Group Hospitality Inc was $3.2 million or $0.11 income per share, compared to the net loss of $348,000 in 2017 or $0.01 loss per share. Adjusted EBITDA attributable to The ONE Group for the fourth quarter was $4.2 million, an increase of 68% over the prior year adjusted EBITDA of $2.5 million. We have included as we have in the past a reconciliation of adjusted EBITDA to GAAP net income from continuing operations and GAAP revenue to total food and beverage sales and owned and managed properties in the tables in the fourth quarter earnings release. With that I'd like to turn the call back to Manny. Manny?

Thank you, Linda. I like to introduce and welcome again Tyler as our new Chief Financial Officer as announced earlier today, and turn the call over to him for comments and our company guidance. Tyler?

Thank you, Manny. I appreciate your confidence and I'm excited to begin my new role as CFO. I look forward to continuing to work with you, Linda an entire ONE Group team in executing our four key strategic initiatives and capitalizing on significant opportunity ahead. We have a great company and a fantastic brand in STK that I'm honored to have joined last year, and I intend to work hard every day of my new capacity for the benefit of our teams, guests and shareholders. Now I'd like to provide some forward-looking commentary on our business. This commentary is subject to risk and uncertainties associated with forward-looking statements as discussed in our SEC filings. We as always remind our investors the actual numbers and timing of new restaurant openings for any given period is subject to a number of factors outside the company's controls, including weather conditions and factors under control of landlords, contractors' licensees and regulatory and licensing authorities. Based on the information available now and the expectations as of today, we are providing you with the following expanded financial targets for 2019. Beginning with top-line and we project our total GAAP revenues to be between $93 million and $95 million. We estimate the total food and beverage sales at our owned and managed units will be between $190 million and $200 million. We expect comparable store sales for the year to grow at approximately 3% to 4%, a slight increase over previous guidance. And as a reminder, we're lapping very strong comparisons from 2018. We estimate total food and beverage costs to be approximately 25% to 26%. Approximately 50% of our beef is under contract and the current estimate is based on negotiations with suppliers coupled with current and expected marketing conditions concerning fresh and other commodity items that we are either unable or have currently elected not to contract for longer periods of time. Total G&A of approximately $8 million or approximately $2 million per quarter excluding stock-based compensation. We're expecting adjusted EBITDA of $13 million which would represent an approximate 25% growth compared to 2018. Total capital expenditures net of allowances received from landlords of approximately $3 million to $4 million. And finally 3 to 5 licensed restaurant units, one company owned STK and 1 to 2 food and beverage hospitality venues. With that I'll now turn the call back to Manny for closing remarks.

Thank you, Tyler. Before we go to Q&A, I just want to reiterate that 2018 was an outstanding year and 2019 is off to a strong start. None of this would be possible if not for the great efforts of our entire ONE Group team, a truly exceptional group of people who are as committed to our plan as they are to providing world-class hospitality to our guests. Thank you team and thank you all for joining us on the call today. Linda, Tyler and myself are happy to answer any questions that you may have. Operator?

[Operator Instructions] Thank you. Our first question comes from the line of Nicole Miller with Piper Jaffray. Please proceed.

Thank you. Good afternoon. I had two questions, but first I wanted to congratulate both Linda and Tyler. Manny I was wondering you talked about in your opening remarks an asset-light focus and how do we think about the total addressable market is -- are the white space as you termed it. Is that global? And what is the time frame meaning is it a long runway for growth here?

Thanks Nicole. So as we think of white space and as we've commented on the script and we truly believe that the opportunities for 200 units or more probably as we think of the addressable relative to domestic, international we probably think it was a 50/50 split between the US and the international opportunity. And frankly, we're early on and I believe that as we get more experience in building restaurants like we have the last 15 months, last 15 months we have opened five STK. So we do have a nice track record now of opening restaurants. So I think as we gain more confidence, I think we'll be able to really look at the pace of that. So I think we will get to a critical mass here in the very near future. I also believe that our pipeline which we have in place today, it has become substantial. So there's a tremendous amount of interest in us in both STK scenarios as well as F&B. So I do think that although we don't provide a definitive date as to when we capture that opportunity, I do think that everything that needs to be in place to get to that opportunity in the relative new futures all in place right now. And I am particularly excited about the addition of Tyler CFO and Linda staying on as a Chief Administrative Officer. I truly now believe that our team is fully together and I do think that all of it is there. White space, pipeline, and leadership team and as you saw from the press release we also now have a new credit facility coming on. So we have also financial capital. So we're super excited about the future for the company and our STK brand.

That's very helpful, And I'll actually just apologize I think I didn't I could ask the question better. It's on that asset-light focus the food and Bev's and I don't know how much more there is to say about it but that was that what I was thinking about more specifically and to me it seems like that's a massive, massive opportunity.

Yes, absolutely and sorry for not addressing the asset-light but majority of the requests coming in are individuals who particularly in the pipeline side who are interested in really growing with the brand. So our growth will be and continue to be on the asset-light side and I think there's tremendous amount of demand there because the reality is our expertise in VIBE dining in today's environment is super desirable because everyone is looking for highly differentiated brands. And the fact that we have a very special ability to use our VIBE dining to create a reference is really driving a lot of interest from people who want to invest and grow the brand.

And then my second final question is around your people and your talent. You have ambassadors, you talked about your GM's I think this falls within one of your strategies or areas of focus but they're very impactful on performance. So how do they leverage best practices?

I'm sorry I missed the last part of the question, Nicole?

Just wondering how they interact and how they leverage best practices? It is very important I think to the store level performance. So just want to hear more about how you communicate with them and how they communicate with each other.

Yes. So I think the fundamental philosophy of our operations is that we have a very formalized communication path internally. So for instance we have regularly scheduled meetings between management and the directors of operations, but particularly for the managers we have high participation and everyone goes to the restaurants so there are a lot of our folks visiting restaurants. And then we also do regularly scheduled conferences with the managers where we dedicate a day for us to talk best practices and what each one of the units is doing. So for instance we in October we had one of our meetings in Denver when we brought all our teams and our chefs and really the focus of that was to describe the things that we're doing, we were doing very well in the restaurants and particularly if you look at our results in the fourth quarter, we believe that idea sharing from that meeting was really critical in terms of helping us deliver of 15% same store sales in the quarter. So think of things like best practices in managing flow in the dining room in terms of loading their preservation and even things about how to deal with a high demand for event business. So idea sharing is critical. We do have formalized meetings and opportunities for that but more importantly in that everyone from the executive team to the direct level in this business is super engaged in going to the units and we engage in a very robust dialogue with our managers. Also this year we're going to do a couple of culinary meetings with our chefs to keep evolving the menus. As you probably know, we do seasonal menus or three times a year we do have an opportunity to add creativity to our menus. So the point here is that human capital needs to be engaged in the business, and we're trying to put together a lot of forms and meetings to make sure that we can share ideas across the whole company. It's a very -- it's an incredible deep team. I think that's one of the things that I've reiterated to everyone that I speak with is that beyond the Tyler, Linda and everyone else on this call, we just have incredible depth in all operating levels in business. So we're super excited about the potential of leveraging up that human capital to grow the business.

Our next question comes from line of Chris Krueger with Lake Street Capital Markets. Please proceed.

HI, good afternoon, nice quarter. I'm just having a few questions. I don't think you commented on the Super Bowl which I know was the first quarter event but it looks like it had multiple events that weekend in Atlanta and wondered if you can give us any insight how that went or you pleased with?

Yes. So this year the Super Bowl was in Atlanta which is one of the cities where we have a great restaurant and so we had a tremendous amount of activity in the PR side. We hosted the big event for DIRECTV and we were the food purveyor there, and we also worked with Shaquille O'Neal in his Shaq's Fun House and we also did a charity event with Mike Dick and the Jaworski Foundation. So we were super active in terms of not just utilizing the Super Bowl for generating revenues which we did not for the same degree that we've done in prior years because we directing the event is only one day when it used to be several days in the past. So the revenues won't be to the same magnitude of what we've seen in the past but the event was certainly super successful from the perspective of driving interest on the brand and as you know digital and social media is a critical element of our marketing strategy. And we utilized the Super Bowl event to create a tremendous amount of posting and activity in social media world. So if you are following social media and STK during that time period, we really lit up the internet with a lot of people commenting and sharing information. So we were super excited about the value that we got from a PR perspective of that event. And we do have sales and it was profitable. So it's kind of the perfect combination of profitability, revenues and lots of PR.

Got it. Then on that same note are there -- I know the Super Bowls a massive huge event but are there other cities where you have units that have other important events like golf tournaments or other stuff like that that you have could point you for this coming year?

Yes. So we actually have created a separate team in the company that's led by Celeste who used to be VP of Operations and the sole purpose of that team is to develop interest in other events. So for instance think of Coachella coming up and other type of sporting events and so forth. So we do have a formalized strategy in place which is now being head up by Celeste to go out and percolate interests for us to be there as you can imagine because of the position of the brand as being super fun and VIBE and exciting, we've been getting a lot of -- a lot of people talking to us about our opportunity to host parties during some of these events. So stay tuned as we know more of the calendar will certainly share with everyone but this will become a very good part of our business models whereby we utilized these large sporting event and special concerts to really pop-up basis participate and elevate awareness of the STK brand.

Okay. And you indicated in your comments that all of your stores had positive same-store sales. In general are you happy with the progress they are making where some of these stores in negative territory one year ago?

So the answer is no, not all of them were negative. I think a lot of them actually were positive in the previous year, but I think that what we're very pleased with is we believe the strategies and tactics that we have in place are lifting all restaurants equally. So we're seeing things like happy hour, things like emphasis in digital things like emphasizing the new food program that we launched in 2018. So I think all those things are coming together. And I think it lifted the whole brand up and even restaurants in markets where there are newer to us for instance Denver and Chicago and San Diego, these things worked extremely well in those markets. So I think we learned a lot about how powerful the brand can really do when the strategy, tactics and particularly the digital social media marketing strategy come together. So it was a very powerful fourth quarter. I think as we mentioned in the prepared comments momentum has continued into the first quarter. So I think a lot of the strategies that we have in place are multi-year strategies and tactics. So we show that they will continue to work for us in 2019.

Alright. Last question. I didn't quite catch the comments about the minimum wage in San Diego. Can you - Linda can you repeat that please?

Now because I think what the point is that sometimes we have restaurants in their infancy. Sometimes they're a little heavy from a leverage point of view, so it can drag down the rate in their startup period as well as minimum wages across company.

Yes. So I think the San Diego escalated to the margin being lower in the early days of operation and then separate from the minimum wage impact which we saw in a lot of other operations.

Our next question comes from line of [Spencer Grimes with Twin Leaf Management] Please proceed.

Hi, there, Rob, Manny. Two questions please. First on the 2019 forecast or guidance, trying to understand this better when you talk about 3% to 4% comparable sales growth forecast and that's coming off of 15% in 2018. I know you mentioned a tough comp but that seems like a fairly substantial step down and then as that rolls into the $93 million to $95 million top-line guidance. I'm trying to understand you did $86 million last year and you've got nine plus months in Nashville and six months San Diego and the new additions later this year, seems like you'd be closer to $100 million. I'm trying to understand how to reconcile that. And then on the cost side, please, you talked about the $8 million annualized G&A expense at the corporate level and you talked about that being on a go-forward basis, but it looks like you were at 2.8 on a cash basis in Q4. So I am wondering how quickly you think you can get it to that a $2 million quarterly numbers? Thanks.

Okay. That's more than three questions, but I'll start with number one. So the first question about going from 15%, we actually were up 9% in the year and we were 15% in the fourth quarter with a 21% stack in the fourth quarter as much I would like to believe that we can do those numbers which by the way our guidance doesn't imply but we can do to not do better but I do think that a 3% to 4% is an achievable number for us because frankly one of the things that I do want to establish culturally here is that the numbers that we go out and tell people we make the numbers which actually is exactly why we made exactly the high end of our guided EBITDA for the number. So we do try to create a culture of meeting the numbers that we lay out in our guidance. So obviously you have your model and within our model the numbers that we went to work within that particular model. So the 3% to 4% plus what we see for the rest of the year in San Diego actually it's five months for San Diego. And nine months for Nashville, obviously, I don't want to get ahead of ourselves in Nashville. I think Nashville is going to be a super market for us, but I rather believe and forecast a number that we can actually achieve there. So I do think everything is really good. In terms of the G&A numbers, the fourth quarter, this is an FYI is not a good benchmark for the G&A for the whole year just because that's where we book the bonuses or a big portion of the bonuses for achievement targets and because we had a fantastic 2018, we did booked up to bonuses to reward the team for a job well done. So everyone has the bonus program and we addressed that. I mean I think the $8 million in G&A reflects a couple things. Number one is we are little by little exiting the New York office, which is an incredible expensive lease and we've moved the majority of our operations to Denver which is much cheaper. So I think that's going to pay off tremendously. We also trend our G&A in the later part of the year which will help bring down the payroll costs in 2019. And then frankly on the professional cost side, we did things like we change our auditors which we will change a meaningful amount of money there, but that's just part of our strategy of dealing with professional service. So we don't really think that the $2 million is unachievable particularly as you read the guidance it's actually before or exempting for the stock based comp which the GAAP number includes the stock based comp. So I do think that again I think just to summarize my answer there is we want to achieve our guidance. We want to make sure that we give our investors and followers transparency as how the numbers are doing. And we feel that if we are able to reach our guidance number of 3% to 4% in sales and $13 million in EBITDA, we--those results are one of the faster growing companies in the restaurant space. So we're very excited about that.

Is the intent to be out of New York in terms of the headquarters location entirely at some point?

We will continue to have a small office in New York because I believe that it's from a development perspective and because of the VIBE elements of the business, I do think it's important to keep connection to the needs of the business and particularly the meatpacking district and this being in Manhattan itself. So we'll always keep a small operation / development office there. But the concentration of all administrative work will be done out of the Denver office for now. And we also have an office in the UK in London where we house our international operations.

Then finally last question if I could on the -- in the interest expense savings. Have you guys been able to determine what the magnitude that might be with the new facility?

Yes. I mean so good question. So current average interest is around 7.5%; the new facility will be much better than that. And we should be saving two points on $10 million balance. So there'll be meaningful savings to the entry point.

Our next question comes from line of Will Davis, a private investor. Please proceed.

Hey, Manny. Congratulations on a great quarter and Tyler welcome to the team. It's great. My question is you've done a lot to fix the balance sheet and it looks like and you'll be debt-free here shortly. Wondering what's your plans would be maybe looking out 18 months for use of excess cash or would you consider a buyback or just curious how you're thinking about that?

So thanks for that question. So it's a nice problem to have to have that excess cash. So I mean we're coming off the period where we've done lots of work in the balance sheet as you pointed out. And our first objective here is to get the debt taken care of which we will as we continue to generate cash flow. And again, as we always do I think it's the responsibility in conjunction with management to look at what we're going to do with that excess capital. So it will be a good healthy discussion for us to have in the middle of the year. So at this point we don't have any stated goal of what to do with that. Although, internally we certainly debate what will be the best way to return the value back to the shareholder. So we'll definitely--will be taking a look at that about the years as we generate cash.

Thank you. And if I could ask one other. I know that you haven't gotten into specifics about where other licensed properties might be globally but are there any certain markets that we should keep an eye on certain regions; any kind of color there what would be interesting?

Great question. So lots of interest in the US. We have pipeline in Canada; pipeline in Mexico, Latin America. We have sites percolating heavily in Europe because we do have very established relationships with players like the ME Hotel. And we are actively looking at leads into the Asian market. We've been the last three or four months we've had two or three maybe four opportunities where we have-- we've been given a look for some opportunities. But again the lots of good ideas and so pipeline are super active. And again I just want to make sure that we're careful that we don't overdo it. So we do have to make sure that our resources are lined up. And in terms of the growth side but again we want to make sure that we don't put a restaurant on remote market that we just can't get. So we're also being cautious that also there's other --although there's a great pipeline, we also want to make sure that it's on strategy with what we want to do to get to the 200-plus global location. So super excited about that and stay tuned. You'll see a lot of opportunities coming out of Europe right now and in the US.

Our next question comes online of [Marcelo Hertz do with Hertz Capital Management]. Please proceed.

Good afternoon and congratulations on great execution in the quarter. Can you talk a little bit about the approximate revenue sides and the ETA of your F&B management deals like in Florence, Indigo Hotel and Victoria House? And then you also just started to talk a little bit about the pipeline. Maybe you can add a little bit more detail in terms of what's in store for 2020.

Yes. So great question so for 2019 we mentioned 2 to 4 STKs and we do --we mentioned one or two F&B deals. The F&B deals you've already mentioned in Florence where the hotel --it's in a hotel that is scheduled to be complete by August. I'm always cautious about providing a definitive deadline on that just because it's a hotel. There's a lot of moving pieces there but we will get floor and we feel pretty comfortable within this year. And then the Indigo / Victory House, we're very close to getting that our presence in there. So those two F&B deals are pretty well -- we were way on our way there. In terms of the STK side, we currently have Puerto Rico in the construction. So it's -- the site is moving while we do have a site in Guadalajara, Mexico that's already also in design and as well as the Scottsdale, a property that's also pretty advanced in site. So pipeline for 2019 is we're pretty solid over there. And then 2020 we have a huge amount of percolating, it's really a question of how we prioritize which ones. We are going to -- we have a very heavy 2020 pipeline in place right now from places like Barcelona to maybe Madrid opportunity as well. We have a lot of stuff in our pipeline for 2020 and some Caribbean hotel opportunities. So we're not short on that. So that's kind of our plan, Puerto Rico, Guadalajara, Mexico, and Scottsdale. We will have the Indigo/ Victory House and then Florence is going to be towards the end of the year.

I'll see you there, thank you. Maybe one more. You recently opened Nashville and I was wondering what kind of payback period do you expect when you look at for cash flow in relation to CapEx you had to put in there?

So the recovery in Nashville is going to be relatively quick one. We didn't spend a lot of money getting in there. Two, the TIs are very -- very good TIs in that deal. We will payback that site year, year and a half. It's how bullish we're about that site. Also remember that we got six months of free rent on the site. So as we start doing the math about our all-in and that is very well and because we were very quick and going designed to open that restaurant. The preopening is going to be relatively small to what you used to see in [Indiscernible]. So I think it's a very efficient growth there. It's truly -- that's close to asset-light as you can get on a company owned restaurants and you adding there six months of free rent plus the $600,000 plus in TI and I think comp property -- that property actually will be -- so I -- we are super excited about Nashville. End of Q&A

Thank you. We have reached the end of our Q&A session. Allow me to hand the floor back over to Mr. Hilario for closing remarks.

Thank you. We appreciate everyone's interest in The ONE Group and also want to say very warm thank you to the whole team for what has been an incredible 2018 and what has become also an incredible start to 2019. So my hats off to the execution of the team. And I look forward to seeing you all in our restaurants. Thank you for being here.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.