Greetings, and welcome to The ONE Group Hospitality Second Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Tyler Loy. Thank you. Please begin.

Thank you, operator, and good afternoon. 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 opinions 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 of 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, Tyler, and we appreciate everyone's continued interest in The ONE Group. I'm pleased to report the strong sales momentum we experienced in the first quarter of 2019 continued into the second quarter as well. Specifically, we reported an increase in total revenue of 16.2%, including a 6.4% increase in domestic same-store sales as we lapped a challenging comp comparison of 7.5% from the prior year quarter. This resulted in a two-year comp of 13.9%, a level of performance that well exceeded our closest public company peers and demonstrates once again that we offer something that is truly unique, which we refer to as vibe dining and is a real differentiator, both in our eyes and in the eyes of our guests. Importantly, most of our comp growth was generated through increases in traffic and mix as we benefit from only a modest price increase in January. This sales momentum has cascaded into the third quarter. With respect to our key profitability metric, adjusted EBITDA, we knew that rolling over the significant growth that we experienced in the second quarter last year would be difficult, and this obviously proved to be correct. There were a number of factors that led to our year-over-year decline as I will now explain. First, we experienced operating inefficiencies at our new STK locations, which take time to scale up to normalized operating margins. That said, we are incredibly pleased by our sales volumes at our new stores, specifically our newest STK in Nashville, which opened in March. The restaurant is off to a great start with fantastic weekly sales, but it will take some time, typically 6 to 9 months, to reach economies of scale. Second, we have temporarily lost the patio at the STK Midtown, due to a surrounding construction. This was…

Thank you, Manny. For the second quarter ended June 30, 2019, total GAAP revenues were $23.6 million, representing a 16.2% increase from the comparable quarter last year. As Manny mentioned earlier, same-store sales at owned and managed STK restaurants rose 6.4%. Included in our total revenues for the second quarter of 2019 is our owned restaurant net revenues of $18.8 million, which increased approximately 21.2%, compared to $15.5 million in the second quarter of 2018. The increase was primarily due to an increase of 7.8% in same-store sales for domestic company-owned STK restaurants, coupled with the opening of STK San Diego in July 2018 and STK Nashville in March 2019. Management license and incentive fee revenues were flat to prior year at $2.7 million in the second quarter of 2019. These revenues were driven by the launch of the licensed STK Dubai Downtown in July 2018, STK Mexico in August 2018 and STK Doha in January 2019, coupled with an increase in performance at other locations. These increases were offset by the loss of management fee revenue from One 29 Park management agreement, which terminated on September 30, 2018, coupled with negative currency effects of a weaker British pound and euro related to our managed and licensed locations in the United Kingdom and Italy. Owned food, beverage and other net revenues were flat at $2.1 million in the second quarter of 2019 and the second quarter of 2018. Owned restaurant cost of sales as a percentage of owned restaurant net revenues increased 90 basis points to 26.9% in the second quarter of 2019, compared to 26% in the comparable quarter last year. The year-over-year increase was a result of the opening of STK San Diego and STK Nashville as our new restaurants faced operating inefficiencies in their first 6 to…

Thank you, Tyler. As you can see, we are taking our second quarter results in stride and remain confident that we can deliver on our full year expectations. I should add that even though we are only in August, our holiday party bookings are already looking great, and we think we can build on this early momentum through our great marketing and event promotion efforts. As always, let me end my remarks by thanking our ONE Group team for making everything that we do possible on behalf of our guests and shareholders. We have a plan in place that we are executing and envision a tremendous opportunity for expansion of the STK brand around the world. Thank you, team, and thank you all for joining us on the call today. Tyler and myself are happy to answer any questions that you may have. Operator?

Thank you. [Operator Instructions] Our first question comes from Mark Smith of Lake Street.

Hi, guys. Just a couple of quick ones for you. First, if we look at Nashville, is it following fairly historical trends of inefficiencies? Or is there anything else going on there or in San Diego?

No. I think they're following the typical path for us in terms of, I would say, inefficiencies in the P&L, on the middle of the P&L. But from a top line perspective, Nashville has been very strong for us. So, I would say the answer is typical early inefficiencies and great top line. And I think we're really starting to get that operations out then. So, I feel very strong about that one. And then San Diego it's just a seasonal market. The second quarter relative to the other quarters is a lower seasonal from a sales perspective. And as you think as we go out to third, fourth quarter, we'll pick up pace there as well. So, typical operating inefficiencies.

Okay. And then, Tyler, I don't know if you quantified this or if I missed it. Can you quantify or talk at all about kind of the total impact of exchange rates and the impact that, that had?

Yes. So, the impact on exchange rates for the management license channel was probably between, I'd say, it's around 100,000 for the quarter.

Okay. Perfect. And then anything else as we look at commodities? I know you guys talked about shrimp going on contract and a lot of your beef there. Anything else that's going on? Or what do you look at when you guys see kind of the commodity market today?

Generally – this is Manny. Generally, we've been pretty – it's been very efficient as we contract the majority of our beef or over 50% of it. And only in this quarter, we did get a bit of a surprise on shrimp. I don't know for – if you follow the shrimp market or not, but the super high-end shrimp, which is what we have in our platters and it's a very high utilization product for us, the U8 sort of really big shrimp market gets supply shortage there. So, we have to play an incremental cost per pound on it. But our choice was we didn't want to dummy down the product, so we kept them on the menu as long as we had to and then we contracted. And as I think we mentioned on our prepared comments, we've locked in into a very strong contract for, I think, 30,000 pounds of shrimp. So, we should be okay with shrimp. In terms of all the other commodities, nothing really that interesting going on in our basket of products right now.

Okay. And then just the last one for me. Any additional guidance or insight into timing of new openings? Or even if you can speak generally about how the new units are kind of moving along at this point?

Yes. I mean so Florence, Italy, which is an F&B deal, is very [technical difficulty] probably be the next one that we'll do an announcement on. Puerto Rico is built. We're actually in the process of training the team right now. So, that will come thereafter. And then Scottsdale will come late in the fourth quarter as an opening.

Perfect. Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Hilario for any closing remarks.

Thank you. And as always, we thank you for your continued interest in The ONE Group, and we look forward to seeing you in our restaurants. Thank you, operator.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.