Greetings and welcome to The ONE Group Business Update Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn this conference over to Mr. Tyler Loy. Mr. Loy, you may begin.

Thank you, operator and good afternoon. 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 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. With that, I'd like to turn the call over to Manny Hilario. Manny?

Thank you, Tyler and hello everyone. We hope that everyone has stayed safe and healthy during these extraordinary times and appreciate your continued interest in The ONE Group. I would like to offer some brief thoughts on our fourth quarter results, but more importantly, discuss where the business has been since the beginning of the year as that recovery continues to strengthen. Finally, I will discuss our near-term development plans. It was March 15, 2020, when Ohio's Governor ordered all restaurants to close their dining rooms and bars and within a week, most states followed suite. It has been a journey since then for our industry and for our company. I'm pleased to launch this conference call by reporting that so far for the first quarter through March 14, 2021, our consolidated comparable sales on a two-year basis have increased 0.5%, albeit, we are still limited by many restrictions. We are pleased with a strong momentum and feel hopeful for the future as governmental capacity restrictions have begun to further relax in many of our key markets; California, Nevada, Minnesota, Nashville. For example, starting on March 15, 2021, Las Vegas is changing to 50% capacity. To put it in perspective with our [ph] Las Vegas, for the first quarter through March 14, 2120, our consolidated comparable sales on a two-year basis increased 7.1%. As we discussed in our last conference call, we began the fourth quarter with encouraging trends in October, as exhibited by positive comparable sales across both STK and Kona Grill, resulting in a consolidated increase of 4.2% for the month. This was largely a result of us reaching our highest indoor dining capacity since the pandemic began of 51%. However, as dining restrictions were reinstated over the course of the fourth quarter, comparable sales trends naturally soften,…

Thank you, Manny and thank you for joining us on the call today. We expect that we will be filing our 2020 Form 10-K in the near future. I will now provide you an update on current sales performance. Domestic consolidated comparable sales declined 14.8% for the fourth quarter of 2020. For STK, comparable sales decreased 20.7% and for Kona Grill, comparable sales decreased 8%. As Manny commented, sales sequentially decelerated throughout the quarter for both STK and Kona Grill as a result of state mandated indoor dining closures. As cities began to reopen, consolidated comparable sales for January, February, and March through the 14th, continue to sequentially improve. Most importantly, comparable sales year-to-date 2021 versus 2019, are now positive, a reflection of consumer demand for VIBE dining. Because of the impact of COVID-19, we have decided to permanently consolidate all VIBE business into one location. We will closely monitor the progress of business conditions in that market and decide that we reopen a second location at a later time. As a reminder, due to these unprecedented market conditions and uncertainty surrounding the effects of the pandemic, we cannot reasonably estimate when our business will return fully to normal operation, and therefore, suspended all financial guidance last March. We do however, intend to provide further business updates if warranted by this evolving situation. I will now turn the call back to Manny.

Thank you, Tyler and thank you all for your time today. We are very encouraged by our results in the fourth quarter and especially, by the positive trend so far in 2021. We are in a better position now than we were just a few months ago and this is due to the efforts of our exceptional team. They have helped us to navigate through these trying times and are now positioning us for what we believe is yet to come, a recovery characterized by strong demand for a differentiated VIBE experience. Our team is doing an exceptional job bringing our mission to live every day, to be the best restaurant in every market where we operate by delivering exceptional and unforgettable guest experiences to every guest every time. And our guests are validating what we know to be true through their feedback, social media posts, and of course, their frequency. Our team has also enabled us to build a sustainable takeout delivery and ecommerce capabilities. The success of their efforts will pay dividends for our business long into the future. Let me conclude by thanking all of our valued guests who have enjoyed STK and Kona Grill at our dining rooms, at outdoor areas, for takeout and delivery, or have ordered our high quality steaks from our STK meat market. We have greatly enjoyed serving you and appreciate your support and look forward to see you in our restaurants real soon. Last but not least, we also appreciate everyone joining us on the call today. Tyler and I are happy to answer any questions that may have. Operator?

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ryan Meyers with Lake Street Capital Markets. You may proceed with your questions.

Hey guys, thanks for taking my questions. First one for me. So, the commentary that you gave in the press release on capacity and comps was pretty helpful, so appreciate that. Just wanted to get some insight on do you guys think that January was the trough here and then how are you sort of thinking about the business for the rest of the year and kind of which one is seeing the better recovery that STK or the Kona? Just kind of any sort of commentary on that would be helpful.

Great. Sure. So, from what we've seen so far this year, I would agree that January was what I considered to be a transitional month. I think that in January, we did see the impact of pretty cold weather across the country and being in locations with only outdoor facilities was very challenging I would think. So, I believe starting in February that we saw a little bit better weather patterns and also the lifting of restrictions. So, what we've seen in January, February, and March has been an ongoing pattern of the restrictions being lifted. We also have some additional lifting coming up, for instance, New York is shortly going to be at 50%, which is a big market for us. We also have Vegas coming to 50% very soon. So, I would say that we're now on a more positive momentum going forward, particularly as the restrictions continue to be lifted. Relative to STK and Kona Grill, my experience so far since we've been in recovery mode is that both of them have done exceptionally well. Meaning that there's a lot of demands. I do believe that Kona Grill, because of its suburban exposure, just do very well, all seven days of the week, whereas STK, with less of business travellers and group dining is doing very well Thursday through Sunday. So, there's a little bit of a shift on how the customers use the brand. But overall, I believe that both brands have done extremely well, particularly as you look at the numbers that we reported for the month of March. So, I'm very pleased with both STK and Kona Grill and feel pretty strong about their continued recovery for the rest of the year.

Great, that's helpful. Next one for me. So, can you kind of walk through the cadence of new openings and if they're going to be licensed or company-operated, and then also the 13 units you expect to open here in 2021, how many of them are Kona Grills?

So, the cadence is -- just to reiterate, we opened Scottsdale STK, which is doing fantastic as you probably saw the numbers on the press release and as we discussed here. So, we've been very happy with that and so that opened January 4th. The next opening that we're having will be probably Bellevue, Washington, which is the next one that we have scheduled. And then thereafter, we have a Cabo location in Mexico and then we have some U.K. locations after that. Obviously, the U.K. is still currently not allowing for indoor dining. I believe that they are -- or at least they were planning to go to outdoor dining in April, then going to dining in May. So, we probably will open those U.K. locations in June or slightly later, depending on when the restrictions get lifted there. And then the three F&B restaurants that we mentioned on our prepared remarks, we probably will be opening them late second quarter, early third quarter, again, depending on how the market conditions are. So, that's kind of the spread, I would say, that we'll open the majority of those locations by the end of the third quarter this year. And then your other question was in relation to--

If any of those opening are going to be Kona Grills?

So, they're all STKs right now and other F&B brands, we do not have any Kona Grills on the numbers that we quoted for development.

Okay, that's helpful. And then last one for me. So, as you've seen, sort of, capacity restrictions ease and things get a little bit better, have you guys had any trouble bringing on more employees, whether it's bartenders, waiters, or chefs or anything like that, have you guys faced any sort of headwinds there as capacity has begun to tick back up here?

I mean, generally, the answer is no, we haven't seen any dramatic shifts so far. Obviously, we're monitoring very closely the fact that unemployment benefits have once again been extended. And last time when that happened, it was a little bit more difficult to staff some of the positions, so clearly, we will benefit. I will, I should say, we actually will monitor that condition very closely. I will tell you though the thing that we have seen those the people who are in the restaurants now are staying, so we've seen a decrease -- a relative decrease in turnover and retentions have gone up. So, I would say that's probably the offset to maybe some of those future pressures on getting people in as that the people who are working for us seem to stay with the company. So, I'm very bullish about the retention trend. And I also think the fact that our operations have been very busy, I think the employees that are working in the restaurants feel very, very good about being in an active environment. So, I get a lot of compliments. And frankly, a lot of our employees will come up to me and tell me that it's good to be in an environment that gets them away from what they consider to be the general, seclusion from the pandemic. So, employees seem to want to come to work because that gives them an escape from other situations outside of work. So, I think that's been very positive.

It's good to hear. Thanks for taking my questions.

You're welcome. Thank you.

Our next question comes from the line of Nicole Miller with Piper Sandler. You may proceed with your question.

Thank you. Three questions. But they're all around the same idea of optimization. So, ask them the best that I can. But I'm thinking first about the guest behavior and things you've had to do to modify? And then of course what used to be normal. So, how do you optimize getting in the perfect guest in the door and optimize the facility? Is that day a week, day part, entrée mix, food versus alcohol? How are you thinking about optimizing that?

So, that's a great question, Nicole. I think the way that we think is -- I told you a year and a half ago that things like selling the incremental drink at the table and selling the dessert at the table were something that we looked forward, because that would increase the per person average spend at the table. I think in today's environment, we think more of table turn. So, we really think about getting you in and out at an STK in 90 minutes. And for Kona Grill, we target 75. So, I think it's more of the new reality is that it's all about table turns and getting people to -- particular the dinner timeframes. And then the other paradigm that's different is that even for a fine dining type of business like STK, where in the past, we would have looked at maybe brunch as a non-core business, we now look at brunch as a core business, because now it allows us to use less seats on a Sunday and on a Saturday, which are very high demand days. So, I think that brunch now is playing a key role in kind of how we think of the business long-term. And then last but not least, I think, from an operations and execution perspective, our teams spend a lot more time just measuring and monitoring the steps of service at the table. And we really do very rigorous review of how long it takes for the order to be taken and cocktails to get to the table. So, a very disciplined approach to bringing in the steps of service at the exact times, and obviously, we'll always have to balance that with the fact that we don't want to diminish the experience with the gap. So, it's really balancing the need for turns with need for a smile and move on [ph] a separate table.

Okay. And then I was also thinking about optimization through the lens of development. And clearly, you've outlined a pipeline today. So, that's super helpful. But how did you optimize like, less capital-intensive license throwing off cash flow opportunity, with STK big box big revenue with the Kona mainstream, but a lot of whitespace? How did you go through that process in these conditions to optimize that?

I think a couple of things. So, on the development side, it's what I'm seeing from an optimization perspective, if you will, is that particularly for F&B hotel operators, I'm seeing with the lower occupancy rates, they're less -- we -- less willing to take the risk on the F&B side. What I mean by that is that the last thing they want to do is take a business that already has low occupancy and potentially low RevPAR and throwing their high risk, if you will, restaurants or F&B operations and particularly, if there are a shop that uses lots of labor for F&B. so, I'm seeing a lot of people wanting to optimize their F&B footprint by bringing in people that can execute the F&B program at a very high economic or very -- or I would actually say very profitable economics for them, so I see optimization there. And then the other thing that we see on the optimizations, some of the hotels that we're in, because of the velocity and the fact that our restaurants are very full on Fridays and Saturdays, we become an amenity to the property where people would want to come to the hotel and stay overnight because it's so fun and exciting. I'm thinking, for instance, the W in LA is an example where we're at that hotel and we have, frankly, become as the hotel management, they will tell us, one of the key strengths of their business because we're actually super active and bring a lot of excitement there. In terms of Kona Grill growth relative to development, as I said earlier, we're being very, very careful about making sure that the first Kona Grill that we do is a super homerun. So, we've been very disciplined about the entry in real estate that we have received tremendous amounts of opportunities from existing landlords who now want us to look at other projects and see if there is an opportunity for Kona Grill. I have seen them starting to begin to offer much more TIs on the Kona Grill, so almost going to a point where they're telling you they could almost build a property for us. But frankly, right now, because of where we're at on the pipeline with STK, and there's so much demand there for that product, we are focusing on it. And obviously, we will only take any kind of look at a Kona Grill if it's an extraordinary level of economics. So, I don't know if that answers your question, but certainly tells you that there's a lot of demands and we certainly want to focus on where there is higher level of returns and we certainly don't want to take any opportunities that we feel are not high revenue opportunities.

Well, and it helps us understand the consumer behaviors and what's going on out there -- on out there. So, it's super helpful. Last one, I'm going to leave it open-ended, purposely so answer or not whatever drops in, but how do you optimize your balance sheet? I mean that could -- I'll just leave it at that. It ties together with the other parts. Thanks.

Yes, I mean, I think right now optimizing the balance sheet is I think, emphasizing store level economics. I mean ultimately, in the restaurant business, that's how you ultimately really build your balance sheet is by having a world-class economics. And I think if you start looking at it -- look at our -- if you look at our same-store performance for STK, and unit economics back in new stores in Scottsdale at $180,000 weekly levels, our unit economics are super-compelling. So, our restaurants, at those volumes of those levels of revenue become super profitable. So, that's ultimately our long-term strategy to bring in capital. And as I said earlier in my comments about development, I think that the success of the brands today excites landlords and developers. So, having an exciting brands that are great amenities to projects to me is, frankly, the ultimate balance sheet builder because we will be able to get amazing deals and create a tremendous amount of cash flow with very little capital outlays. So, that's how I look at the short-term capital view in this and then hopefully, as we continue building profitability, we'll be able to work out the cost of debt and other cost of capital in our balance sheet. So, ultimately, that's our really long-term -- longer term strategy for the balance sheet. So, focused on store margins, keep managing G&A super tightly, and then ultimately, keep developing on asset light. So, that's our basic strategy that we've been following.

Awesome. Thanks for taking my questions.

Thank you, Nicole.

Our next question comes from the line of Abhishek Malani with Black Diamond Capital. You may proceed with your question.

All right. Thank you for taking my questions. I had a couple. To start, can you give us a bit more color on the capacity constraints? I know you mentioned that STK typically has more demand on the Thursday to Sunday window. But are restaurants actively turning down potential guests use space limitations? And so what's the demand pressure effectively seen? And is there a sense of implied capacity that restaurants have hit without coronavirus-related capacity constraints?

I mean, so I would answer that question by saying that on Fridays, Saturdays, and Sundays, particularly between 6:30 and 9:30 in the evening, I would say that all of our restaurants are receiving lots more demand that we can fulfill in that timeframe. So, yes, so in those timeframes, I would say that we have received extraordinary amount of demand. And frankly, our strategy has been through our -- how we book reservations. And how even we market, we try to shift all the -- a lot of that volume to the 9:30 to 11 timeframe, and then try to also shift some of the volume to the 5:30 frame. So, the answer is yes, those days are absolutely no problems. I do believe though that on the Mondays through Wednesdays, where historically, there were more business travellers, there's more conventions, there were more business type of activities, I think those are the days that we probably have more available capacity. So, what we've done in those days, if you're following what we do on marketing is, we've been doing a tremendous amount of social type of activities, like date nights, on Mondays, Tuesdays, and Wednesdays, because that's one of the occasions that we see super high demand for right now. So, we're marking for that and I think that actually has been successful to fill in for some of the lack of demand from the business opportunities.

Awesome and going into a second question, slightly different. Can you give us a sense on what percentage of sales are coming from like, drinks versus entrées in this period versus in the pre-COVID period? Is there any difference here that we haven't seen?

Yes, so I will say that, historically, pre-COVID, our liquor sales would be a 30% plus range, whereas in the COVID period, we've been in between 25% and 30% on liquor and wine. I will tell you that pre-COVID with a number of being a little bit less than 30%, I would have been very concerned. But in the post-COVID, considering that when you sell more drinks, particularly at the table, you tend to slow down your turn times at the table. So, in our higher volume restaurants, particularly between Friday -- on Friday, Saturday, and Sundays, although we'd like to sell liquor because that's good margin, we will trade having more turns on the table than holding a table back for an extra 30 minutes or two, and the waiters [ph] can have a drinks. So, a lot of the reason why the liquor mix might be a little bit less is because we are actually driving a different strategy to try to drive more traffic and bring more people through table turns. So, I done think, per se, I guess what I'm trying to not make the correlation is that we have less liquor sales, because we're in COVID, I don't think it's that, per se, it's -- I think it's a combination of the strategy of turning the tables and also the fact that some of the areas, we're still not able to use bar, which used to be also a place where people would come in just to have one or two drinks. So, I think the combination of that is what drives it down. But if you look at our -- in general, if you look at our historical results, we've actually been very well managing crowds and I don't think that that's really a big material impact for us in the long-term.

Great. And one last question from me. First off, congratulations on the takeout and delivery execution. I was wondering here do we have a sense on what percent of these deliveries and takeout orders are from the current customers versus new adds?

So, that's a fantastic question. So, -- because we're very early on the strategy, actually a large proportion of our transactions are new transactions we've been very actively promoting. So, we're still in early stages of heavily promoting it. So, I would say that a big portion of it is just new transactions. For instance, we've used some of the -- for instance, we use the cheeseburger as a key product to drive interest for STK. And when I say cheeseburger, I mean, a Wagyu Cheeseburger, probably the best -- one of the best hamburgers -- or cheeseburgers in the industry. So, we're using promoting to bring people in. And so I think, at least in the early stages where we're at on takeout and delivery, I would say that over 50% of the traffic is still coming from people trying the product. And frankly, I looked at as a huge opportunity because as I talk to our teams here, our trick is to make sure that through great experience and takeout and delivery, we convert those to long-term loyal customers. So, I see that as a great opportunity to really build a very robust takeout business and delivery business in the long-term.

I'm sorry to quickly add, so do you think there's any meaningful difference in the types of customers who are doing takeout and delivery versus the customers that are coming in-store?

I think that they are -- lots of them are the same customers, but different occasions. So, they're -- it's a more casual occasion. So, I would say -- and it's also a mix of new people who are looking at the different products on the takeout/ delivery menus. And if you follow our menus, they tend to be lower price points. So, it's also an opportunity for other guests to try the brand. So, I think we're basically doing both, we're serving existing restaurants -- I mean existing customers for different occasion, and bring a tremendous amount of customers with a lower price points, particular STK, to introduce them to the brand. And we're totally okay with that because as we tell the team here is let them try with the takeout menu and then when they have the birthday or the special date, or the -- or any other holiday, which is one of our areas that we do very well, they'll remember us and they'll give us a nod on the holidays. So, we look -- or special occasions. So, we look even at the consumer that may not be a primary STK consumer, as a potential consumer on a special occasion later on.

Perfect. Thanks for taking my question.

You're welcome.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Manny Hilario for closing remarks.

Thank you. And I would like to close the call by once again, thanking The ONE Group team, the -- and the individuals that truly bring our mission to life every single day. So, there's no team that is more committed to great store-level execution. So, once again, thank you for all your work and your dedication and commitment to what we do and I look forward to seeing you all in our restaurants. Have a nice week.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your evening.