Greetings and welcome to The ONE Group First Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Tyler Loy. Tyler, 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 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 conditions. During today’s call, we will refer to certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. However, the presentation of these measures or other information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of these measures, such as adjusted EBITDA, adjusted net income, restaurant operating profit, comparable sales and total food and beverage sales at owned and managed and licensed units; the GAAP measures, along with a discussion of why we consider these measures useful, please see our earnings release issued today. With that, I’d like to turn the call over to Manny Hilario. Manny?

Thank you, Tyler and hello everyone. We hope you and your families are staying healthy and safe through these unprecedented times. And we sincerely appreciate everyone’s continued interest in the ONE Group. I know that I have said this before, but it certainly bears repeating. I’m so proud of the way our teams overcame the obstacles of this past year and how they are now leading the continued recovery of our business. Our plan today is for me to provide some detail on our recent results and reiterate our optimism for the future. Afterwards, I will discuss our development plans. And finally, turn the call over to Tyler, who will walk you through the quarterly financials in greater detail. First and foremost, I would like to reiterate that, although we see light at the end of the tunnel, we are aware and cautious that much uncertainty still remains due to COVID-19. As local restrictions began to ease and capacity increased in our restaurants, we experienced sequential same-store sales improvement throughout the quarter, resulting in an increase of 3.3% compared to 2019 and both brands being positive compared to 2019 for the quarter. Momentum in acceleration continues we then experienced an even greater improvement in April as indoor dining capacity continue to increase and vaccines became more readily available. Same-store sales increased 32.2% in April, including a 47.4% increase at STK and 18.6% increase at Kona Grill all compared to 2019. Consumers more than ever as they become fully vaccinated, I looking for a fun and differentiated social time outside of their homes and our concepts featuring vibe dining, our wall positions to deliver. Our teams are effectively delivering on all operational marketing and culinary strategies. The results are truly remarkable and I couldn’t be prouder of our teams. We’re also…

Thank you, Manny. Let me start by discussing our current cash and liquidity positions, before reviewing the first quarter financials in greater detail. As of March 31, we have $28.4 million in cash and cash equivalents on our balance sheet. And this amount has not changed materially through today. Notably, we generated positive cash flow throughout the first quarter. Finally, availability on our revolving credit facility, as of the end of the quarter, stood at approximately $10.7 million. In terms of our quarterly financials, total GAAP revenues were $50.5 million, increasing 24% from $40.7 million for the same quarter last year. Included our total revenues for the quarter is our owned restaurant net revenues of $49.2 million, which increased approximately 27.5% from $38.6 million for the same quarter last year. The increase in revenue is primarily attributable to strong sales momentum as state and local governments continue to ease seating capacity restrictions in the markets in which we operate. Domestic consolidated comparable sales increased 3.3% for the quarter compared to 2019. For STK, comparable sales increased 1.9% and 4.6% for Kona Grill. As Manny commented, sales sequential accelerated throughout the quarter for both SDK and Kona Grill. As cities began to reopen consolidated comparable sales for April increased 32.2% compared to 2019, including a 47.4% increase at STK and an 18.6% increase at Kona Grill. Management license and incentive fee revenues were $1.3 million in the first quarter of 2021 compared to $2.2 million in the first quarter of 2020. This change is primarily as a result of temporary closers due to COVID-19 and limited in-person seating and managed locations. Owned restaurant cost of sale as a percentage of owned restaurant net revenue improved 180 basis points to 24.4% in the first quarter of 2021 from 26.2% in the first…

Thanks, Tyler, and thank you all for your time today. Let me conclude by saying I'm very encouraged with our results to date and our prospects for this year and beyond. Above all, I am grateful for all our teammates who bring our mission to life every day to be the best restaurants in every market where we operate. They do this by delivering exceptional and unforgettable guest experiences to every guest every time. I also want to thank our guests, they have stuck with us over this past year and are coming back to our restaurants for the first time in a long while, and enjoying the Vibe Dine experience they have been craving. We appreciate everyone joining us today on the call. Tyler and I are happy to answer any questions that you may have. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Joshua Long with Piper Sandler. Please proceed with your question.

Great. Thank you for taking my questions and thank you for the update today. Exciting to hear about the acceleration in sales here in the April period and then also when paired against strong margin management in 1Q. And so just wanted to see if you'd be able to talk about how you're thinking about margins on a go-forward basis, noting that you've got really strong revenue levels, but just curious if there are costs that need to be layered back in, as some of these jurisdictions start pulling back some of those restrictions and maybe things started going back to normal a bit more that 18, 8 that you did that you delivered in the first quarter restaurant level margin, if that's something that you'd expect to carry forward into 2Q and going forward. Thank you.

Yes. Thanks for the question, Joshua. This is Manny. I will start and then Tyler has additional comments we'll add some color to it. But as I said earlier in the call, our volumes in April are about $261,000 averaged for the 13 domestic STKs. And I also mentioned that there were for the year-to-date about $211,000. So my expectation is that going forward as we keep revenues in that higher level range will continue to do extremely well from a margin perspective. So I have no expectations that margins will go back. Obviously, there is some pressures in the environment relative to commodities and labor, and we're aware of those. But there's no particular layers of costs that we'll have to put back into P&L. And I just want to have to make a correction here, during in my statements, I did say that we have 13 domestic SDKs at the end of 2019. We actually only had 12. So just want to make sure everybody knew that. So our $224,000 was for 12, not 13. But anyhow, overall I do believe that the margin for the company for the rest of this year looks very, very good. Tyler, do you want to add?

No.

Great. Could you touch on what you're seeing there in the cost of inflation side? Obviously, we've heard that beef has been seeing some pressure. I'm just curious if you have been seeing that as well, to what extent, and then how the other line items in the basket across both SDK and Kona are fairing with any sort of either locks or other programs you have in place to mitigate some of those costs.

Yes. So for beef, we do have pricing locked in. Obviously, if the pressure gets to beef extremely, we do like to work with our partners, but right now we are locked in. And so we don't anticipate anything material there. Obviously, seafood, we did see some – seafood particularly in crab where we did have some up and down pricing throughout the quarter. We do buy some of the crab. So we did make some buys to help that out over time. We also saw some fluctuation in lobster. So there have been fluctuations and any times that we feel that there's opportunities. We will do some future buys to just to make sure that we don't ask you say buys, but we locked into pricing to make sure that we do get protection in the longer term. So again, I think that there's obviously we have seen ups and downs in a lot of the commodity lines. None of which has been material for us. You could see on our COGS line, we had very good COGS, in the quarter, although things were going up and down throughout the quarter. Obviously, the one that we're monitoring the most is labor. There is a lot of noise in the labor markets relative to the availability of labor. I think generally, the teams have done a very good job of retaining talents, and I think we've managed around that. And we've also been very proactive in terms of making sure that we manage wage, so that we don't get surprised by it all over so. Overall, yes, there's some pressure but I think we're doing all the right things relative to managing the P&L doing buys, locking in prices and managing labor.

Great. Thank you for that. How for – how long do you have those beef – that beef pricing locked in? How much visibility you have there?

Until the end of this year. Until the end of the year.

Got it. Thank you for that. And my last one was during some of the downturn periods, you and your team shifted to being really efficient with managing table turns and just driving efficiency and sales on a square foot basis in the store level at the restaurant level, how do you balance that going forward as we start shifting back to something more normalized where the guests can linger a little bit longer, you can maybe focus on some check building activities with an extra drink, or maybe dessert comes back in. How do you balance that efficiency with also kind of things returning back to normal at the store level going forward?

I mean, so far, what we've seen is that the demand still outpaces the supply on capacity. And so no question that turnover of tables is still our number one strategy, and it's not only just turning over the tables, but it's truly making sure that the experience is stellar. It wasn't the right amount of times. I do think that as capacity becomes more available, we probably will work more on the end of nights’ day part. So think of 11 o'clock plus dining where we'll probably take a little bit more of time on working on the liquor mix. So I think that that's probably going to be the next logical step will be to work on the late nights seating, which frankly, we've extended a lot of our restaurants to pass midnights, and we've seen a tremendous amount of success there. So probably that will be the next layer of working on check. Our check has been tremendously healthy. So we really haven't seen any erosion because of liquor, but that's still an opportunity. But right now to be very honest about it, our number one objective still is turning the tables over particularly on the weekends, which now is Thursday, Friday, Saturday, and Sunday for us, which is a four day a block of days.

Great. Thank you.

Our next question comes from the line of Mark Smith with Lake Street Capital Markets. Please proceed with your question.

Thanks for taking questions. First off, can I just confirm Manny, did you say takeout and delivery mix 13% in the quarter?

Just about, that's right.

Just about, okay. And if we looked at brunch, is that been a needle mover? If we looked at that as a percent of sales, is that helping in kind of everything that you've added to the restaurants over the last 12 months?

Yes, I mean, it's a lever, I mean, I think particularly as you saw in my earlier comments, particularly, as I work at Saturdays and Sundays, I think that – and first of all, I invite everybody to go try the programs. The food is outstanding. I think the culinary team has done a great job of – in my opinion, creating what's one of the most craveable, Instagramable menus to really stand out, because there is brunch. And then there's really brunch that people will remember. So we've been working on that later category. So I think we've been building it up, I think as we entered April, we really start seeing the impact of that day part. And the thing that I liked about brunch is that as you may recall, holidays is a critical elements of our marketing strategy. So brunch is a natural lever within the holiday strategy. So we've seen the power of that this year in Easter. And we saw that again in Mother's Day. So we were very excited about the potential of that day parts going forward. So expect big things coming out of this. And as we continue to build that day part obviously, which still very early on it. And I think that as more people experience it, we'll get more repeat business. So I see that as a very attractive new layer of business because historically nothing happened really in our SDKs between 10:00 AM and 4:00 o'clock on the Saturday and Sunday. So that's a huge amount of captured capacity now that we can turn into revenues. So stay tuned, you'll see us doing a lot of marketing around that you've probably seen in our digital marketing, that our team has been very aggressive in terms of creating the impression about that day part. And by the way, we've done brunch with Vibe in mind. So it's not just coming in and getting brunch food, but you will see the DJs in our locations. You'll see a lot more energy and a lot more emphasis in making sure that we have a killer drink program that really compliments what I believe to be an amazing food offering for brunch.

Okay. And you brought up Mother's Day. Can you talk about capacity in May kind of system-wide and where that almost – that is moved to?

Well, I think, capacity is improving. I think the big ones was Vegas. Finally, I think up to 80% now with capacity. We're going to see New York coming up to 75%. So those markets are coming up and then the thing that's very exciting about those markets is, we ran brunch for Mother's Day. And I can tell you that I am very – I'm very bullish on what that day part will mean for some of these markets like New York and in Vegas, we have found out that there's a tremendous amount of demand for that. So we believe that again, I think that layer will be there. And frankly, I think from a platform and layer of business, we're starting to see demand coming into the business for corporate group dining and group events. So that will be kind of the next layer of business here that the team is working on. And frankly, our appetite for those events now is Monday to Wednesday, maybe Thursday. Friday, Saturday, and Sunday, we got so much momentum on the ala carte business, that business is not a priority for us. So I guess that's a good problem to have that. We can say that we're really limiting our business travel, business development around Monday to Wednesday, which we brought the team back, we was starting to ask some of our sales and events managers coming back. And I think we'll bulk up the resources and assets behind that business. And frankly, the phones are now starting to ring. I think as vaccines get out into the public eye, we kind of see almost a direct connection and correlation for group events as vaccination levels go up. So I guess, we feel very good about where we stand right now. And I think as capacity keeps coming on, I think we'll continue to see us building into what I think are pretty impressive AUVs, in STK is about 260 a week and Kona Grill is in the 100 and starting to pick up. So I feel very good about how the units are executing all these programs that we put in place. And it's always good to see a translating of store level margins. And we saw that in the quarter that our store level margins are a very high level. Keep in mind that historically the first quarter is not one of our best seasonal quarter, so if I even framed further the margin performance in the seasonality of the business, I got to be very delighted with the margins that we did in the first quarter.

That makes sense. And looking at Q1 did – was there any weather events that had a big negative impact? I'm thinking primarily about Kona Grills in Texas. And then similarly looking at capacity, patio, maybe how much space have you added year-over-year in patios and how is that business trending right now?

I'm the good restaurant guy and a horrible weather guy. So, but I do think that we did have some times within the quarter where we did have challenges in Texas. As a matter of fact, I think we had a whole week of Kona Grill in Texas that was impact by its. Obviously, weather is weather. We did have lots of patios, rooftops, everything else. But our real focus is fishing where the fish is running. So it tends to kind of not let that become a real big call to action internally, but we did have weather events. I mean, there were in markets like that. We were also operating out of tents in some of our markets like Woodbridge and Troy, Michigan, which were happy not to be intense all the time anymore. But the clearly once the weather got below the 30 degree, we did see some impact in some of these markets because of weather. But again overall, we did have warm days and we did have cold days, we had dry days and wet days and overall, I'm sure somebody does track what the net of that is, but I wouldn't say, whether was a significant enough item for us to really talk about it from the analytical perspective.

And on the patio business, any commentary on kind of what you've been able to increase year-over-year in patio business?

Yes, I'm excited. So last year really was going to be the first year that we were going to – if you will maximize patio, unfortunately, because of COVID, we really didn't – weren't able to do that, because we were limited both in capacity and social distancing and the majority of our patios. Frankly on Fridays, Saturdays and Sundays, our patios are very difficult to get into. As a matter of fact, one of the big complaints I get from guests is I want to get into your patio and afraid of Kona Grill. I can never get in it. So I would say that we probably have demands that way of exceed supply on patio for Kona Grill, right now. Our challenge internally is that set earliest turns. So we do have to work on our table turns on the patio. It’s always difficult to get people out of patio seats because once people sit down and have those drinks and great food in the patio is always a little bit more difficult to turn the table. But again, that’s a high class problem we have, we will have to define and really execute at table turns at the patio. So I’m super excited to see what happens this year, because hopefully this year there’ll be less limitation. So there’ll be an opportunity here for us to really see what the power of the patios should be. Looking at our AUV for Kona Grill at $100,00 in April, I would say that going into patio season in May, June, July, August and September, we have a tremendous opportunity to really make lots of revenues out of the patios.

Okay. And last one for me is, as we look at real estate opportunities, as you guys beginning to develop and build and open new restaurants, any commentary or insight into what you’re seeing around real estate opportunities. And second was that, any construction delays as we look at permitting or issues that you’re continuing to have, or those issues starting to lighten up with some reopening.

Yes. I mean, I would say on development, I think probably the thing that looking back worked well for us. We didn’t stop development, although we were challenged – very challenged because remember we went all the way down to 87 employees in April of last year. Although we were very challenged back then, we did keep our development activities wide open. And frankly, one of the reasons that we’re doing these restaurant deals that we’re doing now is we got incredible deals in some incredible geographies. And so there was a window of time there where the real estate market was wide open. I think during the very uncertain days of COVID, there were a lot of things that were in the market. I would say stacking up a bit, I don’t see the same quality of deals coming up, I would say the last four or five weeks. So I would say that as things cleared out a little bit, I think landlords are lot more wait and see mindset. So I’ve seen that happen. And frankly, construction is a little bit different now because some of the stuff that you need to build is not easily available as it used to be. So it does require lots of more precision on your project management to deal with things like, a lot of construction products, petroleum byproducts, which are not in market. So we’ve had to adjust our calendars on the construction. But I would say that all in all, I think we’re very pleased with the pace of our construction. Our next restaurant that we’ll be opening is Bellevue and frankly, that restaurant is pretty much based on my walkthrough that I did today. It looks very, very good. And then the next one up after that will be STK Westminster in London. And I think that one is also very, very good shape. So I would say that things have moved obviously, permitting is a little different because some of the offices don’t have live people in it. So you just have to adjust your project manage to deal with this annoyances. But all in all, I would say that we’ve moved very well.

Okay, excellent. Thank you, guys.

Thank you, Mark.

Thank you. Our next question comes from the line of David Kanen with Kanen Wealth Management. Please proceed with your question.

Good afternoon, gentlemen. Congratulations. Great job to you and your team.

Thank you, sir.

You’re welcome. So a few questions. During the prepared remarks you gave a number for total locations that you think you can get to in the future. Could you just reiterate what that number is and then the timeframe?

I mean, so it’s $200,000 is kind of our addressable and by the way, that’s just STK. And so we really don’t – we’re not talking about all the other opportunities, because we frankly, haven’t never really laid out a number for Kona Grill. I think as now the revenues start breaking the $100,000 AUVs now there’s a whole new dialogue that we also have to evaluate that. But just on STKs, we really believe that the number is big. I mean, think about the Cabo San Lucas airports, probably one of the smaller airports that we probably can get into and right off the shoot, we’re at $150,000 a week in AUV and frankly as a matter of fact, after this call, I’ll be heading out to really work with a team that on turns because that restaurant is ready to come with a turn opportunity for us and turn tables in the airport. So I think if you start letting there at the airport and then the streets opportunities are huge, tremendous amount of markets that I’m looking at right now Minneapolis, Boston, Washington D.C. So there’s a tremendous amount of white space right now. Even domestic, not to mention the international opportunities that will be coming up because the restaurants that we’re building right now in Stratford and Westminster done with two significantly large hotel operators that in aggregate have over 1,000 hotels. So we do plan to hopefully earn the trust of these operators to be able to build more restaurants with them in their property. So I think not just the domestic white space, but just the more recent relationships that we’ve entered in the hotel side, that’s going to really open up a tremendous amount of real estate. These hotel partners have restaurants in…

Okay. And I know that throughout the quarter, and even in April in-person dining capacity was still hamstrung, I think in April, you were up to 65%. Could you – I don’t know if you have this data, but could you potentially call out the difference in markets that were 100% capacity? What the comp look like the same-store sales increase in April at a market that was 100% in-person dining capacity versus one that was at limited capacity.

I mean, I can give you an example, for instance, Atlantis is one of the markets where we’re more relaxed on restrictions relative to anywhere else in the country. And the same-store sales for that restaurant relative to 2019 is 100% plus. So if you want it to look for one restaurant of what we can do when we full barrel capacity-ish, because there’s still some social distancing limitations that we have to go through and other stuff. But I think in the aggregate, I think that’s probably a good proxy for a market where once we get those type of capacity lifting, we can do very well. I think the Kona Grills in Texas have done very, very well. And then obviously Miami South Beach, which has no – I guess, it’s one of the more relaxed markets, we’ve also have done incredible comps in the 100%-plus range. So I think as capacity becomes available, I think we’re very well positioned to take advantage of it. That’s I think one of the reasons why our numbers are what they are. As you know, we’re very optimistic. We read what’s happening in the restaurants and our number one objective is to maximize revenues where we can do it. So stay tuned.

Okay. So if the relaxed market like South Beach, the last time I was there, I noticed though there was still no seating at the bar. Has that changed? And I would think that when people could sit at the bar, you’d probably catch some incremental sales there. Is that factored in or that’s still yet to be yielded in the future?

That’s still yet to be determined and I’m not so sure that – so I like the bar after 10 o’clock, I’m not a big fan in a bar per se, before 10. Obviously, I think there’s a magic that people see in the bar business because, it’s a much better margin business than usually food. But the way we run our food costs and everything else in our business, trading food and liquor is not exactly as beneficial as you probably would see in other brands. So, again, we’ll play that by year as the bars open up, we’ll test and we’ll see how to utilize them to maximize revenues.

Okay. And then just one…

Yes, I think the more important strategy right now is really table turns, as the capacity becomes available is not to really relax on the table turns and make sure that you stay focused on keeping table turns where they are.

Okay. And then I think EBITDA was like 13% of revenues, which is impressive. But I noticed that management fees and royalties relicensed fees were down year-over-year. When do you think that returns to normal or exceeds it? In what timeframe do you expect an improvement here in Q2? And then with that incrementality, because there’s a lot of leverage on that. Can you – where do you see EBITDA margins as a percent of revenue ultimately getting up to in the future, as you start to recoup those management and license fees and things kind of start to normalize?

Great. So we’re not providing guidance, because we didn’t do it. I can give you directionally that we’ll see an improvement in major license fees as Europe opens up. So we do know that actually next week London is opening up and we’ve started to see it. So that will be the next big lever to help the management license align. Italy’s also starting to relax and open up. So as London and Italy open up, we will see M&L or management license fees going up dramatically and probably closer to historical levels. Also remember that we now have Puerto Rico STK, which has been a very good restaurant for us. We also not have Scottsdale, which is also a very good restaurant for us. And we also have now Cabo San Lucas, which is a licensed site that will drive a substantial amount. If you do the math at 5% on 150 week, that’s $7,500 a week just in license fees. So the outlook for M&L is very good starting in about a week or so when they start reopening here and back up.

Okay. That’s all I have.

What’s the margin outlook on that. Very good, because as you know, all that flows down to the bottom line, so we should see a dramatic lift on the 13% adjusted EBITDA line.

Yes. Okay. Well, great job guys. Sounds like the best is yet to come. I’m a very happy shareholder been in it for, I think almost four years now. So keep up the great work. I look to next quarter.

Thank you.

Thank you. Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back to Manny Hilario for his closing comments.

All right. Well, first of all, I want to thank the ONE Group team who’s been phenomenal. And I appreciate the incredible work done by our teams in the restaurants, in the offices and everywhere globally. So I appreciate everybody’s commitment to us. And last but not least, we obviously appreciate all of your interests on the ONE Group. And I look forward to running into all of you in our restaurants. So be well, be safe and see you in one of our restaurants. Thank you.

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.