Greetings, and welcome to The ONE Group Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Tyler Loy, Chief Financial Officer. Thank you. You may begin.

Thank you, operator, and good morning. 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 of 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 discuss 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. For reconciliations of these measures, such as adjusted EBITDA, adjusted net income, restaurant operating profit, comparable sales, and total food and beverage sales of owned and managed and licensed units to GAAP measures along with the 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. Thank you for joining us today. We sincerely appreciate everyone's continued interest in the ONE Group. 2021 was an outstanding year of performance for both STK and Kona Grill, and we continue to see this momentum carried into the first quarter of 2022. I would like to thank our team members who continue to fulfill our mission to operate the best restaurant in every market that we operate in by delivering an exceptional and unforgettable experience to our guests. I'm so proud of their ongoing hard work. Our key highlights for 2021 include record revenues and average weekly revenues, record profitability, repayment of nearly 50% of our bank debt, and finishing the year with $23.6 million in cash along with a very robust pipeline for 2022 and beyond. For the full-year 2021, we generated over a 95% increase in total GAAP revenue compared to 2020. We were able to leverage this top-line growth into $42.7 million in adjusted EBITDA, an increase of nearly 350% versus 2020. All of this despite commodity headwinds, supply chain challenges, and labor shortages affecting the entire industry. Turning to the fourth quarter specifically, we reported another quarter of record-setting revenue, with over $84 million in total GAAP revenue, including $4.6 million of managed, licensed, and incentive fee revenue. We were also able to achieve consolidated restaurant margins of 20.4%, an increase of 440 basis points from 2020 as a result of strong top-line performance, driven by our sales-driving initiatives, coupled with disciplined cost management. Our comparable sales continue to be among the best in the restaurant industry. During the fourth quarter, consolidated comparable sales increased almost 50% when compared to 2019, including an increase of 60% at STK and a 38% increase at Kona Grill. When looking at our portfolio, it's worth noting that all domestic STK and Kona Grill restaurants achieved positive comparable sales in the fourth quarter as compared to 2019. Our fourth-quarter US average weekly sales were equally impressive at $338,000 for STK compared to $215,000 in the same period in 2019 and $108,000 at Kona Grill compared to $78,000 in the same period in 2019. We believe our industry-leading performance is a testament to the unique vibe dining experience we provide our guests. The consumer is craving this unique experience, which consists of great food and beverages, coupled with exceptional service in a fun and high-energy environment. One component of the vibe dining experience is our culinary program, which is driven by innovation and craveability. The creativity within our food offerings at both STK and Kona Grill has been a competitive advantage in this challenging environment. Many of our peers have simplified their menus due to food inflation, labor shortages, and supply chain issues, but we have been able to continue innovating, which keeps guests coming back to dine with us. During the fourth quarter, we raised the bar on our already-renowned culinary offerings at STK with some of the finest cuts of steaks from around the world, including wagyu from Australia, Japan, and the United States. These delicious wagyu cuts, coupled with a variety of additional seasonal starters and entrees, offered our guests a chance to explore the unique flavor profiles they may not get elsewhere. At Kona Grill, we offered a broad range of freshly prepared dishes from the grill while enhancing existing fan-favorite items and featuring holiday-inspired dishes like roasted macadamia nut turkey, Kona Grill Surf & Turf, prime rib specials, and lobster pot stickers. We have historically put a lot of emphasis on promoting our holiday offerings as they create a great opportunity for us to introduce new guests to the brands and thereby broaden our consumer base. Our promotions for Thanksgiving, Christmas, and New Year's Eve drove record demand for both brands. We also did a great job protecting margins and increasing average check by upselling high-margin additive items like toppings and sides at STK along with increasing the beverage mix at Kona Grill. These initiatives were able to help offset some of the inflationary pressures we faced throughout the quarter. Additionally, we have a great value proposition to our happy hour offerings that are used to introduce guests to the brands and provide an exceptional entry-level layer. Many of our happy hour guests transitioned to our main dining room and stay for dinner or get introduced to the brands via the happy hour experience and return for a celebratory occasion, an area in which we truly excel. Takeout and delivery have also grown to become a very important part of our business model. We are able to add sales during our peak times of 6:30 and 8 o'clock when our restaurants are at capacity, especially on Friday and Saturday nights. We have been using several aggregators for our delivery options, which have also become a marketing vehicle for us. Guests seeing our brands on aggregators such as Postmates and DoorDash brings our brands to front of mind. People try us for delivery and then remember us when they are looking for a memorable night out. Moving on, our brunch program also continues to help drive revenue and brand awareness. Brunch has allowed us to utilize our space earlier on Saturdays and Sundays when the restaurants have some additional capacity. It also allows us to introduce new customers to our brands and showcase our culinary innovation at compelling price points. We believe we are still very early in maximizing brunch to dayparts with a lot of opportunity to be had. Now turning to our events business. We have strong demand for events in November and December related to holiday gatherings. While large corporate events are not yet fully back, we are seeing a lot of demand for more intimate, smaller premium events. Additionally, because our restaurants are often at capacity during peak demand times, we can be selective on the private dining business relative to the average per-person spent or using it to fill out the Monday through Wednesday business. We're also seeing smaller conventions of about 1,000 to 2,000 people coming back into markets like San Diego, Orlando, and Las Vegas, which is accretive to revenue. We have not seen the large conventions back in full swing yet but see that as an opportunity going forward. Looking ahead, the events business will be a significant part of our strategy in 2022, and we are aggressively marketing this program. Throughout 2021, we added seven new venues including three managed F&B units, two managed STKs, one company-owned STK, and one licensed STK. We are extremely pleased with how this class is performing. Looking to 2022, our development pipeline is the most robust we've had in our history. This year, we plan to open at least 9 new units, which include two company-owned STKs, one in Dallas, Texas, another in San Francisco, California, a managed STK in the Stratford area of London, three company-owned Kona Grills, one in Riverton, Utah, a second in Columbus, Ohio, and the third Kona Grill in the Greater Phoenix area. Finally, we plan to open three licensed units which will be in conjunction with REEF Kitchens and will provide takeout and delivery only featuring offerings from our STK, Kona Grill, and concepts in Texas. As a reminder, for those restaurants that are managed or licensed, we generate management fee revenue based on top line revenues and incentive fee revenue based on a percentage of the location's revenues and profits. As we have long stated, we are early in our growth strategy with significant whitespace ahead. We are excited about our long-term opportunity as we believe our units deliver best-in-class returns. For new restaurants, we're targeting between 40% and 50% ROIs for new company-owned STK and company-owned Kona Grills. We foresee a total addressable market of at least 400 restaurants, including 200 STK restaurants globally and at least 200 Kona Grills domestically. Moving on to the current labor environments, the last six months have been some of the toughest in terms of hiring and retaining talent I have seen in my career in the restaurant industry. To ensure that we are executing on our vibe dining experience and are able to open stellar restaurants, it is extremely important to have our restaurants fully staffed at all levels. As we previously mentioned during the third quarter, we made hiring, training, and retention a priority as we went into the fourth quarter, our historically busiest quarter. As a result, we were 100% staffed throughout the quarter and did not have to modify our hours or the service our customers expect when dining at our restaurants, which we see as a tremendous advantage in this environment. We have also made a commitment to employee retention and will continue to do so throughout 2022. Having a great employee base in place really allows us to bring innovations and new experiences to the guests, which will continue to be a point of differentiation. During the fourth quarter, we retained every single general manager in the company, of which I'm extremely proud. Having consistency at the management level ensures stability in our restaurant and allows us to execute at a high level. In an effort to retain employees, we have rolled out a perks program, an enhanced benefits program, and it has been very beneficial in attracting and retaining employees. We also offer compelling bonus programs for all levels and invest in training to ensure that all employees, including hourly level employees, are part of our long-term business plan. For 2022, we are committed to investing in our employees to keep us optimally staffed throughout the year. To conclude, our team is doing a fantastic job welcoming guests into our restaurants for great vibe dining experiences. Ultimately, our focus on operations and day-to-day execution has proved effective in translating to a strong P&L, and we plan to continue on our current trajectory of industry-leading same-store sales, disciplined cost management, and new store development. Now I'll turn the call back to Tyler.

Thank you, Manny. Let me start by discussing our fourth quarter financials in greater detail. Fourth quarter total GAAP revenues were a record $84.1 million, increasing 86.8% from $45 million for the same quarter last year. Included in our total revenues is our owned restaurant net revenues of $79.4 million, which increased 81.7% from $43.7 million for the same quarter last year. The increase in revenue is primarily attributable to strong sales momentum resulting from our high level execution of our sales initiatives along with the opening of new units. Domestic consolidated comparable sales increased 49.8% for the quarter compared to 2019. For STK, comparable sales increased 60% versus 2019 and Kona Grill comparable sales increased 38.2% versus 2019. The management license and incentive fee revenues were $4.6 million, increasing 262% from $1.3 million in the fourth quarter of 2020. This increase is primarily the result of the sales recovery from the COVID-19 pandemic, coupled with the opening of STK Scottsdale in January, STK Los Cabos Airport in May, and STK Westminster with two F&B venues in May, and adding Rivershore Bar & Grill in August. Owned restaurant cost of sales as a percentage of owned restaurant net revenue increased 150 basis points to 25.9% in the fourth quarter of 2021 compared to 24.4% in the prior year, primarily due to increased commodity prices, partially offset by operational and menu management initiatives. Owned restaurant operating expenses as a percentage of owned restaurant net revenue improved 590 basis points to 53.7% in the fourth quarter of 2021 from 59.6% in the fourth quarter of 2020 due to the strong execution of our sales-driving initiatives along with actively managing operating costs. Restaurant operating profit increased 440 basis points to 20.4% for the quarter compared to 16% in the prior-year fourth quarter. On a total reported basis, general and administrative expenses were $8.3 million compared to $4.7 million in the prior year. The increase is related to normalized support activities as our restaurants are generating strong sales volumes, increases in professional service costs, and an increase in performance-based compensation. When adjusting for stock-based compensation, adjusted general and administrative expenses were $7.5 million in the fourth quarter of 2021 and $4.2 million in the same quarter last year. As a percentage of revenues, adjusted general administrative expenses were 8.9% of total revenue in the fourth quarter of 2021, and down 50 basis points compared to the fourth quarter of 2020. We incurred approximately $2 million of direct costs related to COVID-19 during the fourth quarter, composed primarily of costs for regular electrostatic cleaning of our venues, personal protective equipment, and sanitation supplies to prevent the spread of COVID-19. This compares to $1.7 million of similar costs last year. Lease termination expenses were $1.6 million during the fourth quarter compared to $2.9 million in the fourth quarter of last year. We closed all lease disputes that originated in 2016 and before and anticipate nominal lease termination expenses going forward. Interest expense net of interest income was $517,000 in the fourth quarter of 2021 compared to $1.7 million in the fourth quarter of 2020. The decrease was driven by lower average outstanding balances and lower interest rates. The income tax benefit was $602,000 for the fourth quarter of 2021 compared to an income tax benefit of $1.2 million for the fourth quarter of 2020. The benefit in the current year was driven by a lower actual effective tax rate than previously forecasted. Net income attributable to The ONE Group Hospitality, Inc. was $5.8 million or $0.17 net income per share compared to a net loss of $4.5 million in the fourth quarter of 2020 or $0.15 net loss per share. When adjusting for COVID-19 related expenses and lease termination expenses, adjusted net income was $8.3 million or $0.24 net income per share compared to an adjusted net loss of $1.2 million in the fourth quarter of 2020 or $0.04 net loss per share. Adjusted EBITDA for the fourth quarter attributable to The ONE Group Hospitality, Inc. was $13.3 million in the fourth quarter of 2021 compared to $4.1 million in the fourth quarter of 2020. We've included a reconciliation of adjusted EBITDA in the tables in our fourth quarter and full-year 2021 earnings release. To touch on liquidity, as of December 31, we had $23.6 million in cash and cash equivalents on our balance sheet and we generated positive cash flow throughout the quarter. Now, I would like to touch on guidance as it relates to the first quarter of 2022. We are increasing our revenue targets and reiterating our G&A target for the first quarter of 2022 and they are as follows. Total GAAP revenues of approximately $69 million to $70.2 million, owned restaurant net revenue of $66 million to $67 million, management, license, and incentive fee revenue of $3 million to $3.2 million, and total G&A of approximately $6.5 million. I will now turn the call back to Manny.

Thank you, Tyler. And thank you all for your time today. Let me conclude by saying I am very delighted with our record results for 2021 and our prospects for 2022 and beyond. Above all, I'm grateful to all our teammates who bring our mission to life every day to be the best restaurant 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 customers that visit and return to our restaurants, so they can enjoy the vibe dining experience that they have been craving. We appreciate everyone joining us on the call today. Tyler and I are happy to answer any questions that you may have. Operator? Hello, operator?

We do have a question coming from the line of Nick Setyan with Wedbush.

It's great to see the Q1 revenue number. Obviously, it seems like there's some incremental momentum that you're seeing, given the raised numbers. Can you maybe just high level talk about what's going on? Have we just seen a post-Omicron recovery ahead of your original expectations? There's some worries around, obviously, incremental gas prices, wealth levels being down with the stock market volatility, et cetera, just any thoughts around that would be very helpful.

Obviously, the overall macro environment is still very challenging and, of course, lots of things going on at the macro level. So, I think probably for us specifically, the item that's been helping us is our emphasis on our initiatives, particularly around brunch and bringing back the happy hour. I think those things have been helping us. And I think we're particularly delighted with our brunch layer right now, which has driven incremental interest on both brands on Saturdays and Sundays. So, we're seeing a nice lift in our overall performance because of that. And then I think, just in general, the fact that our focus is on vibe dining, it still resonates in the environment really well. So, we do always remember that there is still a pandemic going on. But I do think that our brands provide an escape and an opportunity for people to enjoy themselves. And I think that's really what's working and helping both Kona Grill and STK.

As we kind of look forward beyond Q1, obviously, with the momentum here, how much confidence do you have that you'll be able to go over some of the big numbers you posted in Q2, Q3, et cetera, this year?

I think, as you can see, from our increase in the revenue guidance for Q1, we clearly see positivity right now. But, obviously, because of the environment, we're only providing one quarter guidance. So, our long-term outlook, just like everyone else, is clearly – there's a lot of things on the overall macro situation. So, right now, to be blunt and honest about it, our focus is on the shorter time. But I think that, in the short time, I just emphasize on our initiatives and keeping the team focused on store-level execution is really what we're doing. And we'll sort out through the macro issues as they present themselves as we have for the last year or two years during the pandemic. So, that's one of the things that we have become is very resourceful. And we operate as best as we can within each one of those environments. But right now, we're keeping our outlook on the short term versus the longer term just because of all the items on the macro environment.

Our next question has come from the line of Joshua Long with Piper Sandler.

I'm curious if you could offer some perspective on – obviously, the top line is strong and we're still seeing a lot of conversation around the commodity side just from incremental inflation. We've talked in previous calls how – not to say that you weren't impacted by that, but that you were taking it in stride and still really giving the guest a lot of power and ability to manage that experience, the way that they wanted to with add-ons and your own innovation pipeline, which you talked about in your prepared comments. Curious on your current thoughts on the inflationary environment and how that feeds into your pricing strategy at the store level.

On the commodity side, obviously, it's still as challenging as it was before. I think that there's been some improvement in a couple of commodities, but overall, the challenges are still there. I think, as we told everyone that you've got to be super flexible in this environment. So, flexibility in terms of what to use on your menus, meaning that you have to be able to change items and do substitutions on your menus if you want to – so flexibility is really important for menu management. The other thing is that you've got to have several sources of product now in your supply chain. So, you can't rely on one singular supplier to do your product. Relative to pricing, our internal philosophy is still to have the best entry price points on steaks. So, we preserve value on our menus. And when we also obviously use happy hour and brunch to continue to keep pricing overall at a reasonable level. But we'll take pricing optimistically because all the competitors have been moving their pricing up. So, now our philosophy is that we keep our gaps to the competitors intact. So, we'll continue to do that. So, if there are opportunities for pricing, we'll take them. But frankly, our biggest strategy on the commodities right now is flexibility and making sure that we change the menus and have the right items on our menus, and certainly, making sure that we're not dependent on one single vendor.

Thinking about some of the labor investments you made going into the quarter and then also in your prepared comments, just to continue the continued look at investing in the employee experience, just curious if you could touch on that in terms of what your pipeline is now from the manager perspective or kind of where you think the kind of the limiting factor is in terms of your growth, right? It's usually people, not money, not sites. So it sounds like you're in a good position there. Curious if you could talk about some of the investments you've made, how that pipeline is set up? And then, do you think that there's an opportunity to accelerate growth over time? Are you happy with your pipeline and how you've looked at it right now? Just curious on how you balance that out, given the overall macro environment and just doing what's right for the brand.

Having people is a competitive advantage in this environment. So, we have been very thoughtful about making sure that we have a healthy pipeline of talent on board. Our challenge, particularly with development coming on, is keeping a deep bench. So, we have been investing in management, particularly at the assistant and entry-level manager positions. We have been very thoughtful in terms of inventory and making sure that we have plenty of individuals available to support the growth. I think the way that we have structured our growth is that we have flexibility in either accelerating or slowing it down so that we can play to the macro environment because it's also important to have the flexibility to slow down if you have to in this type of environment. So, we have several levers in terms of making sure that we're pacing that so that we don't get ahead of ourselves. But make no mistake that protecting the brand and ensuring that we're executing at a high level is priority number one. So, we'll always do that. Then we will work out the strategy of growth after we know that the brands are executing at a super high level, so we will not compromise the execution of the brand relative to growth. So, we're very disciplined on that. That's kind of our strategy in the near term, is to really monitor it and make sure that we have all the people necessary and that we do thoughtful planning on the right pace of opening. So, we'll continue doing that. I think we've done a very nice job opening restaurants during the pandemic period. So, I think we're getting a rhythm relative to how to judge those factors and getting those restaurants open when it makes sense for the brand.

Last one for me. In terms of thinking about the management license and incentive fee revenue line, we've seen a nice return of that. Curious if you could talk about just the overall context. Maybe it's by geography, maybe it's by kind of underlying venue or site, but kind of what's how's that business looking? Obviously, it's coming back, but any more granular detail you could provide in terms of how to be thinking about that piece of your business as tourism and the hospitality industry overall starts to come back both domestically and internationally.

I think that line has been growing because it's really a reflection of our growth strategy in the last several years. Obviously, you didn't see it during the pandemic periods when we were shut down because a lot of those restaurants just weren't able to operate, some of them being international. The fourth quarter really shows the power of what we've done from a growth perspective with licensed and management locations. Going forward, as you saw from our prepared comments, we still have a nice pipeline of managed and licensed properties coming forward, which is a critical element of our growth. So, we expect that that will continue to grow and as we continue to grow on an asset-light basis. So, yeah, it really was a function of just having our restaurants all operating in the fourth quarter. I think that as long as we keep them open, we'll continue to see nice progress underlying.

Our next questions come from the line of Mark Smith with Lake Street Capital.

You've talked a fair amount about commodities. Can you just let us know if you've got anything that's on contract? And if so, any contracts should be rolling off anytime soon?

Contracts, we do contract some of the beef, albeit we're doing so on smaller timeframes, either 30, 60, 90 days. So, they are very short term in nature. Obviously, because of the volatility, it doesn't seem to make a lot of sense to go too far out, particularly with the uncertainty on that. We also prebought a lot of shrimp and a lot of our shellfish, which I think is very protective to us. So, we do have a relatively healthy supply of shellfish and anything frozen right now in stock. As you could see from our cost of goods, we've kept it within 100 basis points of historical performance. So, I think we've done a pretty good job utilizing some of that. But make no mistake, as I mentioned in the previous Q&A, our big advantage is flexibility on the menu. For instance, we had to switch from King crab to Dungeness crab. We had to make certain changes on cuts for beef where we've emphasized wagyu in the fourth quarter and items like that. Having the ability to utilize promotions and work around the mix has been very beneficial for us so that we're not dependent solely on one commodity.

You guys have really called out brunch, takeout, delivery as things that have been beneficial to the business. Can you guys quantify a little bit more maybe what your off-premise sales are? Or any benefit that you've seen from brunch? Anything that you can quantify for us?

I think STK, our takeout delivery business is in the 5% to 8% of sales for restaurants that have takeout and delivery; with Kona Grill in the 13% to 17% range, depending on the month, quarter, and restaurant. That business really has developed into a very nice layer of business. Brunch is ongoing and developing. But we think, over time, it will be a $30 million plus business layer for us, and for our size as a company, that is a relatively large layer. So it's making some nice progress, and we're encouraged with that progress right now.

Last one for me. As we think about this agreement with REEF Kitchens and these new restaurants, how are you thinking about return metrics on these?

They're all licensed sites. So, there's very little upfront capital on them. There's some marketing investment with them to market the brands. I'm looking at that growth as purely auxiliary or something that is extra to our growth layer. So, it's not the fundamental part of the growth. Actually, right now, we really, I'd describe that as a test to see what we can do in a place, for instance, Texas, where we really don't have an STK or other brand we can go into places with no restaurants. I think the next REEF place we're going to is Austin, Texas. We have no restaurants there. This will give us a good opportunity to test what we can do with REEF. So, I think it's a very interesting upside growth opportunity, but it is not part of our core growth strategy. Our core strategy is still capturing the 200 opportunities plus for STK and 200 plus for Kona Grill.

Thank you. That is all the time we have for questions today. I would now like to turn the call back over to Manny Hilario for any closing comments.

I'd like to thank everyone's continued interest in The ONE Group, particularly I'd like to thank the teammates and all the members of the team that make The ONE Group what it is. I also want to thank all our customers that come to our restaurants every day and are part of our journey. So, I appreciate everyone's support. See you all out in our restaurants. Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.