ONE Group Hospitality, Inc. Q3 FY2024 earnings call

• Acknowledgment of the team's commitment to creating great guest experiences. - Highlights of the acquisition of Benihana and RA Sushi, with full quarter contributions in Q3 2024. - Strategic pillars: operations (maximizing reservations, turn times, and throughput; local store outreach), marketing (leveraging digital marketing and loyalty program rollout), and culinary (culinary innovation, e.g., Benihana's Wagyu program and holiday menu offerings). - Integration of acquisitions: achieved $19 million in run rate synergies, closed 4 RA Sushi locations, tested Benihana virtual takeout/delivery, and streamlined Kona Grill hours. - Growth plans: plan to open 6 new venues by end of 2024, including company-owned and managed STK, Kona Grill, RA Sushi, and Salt Water Social. - Balance sheet flexibility: over $70 million in liquid resources, returned $2.3 million to shareholders via share repurchases.

Total consolidated GAAP revenues for The ONE Group in the third quarter of 2024 were $194 million, a 152.3% increase from the $76.9 million in the same quarter of the prior year. Owned restaurant net revenue was $190.6 million, up 158.6% from $73.7 million in the prior year's same quarter, driven primarily by contributions from Benihana and RA Sushi. Management, license and incentive fee revenues increased 6.4% to $3.4 million. Owned restaurant cost of sales as a percentage of owned restaurant net revenue was 20.9% in Q3 2024, up 380 basis points from 24.7% in the prior year. Owned restaurant operating expenses as a percentage of owned restaurant net revenue were 65.9% in Q3 2024, up 300 basis points from 62.9% in the prior year. Restaurant operating profit increased 90 basis points to 13.2% in Q3 2024.

• Projected total GAAP revenues for 2024: $660M-$680M, with run rate revenues $845M-$865M. - Managed, license and franchise fee revenues expected: $15M-$16M. - Total owned operating expenses as a percentage of owned restaurant net revenue: 83%-83.6%. - Adjusted EBITDA: $71M-$76M on a total basis, $111M-$116M on a run rate basis. - Restaurant preopening expenses: $8M-$9M. - Effective income tax rate: ~30%. - Total capital expenditures: $50M-$60M net of landlord allowances. - Plan to add 6 new venues in 2024.

• Macro headwinds and consumer uncertainty impacting same-store sales. - Competition from direct competitors using heavy discounting and all-day happy hours. - Potential delays in permitting and construction affecting restaurant openings. - Risk of further closures of underperforming restaurants if they don't meet profitability and sales screens.

Q: Update on industry competition and how The ONE Group competes?

A: Competitors use all-day happy hours and price point competition. The ONE Group competes with Happy Hour, $39 dinners at Kona Grill, $69 dinners at STK with beverage, and launched all-you-can-eat sushi at Kona Grill. Also focusing on loyalty program.

Q: Delays in development due to permits and construction?

A: Development pace is controlled by focus on asset-light growth. Pacing company-owned restaurants at a comfortable pace, actively working on franchising Benihana, airport and casino deals, and management/license opportunities in Asia. No significant change in permitting cycles recently.

Q: Potential closures of other RA Sushi or other restaurants?

A: Portfolio management allows flexibility. Three RA Sushi locations closed due to proximity to Kona Grills. Evaluate leases and extensions; will not keep negative cash flow locations, focusing on high-volume, high-margin restaurants.