Greetings and welcome to the ONE Group Hospitality's Fourth Quarter and Full Year 2019 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. Thank you, please begin.

Thank you, operator, and good afternoon. Before we begin our formal remarks, we 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 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 the 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 manage and license unit 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 hello everyone. We appreciate your continued interest in The ONE Group. First as a career executive in hospitality business, this is absolutely the most challenging time I have ever seen. We have been forced to make very difficult and tough decisions that impact the team members we care so much about and of course our guests. The rapidly evolving Coronavirus pandemic has required an precedent action. In response to the uncertainties in the marketplace, I have made a very challenging determination to reduce our workforce significantly and operate our restaurants exclusively using takeout and delivery option. This preserve the opportunity to continue to reach guests in markets to us throughout the country and we are currently generating between $300,000 and $400,000 in sales on a weekly basis. This has only been possible to the amazing work by our front line restaurant teams and I want to publicly recognize and thank them. I'm truly touched and impressed by their efforts. Our top priority during the pandemic is the health, safety and well-being of all of our employees and guests and we are strictly following our guidelines from the CDC federal and local authority. Under normal circumstances, I would have spend much of this call highlighting our 2019 achievements. Specifically, how we increased our top line by 41% generated a comparable sales increase at STK restaurants of 8.3% and delivered impressive 36% increase in adjusted EBITDA. We would also have reviewed our expanded footprint which included the opening of two international license STKs one domestic company owned STK and one F&B hospitality management deal. And of course, we would have discussed in great detail the accretive acquisition of Kona Grill which added 24 high performing domestic restaurants to our portfolio and what we are doing to maximize the…

[Operator Instructions] First question comes from the line of Nicole Miller of Piper Jaffray. Please proceed with your question.

Manny, I wanted to do a quick shout out to your team, you always have and in this case, once again built one of the best that we've ever seen. So we were really thinking of you and the team right now. I'm going to ask two questions if that's okay. The first is more difficult than the second. How are things currently and how can we think about a cash burn or worst case scenario at this point?

Thanks, Nicole for the great words and frankly I echo everything you said that the team that we have in place, frankly has been impressive in everything they have done. And so, I mean nothing but thankful for it. I mean obviously these are very difficult times in the restaurant industry and we've put everything that we can in place. In terms of cash as we mentioned in our prepared statements there. We do have about $9 million in cash right now. And frankly, we've been very pleasant surprise on how well the team has been able to deploy delivery and take-out in our restaurant. So we actually rather than think about burn at this point we actually think of it is in terms of, we believe we have enough cash for the foreseeable future and we frankly have rearrange and reorganized a lot of our contracts including as we mentioned in our prepared statements, we've done some work already with leases and just making sure that we are prepared to drive the side as long as possible. So it's really a game of preserving cash and frankly right now the way we've set up this business is to be around in the foreseeable future. So we don't have an exact number of years or weeks or months as to what we're going to be around and our plan is frankly to be around as long as we can. And frankly, the way that the business model has played out in terms of delivery as well as we've cut down G&A substantially. I think we will be around for quite a long time. So we feel pretty bullish or I would say call it bullish, we feel pretty good about our cash in the short term. And like I said, we will continue to tweak the business model to stay around as long as possible.

Okay, that's important commentary. The second and last question from me. Walk us through the pre-opening process, I mean we will move past this and what I am curious to be educated on and I think everyone is what pieces of a pre-opening will be applicable to take a new store under the conditions that you've outlined where you're going pretty darn close to like a shutdown process, if you will. So this too shall pass, walk us through the plans and what you do to get everybody back on board and how fast you can get the restaurants back up and running? Thank you.

Yes, that's a great question. So the first thing that we contemplated and we did is we make sure that for all the properties that are currently operating which is the majority of our U.S. locations. The GM and the executive chef for all of those properties are currently working in the delivery and takeout model. So to us that was an essential part of our coming back, model is to make sure that those key individuals were in place for multi-unit managers, we do - we kept our deals also supporting some of the take-out for leverage, so we did put some of the deals working in the restaurants, which have high volume currently and take-out of delivery supporting steam. So we've basically kept a core of our operating players in place in that smaller team, if you also, the team of the 100 individuals does include all those key players. And then in terms of when we brought the restaurants down and we closed down the dining rooms went to a very thorough process of ensuring that electrical systems, POS systems everything was kept in ready mode to come back on. So literally the way that we brought down our restaurants was the - with the intent of being able to move as fast as possible on the properties. And then obviously, we do have inventories available to do that. I think the other part that is very important is that we've initiated communications with our vendors and our major business partners is very early on and we prepared ourselves in terms of making sure that we have made arrangements with them, so that the relationship start stay positive, so that when we need to bring in product and services that everybody understands that it is a partnership and we kept the relationships are in positive notes. And like I said, we do have utilized whatever resources we have now in terms of cash and so forth to make sure that we keep all those relationships positive. So it's a combination of relationships. It's a combination of having the systems in place ready to go. And then the core group that is on payroll right now have been picked because of their ability to bring the business back. Last thing I would say is that, all individuals that are currently in the payroll we made sure they are very multi-talented and they can do multiple functions, for instance, our marketing guys, our ex operations guys and vice versa, so we have a lot of cross-functional ability on the team that we left behind, so that it's basically all hands on deck and that's people came to distinguish profitability. So that's kind of a long answer to a short question, but I took you through all that.

Well, thank you. We wish you and the team the best luck. And we will stay in touch. Thank you.

Thanks, Nicole.

Your next question comes from the line of Dave Cannon of Cannon Wealth Management. Please proceed with your question.

First of all, thank you for your efforts and strong leadership during such a trying time and responding so quickly. I know it's extremely difficult and I applaud you for operating well during the crisis. Today everybody saw the news that Cheesecake Factory is not paying rent, it sounded like you're pursuing that same path, could you just confirm that. And then assuming you're not paying rent and with the 100 employee headcount that you've shrunk down to, can you give us a sense on a monthly basis what your burn rate is, also assuming you continue to sell about 300,000 a week and to go?

Thanks. David, thanks for the nice words. And again, as I've said earlier, it's tough times and frankly only possible to do what we're doing because of the incredible talent of the individuals that we have on board and frankly some of the talent that is not here with us today, but there will be back with us as soon as possible and as soon as we can get back on track. In terms of the burn question, the way I look at this is, right now we're doing, call it 300 plus a week in delivery takeout business. Our payrolls including the G&A is modest at somewhere between, call it, 100 to 150 in any one of the week. So after you cover for payroll, there is plenty of cash available for other needs, including some nominal purchasing that we're doing, so we're being very, very disciplined and just buying things like produce and only really fresh stuff that we need to replace in the store. So if you do the math on that there is still a substantial amount of cash that is above and beyond the payroll that we plan to spend during this time period. So that will keep us growing quite frankly for the foreseeable future. Obviously the rents is a big item that we need to take care of, as you mentioned there. In our prepared statements, we already have 43% - 45% of our - and I think it's actually around 45% of our U.S. sales, we already have made arrangements with landlords and we already have percentage rent agreements in place or we are in jurisdictions where the landlords can't do much for the next 90 days or so. So we would have 40% of that 42% to 43% to 45% of…

And then as far as your existing credit lines - credit line rather, it sounded like you had about $10 million of availability. Do you expect to draw down on that many other restaurant companies have done that maybe preemptively. What's your view on that and how quickly could you draw down? Is there like a no holding provision or anything like that that would potentially prevent you from doing it?

So thanks for that question. So our credit facility pursuant to its terms, they have a $4 million cash amount, so we cannot draw on the facility unless we were below $4 million in cash. So at this point we are way above that hat number, but if we were to be below or around the $4 million obviously we would draw on the facility. Since we do have plenty of availability there. But for now and for at least the foreseeable future, we don't see being at the $4 million level, so we don't draw on until we get there. So I guess that's what you would call hoarding clause on the facility. So it's a $4 million number for us.

Okay, thanks guys. Good luck, and I'll be praying for you and I'm sure you will lead us through this thing. Thank you for your leadership.

Thank you, David, and thanks for all your support and your prayers as well.

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

First one from me, I just want to make sure, I heard this right, you guys said weekly sales have been around $300,000 to $400,000. Correct?

That's correct, that's on take-out and delivery sales.

Okay. That's helpful. And then when we think about your expenses, how much of them are fixed and then how much of them you think are going to change going forward here?

I think as I mentioned in one of my previous responses, we're trying to keep the payroll around $100,000 to $150,000 level, which leaves a substantial amount of cash after that. I think that's going to be our primary fixed cost now since the majority of that staff that we have as a fixed cost. I would consider that to be the primary fixed costs in the business. And then again, depending on where we end up with our landlords, which I believe we will be successful in a lot of the negotiating with them then there'll be very little other fixed cost in the model, other than perhaps utilities and obviously insurance costs because we want to keep the insurance policies all current so utilities, insurance and labor are the primary ones that we will make sure we stay on. Everything else that is discretionary from an outside services or vendors support which kind of cut that off. And as we said in our prepared statements, we have made pretty good arrangements with our major food vendors to stretch out past balances and actually future purchases with them. So we've already arranged for what I consider to be pretty beneficial arrangements for us. So for all intents and purposes then, the only other cost we have to worry about is any short-term buying costs that we have for product for the takeout delivery business and frankly we'll probably work on the 20% to 25% cost range on that based on existing price, and then obviously the things on the mix of takeout to deliver because obviously will be subject to some delivery fees on some of the delivery side. So again, we do think that even after our cost structure, there'll be some leftover cash from that delivery take-out business in the short term, remembering that our staffing is very nominal, we're only running two people maybe three people in some of the units at any one time. And our G&A structure has been really cut down substantially. So we are in about as good cost structure as we can be right now and we plan to run this as long as we can.

Okay, that's good to hear. And then last one from me, how much of your sales in the fourth quarter were actually delivery and to go orders?

So if you look at the our sales under to go and delivery. So look at our Kona Grill, it's between 3% to 6% already, we're in takeout delivery. So we really did have a good base business and some of the projects that we have are lifestyle centers which seem to have built in residential around it. So we do have a built-in take our business in some of those sites. And again I'll only be cautious because obviously with these very unprecedented times, consumer thinking patterns have changed. So you just have to be careful to overestimate them and obviously we're monitoring what people are doing so. Although we ran a history of x in the 4th quarter right now, I think all bets are off and it's really kind of figuring out the new reality and how to manage the marketing these days. Obviously, we do have a super talented marketing team that is still in place. We did keep the core of our marketing team. And if you follow us on Instagram and on digital, you would have noticed that we've switched a lot of our or all of our marketing to be real time pursuing that. So I think we've done a lot of switching and actually very good thinking from the marketing team in terms of going aggressively after this channel. So I feel pretty, pretty confident that the team that we have in place will make sure that we maximize that business in the foreseeable future.

We have reached the end of the question-and-answer session. I will now turn the call back to the management for any closing remarks.

Thank you everyone for your continued interest in The ONE Group. These are clearly unprecedented times in the industry and frankly in the world. And right now, I want to close the call by saying a very warm thank you for all the team members working with us today and also sending out a message that to our teammates who will be back with us soon again and continue to making The ONE Group the leader in fine dining. So we look forward to having our team back together soon again and to get back on track with our long-term plan. So appreciate everyone's support and I wish everyone a very safe and stay in touch, and we will continue to do our best with the business. Thank you everyone for your interest and talk to you soon.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.