Greetings, and welcome to the ONE Group Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Tyler Loy. Please begin, sir..

Thank you, operator, and hello, everyone. 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 at owned and managed and licensed units to 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..

one, driving the in-restaurant experience at both brands by making sure that we are delivering exceptional and unforgettable experiences to every guest every time. This is fundamental to our operating model, and that's what sets us apart from our peers.

We have an amazing talented group of restaurant teams and we'll leverage them to upsell our premium menu items and high-margin add-ons. Two, continued investment in digital marketing, especially focused on our value offerings. It's imperative that we keep the brands accessible to our entry-level price points.

Our branch and three, six, nine five-hour offerings are especially relevant in the current economic environment and some of the best values in the industry. In addition to our value layers, our takeout and delivery business continues to grow in dollars and percentage of total revenue, and that's another area where we will continue to invest.

Three, taking targeted price increases as we have lagged our peer group and the industry in the amount of pricing we have taken during this highly inflationary period. Based on our peer comparisons and our guest satisfaction levels, we believe we have additional pricing opportunities that we plan to take.

Four, committed to opening a new restaurant every four to six weeks for the foreseeable future; and five, rightsizing labor and other operating costs for post initial investment in growth.

We've talked about the increased managers that we've carried in order to support our growth initiatives, but we have additional opportunity to scale our scheduling in order to drive sales and increase labor efficiency.

In addition, we have launched several initiatives to reduce costs that do not impact sales, such as system-wide optimization of our paper supplies, credit card processing fees and various outside services. Year-to-date, our store level margin is 15.7%, we anticipate finishing the year in the 17% range.

We believe these strategic initiatives are paramount as we look to drive positive comparable sales and margin improvement during the back half of the year. Moving on to our development pipeline. We expect to open eight to 12 new venues in 2023, and we plan to open a new venue every four to six weeks for the foreseeable future.

Already this year, we opened Kona Grill in Columbus, Ohio, two Reef Kitchen licensed locations and a Kona Grill in Riverton, Utah. In addition, we added a rooftop at the STK in Scottsdale, Arizona.

By the end of the year, we are on track to open one to two additional corners in the following cities, Phoenix, Arizona and Tigard, Oregon and three to four new copay owned STKs in the following cities, Charlotte, North Carolina, Washington, D.C., South Lake City, Utah and Boston, Massachusetts. And finally, we plan to add on managed or licensed STK.

Over the long term, we view our addressable market as 200 STK restaurants globally and 200 Kona Grills domestically with best-in-class ROIs of between 40% and 50%. There is clearly a runway of opportunity ahead of us that we are just beginning to actualize. Now I'll turn the call over to Tyler..

Thank you, Manny. Let me start by discussing our second quarter financials in greater detail. Total GAAP revenues were $83.4 million, increasing 2.8% from $81.1 million for the same quarter last year.

Included in our total revenue is our owned restaurant net revenues of $79.9 million, which increased 3.9% from $76.9 million for the same quarter of last year.

The increase in revenue is primarily attributable to the opening of STK San Francisco in August of 2022, the opening of STK Dallas in November of 2022, and the opening of Conagra Columbus in January of 2023. This was partially offset by a 4.7% decrease in comp sales.

Consolidated comparable sales were 46.5% compared to 2019, our pre-pandemic base year. Management license and incentive fee revenues were $3.5 million during the quarter and $4.2 million in the second quarter of 2022.

This decrease was primarily attributable to lower profitability on our managed STK restaurants in North America and decreased revenue at a managed property in London, England.

Owned restaurant cost of sales as a percentage of owned restaurant net revenue was better by 180 basis points to 24% in the second quarter of 2023 compared to 25.8% in the prior year, primarily due to menu mix management, pricing and operational cost reduction initiatives.

Owned restaurant operating expenses as a percentage of owned restaurant net revenue increased 340 basis points to 61% in the second quarter of 2023 from 57.6% in the second quarter of 2022, primarily due to staffing ahead of growth, increased marketing expenses and general operating expense inflation.

This was partially offset by single digit pricing taken in the back half of last year. In August, we will be taking an approximate 4% price increase at Kona Grill, reflecting our current confidence in the performance of the brand. Restaurant operating profit was 14.9% for the second quarter of 2023 compared to 16.6% in the second quarter of 2022.

Restaurant operating profit at STK was 18.9% and Kona Grill operating profit was 9.9% for the quarter. We anticipate restaurant operating profit to increase year-over-year as a percentage of revenue during the back half of the year.

On a total reported basis, general and administrative expenses were $8 million compared to $7.3 million in the prior year. The increase was attributable to increased stock-based compensation expense and additional investments required ahead of new restaurant cops.

When adjusting for stock-based compensation, adjusted general and administrative expenses were $6.8 million in the second quarter of 2023 and $6.4 million in the same quarter last year. Preopening expenses were $1.6 million compared to $0.8 million in the prior year.

This increase was primarily related to Kona Grill, Riverton, which opened in July 2023 and STK and Kona Grill restaurants currently under development. Both years include noncash preopening rent required for U.S. GAAP. Interest expense was $1.6 million in the second quarter of 2023 compared to $0.4 million in the second quarter 2022.

The increase was driven by increases in our outstanding balance and benchmark rates year-over-year. Income tax expense was nominally beneficial in the second quarter of 2023 and $0.9 million in the second quarter of 2022. Net income attributable to the ONE Group Hospitality, Inc.

was $0.6 million or $0.02 net income per share compared to a net income of $4.3 million in the second quarter of 2022 or $0.13 net income per share. Adjusted net income was $1.8 million or $0.06 adjusted net income per share compared to an adjusted net income of $4.9 million in the second quarter of 2022 or $0.15 net income per share.

Adjusted EBITDA for the second quarter attributable to the ONE Group Hospitality, Inc. was $8.5 million compared to $10.4 million in the second quarter of 2022. We have included a reconciliation of adjusted EBITDA and adjusted net income in the tables in our second quarter 2023 earnings release.

During the second quarter, we repurchased approximately 0.5 million shares of our common stock. In total, we have purchased 1.7 million shares or approximately 5% of our outstanding shares under our buyback program. We have approximately $3.7 million in share repurchases that remain available under our $15 million share repurchase program.

We will continue to use discretion in determining the conditions under what shares may be purchased from time to time, if at all. Now I'd like to provide some forward-looking commentary regarding our business. This commentary is subject to risks and uncertainties associated with forward-looking statements as discussed in our SEC filings.

We have always remind our investors the actual numbers and timing of new restaurant openings for any given period is subject to a number of factors outside the company's control, including weather conditions and factors under control of landlords, contractors, licensees and regulatory and licensing authorities.

Based on the information available now and the expectations as of today, we are updating the following financial targets for 2023. Beginning with revenues, we project our total GAAP revenues of between $350 million and $365 million.

Embedded in this top line range is our expectation of flat consolidated comparable sales for the third quarter versus 2022 and positive 4% to 8% in the fourth quarter when compared to 2022. Managed license and incentive fee revenues are now expected to be between $15 million and $15.5 million due to lower revenues at our properties environment.

Total owned operating expenses as a percentage of owned restaurant net revenue of 83% to 82%. Total G&A, excluding stock-based compensation of approximately $27 million to $29 million. We now expect adjusted EBITDA of $45 million to $50 million, which represents an approximate 10% to 20% increase compared to 2022.

Restaurant preopening expenses between $5.5 million and $6.5 million; an effective income tax rate of between 5% and 10%. Total capital expenditures, net of allowances received from landlords of approximately 2.5% of company-owned revenue and approximately $3 million to $3.5 million for company-owned venue.

And finally, we plan to open eight to 12 new venues in 2022, including adding one managed or licensed STK restaurants. 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 that we are in the early stages of our long-term growth strategy as we continue to build a portfolio of high-volume brands with compelling returns for our shareholders. Thank you all for your interest in to one group.

As I always say, none of this would be possible without the fantastic support of our teammates who bring our mission of great execution to life every day. We have some exciting times ahead, and we'll be opening a lot of restaurants in the near future, and I look forward to seeing you all out there. We appreciate everyone joining us on the call today.

Tyler and I are happy to answer any questions that you may have.

Operator?.

[Operator Instructions] Today's first question comes from Joshua Long with Stephens. Please proceed..

Great. Thank you for taking the questions. Good afternoon. I was wondering if you could talk through the trends that you saw through the quarter in terms of understanding that there's certainly some substantial year-over-year comparisons that you were lapping up against.

But underlying that, did you see any kind of pushes and pulls that things progress through the quarter? What can you tell us there? And then when we think just broadly about the consumers' demand and overall appetite for experiential dining, which your portfolio embodies what are you seeing there? And how should we be thinking about that in the back half of the year?.

On that question, I would say that the softer part of the quarter was probably earlier in the quarter, and the reason was with Omnicom many conventions got deferred and pushed into the second quarter. So there was a little bit of a shift convention business.

So we did benefit last year early on with the convention business of just people accelerating the conventions at that point. So I would say that probably was the in-quarter big comparison year-over-year. It was lapping over just a catch-up on conventions.

And then I think that as we've gotten back closer to today, I think the sales momentum has become not the momentum, but I would say the lapping has become easier for us.

And in terms of trends and what we see in the environment, not anything different from what we've seen earlier, which is we do see a continued interest on Friday Saturday business in the 6:30-8:30-time frame. So the dinner hour on the weekends continues to be very strong.

And then we do have a slight drop off in the late hours in terms of demand for dining. And then on weekdays, as I mentioned earlier, because we were getting the benefit of conventions and convention traffic. We do see a slight impact on Monday, Tuesday morning. By the way, that is STK.

In relation to Kona Grill, actually, I think the momentum on Kona Grill is very strong. And actually, on the year-over-year lap, we have seen very strong performance in June and July.

As a matter of fact, as Tyler mentioned in his prepared statements, the momentum has been strong enough that we feel pretty confident in taking pricing with that impact in transactions. As we've spoken in the past, preserving traffic is paramount for us because we view that as our long-term strategy of keeping market share.

So we feel really good about the trends with Kona Grill..

And Tyler, in your prepared comments on the forward look, you offered some context on 3Q and 4Q.

Curious, is that at the kind of the total combined level? Can you provide any sort of additional color there by STK or Kona as we think about either the pricing or other menu initiatives that you might have replace?.

Thanks for the question. I think that's on a - definitely on a combined basis. Manny touched on Kona Grill and the strength that we're seeing there, along with that pricing that we've taken, I think from an STK perspective, you can kind of see the patterns and the lap relative to -- we were lapping kind of an 82% versus 19% in the second quarter.

It kind of goes to 70% in the third and then 61% down in the fourth quarter. So I think that's where we're -- how we're kind of modeling that as we were 70% above 2019 in the second quarter, and so you can kind of see a little bit of pattern there in the lab..

And then last one for me.

Just when we think about the strong unit growth potential here, can you talk about some of the investments you made and you have made or will continue to make to support that? I mean, the opening -- one opening every four to six weeks is very impressive, especially within the backdrop of just others in the industry continuing to talk about permitting more so permitting delays that are facing -- you're kind of providing a headwind there.

Can you talk about some of the efforts and maybe the blocking and tackling that you're doing with your team to address that and be able to reach your impressive unit growth targets?.

Yes. So I mean, two things come to mind right away. Number one is we have had to carry a significant amount of extra managers. And the reason is, particularly for STK, we have made a decision to open up the restaurants with employees who do know the brand.

So we're training in an existing restaurants, which then puts pressure on the restaurant margin at STK. We want to start off the new operations with the minimal two managers who've already been in the system. So right now, we've been carrying, as I mentioned earlier, about 15 or 25 extra managers just to support that strategy.

And then the second item is that -- as we put together our training team, which -- to open the number of restaurants, we have a team of about 25 to 30 individuals. And those individuals were some of our best employees in the restaurants. So we have to backfill those positions in the restaurant.

So we're investing in the restaurants as well because we now are replacing top talent to additional headcount. So really, where you see the pressure of that line is on labor, of course. And really, the commitment there is that fine dining requires a very high level of execution in the restaurants.

And that's one of the things that we're very proud about in the second quarter, although we didn't talk about it, is just the quality of operations and our feedback from consumers was extremely positive. And so we know that we're doing the growth and getting ready for that growth and we're still creating great experiences in the existing restaurants.

So frankly, that's really good for the long term when you're able to work on experience and get yourself ready for the growth. So I think the mention was accomplished there to keep quality while you're getting ready for the growth. I think just relative to permitting, I think the permitting environment, I'm sure you've heard from everybody is tough.

I mean, there's a lot of competition with lots of big projects in every big city going on right now. And the permitting, licensing establishment just does not seem to be organized. I mean, we have restaurants that have been in permitting for nine months.

And in some cases, some of them even nearing a whole year in terms of getting it cleared in the process. Obviously, our restaurants are big, have a lot of mechanical a lot of complexity in the build-out. So it does take a little bit of time to clear it out to the governmental agencies.

But I would say right now, the process here is that we have a tremendous amount of real estate that we signed on, and it's a little bit like priming a pump. We've kind of timed it up with locations where that permitting time is no longer an issue, if you will, because we have a lot of backlog now in terms of available real estate to build.

So now it really gets back down to it's a training and getting the training teams in and out of the restaurants and get the operations to go. So that's how our view of the growth and the investments that we've made. It's really labor and preserving the quality of the experience in the long term, which is, as you know, very important to us..

Appreciate the context. Thanks a lot..

Our next question is from Nick Setyan with Wedbush Securities. Please proceed..

Just to clarify, the flat competency again at 4% to 8% in Q4, is that consolidated? Or is that in reference to the specific brands?.

That's on a consolidated basis..

I think can you break it out by brand..

I think that kind of the -- what I was alluding to regarding Josh's question, I think STK is kind of running at plus 70 versus 2019. And if you look at what they're lapping last year, it's kind of plus 70 and then plus 62% for the for the third quarter and the fourth quarter of last year. And then with Kona Grill, I think Manny kind of touched on it.

I think we are seeing some strong results from the Kona Grill brand right now enough that we feel pretty confident taking some additional pricing here this month..

That basically implies like flattish comp at STK up in Q4 and then Kona actually up in Q3..

I mean, right now, I mean, as I think I said on the -- this is Manny, by the way, not Tyler anymore. Our performance at kind of growth is really strong right now. And again, there has been a lot of work that we've done there. So I do think that -- it's just executing high level.

So I'm very -- feel very good about the same-store sales for point of growth this year, particularly for the back end..

And then the 17% margin exiting the year, is that for the full year, 17% or Q4, 17%?.

It's a full year version. And I think that the fourth quarter for this year will be a very good margin quarters. We will have a lot more STKs in operation this fourth quarter. So I think that bodes very well for the margin in the fourth quarter..

And I think you guys have said for Q1, there was about 6% pricing and 2% to 3% mix for both brands.

What was the pricing and mix in Q2?.

So pricing is still running around 6 points positive for both brands and mix is a rent plus 23 right..

Yes. I think mix shifted down just slightly. I'm sorry, right, down two to three years -- yes, for the quarter..

So down 2% to 3%..

Yes, that's correct..

Okay. Thank you very much..

Our next question comes from Mark Smith with Lake Street Capital. Please proceed..

Hi, guys. Just curious, just big picture here as you look at the consumer, are you guys seeing any different trends from kind of metro versus suburban as we look at maybe Kona versus STK or even some of your STK restaurants.

Are you seeing any trends that way in kind of consumer trends? Or is there anything else big picture that you see as far as changes in behavior during the quarter?.

Matt, I think just right now, I would say that the predictability in the suburban is better. So I would say that department sales seem to be more consistent and with lots more visibility. I think urban sales continue to be a little bit less visible just because of the business and convention business.

So I would say that right now, the consistency is more on those super locations. Also on smaller cities, I do see a little bit more strength than perhaps in the bigger cities. I think the biggest cities that benefit a lot from tourism. Last year, I think there was a lot of U.S. tourisms where this year, you'll see more of a global tourism business.

So I do think the big cities with lots of tourism exposure are a little tougher this year. But again, I would just say that probably [indiscernible] is really where the strength is..

And then as you guys are taking price, are we going to see most or all of this at Kona or do you have plans to take any price in the second half year..

So right now, our planned pricing that Tyler mentioned is going to grow, and that's going in here in the next couple of weeks. STK, we always look in November. And so we will take another look in the fourth quarter, mid-fourth quarter and take a look and see where the opportunities may be.

Again, I think that, as we've said in the past, the pricing strategy is always has to be really thoughtful because obviously, you always get the short-term margin bump ups when you do that, but then we think about the longer term. So you're sometimes trading short-term margin for long-term traffic and market share.

And as you know, we're a market share long-term driver of sales, and we try to protect our pricing position and keep much pricing power because I think that's good for the brands in the long term. Allows you to do the right decisions for the brand and really work on the experiences..

And then last one for me. Just looking at restaurant cost of sales here, you've been around about 24%.

Anything that you see that changes that? Any changes in commodities? Anything to call out, are there either good or bad that you see kind of near term on the horizon?.

I mean I think -- I mean, for us, commodities is kind of particularly on food items and beverage items, I mean our performance on cost of goods, I couldn't be happier with that. I mean that's usually one of the big hardest areas that it's hard to control in hyperinflationary high inflationary environment. I think we've done a really good job.

We're in the 24% range, which is kind of on the low end of our long-term guidance range for that item. So we feel pretty good about that. I think that the pace of increase on commodities has softened, so that's good. So I think we've seen a slowdown there.

For us, and I think we keep repeating this is we did have wage inflation that's clear on our numbers, but really the bigger area of margin, if you will, pressure for us was our decision to continue to invest on labor in advance of the restaurants.

And as I mentioned earlier, we do want to start these new restaurants with high-quality management and crew staff to, frankly, go after blocks really strong with revenues and maximize profitability for us in the fourth quarter.

I mean that's really our big quarter, and that's the time that we will show up with a very strong margin and profitability results..

Excellent. Thank you..

Thank you , Mark..

Our next question is from JP Willem with ROTH. Please proceed..

Great guys. Thanks for taking the questions. If we could start just STK I think you've been pretty clear that you're lapping some big conventions in 2022 that may have been delayed.

But maybe if we could just talk a little bit more about what you're seeing at STK in terms of the different groups of customers and maybe it's relative to your expectation instead of a sort of comp basis.

But I'm just wondering if you could provide a little more clarity about where you're seeing some trouble or some strength between, let's call it, the convention groups, maybe the expense tractor the suits and then social dining. If you could just kind of frame each of those relative to maybe where you thought you'd be at this point in the year..

I mean we'll start off with the suits of the business type of consumer, and this is STK now. So for that brand, I think the tough flat has been on -- this is not purely -- it's really the lap is that less traffic from some of these conventions in the restaurants. And so, I think that's probably Monday-Tuesday, Wednesdays.

On Fridays to Saturdays, I think that the consumers as it comes to social occasion is still strong, and there's still appetite to go out and celebrate and experience and elevated experience. The overall industry dynamic, though, is that -- there are some restaurants that do have capacity now in the 630-to-830-time frame.

So the consumer is now wanting to book 9-10 O'clock reservations since they have choices to go pretty much anywhere else earlier in the day. So on the social occasions, particularly on Fridays and Saturdays, you're seeing a really strong first turn for us. And then in the later hour, you do see less fuel dining traffic.

And the way that we're fighting or adjusting for that is we have launched late our happy hour in every one of our restaurants. And so we are starting to see of course, 10 O'clock business coming back, and that's actually been a very good add in most of our restaurants, and starting to see that business building in.

But I would say that's kind of kind of the STK consumer view. I do see a little bit more of product sharing in the restaurants. So I just see -- and I think Tyler mentioned earlier that our check or mix, the mix is down is because we do see a lot more sharing on in the restaurants that we used to see before.

But again, it's not that dramatic, but you definitely do see it a little bit in the restaurants now..

Great. Thank you. Moving over to Kona Grill. Something I think we've kind of been looking for, for a little while. And just curious if there's any update. But can you just share or maybe quantify at all kind of the Columbus Kona Grill if you prefer and have numbers from Riverton, that's great, but I imagine it's early.

Just kind of anything to point to how much better on maybe margin side, the kind of remodeled Columbus Kona Grill is relative to the average?.

Yes. I mean I wouldn't call it remodeled because we actually built a bright new restaurant in the same property we did. If we go there now, we don't even recognize it's the same restaurant. But in context of that question, though, I would tell you that that restaurants with the new look field design layout, is up over 30% volume.

And this is actually a really good test because we took the same real estate. We just put in there the new platform, new book field and operation, and we gained over 30% of sales per week. So to me, that was a really good test to really tell me how good -- if you will, the revised brand is.

So we do know that there's a lot of power in the new menu and the new service style and a little bit more energetic environment you put in there. So check the box on that. I'm super excited about that.

And that tells me really that some of the stuff gives us some directional look that we've done the right things in terms of what we're doing with the brand. In terms of Riverton, it's obviously very early.

But I would tell you that we opened up project frankly, with no real marketing, we just opened the doors and we're already at above system average on the weekly volume for that restaurant. And that's a seen without doing any of our marketing strategies there. And it's, frankly, that restaurant is a phenomenal project. It's a great Senecal project.

And again, the real estate is fantastic. And it's a beautiful restaurant if you go out there and look at the video that people have been posting from it, we did get an incredible score in our benchmarks with the customers relative to book and feel and the experience, and it's really good.

So I would say the 1-2 punch coming out of Kona Grill is we're really excited about same-store sales momentum. I think that the new store -- the new revenues are fantastic coming out of the new units.

And obviously, the third item here that we will work on and get strong results is in the margin side because when you go to the new restaurants, you'll notice that the kitchens are smaller, the sushi bars are closer to the kitchen so that we don't have as much space allocated to sushi bar, that we really weren't using a lot in the older restaurants and the margin profile for those restaurants is significantly better just because the labor costs are dramatically lower because we do not have two kitchens in the Russian anymore.

We have one kitchen with a sushi extension, and that will save us several points in margin.

And the last thing I would say about the new Kona grill prototypes is we've invested in kitchen technology, so a lot of our -- well, not a lot, all of our new restaurants that we're building has efficiency, efficient equipment packages that require less people to operate the kitchens and provide better quality products.

So we're hitting both quality and cost in the long term with the new kitchen layout and equipment packages..

Great. That's very helpful. And one last one, if I could squeeze in. Just in terms of some of the digital marketing, anything you can kind of point to that you're really seeing the success from it that you're -- it's worth it, it's helping. It's driving traffic.

Anything you can kind of call out or point there?.

Yes. I mean, as you know, we've always talked about digital marketing being the backbone of the company, and we measure it with the click-throughs and the end results in reservations. And frankly, it is a bit variable for STK. And so we're super excited about that. That's one of the reasons why we took on more digital.

I think our digital model is also evolving from what we used to do, which I'm happy with. We're going more into the influencer. And frankly, we want to gain a market advantage and influencer. So if you look at a lot of our stuff that we do digital, we've gone away from just specifically hitting on the ads on Instagram and Facebook and stuff.

I think that everybody already does that. Our emphasis now is in building integrated influencer networks. And so you'll see us continue to evolve that strategy, and we're very excited about that. We actually did very well with the -- that network with our Solstice parties, which was off the chart successful.

So we're super excited about some of the things that we're doing with the new evolution of digital and influencer in the marketing. And again, that's super-efficient. The cost is very measurable. We can track what's actually getting returns, and we're super committed to continuing investing in digital..

Yes, appreciate the color. Best of luck, guys..

Thank you, sir..

The next question comes from David Kanen with Kanen Wealth Management. Please proceed..

Thanks for taking my questions.

First one is in regards to the second half of the year in your guidance, what are the levers or the initiatives that you're deploying to grow same-store sales that you referenced in the prepared remarks? And then what are the initiatives that you have underway to drive up restaurant level margin on the cost front?.

So probably three things. One, I think as Tyler mentioned earlier, the lap is easier in the third quarter and easier in the fourth quarter relative to where we've been. So I think there's less swimming upstream relative to traffic. So I think that's a favorable item for us.

Number two is, I think, as I just mentioned earlier, our continued emphasis on digital and particularly emphasis in influencer networks and driving that strategy is going to help with same-store sales.

I think we also are evolving -- and we're launching our neighborhood Perks program, which is basically a digital app where we are doing all our local store marketing through digital. So that's another layer of newness that we didn't have in the past. So I think that's going to be a net add to our business.

And then I think from a margin perspective, just opening the new restaurants right off the shots, we're moving a significant amount of managers of the restaurants to the new boxes. So that's going to -- we're going to benefit on sales with -- and the labor is already loaded in.

So we will get a lot of relief on the margins on the labor side for managers. And then again, just the fact that we've now have rebuilt the talents that we took and put into the training teams, that dramatically helps. And I think Tyler mentioned that we're doing operating cost initiatives and everything from paper.

We're changing the paper products in the restaurants. I think that there will be an important initiative to save. I think Tyler mentioned credit card processing fees, we're doing certain things there to help with those costs.

And then we also have some contracted vendor costs that we're just going to probably stop using outside companies and do the work ourselves.

So I think just the combination of those items will help, but make no mistake that labor and just the number of bodies on the existing stores and moving them to new restaurants will make the most dramatic part on the margin. Also remember that Kona Grill now with same-store sales and pricing will also help the margin for us. on the back end.

And I truly believe that the new restaurants with the more efficient kitchen and less fixed labor on it will impact that aligns pretty well. Remember that three new units in Kona Grill, which were out ready to open the Phoenix one year soon is over 10%-unit growth for the brand.

So we're bringing in very effective new restaurants with great labor model. Not to mention that the lease costs on these new restaurants is better than the existing portfolio. So we're going to get a margin benefit from having better rents in addition to better labor out of these restaurants.

So I'm pretty comfortable that we have enough items in the margin to bring it back up..

Okay. That makes sense. And then year-to-date, you spent $24 million on CapEx. You have in gross -- an aggressive growth plan for the second half of the year.

What do you expect the incremental CapEx to be in second half 2023?.

I mean so that $24 million reflects investment already in a lot of restaurants opening even in the fourth quarter. And in some cases, we paid for some things already in the first quarter of next year development because we pay for architectural and permitting and other.

We order lead items much earlier now because some of these items not take 6, 9, 12 months to get in there. So we do a lot more of the capital we invest in the front.

I think, Tyler, on the capital guidance, what do you think for the year, the range on the capital?.

So I think the guidance implies something between $35 million and $40 million net. And remember, the $23 million is a gross number, so it does not include TI that we've received from landlords versus several million dollars..

So the back half of the year, we'll spend $10 million to $16 million versus roughly $24 million in the first half of the year. So therefore, we will generate more significant free cash flow in the second half of the year.

Is that safe to say?.

Yes. I think that's right. And just from the math on the CapEx, I think that's right. Remember that's a net number. And then from a free cash flow perspective, we do expect positive free cash flow for the backup..

Also, just from an analysis perspective, we do provide in our 10-Q a table that shows the TI amounts by quarter, so we kind of get a perspective on what the actual net investment is on a new restaurant, so you can always get down on the net number on that..

Okay. And then in your revised guidance, -- the first half of the year was $19.6 million of EBITDA. So the revised guidance is that you'll do $25 million to $30 million between $25 million to roughly a little over 50% if you hit the high end of EBITDA in the second half of the year, which is good. That's encouraging.

My question is exiting the year with the new stores already stood up, the better margins, some of the cost initiatives, what will be the run rate before -- I know you're going to probably do another 10 stores next year.

But exiting the year, what do you think the run rate is before adding another 10 stores in 2024?.

I mean, I think, again, depending on how they all come off to shoot, but I would say our run rate is north of $55 million, anywhere from $55 million to over $60 million, depending on the new units come in. If they come at model closer to 55%, it's there above model lack experience with the new STKs, probably closer to 60%.

Again, we didn't provide formal guidance in there, but it's a number closer to $55 million to $60 million coming out of run rate..

And is that reasonable to do another 10 stores next year in 2024? Or is that too aggressive?.

Well, we have 18 leases, right? And those 18, we have 12 already under some level of design construction are almost done. But again, we will have optionality, obviously, as we get in the middle of next year, we can always do a notable if we continue the accelerated pace or not.

But everything that we see right now is that the new restaurant volumes have been consistently positive and above model. We were -- again, you always have to knock on wood when you talked about those things, but we've been above model in the Russians that we have opened.

So you can't always anticipate that, that will go forever because that's not a reasonable expectation. But if you look at the quality of the pipeline, these are all super high-quality sites. I mean we're talking about Boston, Washington, D.C., Charlotte, Aventura Mall, Topanga. I mean, we're talking some really incredible strong real estate.

And with the Pongola's exactly the same thing. We got another great project coming in [Bawarchi] Phoenix, which is a world-class mall. We have Tiger Oregon, which is another center cow project. I'll tell you the number one thing that I'm super pleased about is that for Kona Grill developments, the 95% of the sites that we have is all landlords.

Our landlords run Kona Grill so you're trying to see a very strong trend here where some of the super high-quality landlords view the new prototype and the view what we do with Kona Grill is a definite plus for their project. So it's really encouraging. It's a very strong pipeline. And once again, it's primed.

We have a lot of restaurants now ready to go. And it's just a matter of getting the training teams through them now and getting them out..

It sounds like the prospects for the long haul are very positive. Now based on CapEx being less in the second half of the year, EBITDA being higher, you'll generate significant free cash flow, you have $38 million in cash at the end of the quarter. You've been actively buying back the stock, which I love.

However, there's only about, I think, just under $4 million left, maybe $3.7 million. And the stock, I'm looking, I don't know if this will sustain itself into tomorrow. But when I look at the stock right now, based on the headline, it's trading down to like $6.

Given the prospects that you're articulating the free cash flow, is it safe to say that you will be more aggressive in retiring shares in the back half of the year if the stock continues to be weak like this, getting down to $6 or you'll probably kind of move at the same pace and just increase the buyback slightly..

Yes. I mean, I think probably the way for me to answer that question is, we'll continue focusing on growth and -.

Please hold. It appears that our speaker line has dropped. And excuse me, everyone. This is the operator. We are not able to get the speaker line back at this time, and this does end the question-and-answer session and the call for today. I would like to thank you for attending today's presentation. And you may now disconnect..