ONE Group Hospitality, Inc. Aktie

Greetings, and welcome to The ONE Group First Quarter 2026 Earnings Conference Call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nicole Thaung. Please go ahead.

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, considering 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 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 matters 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, restaurant operating profit, comparable sales, annual adjusted operating income and total food and beverage sales of company-owned, managed, licensed and franchise 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 would like to turn the call over to Emanuel P. Hilario.

Thank you, Nicole, and good afternoon, everyone. I appreciate you joining us today. I want to start where I always do by thanking our teammates. Every day, our teams across every brand and market show up focused on creating memorable experiences for our guests. These days, consistency is more important than ever, and I appreciate all that they do in executing with excellence and upholding the Vibe Dining experience that defines our brands.

Today, I will begin with an overview of our first quarter performance, and then I will walk you through our progress with respect to our strategic priorities before turning it over to Nicole for the financial details.

We are excited about our continued momentum. Our operational performance is resulting in strong financial results. Total GAAP revenues grew year-over-year, and comparable sales are sequentially better than the previous quarter.

The restaurant's cost of sales improved to 19.4% from 20.8% in the prior year quarter. Operating income increased 30%. Adjusted EBITDA increased 12.1%. And capital expenditures, net of tenant improvement allowances, reduced 23% year-over-year as we prioritize capital-efficient growth and free cash flow generation.

Total GAAP revenues for the first quarter were $213 million, an increase from $211 million in the same quarter last year. First quarter consolidated comparable sales were relatively flat at a negative 0.3%, representing a continuation of the positive momentum we experienced exiting the fourth quarter.

For clarity, consolidated comparable sales are reported on the same number of days year-over-year. Looking at each brand, U.S. STK total comparable sales reported another positive quarter at 1.4%. Benihana's comparable sales were flat, reflecting stable demand for the brand. And our Grill Concepts comparable sales, while down 4.9%, represented the strongest quarterly performance since early 2023, and Grill transactions was positive for the quarter. Each segment continues to improve from the previous quarter.

What is most notable, particularly in a period of elevated inflation, is the strength of our margin performance, a direct result of the hard work we have been doing across our supply chain, including, most importantly, beef sourcing.

Restaurant operating profit increased 11% to $40 million, while restaurant operating profit margins expanded 100 basis points to 19%. The margin improvement was driven by a 140 basis point reduction in food and beverage costs, reflecting menu optimization, integration synergies, and supply chain efficiencies. We also achieved a 40 basis point improvement in restaurant operating expenses as a percentage of restaurant revenues.

STK delivered particularly strong results with restaurant operating profit margins expanding 280 basis points to 21%, while Benihana margins improved 130 basis points to 21%. Adjusted EBITDA grew 12% to $29 million. The improvement was driven by cost management discipline, our contracted beef pricing, continued Benihana integration synergies, and the benefit of portfolio optimization actions.

The key point I want to make is that these results are execution-driven. We are not dependent on macroeconomic recovery or shifts in consumer sentiment, but would certainly welcome them. Over the past 18 months, we have implemented a series of strategic initiatives, operational improvements at Benihana, the Barbell Strategy at STK, portfolio optimization across the growth concepts, and rigorous cost management. It is those initiatives that are driving our successful performance.

Now, let me update you on our four strategic priorities.

Priority One: accelerating comparable sales through execution. Our first strategic priority is accelerating comparable sales through disciplined execution. I want to highlight that Valentine's Day 2026 was a record-breaking day for our portfolio. Easter was also strong across our brands, while sales were up in the high single digits compared to last year. These results are a testament to both the operational capabilities we have built and the strength of our brands as a celebration destination.

As we look ahead, we are gearing up for what we expect to be a strong Mother's Day and graduation season. Both occasions are critically important to us, and our teams are focused on delivering exceptional guest experiences during these high-volume periods. Through the first 5 weeks of the second quarter, the company has positive comparable sales and transactions.

Momentum has continued through all of our brands with STK and Benihana so far, delivering positive comparable sales, and the growth is sequentially improving. We have made operational improvements to position the brands for a strong spring and summer and are seeing encouraging trends as Happy Hour has been a real driver and is working well, while lunch traffic is also returning.

Our Friends with Benefits Loyalty Program continue to gain momentum. Since launching last year, we have added over 8,000 new organic members to the program per week. Newly enrolled guests continue to show strong repeat participation, and we are seeing loyalty members spend more per visit compared to non-loyalty guests.

We will be actively targeting our Friends with Benefits members for Mother's Day and graduation celebrations, leveraging personalized outreach to drive traffic during these occasions. We continue to focus on growing membership, driving organic sign-ups, and increasing engagement within the program to strengthen brand connection and repeat visits.

We are driving growth through seasonal innovation, launching new food and beverage menus 4 times a year across our brands. This keeps our offerings fresh, differentiates us from competitors, and generates strong engagement on social media. We are expanding our off-premises business with a focus on curbside operations.

Highlights include burgers and sides, which continue to drive strong takeout and delivery volume across all brands and Benihana and RA Sushi, fried rice burritos for takeout and delivery, which have performed well.

Priority Two: capital-efficient growth with disciplined expansion. Next, our second priority is capital-efficient growth. We currently have two company-owned STK restaurants and one company-owned Benihana restaurant under construction, an STK in Phoenix, Arizona, a relocation of STK downtown in New York City and a Benihana in Seattle, Washington. We intend to open 6 to 10 new venues in 2026 as we prioritize locations requiring $1.5 million or less in net capital investment to open.

Capital expenditures, net of TI allowances was 23% lower at $10 million in the first quarter compared to the year ago period. Of this amount, $6.5 million was related to new restaurant construction with the remainder supporting existing restaurants. This reduction reflects our disciplined approach to capital allocation as we focus on high-return capital-efficient growth.

On the franchise side, our 10-unit California Benihana and Benihana Express development agreement continues to progress and our commitment for franchise Benihana and a licensed Benihana Express in the Florida Keys remains on track. The Benihana Express format continues to generate strong franchise interest as it delivers the Benihana food experience without teppanyaki tables, making it more labor efficient and more appealing from a cost of entry perspective for potential franchisees.

In January, we completed the relocation of our Kona Grill in San Antonio, Texas to a smaller footprint location. And in February, we converted a franchise Benihana Monterrey, California to a company-owned restaurant to accommodate a long-term franchise partner who wish to retire. Both are tracking in line with our expectations.

Priority Three: portfolio optimization to improve returns. Our third priority is the portfolio optimization to improve returns, and we have made significant progress improving the quality and returns of our portfolio. As we discussed last quarter, we are converting Grill locations to higher-performing STKs and Benihanas. In 2025, we exited 6 RA Sushi and Kona Grill locations. And in January 2026, we exited one additional RA Sushi location that did not fit our conversion criteria.

The remaining Grill locations are healthy, profitable restaurants in quality real estate, and we expect them to generate approximately $10 million in restaurant level EBITDA and over $100 million in revenue. 5 Grill locations closed on January 5, 2026, for conversion to either Benihana or STK. Construction is in progress with all 5 expected to reopen by the end of 2026.

Each conversion is expected to cost between $1 million and $1.5 million and to be EBITDA accretive. As a reminder, our first conversion, the RA Sushi to STK in Scottsdale, Arizona is currently operating at a run rate of approximately $7 million in annual sales, delivering an increase of over $4 million in sales and a return on investment of approximately 4x. This validates our conversion strategy and gives us confidence in the pipeline.

As we have said before, we will continue to evaluate the portfolio as leases expire. We have approximately one to two Grill leases that come up each year as part of the natural end of cycle process, and we'll make decisions on a case-by-case basis.

Priority Four: maintaining balance sheet strength and flexibility. Our fourth priority for 2026 is conserving cash and optimizing the balance sheet. We are significantly reducing discretionary capital expenditures, targeting company-owned development to projects requiring on average, $1.5 million or less in build-out costs. We are also working through our existing lease pipeline rather than adding new commitments. This discipline gives us flexibility in an uncertain environment and position us to invest selectively in the highest return opportunities.

We finished the quarter with $6.6 million in cash and cash equivalents and restricted cash. We have $33.7 million available under our revolving credit facility. Under current conditions, our term loan does not have a financial covenant.

Cash flow from operations was a strong $22 million compared to $9 million in the prior year quarter. This improvement was primarily attributable to increased net income and collections on holiday credit card receivables. We also reduced our debt with $2 million in repayments under the credit agreement and $7 million in repayments on the revolving facility, bringing our revolving facility balance to 0.

As we discussed on our previous call, we expect to generate free cash flow in 2026. Debt reduction and creating shareholder value remain a top priority.

Before I turn it over to Nicole for the financial details, I want to reiterate, the items that I have outlined today are fundamentally execution-driven and within our direct control. We are focused on strategic initiatives that position us to deliver results regardless of broader economic trends.

With that, I will turn the call over to Nicole.

Thank you, Manny. As a reminder, beginning this year, we are reporting financial information on a fiscal quarter basis using four 13-week quarters with the addition of a 53rd week when necessary. For 2026, our fiscal calendar began on December 29, 2025, and our first quarter contained 91 days.

Consolidated comparable sales are reported on the same number of days year-over-year. Let me start by discussing our first quarter financials in greater detail before introducing our outlook for the second quarter of 2026 and reiterating our fiscal '26 guidance with the exception of an update to our expected effective tax rate.

Total consolidated GAAP revenues were $212.8 million, increasing 0.8% from $211.1 million for the same quarter last year.

Growth was driven by two primary factors: the fiscal calendar shift that moved New Year's Eve into fiscal '26, which added approximately $8.3 million to our top line as well as contributions from new openings and conversions completed in the second half of 2025. These gains were partially offset by the closure of underperforming Grill locations as part of our portfolio optimization strategy, which reduced revenues by approximately $1.8 million.

Included in total revenues were our company-owned restaurants net revenues of $209.3 million, which increased 0.9% from $207.4 million for the prior year quarter. The increase was primarily due to the change in the fiscal year calendar, which resulted in a shift in New Year's Eve into fiscal year '26 and the sales generated by 8 new restaurants. These gains were partially offset by a decrease in revenue from the Grill restaurants closed, and a 0.3% decrease in comparable restaurant sales.

Management license franchise and incentive fee revenues decreased slightly to $3.5 million from $3.7 million in the prior year quarter. The decrease is primarily attributable to the exit of a management agreement in Scottsdale, Arizona in the second quarter of 2025. As Manny noted, we converted a former RA Sushi to a company-owned STK in that market.

Now turning to expenses. We continue to implement targeted cost management initiatives. Last year, we made strategic adjustments to our beef tenderloin sourcing and have contracted pricing through September 2026, eliminating our exposure to significant U.S. beef price fluctuations and providing significant cost certainty. We also optimized our labor structure across the business last year by improving scheduling management, and we are still realizing synergies from the Benihana acquisition.

Company-owned restaurant cost of sales as a percentage of company-owned restaurant net revenue improved 140 basis points to 19.4% from 20.8%. This improvement was primarily due to menu optimization, integration synergies, supply chain initiatives, increased menu pricing and more efficient cost of sales associated with New Year's Eve and our record-breaking Valentine's Day.

Company-owned restaurant operating expenses as a percentage of company-owned restaurant net revenue improved 40 basis points to 61.7% from 62.1%. This reflects improvement in labor costs.

Restaurant operating profit, excluding Grill Concepts restaurants closed, was $39.9 million or 19.1% of owned restaurant net revenue, improving by 100 basis points from 18.1% in the prior year quarter.

On a total reported basis, General & Administrative costs increased $1.9 million to $15 million from $13.1 million in the same quarter prior year, driven by inflation on salaries and bonus, higher audit-related fees, investments in information technology, specifically AI-related technologies and increased marketing expenses.

When adjusting for stock-based compensation of $1.1 million, adjusted General & Administrative expenses were $13.9 million compared to $11.5 million in the first quarter of 2025. As a percentage of revenues, when adjusting for stock-based compensation, adjusted General & Administrative costs were 6.5% compared to 5.4% in the prior year.

Depreciation and amortization expense was $10.4 million compared to $9.8 million in the prior year quarter. The increase is attributed to new restaurants opened during fiscal year '25.

Lease termination and restaurant closure expenses were $2 million for this quarter, primarily as a result of the Grill portfolio optimization, which included $500,000 in noncash expenses related to closed restaurants.

Preopening expenses were approximately $1.5 million, primarily related to preopening rent for restaurants under development, including $500,000 in noncash rent and payroll costs for Kona Grill Landmark, which opened in January 2026.

Preopening expenses decreased by $200,000 compared to the prior year period. Transition and integration expenses were $500,000, down significantly from $3.7 million in the prior year quarter as we're nearing completion of the integration of the Benihana and RA Sushi acquisition.

Operating income was $13.9 million compared to operating income of $10.7 million in the first quarter of '25, an increase of $3.2 million, primarily due to improved restaurant operating profit and the reduction in transition and integration costs. For a reconciliation, please refer to our press release issued earlier today.

Interest expense was $9.7 million compared to $9.8 million in the prior year quarter. Our weighted average interest rate was 10.2% compared to 10.9% in the prior year quarter. Provision for income taxes was $1.2 million compared to $300,000 in the prior year quarter as a result of an increase in pretax book income. Net income attributable to The ONE Group Hospitality, Inc. was $3.2 million compared to net income of $1 million in the first quarter of 2025.

Net loss available to common stockholders was $6.2 million or $0.20 net loss per share compared to $6.6 million in the first quarter of 2025 or $0.21 net loss per share. Adjusted EBITDA attributable to The ONE Group Hospitality, Inc. was $28.8 million compared to $25.7 million in the prior year quarter, an increase of 12.1%.

We finished the quarter with $6.6 million in cash and cash equivalents and restricted cash and cash equivalents. We have $33.7 million available under our revolving credit facility, subject to certain conditions. And as Manny said, as of quarter end, we had no borrowings outstanding on our revolving credit facility nor does our term loan currently require a financial covenant.

Now I would 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 remind our investors that the actual number and timing of new restaurants for any given period is subject to factors outside of the company's control, including macroeconomic conditions, weather and factors under the control of landlords, contractors, licensees and regulatory and licensing authorities.

Based on the information available now and the expectations as of today, we are issuing the following financial targets for the second quarter of 2026.

Beginning with the top line, we project total GAAP revenues of between $202 million and $206 million, which reflects our anticipation of consolidated comparable sales of 1% to 2%. Management license franchise and incentive fee revenue are expected to be approximately $3 million to $4. Total company-owned operating expenses as a percentage of company-owned restaurant net revenue between 81% and 82%.

Total G&A, excluding stock-based compensation, between $13 million and $14 million; adjusted EBITDA of between $24 million and $26 million; and finally, restaurant preopening expenses of between $1 million and $2 million.

Based on the information available to us now and our expectations as of today, we are reiterating the following financial targets for fiscal year '26 with the exception of increasing the range of the effective tax rate.

We project total GAAP revenues of between $840 million and $855 million, which reflects our anticipation of consolidated comparable sales of 1% to 3%.

Management license franchise and incentive fee revenues are expected to be between $14 million and $15 million; total company-owned operating expenses as a percentage of company-owned restaurant net revenue of approximately 82% to 83%; total G&A, excluding stock-based compensation of approximately $53 million; adjusted EBITDA of between $100 million and $110 million; restaurant preopening expense of between $5 million and $6 million; an effective income tax rate of approximately 10% to 20%; total capital expenditures, net of allowances received from landlords of between $38 million and $42 million. And finally, we plan to open 6 to 10 new venues. With that, I will now turn the call back to Manny.

Thank you, Nicole. Before we open up for questions, I want to emphasize how excited we are about our business. Although the current environment remains challenging, our future looks bright. With our proven ability to execute, strengthened portfolio and expanded franchise capabilities, we are well positioned to capture the significant opportunities ahead of us.

We thank you for your continued support and look forward to sharing our progress in the quarters ahead. And as always, a special thanks to all teammates all over the globe that live our mission every day, creating great guest memories by operating the best restaurants in every market by delivering exceptional and unforgettable guest experiences to every guest every time. Nicole and I look forward to your questions. Operator?

[Operator Instructions] The first question we have is from Joe Gomes of NOBLE Capital Markets.

I just want to start. The revenues were a little below what the guide was for the first quarter and the comps were a little off from where the guide was. And just maybe give us a little more color there, Manny, on what transpired during the quarter to cause that slight miss.

Yes. I mean I think the only thing that was less than we expected in the quarter was the, our volume at our STKs in malls, really the first year where we've had two restaurants fully operating in the first quarter in the mall. I think that the first quarter is a little different from the other quarters for those restaurants. So, I would say just the seasonality of our mall STKs was a little bit different than what we expected.

But other than that, I think that the quarter was solid. I think the only other noise in the quarter was just spring break this year seemed to have a lot of different changes in terms of how people took their holidays. And then I think just Easter being much earlier, it just is a little bit of a different cadence of sales, if you will, in the year. But overall, I thought that the business was very strong in our brands.

And then I think also last quarter, you talked about the conversions you were hoping to have them all done by mid-July, and now it sounds like at the end of the year. Anything there? Is it just extended construction cycles or you just being a little more conservative in the conversion opportunity?

No, I just think it's just the pacing of resources to reopen them out properly. I mean there are reloads and if you will, conversion sites, but you still have to go through the full training cycle. So, I think the timing of all these restaurants is really based on how we feel about the right pace of opening the units without being negatively impactful to operations. So, it's really just a timing pace, making sure that you're moving your opening teams to the right places at the right time. So, it's just an internal judgment relative to when we want to open the restaurants.

And then last one for me, and I'll jump back in queue. Anything new on the franchising front or some more of the nontraditional venues that you had some success that we reported on the past couple of quarters, but just wondering if anything new in the in the pipeline there?

Yes. I mean I think franchising still lots of interest. We're actively talking to people all the time. We have amped up our resources behind getting new deals. So, I think it's progressing really well and interest is very high. So, I'm very pleased with the progress, and I feel very positive about the outlook relative to franchising, particularly for Benihana.

The next question we have is from Anthony Lebiedzinski of Sidoti & Co.

So Emanuel, just wondering if you guys saw any notable regional differences in terms of your same-store sales performance in the quarter?

Yes. I mean I think for us, if there was one market that stood out a little bit differently, was Texas. We did see a little bit of different trends in Texas. But other than that, everything was relatively very similar. So that's probably the only market. And if I have to drill down a little bit more, I think Dallas per se was one of the markets where we saw a little bit more softness in the business. But other than that, as our results show coming into the second quarter, we have a lot of momentum and sales are positive for the company and transactions. So, in this environment, I believe that to be a really strong testament to the initiatives and all the activities that we're doing in building traffic and sales.

So as it relates to Texas, was there any change in the competitive landscape? Or was it something else that drove some of the softness there, you think?

I think in Dallas specifically, I think it's just a very competitive market, and there's always a lot of competition coming into that market. So, I just think it's the, at least from my perspective and our perspective in that market is that there's just a lot of people playing in that market. And so, there's, from time to time, you will have a little bit of up and down in the business there just because there's just a lot of people, it's an attractive market. It's a large market, and everybody wants to have a restaurant in Dallas. So, I think it's just a matter of what the competitors are doing in the marketplace.

Understood. Okay. And then in terms of the commentary about the second quarter same-store sales, which are tracking positive, can you give us a sense as to traffic versus ticket? What's the kind of breakdown approximately?

Well, we're up in traffic. So, it's a good lead in. And I think that, to me, that's the most important part of that mix of sales is that our initiatives, particularly around value and our continuous messaging around happy hour and some of the great price points we have at lunch and at dinner are starting to really resonate.

And our marketing is starting to really make lots of progress in communicating those value points. So, I feel very good about that. And then Benihana, we also launched our Power Lunch offering, which is starting at $15 $15.95, 45-minute guarantee. Lunch is starting to also gain traction. So, I feel really good about all the initiatives, and we're starting to see progress made on building traffic.

Got it. Okay. And last question for me. Nicole, you mentioned that there were some Benihana cost synergies realized in the quarter. Can you expand on that? And are there any other synergies that you think may be realized this year as it relates to the Benihana acquisition?

Yes. I think one of the biggest synergies we're still realizing is the beef contracts, combining the different brands that are both very heavily reliant on beef products, we were able to secure a pretty decent contract. So that's something that we'll continue to see through the coming months. We're also seeing some of our other contracts that were placed over the last year or so in terms of linens and other operating supplies that we're still realizing synergies on as well.

The next question we have is from Mark Smith of Lake Street Capital.

Alex on the line for Mark Smith today. Just first one for me. Looking at capital allocation priorities, you made good progress on the balance sheet with the revolver now paid down to zero free cash flow generation improving as leverage comes down further, how are you guys thinking about balancing debt reduction and conversion investments and potentially becoming more active on share repurchases?

I mean I think as you saw in the quarter, our focus has been debt, right, because we did pay the revolver as well as term loan. And so that will be, continue to be a priority is really focusing on debt and really balancing that with a growth portfolio of restaurants that is really cost effective. So that's really kind of on the short-term is our primary objectives. Of course, capital allocation and shareholder value creation is always a priority of our Board. So, we always are actively looking at anything and everything that makes sense in terms of creating value for the shareholders.

Okay. And last one for me, just switching over to the restaurants. Benihana Express seems to be getting a lot of traction from a franchise interest standpoint. Maybe just talk about how you view that long-term opportunity for that format relative to the traditional Benihana concept and what you think franchisees are finding most attractive about the model today?

Yes. I mean, good question. What the franchise interest is around the product itself, the fact that we have fantastic fried rice products and protein offerings going with it. So, there's excitement about the product offering. There's also excitement about the price point positioning of that product because, being a Benihana product, it's a premium in market. So, they do like that.

Then, of course, franchising economics are paramount. So, I think within the Benihana Express, we get the best of Benihana in great COGS, Cost of Goods. And then we also get a very beneficial labor equation, meaning that we don't have service at the table, a teppanyaki table. So there's a really relatively predictable and strong labor model on that.

And then obviously, it goes without saying, the fact that these footprints are small, occupancy is also very effective. And then also the fact that the footprint is smaller allows for a lot more flexibility in terms of what real estate is available for that brand.

So again, you start adding all those things. And of course, the cost of development is also very affordable relative to building other full-sized stores. So I think once you add all those up, the franchisees are very interested in pursuing that.

The next question we have is from James Sanderson of Northcoast Research.

I wanted to go back to your update on same-store sales and traffic and build on that. Any feedback on what your bookings are looking like from Mother's Day and graduation events relative to where you were, say, one year ago?

I mean, without getting to precise numbers, I would say that traffic is positive coming into the quarter. And I think just in line with that, I think in general, our bookings, because we do manage that very closely, our books in general are very solid. So I would say that I feel very good about the forward look on the books.

Excellent. Shifting over to your store margin guidance, I noticed that relative to the first half of the year, you're probably expecting some modest margin compression. Can you walk through how margin is going to progress over the year?

I mean for us, it's always the third quarter, right? So, we always have first quarter, second quarter and fourth quarter are always very good margins. And of course, our third quarter is our lowest-volume quarter. And so we do always get that shift in margin in the third quarter just because of seasonality.

So, other than that, everything in the margin, as Nicole reported during her update, is strong, and we have great momentum in COGS. As a matter of fact, our Cost of Goods is the lowest we've ever reported as a company. And I think the margin overall outlook for the year is very solid.

And then speaking to margin a little bit more, you mentioned you've got beef visibility until September. Any thoughts on what you're looking at for locking in those prices as we get to the holiday quarter?

I mean, always an active dialogue about what we do with beef. I think the thing that we spend a lot, and of course, I don't have a crystal ball, so I wish I could give you an exact fourth quarter look on beef. But again, our view on beef is still a tough market right now. And so there's a lot to manage there.

But our focus really with beef right now is just looking at alternative cuts and promotional windows to try to take advantage of other cuts that might be lower cost than maybe a filet or something else. So, it's really more about P-mix management and starting to really plan out for Q4 promotional windows that are not so reliant on filets because that takes pressure off the cost line.

Very good. And then I think you also reported your weighted average interest rate was down. Could you walk us through what's driving that and what your outlook for the rest of the year is?

I think that the Fed rates came down a bit, which impacts overall rates. So I think that's the big part of it. And again, our focus on that right now is to as much as we have free cash flow is to bring it down. And that's our number one objective as we go forward, is to really balance that growth and be effective on growth and still have free cash flow to service debt so we keep bringing that principal down.

All right. Last question for me. Any feedback on what your off-premises mix was in the first quarter and how that was broken up between delivery and pickup, third-party delivery and pickup?

As I reported in previous quarters, very low double digits as a percentage of mix in delivery. And I think that the majority of our mix right now is still reliant on delivery. It's more delivery than pickup at the restaurants.

And as you might imagine, our focus right now is building up that pickup at the store because that's more P&L effective. And we think that there's also big opportunities on that.

The next question we have is from Roger Lipton of Lipton Financial Services.

A great number of my potential questions have been answered. I did want to just explore a little bit more the store-level margin, which it looks like you could have been in a position to bring down the operating expenses, bring up your margin a little bit for the full-year guidance, beating the first quarter by, I guess, 150 basis points, 160 basis points over the mid 80%, the 19.1% instead of 17.5% at the midpoint of your previous guidance.

And in the second quarter, you're 81% to 82% to 83% in terms of expense totals. So, it looks like maybe you've got a little room for the full year to improve upon that 82% to 83%.

I mean, again, thanks Roger, and good to hear from you. I think our view on this, and as I answered the previous question, is our fourth quarter is really a big quarter, and I just want to make sure that we have numbers that we're super comfortable with. And again, I'm very happy with our first quarter results, and I think that we're making tremendous progress in the second quarter and forward.

But I always want to make sure that we're realistic about the environment. It's still a challenging environment. Lots of noise with gas prices. And as you know, gas prices over time can impact your supply chain. So again, I'm not saying that we believe that that's ultimately going to happen, but we're just being cautious about how we go about guiding for the rest of the year on the margin.

Okay. That's fair. And just, you went over so quickly, the new economics on that Scottsdale conversion. You're saying the ROI, increasing the ROI by 4x. Could you just run by those numbers one more time quickly?

That's a good question. So just for clarity, that restaurant was doing about $3 million to $4 million in revenues. It's now north of $7 million. So we grew revenues there by about $4 million, we think, year-over-year on an annual basis, and we spent about $1 million getting that $4 million in sales. So it's really a 4x return on sales on the investment we put in the site.

Sales, I'm sorry. The ROI will also be very good because that $4 million increase in revenues will drive a significant amount of incremental EBITDA. So our ROI on that conversion will be very, very high.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the conference call back to Manny Hilario for closing remarks.

Thank you, everyone. I appreciate everyone taking time to be with us here today. As I said earlier, we're very excited about the future for the company. And as I always tell everyone, none of this would be possible without the incredible contributions from all our teammates who live our mission every day. So I want to thank them all once again.

And then I look forward to running into all of you in our restaurants. So everybody have a great summer. Back to you, operator.

Thank you. This concludes today's conference. Thank you for joining us. You may now disconnect your lines.

Good day, and welcome to The ONE Group Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nicole Thaung, CEO (sic) [ CFO ]. Please go ahead.

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 to these forward-looking statements considering 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 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, restaurant operating profit, comparable sales, annual adjusted operating income and total food and beverage sales of company-owned, managed licensed and franchise 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 would like to turn the call over to Manny Hilario.

Thank you, Nicole, and good afternoon, everyone. I appreciate you joining us today. I want to start where I always do by thanking our people. Every day, our teams across every brand and market show up focused on execution and creating memorable experiences for our guests. In an environment like this one, consistency is everything, and I appreciate all that they do in executing with excellence and upholding the vibe dining experience that defines our brands. Today, I will begin with an overview of our performance, and then I will walk you through our strategic priorities for 2026 and beyond.

As we shared in January, total GAAP revenue for the full year 2025 was approximately $805 million, representing approximately 20% growth year-over-year, driven primarily by the inclusion of Benihana for all 12 periods. Full year 2025 comparable sales declined approximately 3.7%, reflecting continued pressure across the full service guiding segment. For the fourth quarter, total GAAP revenue was approximately $207 million compared to $222 million in the prior year quarter. It is important to understand the 2 main drivers of that comparison. First, approximately 35% of the year-over-year revenue decline was driven by portfolio optimization actions, including the closure of underperforming RA Sushi and Kona Grill locations. These were not reactive decisions. They were the result of a deliberate evaluation of returns, real estate quality and long-term fit. While these closures reduced near-term revenue, they improved the quality and durability of the portfolio.

Second, our fiscal calendar shift resulted in a fiscal year of only 362 days. The fourth quarter had 1 fewer operating day and the years shifted to fiscal 2026. Historically, that is one of our better sales day in the full year. Fourth quarter consolidated comparable sales declined approximately 1.8% representing about 4 points of sequential improvement from the third quarter. What is important to note is that all brands demonstrated sequential improvement in comparable sales during the quarter. That momentum has accelerated to 2026. That was not just a holiday spike. This is sustained execution. Year-to-date consolidated comparable sales are slightly positive. This represents a significant inflection point for the business and demonstrates that our execution work is paying off. We are achieving this while consumer confidence sits at historical lows, which makes it even more meaningful.

We are extremely pleased with each of our brands' performance. Year-to-date, both Benihana and STK are positive in sales. Kona Grill's turnaround is gaining traction. While year-to-date comparable sales are down mid-single digits, transactions are positive, representing the best same-store performance for the brand since the beginning of 2023. This validates our strategic focus of optimizing the portfolio for the right locations and unit economics. We are growing consolidated same-store sales with flat to positive traffic, while many full-service concepts are still facing traffic declines. This reflects strong execution across our portfolio, better table efficiency at Benihana, our barbell strategy at STK, improved unit economics at Kona Grill and operational discipline throughout. What sets us apart is our vibe dining positioning. As consumers dine out less frequently, they seek experiences that combine quality food with entertainment, energy and a sense of occasion. We embody these attributes and they resonate with guests.

With that context, let me walk you through our strategic priorities. Priority one, accelerating same-store sales through execution. Driving same-store sales remains our top priority. We have established clear measurable initiatives for 2026 to ensure we execute at the highest level across all brands and are guiding to a 1% to 3% increase this year. We are focused on operational excellence across multiple dimensions social review scores, secret shopper revaluation and [ EquoSure ] assessments. We have set ambitious benchmarks in each area that represent the level of consistency required to build guest frequency in today's environment. The holiday season reinforced Benihana's strength as a destination for celebrations. As we have discussed in prior quarters, frequency remains the biggest opportunity for the brand. Guests love the chef experience, showmanship and the social nature of the tables. Our focus has been making the overall experience more comfortable, more efficient and more repeatable. Table efficiency and improved reservation and throughput management remain among the most impactful levers in the business. This is not about rushing guests. It's about eliminating unnecessary downtime. Through better logistics, improved staffing and better coordination between the front and back of the house, we are reducing turn times while improving guest satisfaction.

Valentine's Day 2026 was a record-breaking performance for our portfolio. Over 40 restaurants exceeded 1,000 coverage for the day, which we view as a testament to both the operational capabilities we have built and the strength of our brands as celebration destinations. The ability to execute at that volume while maintaining the quality and experience our guests expect demonstrates the progress we have made on throughput, staffing and operational excellence. Cost predictability is central to our operational excellence. Last year, we strategically shifted our protein sourcing and contracted beef pricing on beef tenderloin and other cuts through September 2026, eliminating our exposure to volatile U.S. beef markets. This decision, combined with continued Benihana integration synergies is driving meaningful margin improvement while providing the cost certainty we need to execute our growth strategy.

At STK, our barbell strategy is resonating. Guests are being more intentional about when and how they dine. Value offerings bring them in during the week, premium menus and celebrations drive weekends and holidays. Returning to positive comps in the fourth quarter was an important milestone and Valentine's Day reinforced that STK is the go-to destination for special occasions. We are expanding brand awareness through marketing and digital initiatives. In 2025, we launched Friends with Benefits, our loyalty program, which gives us a direct line to our most frequent guests and allows us to drive targeted traffic during key dayparts. Additionally, we are leveraging product innovation through seasonal menus for both food and beverage to keep our offerings fresh and differentiated from competitors. We are also focused on driving off-premises business with particular emphasis on growing our curbside operations. While dine-in remains our core business, off-premises represent an incremental revenue opportunity with attractive margins.

Underpinning all of this is our commitment to our people. Through the power of ONE, our goal is to hire, train, develop and retain the best team in the industry. In this labor market, retaining talent is a competitive advantage and drives the consistency that shows up in guest scores. Across the portfolio, we are investing in operational excellence, culinary innovation and targeted marketing, the same 3 pillars we talk about regularly. These are execution-driven initiatives, and they are within our control.

Priority two, capital-efficient growth with disciplined expansion. Our second priority is a capital-efficient growth, and we made meaningful progress in 2025. During the fourth quarter, we entered into 2 significant asset-light development agreements that demonstrate the scalability and appeal of our brands. We secured development rights for 10 Benihana and Benihana Express locations in California, representing the largest asset-light development agreement in the company's history. We also secured a commitment for an additional franchise Benihana location and a licensed Benihana Express location in the Florida East. These agreements allow us to accelerate growth in high-quality markets with sophisticated operators that are committed to our iconic brand while preserving our own capital. Benihana Express is a key element of our growth strategy. It delivers the Benihana food experience without the [indiscernible] at tables, making it more labor efficient and highly franchise friendly. This format gives us a scalable asset-light engine for future expansion.

We also continue expanding into nontraditional venues, particularly professional sports and entertainment stadiums. Today, we operate Benihana and STK concepts in high-traffic stating environments that generate millions of fan impressions annually, inspiring confidence in the flexibility and scalability of our concepts. These venues introduce our brands to a wide audience in a highly efficient format with limited capital investments and attractive high-margin royalty revenue. In the fourth quarter, we renewed our concession agreement at the Mortgage Matchup Center in Phoenix, home of the Suns and Mercury. The renewal extended our Benihana presence and creates an opportunity to introduce STK branded offerings. We also secured a new Benihana concession at UBS Arena in Elmont, New York, expanding our footprint in the New York metro area and complementing our existing presence at Yankee Stadium.

On the company-owned side, our fourth quarter openings delivered strong returns. We completed our first conversion of our RA Sushi to an STK in Scottsdale, Arizona. The results have been encouraging. This location converted in approximately 8 weeks at a build-out cost of about $1 million, and it's currently operating at a run rate of approximately $7 million in annual sales, delivering an increase of over $4 million in sales and a return on investment on sales of approximately 4x. This validates our conversion strategy. We also opened a new STK in Oak Brook, Illinois for approximately $1.5 million. Both locations exemplify our second-generation strategy focused on capital efficiency and rapid returns.

In 2026, we are maintaining the same level of capital discipline. We have already relocated our Kona Grill in San Antonio, Texas to a superior, smaller footprint location in January and converted a franchise Benihana in Monterrey, California to a company-owned in February as our franchise was looking to retire. Beyond physical expansion, we continue pursuing capital-light ways to extend our brands beyond the 4 walls of the restaurant, and the Benihana brand gives us a unique opportunity to do that thoughtfully. During the fourth quarter, we launched Benihana Branded Crispy Chicken Chips through a third-party partnership. This is a small disciplined way to extend the brand beyond the restaurant, increase awareness and test new channels without meaningful capital or operational complexity.

Priority three, portfolio optimization to improve returns. We have made significant progress improving our Grill portfolio. In 2025, we exited 6 underperforming RA Sushi and Kona Grill locations. While these decisions impacted near-term revenue, they improved the quality and returns of the portfolio overall. We have identified up to 5 additional Grill locations for conversion to Benihana or STK by the end of 2026. These locations closed of January 5, 2026, in preparation for conversion. We expect each conversion to cost between $1 million and $1.5 million and be EBITDA accretive, representing a compelling use of capital. Additionally, in January, we exited 1 RA Sushi location that did not fit our conversion criteria.

Priority four, maintaining balance sheet strength and flexibility. Our priority for 2026 is conserving cash and optimizing the balance sheet. We are significantly reducing discretionary capital expenditures, targeting company-owned development to projects require on an average $1.5 million or less in build-out costs. We are also working through our existing lease pipeline rather than adding new commitments. This discipline gives us flexibility in an uncertain environment and position us to invest selectively in the highest return opportunities.

With that, I will turn the call over to Nicole to walk through the financials in more detail.

Thank you, Manny. As a reminder, beginning this year, we're reporting financial information on a fiscal quarter basis using 4 13-week quarters with the addition of a 53rd week when necessary. For 2025, our fiscal year calendar began on January 1, 2025, and ended on December 28, 2025, and was comprised of 362 days. Our fourth quarter contained 91 days.

Let me start by discussing our fourth quarter financials in greater detail before introducing our outlook for the first quarter of '26 and fiscal year 2026. Total consolidated GAAP revenues were $207 million, decreasing 6.7% from $222 million for the same quarter last year. Included in total revenues were our company-owned restaurants net revenue of $203 million, which decreased 6.8% from $218 million for the prior year quarter. The decrease was primarily due to the change in the fiscal calendar, which resulted in a shift of New Year's Eve into fiscal year 2026. The impact of that shift accounts for approximately $5.7 million or 37% of the decrease. The remaining decrease is attributable to a 1.8% reduction in consolidated comparable sales and the closure of underperforming restaurants from the prior year period.

Management licensed franchise and incentive fee revenues decreased slightly to $4 million from $4.1 million in the prior year quarter. The decrease is primarily due to lower management license and incentive fee revenue at our managed STK restaurants in North America. It is important to note that sales of our managed STK in Las Vegas have notably improved quarter-to-date. Additionally, we exited our management deal with STK Scottsdale and converted a former RA Sushi to a company-owned STK in that same market.

Now turning to expenses. As Manny noted, we continue to implement targeted cost management initiatives. Last year, we made strategic adjustments to our beef tenderloin sourcing and have contracted pricing through September 2026, eliminating our exposure to significant U.S. beef price fluctuations and providing significant cost certainty. We also optimized our labor structure across the business last year by improving scheduling management, and we are still realizing synergies from the Benihana acquisition. Company-owned restaurant cost of sales as a percentage of company-owned restaurant net revenue improved 80 basis points to 19.6% from 20.4%. This improvement was primarily due to additional integration synergies from our Benihana acquisition and strategic cost management, including our beef pricing. Company-owned restaurant operating expenses as a percentage of company-owned restaurant net revenue was 61.5%, flat compared to the prior year quarter. This reflects our disciplined cost management despite sales deleverage, investments in marketing and general cost inflation.

Restaurant operating profit, excluding Grill Concepts restaurants closed or to be closed was $38.9 million or 19.5% of owned restaurant net revenue, improving by 10 basis points from 19.4% in the prior year quarter. On a total reported basis, general and administrative costs increased $1.3 million to $14.5 million from $13.3 million in the same quarter prior year, driven by increased marketing expenses. When adjusting for stock-based compensation of $1.1 million, adjusted general and administrative expenses were $13.4 million compared to $11.7 million in the fourth quarter of 2024. As a percentage of revenues, when adjusting for stock-based compensation, adjusted general and administrative costs were 6.5% compared to 5.3% in the prior year. Depreciation and amortization expense was $11 million compared to $11.4 million in the prior year quarter. This decrease reflects our disciplined capital allocation strategy.

During the quarter, we completed our regular assessment of the recoverability of the net book value of our fixed assets and intangible assets. A noncash impairment charge may be necessary when the net book value exceeds the future expected cash flows of the asset and can happen due to economic factors, end of lease or restaurant performance. As a result of this assessment, we identified 1 Kona Grill restaurant and the Kona Grill trade name that required impairment charges that totaled $7.2 million, primarily related to the Grill portfolio optimization. Preopening expenses were approximately $1.8 million, primarily related to the preopen rent for restaurants under development and payroll costs associated with the preopening training team as we prepare for restaurants scheduled to open in early 2026.

Preopening expenses decreased slightly by $200,000 compared to the prior year period. Operating income was $4.5 million compared to an operating income of $12.1 million in the fourth quarter of 2024. Annual adjusted operating income, a non-GAAP measure, increased 15.2% to $38 million from $33 million, primarily due to the additional periods of Benihana operations. For a reconciliation, please refer to our press release issued earlier today. Interest expense was $10.3 million compared to $10.5 million in the prior year quarter. Provision for income taxes was $600,000 compared to $100,000 in the prior year quarter. Net loss attributable to The ONE Group Hospitality, Inc. was $6.4 million compared to net income of $1.6 million in the fourth quarter of 2024. The increase in net loss attributable to The ONE Group Hospitality, Inc. was primarily driven by the noncash impairment charges of $7.2 million and exit costs associated with the Grill Concepts portfolio optimization.

Net loss available to common stockholders was $15.3 million or $0.49 net loss per share compared to $5.9 million in the fourth quarter of 2024 or $0.19 net loss per share. Adjusted EBITDA attributable to The ONE Group Hospitality was $28.1 million compared to $31 million in the prior year quarter, a decrease of 9.5%. We finished the quarter with $4.7 million in cash and cash equivalents and restricted cash. We have $27.2 million available under our revolving credit facility. As of quarter end, we had $7 million outstanding on our revolving credit facility. Under current conditions, our term loan does not have a financial covenant.

Now I would like to provide some forward-looking commentary regarding our business. This commentary is subject to risks and uncertainties associated with the forward-looking statements as discussed in our SEC filings. We remind our investors that the actual number and timing of new restaurant openings for any given period is subject to factors outside of the company's control, including macroeconomic conditions, weather and factors under the control of landlords, contractors, licensees and regulatory and licensing authorities. Based on our information available now and our expectations as of today, we're also providing the following financial targets for fiscal year 2026. We project total GAAP revenues between $840 million and $855 million, which reflects our anticipation of consolidated comparable sales of 1% to 3%.

Management franchise and license revenues are expected to be between $14 million and $15 million; total company-owned operating expenses as a percentage of company-owned restaurant net revenue of approximately 82% to 83% and total general and administration costs, excluding stock-based compensation of approximately $53 million; adjusted EBITDA of between $100 million and $110 million, restaurant preopening expenses of between $5 million and $6 million, an effective income tax rate of approximately 10%; total capital expenditures, net of allowances received from landlords of between $38 million and $42 million. And finally, we plan to open 6 to 10 new venues.

I will now turn the call back to Manny.

Thank you, Nicole. Before we open up for questions, I want to emphasize how excited we are about the future of our business. Our future looks bright. With our strengthened portfolio and expanded franchise capabilities, we are well positioned to capture the significant opportunities ahead of us. We thank you for your continued support and look forward to sharing progress in the quarters ahead.

And as always, a special thanks to all our teammates all over the globe that live our mission every day, creating great guest memories by operating the best restaurant in every market that we operate in by delivering exceptional and unforgettable guest experiences to every guest every time. Nicole and I look forward to your questions. Operator?

[Operator Instructions] Our first question comes from Allison Arfstrom with Piper Sandler.

This is Allison on for Brian Mullan. Just wanted to ask about Benihana first. What are the strategic priorities there for the balance of this year?

Ali, our priority for Benihana right now continues to be marketing, working on digital, working on friends with benefits. So those are the primary strategies there. We've also continued to downsize the size of the menu. So continue to working on bringing a smaller sized menu. And then the other big piece continues to be operations and turn times and improving the -- frankly, just the turn times at the table and overall guest experience.

And the next question comes from Joe Gomes with NOBLE Capital.

Manny, I'm just wondering if you could just walk through a little bit here. When you -- third quarter call, you were optimistic about the fourth quarter. Obviously, you took the numbers down, the portfolio optimization and the calendar shift were known at the time you made your comments in the third quarter. So just trying to get a better feel when the consolidated comp sales improved by 4 percentage points during the quarter. What happened in the fourth quarter that I think the consensus numbers are more in the 220, 225 range for revenues and you guys came in at 207. What happened there?

Yes. I think -- thanks, Joe. I think we've talked about that when we have preannounced the fourth quarter sales in -- at the ICR conference. But I think probably the differential came mostly with -- we did -- although the quarter was better sequentially in same-store sales, we thought we could get more out of the Benihana brand, particularly with table turns and the fact that we were expecting to bring them down all the way down to around 90 minutes. And the table turns ended up being closer to about 100, 105 minutes. So we weren't able to achieve the full, I would say, synergies that we wanted to do on table turns. So part of that is just because we were really learning how to operate the brand, and we just want to make sure that we preserve guest experience and didn't compromise the guest experience in favor of the table turn. So it was more of our own internal strategy of holding out to great guest experiences, and we weren't able to get to those turn times that we've got at Benihana.

Okay. And you talked about in your prepared remarks today, some significant cost synergies still from the Benihana acquisition. And I was wondering maybe you could give us a little more color as to what they would be. One would have thought that over the past, what, 18 months or so, you would have gotten most of those synergies. So what else is available there? What size are we talking about of potential synergies from the Benihana acquisition that are left?

Yes. I mean, I think in the fourth quarter, you saw our COGS actually going sub 20%. So a really good mark for the company. And I think we've realized some of the initial synergies such as distribution, increasing our distribution sites, so synergy from distribution. I think we're still working on some of the finer points like, for instance, beef synergies in terms of getting bigger purchasing power. We've really been working on consolidating our beef purchases in the second half of last year. So I still think that there's some benefits of doing that. We've also consolidated a lot of other things that don't seem like a major thing, but like our rice purchases, and we changed our linen supplies and even our chemical supplies in the restaurants. So a lot of those things we work throughout 2025, but some of it actually was done in the third and fourth quarter last year.

So we think there is still some items that we will benefit for in 2026. And I think we talked in our prepared remarks about beef and our contracting of beef and how we went about. And that's one of the examples where we actually just leveraged from the fact that we have so much more tenderloin utilization as a combined company, we're able to leverage that actually to some very good and beneficial beef contracting.

Okay. And then just one more for me to get back in queue. Obviously, it's a situation that's totally in flux here. But given the recent world events, the significant increase in gas prices, have you seen any impact on traffic over the past couple of weeks? Or what are your kind of thoughts of how this potentially could be impact traffic going forward here for however long this happens to last?

Yes. I mean, obviously, so far, I mean, our guidance that we issued today kind of is based on what we've seen throughout the first quarter of this year. But obviously, gas and it's really how long it's going to go, right? It's really a function of the term of the price being up on gas. So we're still very early on that. We're maybe a week, 2 weeks into it. So we haven't seen an impact. And really, my ultimate answer on that is it all depends on how long it actually lasts.

And the next question comes from Anthony Lebiedzinski with Sidoti & Company.

Just wondering if you guys saw any notable regional differences in traffic. I heard that Las Vegas did better, which is encouraging. But any sort of commentary on any -- on the different regions that you operate in?

I mean in the fourth quarter, I think coming out of the third quarter, I think that we had a bit of a difference in California, Texas and Florida, I think we talked about that. I think going into the fourth quarter, I think some of those gaps narrowed. So we didn't see as big differential coming out of those states.

As it comes to Vegas specifically, I just -- I mean, I just want to make sure that our Vegas comment is on our experience. So we're not per se talking about the overall market situation in Las Vegas and the strip. But I think for us, we did change a little bit of our marketing in Vegas in terms of our strategy of marketing out more to the suburbs and emphasizing that. So I think that's actually helped us, and it's been good for us. But again, I think the geographical differences that we saw in the third quarter narrowed down in the fourth. And so they were less significant for us in the fourth quarter.

Got it. And then in terms of the expected same-store sales guidance for the full year, how are you thinking about the pricing or average ticket versus traffic? Are you looking at any additional price increases? Or do you think this will be more volume-driven in terms of the same-store sales gain that you're expecting?

Yes. I mean a great question. Right now, value is paramount. And so our next contemplated pricing action would be into the fourth quarter, like we usually do going into the holiday season. We don't have any short-term pricing actions planned right now. But of course, we always monitor what happens with the environment and what's going out there. As I just commented, there's still some uncertainty on gas prices and stuff. So I can't say that something isn't going to happen because of just the flux in the environment. But right now, we're only planning fourth quarter action on pricing.

Got you. Okay. And my last question, so you talked about the beef contracts. I was just wondering about other protein costs. How are you managing those? What's the outlook for that?

Yes. I mean, another good question. So we're coming off -- last year, we saw pressure on frozen seafood because of tariffs. And we have to move around some of our sourcing for shrimp and particularly shrimp. And I think coming off, I think the tariff environment might be more favorable for us. So we might be able to pick up some efficiency in the seafood, frozen seafood category. I think the rest of the -- of our commodity basket outside of beef and seafood will probably go with the market.

And the next question comes from Mark Smith with Lake Street Capital.

I wanted to dig a little bit more into some of the conversions. Can you give us just a little more insight into maybe the time line on openings of some of these conversions?

Yes. So right now, we have 5 restaurants that are closed that are in conversion mode. We are early construction on 1 or 2 of those right now. So our plan is to reopen them by July of 2026 of midyear plan to get them all back. They've all been designed. They're all in permitting. We were expediting. It's all going to really be determined by the permitting cycles on these and the actual construction cycle, we think, is going to be relatively short. So we're thinking maybe 6 to 8 weeks on the actual construction cycles. The only thing about when you converts to Benihana is we're converting with electrical tables and sometimes we do have to upgrade the electrical power for the property. So that could take another week to 2 weeks in the construction cycle. So I would say right now, our best projection on having them all back on would be July of this year.

Okay. And then just as we think about it, you've got really positive results from kind of initial conversion. I'm curious if there's anything that makes it maybe not repeatable with some of these other locations, just whether it's geography, footprint that you have. Just curious your thoughts around how repeatable some of these results are.

I mean, because these are always obviously forward-looking statements and how you're looking out. I think we obviously always have to say that what we think and what actually happens may be different. But we took a lot of care and diligence in making sure that the real estate that we are converting actually met our views on quality real estate for the concept. So I think we mentioned that we actually have to pulled one of them down just because we didn't think it met our criteria. So we were very selective on those. And I think the quality of the real estate that we're converting is super high quality. And some of it is RA's. And we knew when we acquired the brand that these sites work have already kind of scoped this kind of -- while this would have been a really good fill in the blank location. So we feel -- we generally feel really good about the quality of the real estate. But like I said, it's forward-looking and there's always risks with it, but it's a really good portfolio of real estate.

Excellent. And then the last one for me is just you talked about what sounds like some good momentum here around comps into Q1 being slightly positive here. Curious your thoughts on consumer behavior and what's kind of driving some of this comp strength? Is it -- how much of this is maybe price increases that were recently taken versus people just feeling better and maybe spending a little more or having more traffic?

Yes. I mean I think our sales momentum -- and again, it's been sequential. So this is like a continual building up on what we've done. I think it's really a function of the initiatives. And for us, it has been traffic. So value has been important. And I think we're now starting to really see the payback of continued focus on value. And then, of course, as I mentioned, Benihana is really an operational initiative in terms of working on the chef experience at the table. So I think these are things that are relatively directly correlated to our actions and plans.

I think in general, as we mentioned earlier, consumer confidence is still low, right? So it's not as if the confidence of the consumer has really shifted. It's more of value working in that environment as well as all the operations and marketing initiatives that we've done throughout the last, call it, 18 months. So it's more of an internal, I think, versus external impact on the sales. But as we mentioned earlier, we're super excited about the fact that we do have positive STK and positive Benihana working for us right now. And we've made significant improvement on just traffic at Benihana, I mean, at Kona Grill and RA. So we're feeling pretty optimistic about the year. As a matter of fact, our guidance for the full year does project that we feel that it can be a positive same-store sales year for us.

And the next question comes from Jim Sanderson with Northcoast Research.

I wanted to go back to your original comments about ideas to drive targeted traffic with product innovation. I think you've got the loyalty program. You also mentioned off-premises. I wonder if you could walk through how you plan to improve each of those opportunities and what that could generate for 2026?

Yes. I mean I think particularly on takeout and delivery, I think we're very early on potential there. I think we can really build that business up significantly. You're seen the product innovation on the Benihana side for takeout and delivery is we launched our version of Burritos, and that's done extremely well. So new products really can support the growth of that channel of business. And I think that's pretty exciting.

We also very early on loyalty. We rolled out our loyalty program in 2025, and we still very early getting organized with the program and learning how we can drive incremental traffic with the significant database of engaged guests that we have that. So we're very early on there. And then just in terms of product innovation, if you go to our restaurants, we're doing seasonal menus at all brands, including Benihana. So we've introduced products like Turkey on the holidays at Benihana, and we're -- have a significant amount of new ideas that we're introducing this year. So product innovation will continue to be a significant builder of the a la carte business for us. And then last but not least, we haven't talked about the event business, but the event business was very good for us in the fourth quarter of 2025, and we continue to invest in building that business up. As a matter of fact, we're now building infrastructure for Benihana, and we're starting to see some traction on actually marketing and selling group occasions at Benihana. So I think there's a whole new level of business that we can drive that way.

And I'm particularly excited in markets where we have an STK and the Benihana where somebody wants to do a big group event or -- and maybe they don't want to pay the STK price points. Now we're doing a lot more of packaging, a, maybe you can do the Benihana package, which is a little bit less of a price point. So we're starting to see some synergies, if you will, in convention cities at the L.A. of the world, even the Orlandos of the world, where maybe in Vegas where people may not be able to go all the way to the premium package with STK, and we're able to drive incremental sales with our other brands. So lots of excitement. So like you mentioned in execution table turns at Benihana continue to also be a big one for us. So we've got a lot of initiatives and strategies that we're working on to build same-store sales.

All right. I was wondering, did you benchmark what your sales mix for delivery or off-premises is right now and how that could improve over time?

I mean I think we're like in the low double digits as a percentage of total sales on takeout delivery. I think our internal stretch goals is to try to bring the whole business up to 20%. That's kind of like the big arrival moment. But we're really early, particularly on takeout delivery is we're not as sophisticated on curbside as some of our other competitors are. And so that's one of the challenges I have out to the team this year is to really evolve the takeout delivery business to become more curbside versus dependent on third party. And I think that can really open up a whole new long-term revenue generator for us. I mean I think that if I look now versus pre-COVID in terms of even STK as a brand on takeout and delivery, it's been incredible to see the growth on that business and particularly driving that has been our emphasis on the burger program.

All right. All right. Going back to your guidance for same-store sales for the year, the 1% to 3% positive, what's the price check baked into that forecast?

I think we have pricing right now around 5% to 6% for the whole year, and that's mostly coming out of the pricing that we did in the fourth quarter 2025, just rolling that out throughout the [indiscernible].

All right. So you'll be able to carry through that mid-single-digit pricing pretty much through the rest of the year until you get to fourth quarter and you can decide.

Correct. Exactly.

All right. I think you also have a guidance of about 100 to 200 basis points in store margin improvements on a consolidated basis. You've locked in, it sounds to me the bulk of your food costs are relatively stable. Is that primarily coming from sales leverage? And how does that change based on the way your sales grow or decline?

Yes. I mean I think a piece of that is just the portfolio, right, rotating the grills that helps the margin. And I think all the other items that you mentioned there, the purchasing, walking and purchasing, I also think that, as I mentioned earlier, frozen seafood will help us get there. So I think it's a combination of the synergies that we still haven't realized frozen seafood walks into the beef and as well as just the portfolio strategy that we've done will be the biggest reasons.

Just a question on your unit development. Are you satisfied with the Grill Concepts, the store count you've got now? Or do you think you'll have to continue to prune that over time?

I mean I think we -- I mean, I think we've kind of done the majority of the heavy lifting on that on the Grill. I think the ones that we have right now, they're specifically here because we've -- we really want to work that piece of the real estate. So we've kind of trimmed so far. And obviously, the only thing about the grills now is just as leases come up, we'll evaluate them on a single one. But I think all the onetime pruning and trimming has been done on the grills.

Okay. And how does that lease review process? Is that -- do you have a few every year? Or how should we look at that as far as the exposure to closures?

We have about 1 or 2 every single -- 1 or 2 that come up at current. And so it's just part of the natural end of the cycle for the leasing.

All right. And I just wanted a question on G&A. I think you're guiding to about $53 million. That's a bit of a step-up over prior year. Can you walk us through what's driving that dollar increase?

I mean I think that our bonuses this year are not as significant as we like them to be. And so this year, I think we're building into our guidance and our outlook that we will be on target with our guidance and objectives for the year.

All right. Last question for me. I just wanted to go back to the idea of eventually refinancing your debt. Any thoughts on change in philosophy, attitude about the potential there with respect to interest expense?

Working the balance sheet and creating shareholder value is always a top priority for us. And our revolver now is -- we've actually paid back the whole balance on the revolver. And so coming out of the year, our EBITDA, assuming that we were open for the whole 364 days is greater than $92 million. And on a run rate, it's even more significant than that. So we do have a very financeable base of EBITDA, and we'll be looking at opportunities. So creating shareholder value and improving the balance sheet always a key priority for us.

This concludes our question-and-answer session. I would like to turn the conference back over to Manny Hilario for any closing remarks.

Thank you, sir. I appreciate everybody taking time to join us today. And as I always do, I want to thank our team again for, frankly, incredible performance throughout the fourth quarter and this year already. So I appreciate everybody's commitment to the business and what we're working on, and I look forward to seeing you all out in our restaurants. Everybody, have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

[Audio Gap] New premium holiday menu focused on Wagyu and premium seafood, aligning with today's selective diners who are more intentional about what they choose to dine.

At Kona Grill, we are strategically expanding our menu to reduce reliance on categories facing current market pressures. The brand has historically been centered around seafood, sushi, and our distinctive bar experience, but we are seeing headwinds across those core areas.

Our menu diversification introduces broader culinary options that appeal to more frequent dining occasions and are less sensitive to economic fluctuations.

Our Friends with Benefits loyalty program continues to gain momentum with over 6.5 million members. During the quarter, we added over 200,000 new members.

Newly enrolled guests are showing the most repeat participation in the program. We are focused on growing a best-in-class program that fuels long-term business growth.

Our key objectives with the Friends with Benefits loyalty program are: one, maximize membership size by converting members from other TOG marketing programs; number two, drive organic sign-ups through increased awareness and engagement; and number three, increase member engagement within the program to strengthen brand connection and repeat visits.

We have also upgraded our brand websites, Benihana, STK, Kona Grill, and RA Sushi now feature fresh, mobile-optimized designs that are increasing both traffic and conversion rates.

These digital enhancements, combined with our loyalty platform, position us to compete effectively as national chains ramp up promotional activity.

Priority 2, capital-efficient growth. The newly redesigned Benihana location we opened in San Mateo, California, early this year has become the top-performing restaurant opening in the brand's 60-year history. This outstanding start validates the effectiveness of our redesigned restaurant format.

In this redesign, we made several meaningful changes to the Benihana footprint. We relocated the sushi station to the back of the house to create more Techniaki table capacity, expanded the bar seating area, modernized the interior with a brighter, more contemporary look, and created a dedicated takeout station that improves overall restaurant flow.

We are now implementing this learning system-wide, adding 2 to 3 Techniaki tables per restaurant to create meaningful capacity increases that directly boost revenue potential.

This success gives us confidence that future locations can achieve $8 million in annual sales with a restaurant-level profit margin in the mid-20% range.

Franchise momentum continues to accelerate. We opened our second Benihana Express location in Miami in the second quarter, with more in development.

The Express format offers the full menu without Techniaki tables, generating strong franchise interest while enabling asset-light expansion. Over time, we expect franchise licenses and managed locations to represent over 60% of our total footprint.

We are also expanding Benihana into more nontraditional venues. We currently operate in 3 professional sports stadiums, generating 9 million fan impressions annually, with additional airport and arena opportunities under discussion.

Across our portfolio, we have opened 4 company-owned venues and 1 franchise location year-to-date, with additional fourth quarter openings planned, bringing our total 2025 openings to 5 to 7 new venues.

In the fourth quarter, we already opened an STK in Scottsdale, Arizona, and plan to open a company-owned STK in Oak, Illinois, and our Kona Grill San Antonio relocation.

Relocations remain a key strategy to unlock strong returns in existing markets. By prioritizing nearby high-quality real estate opportunities in areas that already embrace our brands, we can increase capacity, optimize traffic, and better position our brands for long-term success.

For example, our recently relocated Westwood STK has delivered margin improvement over the previous location. Remodels are also showing promise and success.

During the third quarter, we remodeled our dated Tampa Bay Kona Grill. With modest capital investment, it has delivered a significant turnaround in same-store sales performance.

Priority 3, portfolio optimization. We have taken decisive action to strengthen our portfolio quality through strategic location optimization. After conducting a thorough evaluation of our Grill concepts portfolio, we closed 6 underperforming locations in the second quarter and 1 additional location in the third quarter within challenging trade areas.

These were primarily older units, which would have required substantial capital investment. Looking ahead, we have identified up to 9 additional Grill locations to convert to either Benihana or STK formats through the end of 2026.

These conversions represent an excellent capital allocation opportunity. They require about $1 million in capital investments, and the average STK generates over $1 million in annual EBITDA.

Our first conversion of a RA Sushi location to an STK location has already happened in Scottsdale, Arizona, which opened at the end of October. After completing all planned conversions, we will operate all profitable locations that we expect to generate approximately $10 million in restaurant-level EBITDA and over $100 million in revenue, with all units maintaining positive cash flow.

Priority 4, balance sheet strength. With approximately $45 million in liquidity, we have the means to invest in growth while maintaining discipline.

Our Board authorized a $5 million share repurchase program last year, and we view our stock as an attractive investment. Additionally, we expect to further reduce discretionary capital expenditures in the coming year across all of our brands, allowing us to strengthen our balance sheet while enhancing financial flexibility.

Finally, I'm optimistic about our fourth quarter. This is historically our strongest period, and we are better positioned than ever to capitalize on that strength.

2024 marked our first holiday season with Benihana in the portfolio, and we set records across every holiday with exceptional demand. This year, we have made targeted investments to capture even greater holiday demand.

Our enhanced reservation technology, streamlined operational flow, and comprehensive team training initiatives position us to execute flawlessly during our busiest periods.

A key operational focus is optimizing Benihana table efficiency. We are targeting a reduction from 120 minutes to 90 minutes table turns throughout the fourth quarter, which will significantly expand our capacity to serve more guests during the busy dinner periods.

The items that I have outlined today are fundamentally execution-driven and within our direct control. We are not relying on macroeconomic recovery or waiting for consumer sentiment shifts.

Instead, we are focused on strategic initiatives that position us to deliver strong results regardless of broader economic trends. Before I turn it over to Nicole for the financial details, I want to thank our teammates.

Every day, they live our mission of creating great guest memories by operating the best restaurants in every market that we operate by delivering exceptional and unforgettable guest experiences to every guest every time.

They are at the foundation of everything we do. With that, I'll turn it over to Nicole.

Thank you, Manny. As a reminder, beginning this year, we are reporting financial information on a fiscal quarter basis using 4 13-week quarters with the addition of the 53rd week when necessary.

For 2025, our fiscal calendar began on January 1, 2025, and will end on December 28, 2025, and our third quarter contained 91 days. Let me start by discussing our third-quarter financials in greater detail before updating our outlook for 2025.

Total consolidated GAAP revenues were $180.2 million, decreasing 7.1% from $194 million for the same quarter last year. Included in total revenues were our company-owned restaurants' net revenue of $177.4 million, which decreased 6.9% from $190.6 million for the prior year quarter.

The decrease was primarily due to a 5.9% reduction in consolidated comparable sales and the closure of underperforming restaurants from the prior year period.

Management license, franchise, and incentive fee revenues decreased to $2.8 million from $3.4 million in the prior year. The decrease is attributed to lower management license and incentive fee revenue at our managed STK restaurants in North America and reduced franchisee revenues due to exiting 2 license agreements.

It is important to note that our sales at our managed STK in Las Vegas have notably improved quarter-to-date. Additionally, we exited our management deal with STK Scottsdale and converted a former RA Sushi to a company-owned STK.

Now turning to expenses. We continue to implement targeted cost management initiatives, including strategic adjustments to our protein sourcing to reduce costs and a temporary hiring freeze that will optimize our labor structure.

Company-owned restaurant's cost of sales as a percentage of the company-owned restaurant's net revenue increased slightly to 21.1% from 20.9%. This was primarily due to sales deleveraging, coupled with higher-than-anticipated inflation in certain commodity costs.

This was partially offset by additional integration synergies from our Benihana acquisition. Company-owned restaurant operating expenses as a percentage of company-owned restaurant net revenue increased 140 basis points to 67.6% from 66.2% in the prior year quarter.

This was primarily due to investments in marketing, general cost inflation, and fixed cost deleveraging driven by a decrease in same-store sales.

Restaurant operating profit decreased to $20.1 million or 11.3% of owned restaurant net revenue compared to $24.5 million or 12.8% in the prior year quarter.

On a total reported basis, general and administration costs increased $0.5 million to $13.3 million from $12.8 million in the same quarter prior year, driven by increased marketing expenses.

When adjusting for stock-based compensation of $1.2 million, adjusted general and administrative expenses were $12 million compared to $11.2 million in the third quarter of 2024.

As a percentage of revenues, when adjusting for stock-based compensation, adjusted general and administrative costs were 6.7% compared to 5.8% in the prior year.

Depreciation and amortization expenses were $11.5 million compared to $9.4 million in the prior year quarter. The increase was primarily related to depreciation and amortization of new venues and capital expenditures to maintain and enhance the guest experience in our restaurants.

During the quarter, we completed our regular assessment of the recoverability of the net book value of our fixed assets. A noncash loss on impairment may be necessary when the net book value exceeds the future expected cash flows of the restaurant, and can happen due to economic factors, end of lease, or restaurant performance.

As a result of this assessment, we identified 5 restaurants that required impairment charges that totaled $3.4 million, mostly related to grills that we plan not to extend the leases on.

Preopening expenses were approximately $700,000, primarily related to the preopening rent for restaurants under development and payroll costs associated with the preopening training team as we prepare restaurants scheduled to open in the fourth quarter of 2025.

Preopening expenses decreased $1.4 million compared to the prior year period. Operating loss was $7.9 million compared to an operating loss of $3.6 million in the third quarter of 2024, mostly impacted by the $3.4 million in noncash loss on impairment.

Interest expense was $10.5 million compared to $10.7 million in the prior year quarter. Provision for income taxes was $59.1 million compared to a benefit of $4.9 million in the prior year quarter.

The increase in income tax expense is primarily the result of the establishment of a full valuation allowance against our deferred tax assets during the third quarter.

This is a noncash income tax expense item that was recorded because of management's assessment of the future usability of our deferred tax assets and liabilities.

Net loss attributable to Wes Hospitality was $76.7 million compared to a net loss of $9.3 million in the third quarter of 2024. The 2025 loss was primarily driven by the noncash loss on impairment and the noncash recognition of the valuation allowance.

Net loss available to common shareholders was $85.3 million or $2.75 net loss per share, compared to $16.4 million in the third quarter of 2024 or $0.53 net loss per share.

The previously discussed noncash loss on impairment and establishment of the deferred tax asset valuation allowance represent $2.02 of the third quarter 2025 net loss per share.

Adjusted EBITDA attributable to The ONE Group Hospitality, Inc. was $10.6 million compared to $14.9 million in the prior year, a decrease of 28.9%.

We finished the quarter with $6 million in cash and cash equivalents and restricted cash. We have $28.7 million available under our revolving credit facility.

And as of quarter end, we had $5.5 million outstanding on our revolving credit facility. Under current conditions, our term loan does not have a financial covenant.

Now I would 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 remind our investors that the actual number and timing of new restaurant openings for any given period are subject to factors outside of the company's control, including macroeconomic conditions, weather, and factors under the control of landlords, contractors, licensees, and regulatory and licensing authorities.

Based on the information available now and our expectations as of today, we are updating the following financial targets for fiscal year 2025. Please note, this does not include the potential impact of tariffs on broader economic conditions.

We project total GAAP revenues of between $820 million and $825 million, which reflects our anticipation of consolidated comparable sales of negative 3% to negative 2%.

Managed franchise and license fee revenues are expected to be between $14 million and $15 million. Total company-owned operating expenses as a percentage of company-owned restaurant net revenue of approximately 83.5%.

Total G&A, excluding stock-based compensation of approximately $46 million, adjusted EBITDA of between $95 million and $100 million, restaurant preopening expenses of between $5 million and $6 million; an effective income tax rate of between 1% and 4% when excluding the valuation allowance and the items subject to valuation allowance.

Total capital expenditures, net of allowances received from landlords, of between $45 million and $50 million. And finally, we plan to open 5 to 7 new venues. I will now turn the call back to Manny.

Thank you, Nicole. Before we open it up for questions, I want to emphasize how excited we are about the future of our business.

Although the current environment is challenging, our future looks bright. With our strengthened portfolio and our expanded franchise capabilities, we are well-positioned to capture the significant opportunities ahead of us.

We thank you for your continued support and look forward to sharing our progress in the quarters ahead. Nicole and I look forward to your questions. Operator?

[Operator Instructions]

We'll take our first question from Joe Gomes with NOBLE Capital.

So I want to start out the last couple of quarters, you talked about Benihana having 2 quarters in a row of same-store sales growth, in STK 3 quarters in a row of positive traffic.

And I might have missed it, but I didn't hear that discussion today. I was wondering if you could give us a little update on those.

I mean, I think probably the best thing to do is talk about maybe our traffic overall as a company. I think if I look at the third quarter, 2025, I think that's been our best quarter in traffic, actually, for the whole year.

As a consolidated company, I think we were down 6.9% in traffic for the third quarter, whereas in the second quarter, we were down 7.5%. And in Q1, we're down 7.8%.

So the third quarter this year was by far our best or better traffic quarter. The big difference for us in the third quarter, though, is that until the end of the second quarter, beginning of the third quarter, we had about 7% effective pricing in there.

So that offset part of the traffic experience that we were having. And then, going into the middle of the third quarter around August, we began lapping some pricing from last year.

And we just saw a lot of noise in the middle of August in traffic. So we decided to just hold off on the pricing. And so our pricing in the third quarter was only plus 4% for the quarter.

So we effectively lost about 3 points of pricing in the third quarter. So I would say from my perspective or our perspective, we made significant or we're doing improvements on traffic, which is one of the reasons why going into the fourth quarter, and we put some pricing in effect right at the beginning of November, I think that we've basically put the pricing back on.

And with the sequential improvement in traffic, I think we feel pretty good about the sales position going into the fourth quarter.

And what do you think is driving the traffic improvement in the fourth quarter so far?

On the third quarter, I'd say the sequential improvement in the third quarter, I think, is really a testament to the value of the proposition and the marketing that we've been doing.

We also, as I mentioned in my prepared statements, we do have some macro forces that haven't really supported sales. For instance, if you look at our across of our portfolio, our concentrations of restaurants are in California, Arizona, Florida, and Texas, and then we have the other, which is about 50% of our concentration of sales.

And if I just look in the third quarter alone, I think there was a lot of macro pressures, for instance, in our California sales sequential between the second and third quarter actually got negative by 7 points.

So there's some geographical pressures that came in that quarter since the third quarter. We've seen some of that loosen up a little bit, but certainly in September, we saw a lot more pressure in our traffic in California, which is, by the way, one of the reasons why we put the pause on our pricing actions, just because we saw the traffic in there.

So again, I think that the combination of the sequential improvement in traffic in the quarters, and now I feel as if California is getting slightly better.

And last but not least, as I mentioned also in my prepared statement, in the month of December, taking the turn times at Benihana from 120 minutes to 90 minutes creates a significant lift in availability and tables, and capacity to take more business.

And then one more for me, if I could sneak one in. Maybe just can you give us a little color on your efforts on the Benihana franchising side.

I know that's something that you're hoping to see a little faster growth. So just want to get an update there.

Yes. So I mean, we did open one in the second quarter in Florida. And then our activities on the franchising side have also yielded. We now have a deal that's almost done for some Benihana Express-type operations in California.

We also have a potential franchise deal for the Bay Area that's also shaping up. So we've made significant improvements on the pipeline. So now our team is out there working with these potential individuals and closing these deals down.

We've also made some improvements to our pipeline for license sites for STK. So we do have both the franchising move forward on the pipeline for Benihana and also STK, as we've gotten some more leads and are actually getting very close to announcing some additional license deals for STK.

We'll take our next question from Anthony Lebiedzinski with Sidoti.

So Manny, I think also last quarter, you called out Las Vegas as being a market where you saw some, I think, softness. Can you comment on that? Did you see that as well? And have you seen any improvements fourth quarter to date?

Yes. So I will caveat my response on Vegas on the fact that it's our experience. We only have, let's call it, 3 or 4 restaurants in that market, actually 4 in total.

But our experience right now with STK is that it's actually improving for STK. So we've seen an improvement in our business on that side. Again, as I mentioned earlier, part of that has to do with the shifting in the conference and convention schedule.

I think if you follow Vegas, you probably are aware that there was a shift in the convention calendar. So that's definitely benefiting us in the fourth quarter, having a more robust conference schedule.

I think the other restaurants, though, I would say that it's more of a little bit of a mixed bag. So I haven't seen the same improvement that I've seen on the STK business.

And then you gave us some numbers on the loyalty program, which looks like it's doing well in terms of sign-ups. Can you give us maybe some details, as far as like what the average ticket or frequency or anything else, can you share about the loyalty members versus non-loyalty members? What do you see in terms of behavior from them?

Yes, great question. So we have about 6.5 million people who are in the program. A lot of those members came through our conversion of memberships from other programs.

So we have Benihana on the programs. We had Kona Grill Rock. And that's the case. So we brought everybody into the same common program, if you will, into that loyalty program. And since then, we've done about 200,000 sign-ups of new members coming into the program. We're early.

So I'm going to give you what I've seen so far because of all the brands we have, Kona Grill is the one that has been on the loyalty program much longer than anyone else because we were already utilizing Konivor, which was the legacy program from Kona.

And for that particular brand, it's actually been helpful. So we've seen a frequency increase in the use of the program. So we feel the early returns are very promising because we have members in that program who've been around for longer.

And I think the new program and new activations that we're doing with it have driven a little bit more interest. But again, as I said earlier, it's early. I think we rolled it out only earlier this year.

I think that we will continue to pick up momentum with it going forward. But again, I think that as I look at the overall story for the quarter, I think that the third quarter being our best traffic quarter for the company, I think it bodes well for all the initiatives and the actions that we're taking with marketing and everywhere else.

And then I guess my last question before I pass it on to others. In terms of recent price increases, I know it's still early on, but any early read on the reaction to the price increases?

Have you seen any customer pushback to those higher prices? Or do you think that you'll be able to successfully pass those along?

Yes. I mean, I think we start rolling out those price increases in late October in some places. And so we're really, really early on it. But, again, I think the way that we did our pricing increase this time is that we really tried to wait until we think the timing is a little better.

I think this has actually started our seasonally better months, weeks, whatever you want to call it, actually, for the next 36 weeks is really our high season period for us.

So I think putting the price right at the beginning of the high season is actually a good strategy for us. Have we seen any noise in terms of feedback? The answer is not. We follow it obviously through all our listening tools and social media, and everything.

So we have not seen anything above and beyond what we usually see on the pricing.

We'll take our next question from Mark Smith with Lake Street Capital Markets.

I wanted to dig in a little bit more into Benihana comps here in the quarter. They came down more than we've seen here recently.

Can you just talk about traffic and tickets at Benihana?

Yes. I think for the quarter for Benihana, as I mentioned earlier, that we had pricing coming off.

Benihana was the one that had 5 points of pricing might have actually been a little higher than 5 points that we did not replace in the quarter. So if I look at their differential in same-store sales year-to-date to what we performed in the third quarter, I would attribute it mostly to the pricing, not taking the pricing action.

And again, I want to reiterate this, if I look at our same-store sales by geography, California was by far the most impacted of all markets in our portfolio, and the Benihana portfolio does have a bit of weight in the California market, some of our higher-volume restaurants.

So again, I think that I would say that the 2 items on the Benihana would be not replacing the 5 points in pricing that we came off and then the additional pressure in the California market.

And then just on the impairment that you took in the quarter, was all of that on Grill Concepts? Or was there anything on any of the other brands?

Yes. I think the majority of the impact was on Kona Grill. And then we did have a very minor amount coming out of our STK in downtown New York just because that lease is up.

We're in the last year of that lease, and we're moving the restaurants, actually relocating the restaurant around the corner. So that will be a reload.

But right now, we just have some additional amounts in the books that we have to accelerate. And by the way, there were assets that we couldn't move over to the new location because a lot of the assets may move to the new location.

And then just talking about changing locations here. Can you just walk us through a little bit more on your, maybe the economics of the conversions? I think you said $1 million maybe on spend, but just the economics there and then, maybe your outlook on these that you plan on converting, how many maybe to STK, how many to Benihana.

And I'm curious, sorry to throw a lot on you here. Do these come with a new lease signing? Or do you typically keep the lease terms that you currently have?

Well, so a very good question. So the first one we did is Scottsdale. It was a RA Sushi restaurant. And in that one, we converted to an STK.

It took us, I think, from beginning to end, somewhere between 6 and 8 weeks, to do the full conversion. The cost of the conversion, I'm putting it at about $1 million in a round number.

And it was a very effective refurbishing of the restaurant, and we kept the majority of all the infrastructure. So it was very cost-effective in that. And the question on the lease is that one, actually, we actually got an extension on the lease by choice.

So we got another 5-year option just because we like the real estate. When you go to that property, you'll notice that it's in an A plus, I'm going to call it A, I'm not going to give it A+, but let's call it A real estate with very good lease terms and a good presence there.

And we've already reopened it. I would say that we just opened the door. We didn't really do much marketing. We're actually starting the marketing push in the next couple of weeks.

And I've been so far been very happy with what it's happened there. Obviously, as you know, our model for STK, brand-new STK, is about $8 million in volume with margins around 20%.

So I would expect that STK to be in that range of value. It's in a market that we've already been in. So we have pretty good experience there. So I feel pretty good about that one.

Now we have other, I think, up to 9 other sites that we're looking at converting and the cost should be around that same $1 million type tag, if you will, price tag and the conversion cycle should be relatively fast, and we'll do the same thing in terms of taking advantage of existing infrastructure in electrical, HVAC, kitchen, plumbing, et cetera.

So we think those will be very effective. Again, what really drives that decision is the quality of the real estate. That's one of the things that we're really happy about, The ONE Group is we have great real estate, and that's one of the things that having multi-brands like we do gives us a lot of flexibility and gives us an opportunity to really leverage the strength in the real estate.

Would there be much of a difference in the cost or maybe return metrics on converting to Benihana versus STK?

I mean, again, another great question. I think the difference between Benihana and STK conversion is actually the mechanical cost because with the tables in the dining room, we have to do more upgrading on the exhaust system, and sometimes electrical systems if we add electrical tables.

So it's a little bit more on the mechanical side. And it may take a little bit more time because we actually have a lot more engineering and architectural work into it. So it's a little bit different from a process. But our view on it is that the cost will still be around $1 million in either one.

And so we don't foresee a lot of cost incrementality in there. Again, I mean, we have a lot of real estate in malls and other places that make a lot more sense for Benihana than STK.

So that's part of our decision on Benihana is that Benihana is a great concept for mall-type locations.

We'll take our next question from Jim Sanderson with Northcoast Research.

I wanted to go back to the issue of pricing. I think you mentioned you exited the third quarter with a global price of about 4 percentage points and that you took a price in November. What should we expect as far as the impact of menu price on fourth-quarter same-store sales?

So I think the bigger part of that increase was Benihana around slightly above 5 points on pricing. So that will weigh in heavily. And then STK and the other brands, we had about 2 to 3 points on pricing.

So the other ones are very modest. I would call that just cleanup pricing. So I would say, overall, somewhere around 4.5% to 5.5% on a weighted basis would be the impact of the new pricing layer.

And that probably will last for the next 36 weeks, give or take. Is that the right way to look at that?

That's right.

Could you talk a little bit more about bookings? I think you mentioned in the press release that you were optimistic given the level of holiday bookings.

Maybe you can tell us any comparison with respect to last year at this time?

Yes. I mean, we actually just reviewed the books this morning. Nicole and I did a review of our bookings to progress right now.

Frankly, since COVID, if I look at the month of November, looking into December has been one of the months where I've actually seen a significant amount of progress on the number of bookings that we've seen in events.

Obviously, that also reflects a little bit of the fact that we have a very experienced. We have a very good sales team. So that team has become very good at working in the current environment of sales.

And again, the convention business and a lot of the stuff that used to happen in the third quarter last year also got moved into the fourth quarter this year. So definitely, that helps bring up the books into the fourth quarter.

And can you remind us what share of the fourth quarter is related to holiday bookings or special events, that type of thing?

I would say about 15% of our business comes from the group event business in the fourth quarter.

Also wanted to shift gears on Benihana. You mentioned a lot of changes taking place in the design of the store that you're going to be implementing.

Can you give us a sense of when that change will be implemented across all Benihana stores? And any feedback on helping us understand how to quantify the increased capacity, how that potentially could benefit AUVs?

So our planning for that is we typically say that our CapEx is about 1.5% to 2.5% of sales on existing stores.

So we're not putting together a special allocation of capital for that. We will do that revamp within our typical allocated basket, if you will, of CapEx. And so it will take a little bit of time to do that. But our changes will be more around our priority, one is getting rid of the smoke in the dining room.

So we do have some things that can help with that. So we're working on that right now for a lot of our restaurants. HVAC. I think I've mentioned HVAC in previous calls. And then the third priority is adding tables because on Fridays and Saturdays, we can really use more tables in the restaurants.

So we'll be upping those tables as we go. And then I'd say the next level of priority, things like the artwork, is pretty compelling. The new artwork that we put in the San Mateo location, which we've defined for the brand, is actually very cool. So we really want to start working on that.

And then over time, it's just the key with Benihana is to continue a very strong maintenance program, which we do have in place. We have a very high-quality facilities team that keeps these things maintained.

But as time goes on, with our typical basket of capital, we'll try to take care of that. As you probably picked up on my prepared statements and on the press release, we're also tightening down and keeping down the amount of CapEx that we're using because we want to work on the balance sheet.

So it's all about balancing all those things, and that's where we'll fund the capital B from our regular CapEx basket.

A bit of a follow-up question, just to make sure I understood the lower CapEx in 2026 that you mentioned. So, how should we put that into perspective based on the plan you have in place this year? How is that CapEx number going to change.

Yes, very good question. So we're focusing our capital on the conversions, which are about $1 million per restaurant. And then on new brand restaurants of the world, we're only focusing on restaurants that we can do for $1.5 million or less on the whole cost of the restaurant.

So we're really working our low-cost real estate inventory. And also the other thing, too, is we're not doing any new leases right now because we have a pipeline of about 12 leases. So we stopped doing leasing, and we're going to work through the existing pipeline of leases.

And last question for me. I just wanted to better understand the Benihana Express. I think you mentioned that it could eventually become a sizable portion of your portfolio. Can you describe any changes to what the AUVs are store margins and how that's different from, let's say, a larger Benihana?

Yes. I mean, the box will be much smaller. So we're trying to keep the restaurant -- let's just hypothetically right now, keep it around 1,000 square feet.

So the economics are different from a top-line perspective just because of size. And then there will be no tips on tables in the property. All the food will be ordered and picked up, and taken away. And then we'll have some tables in the property and chairs, but there will be very limited seating. And so it will be a much smaller compact box. And so expect revenues.

Right now, Nicole and I talked about somewhere around $1 million to $1.5 million, but a very, very low cost of build-out because there's nothing really to put in there. So we'll probably build that for around $500,000 to $600,000 in cost. So it will be a very effective box. Think of it most as a fast casual grab-and-go, take your food back home, or you may choose to eat there, but it will be a more casual environment.

Just to follow up on that. How do we look at the cash return or the cash-on-cash return to franchisees with be reviewing?

Yes. I mean, we think that because of the lower cost of goods and the fact that we'll be able to be effective labor in that box, it will be a very high ROI.

I think the store level margins, even after royalties, can be in the 15% to 20% range. So it will be a very good return vehicle for potential franchisees.

The ones that we're talking to are super excited about it, and we look forward to testing that model out.

We have reached our allotted time for questions. I will now turn the call back over to Manny Hilario. Please go ahead.

All right. Thank you very much, Brittany. As I always close my call here. I want to thank the team once again. I'm very impressed and very pleased as to how the team put above and beyond effort and really showed progress in the third quarter, as our traffic numbers show.

So I appreciate that. And we look forward to a great fourth quarter in terms of traffic and sales. And as always, I appreciate your support of The ONE Group, and I look forward to seeing you out in one of our restaurants. Everybody, have a great day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Greetings, and welcome to The ONE Group Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference call over to Tyler Loy. Please go ahead.

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 considering 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 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 EBITDA, comparable sales and total food and beverage sales at company-owned, managed, licensed and franchised 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 would like to turn the call over to Manny Hilario.

Thank you, Tyler, and thanks to everyone joining us on today's call. Before we get into the results, I want to take a moment to recognize the incredible dedication of our more than 10,000 teammates across the organization. Your commitment to excellence not only drives our performance, it creates the great guest memories that keep our guests coming back time and time again.

With that, I'd like to discuss our second quarter highlights. We are pleased to have delivered results that met our expectations. We achieved strong top line growth of 20%, driven by the successful integration of our Benihana acquisition and continued execution of our key strategic initiatives. Adjusted EBITDA was $23.4 million, underscoring our ability to drive efficiencies and profitability despite the challenging consumer environment.

This quarter, we made additional investments in marketing, which helped drive positive same-store sales at Benihana and positive traffic at STK, the second and third consecutive quarters for each metric, respectively. Integration efforts following the Benihana acquisition are progressing ahead of schedule, and we are already realizing meaningful operational synergies across multiple business areas. And finally, our development strategy continues to gain momentum. So far this year, we have opened 3 new company-owned restaurants in our second franchise Benihana Express location.

Now let's discuss our strategic priorities. Number one, first, drive and accelerate same-store sales growth. Same-store sales growth remains our top priority, and we continue to execute against our proven framework built around 3 pillars: operational excellence, culinary innovation and relevant and timely marketing. Demand remained strong during peak periods, particularly on Fridays and Saturdays, and we are focused on maximizing throughput through enhanced reservation systems and centralized logistics. These tools also allow us to better manage high-volume occasions like a record-breaking Mother's Day by balancing no shows and walk-in traffic to deliver exceptional guest experiences.

To address weekday traffic, we've continued to emphasize value-focused programming, including our pre-fee menus at $69 per STK and $39 across our other brands, along with our highly popular $3, $6, $9 Happy Hour menus. These offerings are resonating with more value-conscious guests while maintaining our premium positioning. As we see more thoughtful spending behavior, particularly at STK, with increased demand for shared dishes and pre-fee selections, we've leaned into these patterns to drive weekday traffic and engagement. On the culinary innovation front, our Wagyu program at Benihana continues to meet expectations, and we are preparing exciting new premium menu enhancements across the portfolio intended to drive engagement and average check.

Marketing continues to be a core growth lever. Our new Friends with Benefits loyalty program launched in Q2 is designed to deepen guest relationships across our brands. With more than 7 million contacts in our marketing database, this initiative is already showing strong traction in repeat visitation. Members earn points for every dollar spend and receive exclusive rewards, including birthday and half birthday offers that encourage frequency and celebration across our portfolio. As national casual dining chains intensify promotional campaigns, we are responding with investments in targeted grassroots marketing, including stronger local store marketing and digital engagement to build brand affinity and guest frequency.

Secondly, focus on asset-light or low-cost growth opportunities and prioritize high-quality relocations. We continue to execute our multipronged growth strategy, balancing company-owned development with asset-light models that deliver capital-efficient returns. So far this year, we have opened a new Benihana in San Mateo, California, which is the highest performing new Benihana in the company's 60-year history, followed by a new STK in Tapanga, and we relocated STK Westwood to a larger, higher-capacity location to strengthen our presence in that key market. Additionally, we opened our second franchise Benihana Express in Miami's Bayside Marketplace.

As you can see, franchising is gaining momentum, and we are in active discussions with high-quality partners. Over time, we expect franchise licensed and managed locations to represent over 60% of our total footprint, driving scalable growth and reduced capital intensity. Looking ahead, we plan to open 5 to 7 new venues in 2025, including a company-owned Benihana in Seattle, Washington and the relocation of Kona Grill San Antonio to a higher-performing trade area. Relocations remain a key strategy to unlock stronger returns in existing markets. By prioritizing nearby high-quality real estate opportunities in markets that already embrace our brands, we can increase capacity, optimize traffic and better position our brands for long-term success.

Number three, continued optimization of the grill portfolio. We continue to assess and optimize performance across our portfolio and the grill concepts remain a clear area of focus. While execution at the store level is strong, traffic in the upscale casual segment remains challenged. We are responding with more targeted marketing, enhanced visibility and grassroots efforts to drive awareness, trial and repeat visits.

This past quarter, we closed 5 grill locations that were coming up on lease renewals or whose real estate quality did not match that of the rest of the portfolio. Our growth strategy for the grill concepts will be very disciplined. We will grow selectively, focusing only on top-tier opportunities that align with our brand standards and return profile. As the broader casual dining segment experiences pressure, we remain committed to enhancing performance while making strategic decisions to ensure long-term viability.

Number four, maintain balance sheet flexibility. Our balance sheet remains strong with approximately $50 million in liquidity between cash, short-term receivables and revolver availability. This provides us with operational flexibility to navigate near-term challenges while supporting long-term investments. We continue to prioritize positive cash flow generation and have implemented cost discipline across all our functions from labor optimization to marketing efficiency.

Lastly, the Benihana integration is progressing ahead of plan. We've already captured a significant portion of the $20 million in expected synergies with full realization target by the year-end 2026. Importantly, this integration is not just about cost savings. We are leveraging our strengths in operations, culinary innovation and marketing to unlock top line growth across Benihana and RA Sushi.

Looking longer term, we remain focused on scaling from $1 billion to $5 billion in system-wide sales. Our development road map includes over 200 potential STK locations and more than 400 Benihana opportunities in the U.S., supported by a blend of company-owned, franchised, licensed and managed locations. STK continues to deliver industry-leading unit economics, generating approximately $11 million in annual revenues with 20% plus restaurant level margins. And as we previously mentioned, the Benihana in San Mateo is significantly above target from a revenue, profit and cash-on-cash return perspective. Based on the success of our new prototype that we opened in San Mateo, we now believe that the new model can deliver $8 million in annual revenues and restaurant level margins in the mid-20s before any franchise fees.

We anticipate net capital expenditures will be between $3 million and $5 million per location and expect significant franchise interest in this model. As we move into the back half of 2025, we remain confident in our strategy and our ability to execute. Despite a challenging macro environment, we are seeing positive signals and are well positioned to gain share through our differentiated vibe dining model. We are building a unique portfolio of iconic brands that deliver not only for guests but for our shareholders.

With that, let me turn it over to Tyler for the financial details. Tyler?

Thank you, Manny. As a reminder, beginning this year, we are reporting financial information on a fiscal quarter basis using 4 13-week quarters with the addition of a 53rd week when necessary. For 2025, our fiscal calendar began on January 1, 2025, and will end on December 28, 2025, and our second quarter contained 91 days.

Let me start by discussing our second quarter financials in greater detail before providing our outlook for the third quarter and the current year. As a reminder, we realized 61 days of the Benihana and RA Sushi acquisition in the previous year quarter. In addition, the current quarter includes $5.6 million in lease termination and exit expenses related to the 5 grill locations we exited, nearly all of which was noncash flowing through our operating and net income.

Total consolidated GAAP revenues were $207.4 million, increasing 20.2% from $172.5 million for the same quarter of last year. Included in total revenues were our company-owned restaurant net revenues of $203.9 million, which increased 20.6% from $169 million for the prior year quarter. The increase was primarily due to the 30 additional days of ownership of Benihana and RA Sushi and contributions from the opening of 7 restaurants since the beginning of the second quarter of 2024. These were partially offset by a 4.1% reduction in consolidated comparable sales.

Management, license and incentive fee revenues remained flat at $3.5 million for both quarters. Company-owned restaurant cost of sales as a percentage of company-owned restaurant net revenue remained flat at 21.2% for both quarters. This was primarily due to integration synergies, offset by higher-than-anticipated inflation driven by chicken, eggs and certain cuts of beef.

Company-owned restaurant operating expenses as a percentage of company-owned restaurant net revenue increased 210 basis points to 63.5% from 61.4% in the prior year quarter. This was primarily due to the addition of Benihana and RA Sushi results in April, which typically have lower revenues and lower margins than that of the rest of the quarter. In addition, company-owned operating expenses were impacted by investments in marketing, general cost inflation and fixed cost deleveraging driven by a decrease in comparable store sales.

Restaurant EBITDA decreased 210 basis points to 15.4% compared to 17.5% in the prior year quarter. This included restaurant EBITDA of 18.5% for the Benihana location and 15.9% at STK locations. The 2 new STK restaurants opened during the quarter impacted STK margins by 80 basis points due to increased costs during the start-up period, and we anticipate these costs to normalize during the balance of the year. On a total reported basis, general and administrative costs increased $1 million or 9.7% to $11.7 million from $10.6 million in the prior year quarter, driven by the addition of Benihana in the second quarter of last year, offset by a reduction in performance-based compensation expense.

When adjusting for stock-based compensation, adjusted general and administrative expenses were $10.2 million and $9.1 million in the second quarter of 2025 and 2024, respectively. As a percentage of revenues, when adjusting for stock-based compensation, adjusted general and administrative costs improved 40 basis points to 4.9% compared to 5.3%. The improvement is due to the sales leverage realized through the Benihana acquisition, the implementation of cost savings and integration synergies and a reduction in performance-based compensation expense.

Depreciation and amortization expense was $10.9 million compared to $8 million in the prior year quarter. The increase was primarily related to depreciation and amortization for the Benihana and RA Sushi restaurants, depreciation associated with the opening of 7 new company-owned venues since July 2024 and capital expenditures to maintain and enhance the guest experience in our restaurants. Preopening expenses were $1.4 million, consisting primarily of payroll, training and other costs for Benihana San Mateo and STK Topanga, which opened in March 2025 and April 2025, respectively, payroll and travel costs for the training team and preopening expenses for restaurants currently under development.

Preopening expenses were $2.5 million in the prior year quarter. Operating income was $0.7 million compared to $1.1 million in the second quarter of 2024 and included $5.6 million of lease termination and exit costs in the current year quarter. Excluding those costs, operating income would have been $6.3 million.

Interest expense was $10.3 million compared to $7.9 million in the prior year quarter due to our higher level of outstanding debt post acquisition, which occurred during the second quarter of last year. Provision for income tax was $0.7 million compared to a benefit of $3.5 million in the prior year quarter. The effective income tax rate year-to-date through the second quarter was negative 11.3% compared to 27.1% for the same time in the previous year, which is driven by the company's FICA tip credit.

Net loss was $10.1 million compared to a net loss of $7.3 million in the second quarter of 2024 and the current year includes the $5.6 million in aforementioned lease expenses, the majority of which were noncash. Net loss available to common stockholders was $18.2 million or $0.59 net loss per share compared to $11.9 million in the second quarter of 2024 or $0.38 net loss per share.

Adjusted net income was $1.7 million or $0.05 adjusted net income per share compared to an adjusted net income of $6.3 million or $0.19 adjusted net income per share in the prior year quarter. Adjusted EBITDA attributable to The ONE Group Hospitality, Inc. was $23.4 million compared to $21.8 million in the prior year quarter, an increase of 7.3%. We finished the quarter with $15.1 million in cash and short-term credit card receivables.

Our cash and cash equivalents were lower versus the previous quarter due to the impact of biweekly payroll and reduction of accrued payroll at the end of the second quarter versus the end of the first quarter. We finished the quarter with $33.6 million available under our revolving credit facility, which remains undrawn. Under the current conditions, our term loan does not have a financial covenant.

Now I would 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, as always, remind our investors the actual number and timing of new restaurant openings for any given period is subject to a number of factors outside the company's control, including macroeconomic conditions, weather and factors under control of landlords, contractors, licensee and regulatory and licensing authorities.

Based on the information available now and the expectations as of today, we are issuing the following financial targets for the third quarter of 2025. Beginning with the top line. We project total GAAP revenues of between $190 million and $195 million, which reflects our anticipation of consolidated comparable sales of minus 4% to minus 2%; managed, franchise and license fee revenues are expected to be between $3 million and $4 million; total company-owned operating expenses as a percentage of company-owned restaurant net revenue of approximately 86%; total G&A, excluding stock-based compensation of approximately $11 million; adjusted EBITDA of between $15 million and $18 million; and finally, restaurant preopening expenses of between $1 million and $2 million. Based on the information available now and the expectations as of today, we are reiterating the following financial targets for fiscal year 2025.

Please note, this does not include the potential impact of tariffs on broader economic conditions. We project total GAAP revenues of between $835 million and $870 million, which reflects our anticipation of consolidated comparable sales of minus 3% to 1%; managed, franchise and license fee revenues are expected to be between $15 million and $16 million; total company-owned operating expenses as a percentage of company-owned restaurant net revenue of 83.5% to 82.2%; Total G&A, excluding stock-based compensation of approximately $47 million; adjusted EBITDA of between $95 million and $115 million; restaurant preopening expenses of between $7 million and $8 million; an effective income tax rate of approximately 7.5%; total capital expenditures net of allowances received from landlords of between $45 million and $50 million; and finally, we plan to add 5 to 7 new venues. I will now turn the call back to Manny.

Thank you, Tyler. Before we open it up for questions, I want to emphasize how excited we are about the future of our business. Our path to $5 billion in system-wide sales remains clear and achievable. With our strengthened portfolio, expanded franchise capabilities and proven ability to deliver industry-leading margins, we're well positioned to capture significant opportunities ahead of us.

We thank you for your continued support and look forward to sharing our progress in the quarters ahead. Tyler and I look forward to your questions. Operator?

[Operator Instructions] Our first question comes from Brian Mullan of Piper Sandler.

A question on Benihana. It's encouraging to see the positive same-store sales again at the brand. As we look at the current quarter, it seems like the brand has an easier comparison. Last year was down 4% in the third quarter. Can you just remind us what some of the issues were last year that you'll be lapping over? Did that have to do with integration or maybe something else? And then just related to that, just talk about any initiatives you're particularly excited about to drive the top line at Benihana over the balance of this year?

I mean that's a great question regarding Benihana third quarter last year. Probably the more significant challenge we had with Benihana last year was that post our acquisition, we found out that there were a lot of HVAC opportunities within the model. As you know, it's a really hot restaurant with the tables in the restaurant. So we spent quite a bit of time last year working out the temperature and airflow issues in the restaurant. So I think that was kind of a year 1 learning for us. This year, we're much more proactive going into the summer months. We make sure that we got all the ventilation and some of those issues taken care of. So we feel much better about the sales opportunity for the brand in the third quarter this year.

Okay. And then sticking with Benihana, can you talk about the recently opened restaurant in San Mateo? It sounds like it's been a great opening from an AUV perspective. Manny, maybe remind everyone what was different with this opening versus some of the legacy restaurants? What have you learned? And what does that tell you about the future growth opportunity?

Yes. I think the difference -- well, there's several. One is on the actual design of the restaurants, we chose to eliminate the sushi bar from -- within the property. So there's no sushi bar in the restaurant, which created additional space for tables. We also decided to add tables in the bar area, which was new for the model. So we were able to concentrate more tables within the restaurant. Actually, it's only 7,000 square feet, and we were able to get in there a significant amount of tables.

The other things that we've done, we lightened up the colors. We added a takeout delivery station in the property, which helps with the flow of the customers coming in and out. The color scheme of the restaurant is brighter, more welcoming. It's a more bright, colorful environment, new artwork. So it's significantly better from an aesthetics perspective. And then from a preopening model, we did a lot of earlier marketing, which was not really typical. We put a lot more ads, more -- we put a lot more emphasis on the pre-marketing and then we leverage our digital assets right away to let people know that we were open.

So I think the opening from day 1, frankly, we were super busy on first 2 or 3 weeks of opening. We opened the doors and frankly, it was all about managing capacity. So we've been very happy with that. And as we continue operating the restaurant, I think that the consumer base and the market is really has embraced that restaurant. So we feel pretty good about, if you will, the new look and feel as well as the new preopening model that we put in place for the location.

Okay. That's great. And then just one more for me. A question on the STK brand. You spoke to this in the prepared remarks a bit, but can you just talk about how you're managing this business at the moment is ensuring positive traffic. Does that remain the main objective right now, even if you need to continue to give up a little bit in average check at least during the week? Is that how you foresee this at least while we're in this consumer environment? Any color on that would be great.

Yes. I mean I think our strategy with STK still is a traffic working with Happy Hour, working with value price points. Obviously, in the current economy with the uncertainty with the consumer, we think it's wise to have a great value proposition. So we continue to emphasize that. And then I think as we go into the third, fourth quarter progression, one of the things we'll continue doing is emphasizing premium products, so the barbell approach to try to mitigate the impact of value. So that will continue to be our strategy there.

As I've always said, STK is about market share. So we're retaining market share in the existing restaurants. And then as we continue opening new restaurants, we're gaining market share. So I feel very positive about the future of STK just because we're really grabbing market share right now in an environment that you should not. If you look at all the industry statistics, sales are relatively flat in the industry, but traffic is down. So I would say that STK being at the price point that it is and getting traffic is an incredible success in terms of marketing and execution.

Our next question comes from Anthony Lebiedzinski of Sidoti & Company.

So first, I just wanted to check in if you guys could talk about the cadence of your same-store sales during the second quarter and whether or not you saw any notable regional differences in traffic or just same-store sales overall?

Anthony, it's Tyler. Yes, so we definitely saw April and May -- April with the holiday shift and a little bit of the spring break shift coming out a little slower and then we saw a sequential improvement throughout the quarter. And then June ended up being the most -- having the best of the -- in same-store sales of the cadence throughout the quarter.

Got you. All right. And then as far as any regional differences to speak of? Or was it consistent throughout your operating area?

I mean I think you probably could see that -- by the way, this is Manny, so I introduced myself there. But the -- I mean, probably the most meaningful geographical difference for us has been Vegas. Vegas was probably a challenged market from just what we saw. But other than that, I wouldn't call out anything other than that one particular market.

Got it. So was this because of change in convention schedules? I think you had talked on the last call about that.

Yes. We have -- I mean there's definitely been shifting. So if you even look at the casino outlooks for the rest of the year, there's definitely calendar shifting in conferences. But then I also think that the other factor impacting Vegas has been the decline in Canadian visitors as well as some even Mexico traffic in the market. So it's a combination of visitor traffic right now as well as shifting of some of the convention calendar.

Got you. Okay. And then thinking about your guidance for the year, you kept it unchanged. So it does imply a meaningful step-up in the fourth quarter relative to what you've done so far and your guidance for the third quarter. So can you just walk us through like what gives you the confidence to maintain the annual guidance?

Well, I can't wait to get to the fourth quarter because as you've probably seen in our seasonal results, we do like fourth quarters. I think particularly for us this year, we had Benihana for the first time last year in the fourth quarter. And we frankly have record days around every single one of the holidays. And our biggest challenge, frankly, was managing the logistics and the throughputs at the tables. And frankly, that's one of the areas that The ONE Group is very good at is logistics and management at tables. So we think that there's a pretty large opportunity for us, particularly with Benihana going into the fourth quarter.

As you know, Benihana is a significant part of our sales now. It's over 55% of our sales. So we feel very good about that. And then as I mentioned earlier, STK continues to deliver strong traffic results, and we think that the holidays again will be an opportunity for us to leverage those traffic buildup that we've been having for the last 3 quarters. So I think it will be a continued track of building the traffic there. So as we look at the year, obviously, the fourth quarter is the quarter that we feel very good about.

Sounds good. I'm sorry, go ahead.

Yes. Again, notice that none of my comments have to do with the economical or the economy. It all has to do with kind of internal identified areas that I think I can get the team organized around. So I think these are all within our control, manageable situations. Obviously, always the background is if the economy gets significantly worse, then obviously, that will be a little bit difficult to achieve. But in the context of the economy staying where it is and just the identified opportunities that we had from last year, I think this year should be a very good fourth quarter for us.

Our next question comes from Mark Smith of Lake Street Capital.

I wanted to ask first just about kind of the differences between Grill Concepts and STK and Benihana customers. What kind of behaviors are you seeing different between those customers?

I mean I think the -- at least for us, I think the -- as I speak of Grill and we talk about the performance of it, there's at least 3 or 4 factors that I keep reminding people about the Grill Concepts us. Number one is just the way that business model was built, there's a great connection of that -- of those locations to the movie business and the movie business has been frankly challenged since COVID. So that's kind of one of the things that we continue to battle.

The second thing that we continue to -- from a consumer and brand is that the grills do have seafood exposure. They have one of the higher consumptions of seafood. And in reality, when the consumer is more uncertain about the future or makes changes in their buying patterns, seafood tends to be one of the areas that has been -- is less, if you will, frequent. So they tend to take those visits out faster than other type of culinary.

And then the other third item that I mentioned about the grill in general is because we have a concentrated base of sales in sushi and everybody who's now can get a sushi machine can be in the sushi business relatively with a low entry price point or low barriers of entry. And so there's a lot of -- there's a proliferation of really low-cost sushi competitors everywhere. So we've had to deal with the fact that those are things that are different about the business.

And I guess the fourth item too is, as you may recall, the reason we bought the Grill is we like the bars, we like the vibe that came with the bars. And if you look at all the metrics in today's consumption of alcohol, that's one of the areas that you see a little bit of a slip. So again, those are all the handicaps. So we understand that. But those things, we do have answers for all of them. We also have some locations that were not exactly in real estate that we would have done today. So right now, we're working the portfolio.

As you saw on some of our releases and on our 10-Q, we did close 5 Grill locations in the quarter because we're resetting the portfolio. So that's priority #1 is to reset portfolio. Priority #2 is we continue to innovate in the brand. So we're looking at the menus and adding a lot of food offerings that are beyond seafood. And the third thing is we just continue to evolve marketing because in the casual category right now, marketing is critical and there's a lot of big competitors with big budgets. So we do have to step up our marketing and investment.

So those are kind of like the -- if you will, kind of a really long answer to your question, but the reality is there are some short-term challenges there, but we still like the Grill in the long term because as consumer confidence comes back, we think that they're going out for seafood offerings and everything else will get back in play. Hopefully, that's helpful -- I mean, helpful.

No, that's very helpful. I did want to dig into just the closures a little bit more, if we could. Just were these all Konas -- were all of these lumped into kind of what you call noncore units? And maybe how many of those closures were at the end of the lease term?

Yes. So the majority of them were in the final option of their leases. So they're already kind of waxing out. And so that was a big important factor in terms of how we've identified some of these locations. And not only were they at the end of their life cycle, they are -- some of them required significant capital investments, and we didn't think that based on their performance and the quality of the real estate that we really want to go there. So that's -- and so those were the ones that we're classifying as noncore royalty in our external reports.

Okay. And then last one for me. I think, Tyler, you had talked a little bit about some places where you've seen some food inflation. I think it was chicken, eggs and a little bit of beef. Any other insights or anywhere post quarter where you're maybe seeing some inflationary pressure?

Yes, Mark, I think we saw some of those commodities come down a little bit. So I think that we anticipate a little bit less pressure there on the commodities coming in the second half of the year. I think the one thing that we're watching is just beef prices are just tending to be a little bit more sticky than maybe we would like.

Yes, I would just only add to that, that with that in mind is this is exactly where innovation going to the fourth quarter. As we look at our offerings for the fourth quarter, we probably -- again, depending on what the commodities basket looks like, we'll be able to kind of navigate around some of that through some of the offerings that we would put out there. So again, and we've already contracted for some frozen seafood for the fourth quarter. That kind of helps us keep the cost basket somewhat mitigated.

Our next question comes from Joe Gomes of NOBLE Capital.

I was wondering if you could give us a little more color in the franchising efforts for Benihana. We've talked in the past, you've talked about -- you've updated the infrastructure, you're elevating awareness. And just trying to get a better handle on when you think you're going to start to see agreements come in. And is there going to be do you think one store, multiple locations? Is it existing or new franchisees that you think are going to be attracted to the model? Just a little more color there would be appreciated.

Great. Great question. So yes, we've obviously already addressed the fact that we've invested in infrastructure. So that's been done already. The second item that we've worked on is obviously with the San Mateo being kind of our new prototype is really working on the cost per square foot because obviously, to drive franchising interest, you got to have a strong and cost so that franchisees can afford to build these restaurants. So I think that's been something that we've worked on, and we got a lot of learnings out of San Mateo. So check the box on getting to the right cost on that.

And then in terms of Benihana franchising specifically, we have 2 models. We have the full-size restaurant, Benihana restaurant. And what we're seeing there is we're seeing a lot of interest from existing franchisees. So we have existing franchisees in the system now that are wanting to do # 2 and 3. So you'll see some new agreements and some new commitments coming from existing franchisees on the big box model. And then you probably saw that we opened up our second Benihana Express in Miami, and we got a tremendous amount of excitement around that brand. It basically offers the same food that you would see at Benihana, particularly the -- we have a really good offering in fried rice.

So there's been a lot of excitement about bringing the Benihana product without having to put the full tables in the dining room. And that model, we've actually showed that off in a lot of franchising conferences. We're starting to participate in a lot of industry events and so forth. So we're starting to get -- building up a book of people who are looking at it. And we just opened our second one. We have a third one in the pipeline. Actually, we have a third and fourth one in the pipeline that we'll be announcing in the near future. So I think the pipeline is building up for the Benihana Express as well. So we're probably 90 days out from starting to make some announcements on development agreements.

Great. And then just looking at the balance sheet. Cash at quarter end fell to about $4.5 million from $21 million at the end of the first quarter. I was wondering if anything specific behind that. Are you still comfortable with the liquidity level there? Just some more detail on that would be appreciated.

Joe, this is Tyler. Yes. So we talked a little bit about it in our prepared remarks around kind of the shifts in working capital on a week-to-week basis. And so a lot of what you're seeing there is just the difference in accrued payroll and the amount of accrued payroll that we have on the balance sheet between kind of one week to the next. So that's a big part of what's driving that. And then I think from a liquidity perspective, yes, I think we feel comfortable from just an overall liquidity position.

Yes. I think also, if you look at our capital guidance for the year and you look at our guidance and where we spent the money, we're front-ended on capital for a lot of reasons. We have the new restaurants coming up right at the beginning of the year. And I think as I answered one of the questions, we did have some planned CapEx, particularly for Benihana that we got out of the way in the first and second quarter because we want to get the HVACs and everything ready for the summer. So I think it's a function of both the working capital shift as well as a front-ended CapEx budget.

Our next question comes from Jim Sanderson of Northcoast Research.

I wanted to go back to the outlook for the back half of the year on same-store sales. I think the guide has a nice range in there. What would it take? Or how do you look at getting to the lower range to the -- in the third and fourth quarter, assuming that you're exiting around negative 4%?

Jim, it's around negative 2% really for the back half of the year.

Right. And what would it take you to get to that stronger outlook? And how you're looking at the puts and takes based on the range you provided?

You mean getting to the better end of the range on the...

Yes.

Okay. So I think probably as I mentioned earlier, obviously, going into the fourth quarter, the big variable is always the event business. So we're still kind of early on kind of figuring out what that ultimately looks like. And then as I mentioned earlier on -- to one of the other questions, I think it's really about how much throughput we can get through Benihana because that ultimately makes all the difference in the world. Said a little differently is our turn times right now is about 2 hours at Benihana. And if we can get it down to about 90 minutes in the fourth quarter, that's really what the answer is. So whatever we end up between 90 minutes and 2 hours on our turn times, we're going to make a difference on how much we can really push that fourth quarter sales, if that makes any sense.

Sure. Yes. So leaning into marketing events for holiday perhaps and then improving turn times at Benihana would be 2 variables we could -- that could see you get a little bit further along on the guide. Excellent. To that point, how do we look at the loyalty program? That's something you just launched. What do you expect out of that? Meaning do you expect higher frequency, higher average spend? Anything you can tell us how that's going to work?

Well, I think another great question. So we have 7 million members in the database now, and it's really now about creating activity with them. And so it's now a marketing game of communication and driving awareness about it. And then we're also now really engaging in sign-ups at the restaurants. So we've put a lot of efforts and campaign behind that. So I think the next 3 to 6 months is going to -- you're going to see us continue to go heavy on bringing people in and then utilizing more direct marketing to that group. As you know, in the industry today, a significant amount of visits in the industry now is with loyalty attached to it.

So we think going into the fourth quarter, again, as we build momentum with the program in the third quarter because we just very recently launched it. I think as momentum builds in loyalty, we'll start seeing a payoff of that in the fourth quarter. And for sure, I think the first quarter of next year is where we'll really see the payoff of really building up these nice databases on loyalty.

Understood. And then going back to the new Benihana location in San Mateo and that strong performance, any learnings that you can apply to the current store base that would...

Yes. So that's another great question. And yes, so the first thing that we're learning on is that we're probably going to move sushi bars to a lot of the -- to the back of the house in existing restaurants, which would free up room in a lot of our properties to add 2 to 3 tables in some of these properties. So as we start adding 2 to 3 tables in some of these properties, we should see a significant improvement on throughput. So that's kind of the short-term strategy and short-term learning out of it.

I think the other thing that we've learned from the new opening in San Mateo is having a dedicated takeout delivery station at the location takes customers away from the host stand and really opens up the flow of customers in the property, and we already have a very constricted flow because we're busy. If you go to our Benihanas on Fridays and Saturdays, it's standing room only in the front area. So having the tucked away takeout delivery really helps move through people. And we see actually, frankly, a little better turn times in that restaurant just because it's easier to flow customers from the front of the dining room to the table. So I think that's been too easy to adopt kind of learnings from that prototype for the rest of the brand.

Okay. And just one last question for me. As far as closures go, is there anything we should be thoughtful of going forward with respect to leases that would indicate further closures or exiting the RA Sushi business?

I mean, again, as I always say, we always look at portfolio, and we're always looking at seeing what makes the most sense to keep around. And frankly, we're always evaluating that. We're looking at end of lease restaurants. The reality is we have a lot of grills who are kind of at 17, 18, 19 years of life. You may know this or not, but Kona Grill's expansion period was between 2006 and 2010 was kind of like the golden age of growth for them. So on that note, there's a lot of restaurants approaching that 20-year cycle on it.

And then obviously, the decision that Tyler and I and the team have to make is do you chase an old asset that needs a massive remodel at the end of the lease and has problematic real estate? Or do we go ahead? And as I mentioned in my prepared statements, the returns on Benihana are great, right? So if you look at the San Mateo return profile or even STK has the best profile of ROIs in the industry, we're probably -- it really becomes a capital allocation exercise in terms of where we go with our capital.

Our next question comes from Roger Lipton of Lipton Financial.

Most of my questions have been answered already, but get back to San Mateo, very impressive, of course. So that leads me to wonder the Seattle, Washington location is the next Benihana to open for the company. What's the configuration there in terms of size and cost so far? And when will it open?

So Roger, so the Seattle location is on Lake Union. It's going to be a flagship type location, it has some of the best stunning water views that you can possibly get in a restaurant. So it's a really high-quality real estate. We did change it originally. We're going to do a Kona Grill there and mid design cycle, we chose to go with a Benihana instead of Kona Grill there just because we thought the revenue potential based on what we saw in San Mateo was much greater.

So it's really a matter of -- obviously, we have to go back to the city with some changes to the design and the electrical requirements. So we're still thinking that we can probably open that one by the end of the year. So that's kind of our target date for Lake Union is to get it opened by the end of this year. But it's a beautiful, stunning location, so it should do very well for the brand.

And how large is it, Manny?

That location is about 7,000-ish square feet. So it's almost identical to what we got in San Mateo.

Right. And you just made reference to reevaluating how you spend your money and allocating what was going to be a Kona. So I would imagine you're starting to rethink, assuming San Mateo continues to do as well as it has, that next year might be a little more emphasis on company-operated Benihanas than you might have previously thought?

Well, I mean, we haven't gotten there yet. But of course, as I said on my prepared statement, is the great returns on the Benihana full-size footprint actually drives franchise interest. We've seen that coming from big franchisees who want to invest in the brand. And the reality is we have a 400-plus footprint outlook for Benihana in the U.S. So we're very early on in the growth story of that. I know it's a 6-year brand, but if I look at the potential of it is we're still very early on. So the reality is to open all that 400-plus with company-owned assets is a big commitment.

So having really sized up to be a great franchise model is a good way of us accelerating the brand. And then ultimately, I think having a bigger brand allows us for a lot more marketing and advertising synergies with Benihana. So I think that's really the goal now is to grow Benihana a little faster so that we can get more marketing and advertising out of the model.

Okay. That's what I have got for now, so best of luck. We're all obviously excited about the prospects for Benihana.

Thank you, sir.

This concludes our question-and-answer session. I would now like to turn the conference call back over to Manny Hilario for any closing remarks.

Thank you. And as I always close my calls with, I want to thank our teammates. They're doing a fantastic job of living our mission every day of executing on great restaurants and creating memories, unforgettable memories all the time. So I appreciate the team continued effort on it. And frankly, they were the driver of our performance in Q2. And I look forward to seeing everybody on this call out in our restaurants. So everyone, have a great afternoon.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.