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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-39012

 

KURA SUSHI USA, INC.

 

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

26-3808434

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

17461 Derian Avenue, Suite 200

Irvine, California

92614

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (657) 333-4100

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, $0.001 par value per share

 

KRUS

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of July 2, 2024, the registrant had 10,244,893 shares of Class A common stock, $0.001 par value per share, outstanding and 1,000,050Close shares of Class B common stock, $0.001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Balance Sheets

1

Condensed Statements of Operations and Comprehensive (Loss) Income

2

 

Condensed Statements of Stockholders’ Equity

3

Condensed Statements of Cash Flows

4

Notes to Condensed Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

Signatures

28

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

delete

Kura Sushi USA, Inc.

Condensed Balance Sheets

(amounts in thousands, except par value)

(Unaudited)

 

 

 

May 31, 2024

 

 

August 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

59,405

 

 

$

69,697

 

Short-term investments

 

 

1,250

 

 

 

8,542

 

Accounts and other receivables

 

 

5,510

 

 

 

5,048

 

Inventories

 

 

2,132

 

 

 

1,747

 

Due from affiliate

 

 

 

 

 

104

 

Prepaid expenses and other current assets

 

 

3,988

 

 

 

4,233

 

Total current assets

 

 

72,285

 

 

 

89,371

 

Non-current assets:

 

 

 

 

 

 

Property and equipment – net

 

 

130,663

 

 

 

106,427

 

Operating lease right-of-use assets

 

 

117,030

 

 

 

103,884

 

Deposits and other assets

 

 

4,753

 

 

 

4,977

 

Total assets

 

$

324,731

 

 

$

304,659

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,063

 

 

$

7,248

 

Accrued expenses and other current liabilities

 

 

3,412

 

 

 

2,821

 

Salaries and wages payable

 

 

8,596

 

 

 

7,595

 

Operating lease liabilities – current

 

 

11,734

 

 

 

9,225

 

Due to affiliate

 

 

123

 

 

 

555

 

Sales tax payable

 

 

1,766

 

 

 

1,694

 

Total current liabilities

 

 

33,694

 

 

 

29,138

 

Non-current liabilities:

 

 

 

 

 

 

Operating lease liabilities – non-current

 

 

123,848

 

 

 

110,234

 

Other liabilities

 

 

763

 

 

 

646

 

Total liabilities

 

 

158,305

 

 

 

140,018

 

Commitments and contingencies (Note 8)

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 1,000 shares authorized, no shares
issued or outstanding

 

 

 

 

 

 

Class A common stock, $0.001 par value; 50,000 shares authorized,
10,243 and 10,147 shares issued and outstanding as of May 31, 2024
and August 31, 2023, respectively

 

 

10

 

 

 

10

 

Class B common stock, $0.001 par value; 10,000 shares authorized,
1,000 shares issued and outstanding as of May 31, 2024
and August 31, 2023

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

194,202

 

 

 

188,771

 

Accumulated deficit

 

 

(27,787

)

 

 

(24,184

)

Accumulated other comprehensive income

 

 

 

 

 

43

 

Total stockholders' equity

 

 

166,426

 

 

 

164,641

 

Total liabilities and stockholders' equity

 

$

324,731

 

 

$

304,659

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

1


 

Kura Sushi USA, Inc.

Condensed Statements of Operations and Comprehensive (Loss) Income

(amounts in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended May 31,

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Sales

 

$

63,082

 

 

$

49,238

 

 

$

171,848

 

 

$

132,500

 

Restaurant operating costs:

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

18,391

 

 

 

14,770

 

 

 

50,691

 

 

 

40,440

 

Labor and related costs

 

 

20,378

 

 

 

14,362

 

 

 

55,409

 

 

 

40,751

 

Occupancy and related expenses

 

 

4,318

 

 

 

3,554

 

 

 

12,179

 

 

 

9,504

 

Depreciation and amortization expenses

 

 

3,124

 

 

 

1,975

 

 

 

8,294

 

 

 

5,309

 

Other costs

 

 

9,076

 

 

 

6,165

 

 

 

25,023

 

 

 

17,352

 

Total restaurant operating costs

 

 

55,287

 

 

 

40,826

 

 

 

151,596

 

 

 

113,356

 

General and administrative expenses

 

 

8,857

 

 

 

7,012

 

 

 

25,634

 

 

 

20,776

 

Depreciation and amortization expenses

 

 

107

 

 

 

92

 

 

 

318

 

 

 

265

 

Total operating expenses

 

 

64,251

 

 

 

47,930

 

 

 

177,548

 

 

 

134,397

 

Operating (loss) income

 

 

(1,169

)

 

 

1,308

 

 

 

(5,700

)

 

 

(1,897

)

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

15

 

 

 

23

 

 

 

35

 

 

 

53

 

Interest income

 

 

(686

)

 

 

(436

)

 

 

(2,280

)

 

 

(593

)

(Loss) income before income taxes

 

 

(498

)

 

 

1,721

 

 

 

(3,455

)

 

 

(1,357

)

Income tax expense

 

 

60

 

 

 

41

 

 

 

148

 

 

 

66

 

Net (loss) income

 

$

(558

)

 

$

1,680

 

 

$

(3,603

)

 

$

(1,423

)

Net (loss) income per Class A and Class B shares

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.05

)

 

$

0.16

 

 

$

(0.32

)

 

$

(0.14

)

Diluted

 

$

(0.05

)

 

$

0.16

 

 

$

(0.32

)

 

$

(0.14

)

Weighted average Class A and Class B shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

11,188

 

 

 

10,485

 

 

 

11,167

 

 

 

10,028

 

Diluted

 

 

11,188

 

 

 

10,807

 

 

 

11,167

 

 

 

10,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on short-term investments

 

$

(76

)

 

$

(7

)

 

$

(43

)

 

$

(7

)

Comprehensive (loss) income

 

$

(634

)

 

$

1,673

 

 

$

(3,646

)

 

$

(1,430

)

 

The accompanying notes are an integral part of these condensed financial statements.

2


 

Kura Sushi USA, Inc.

Condensed Statements of Stockholders’ Equity

(amounts in thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

Class A

 

 

Class B

 

 

Paid-in

 

 

Accumulated

 

 

Other
Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balances as of August 31, 2023

 

 

10,147

 

 

$

10

 

 

 

1,000

 

 

$

1

 

 

$

188,771

 

 

$

(24,184

)

 

$

43

 

 

$

164,641

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,034

 

 

 

 

 

 

 

 

 

1,034

 

Employee stock plan

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

110

 

 

 

 

 

 

 

 

 

110

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,047

)

 

 

 

 

 

(2,047

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Balances as of November 30, 2023

 

 

10,155

 

 

$

10

 

 

 

1,000

 

 

$

1

 

 

$

189,915

 

 

$

(26,231

)

 

$

46

 

 

$

163,741

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,080

 

 

 

 

 

 

 

 

 

1,080

 

Employee stock plan

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

1,427

 

 

 

 

 

 

 

 

 

1,427

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(998

)

 

 

 

 

 

(998

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

30

 

Balances as of February 29, 2024

 

 

10,226

 

 

$

10

 

 

 

1,000

 

 

$

1

 

 

$

192,422

 

 

$

(27,229

)

 

$

76

 

 

$

165,280

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,236

 

 

 

 

 

 

 

 

 

1,236

 

Employee stock plan

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

544

 

 

 

 

 

 

 

 

 

544

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(558

)

 

 

 

 

 

(558

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(76

)

 

 

(76

)

Balances as of May 31, 2024

 

 

10,243

 

 

$

10

 

 

 

1,000

 

 

$

1

 

 

$

194,202

 

 

$

(27,787

)

 

$

 

 

$

166,426

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

Class A

 

 

Class B

 

 

Paid-in

 

 

Accumulated

 

 

Other
Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balances as of August 31, 2022

 

 

8,788

 

 

$

9

 

 

 

1,000

 

 

$

1

 

 

$

118,970

 

 

$

(25,686

)

 

$

 

 

$

93,294

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

650

 

 

 

 

 

 

 

 

 

650

 

Employee stock plan

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

 

 

 

51

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,088

)

 

 

 

 

 

(2,088

)

Balances as of November 30, 2022

 

 

8,791

 

 

$

9

 

 

 

1,000

 

 

$

1

 

 

$

119,671

 

 

$

(27,774

)

 

$

 

 

$

91,907

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

945

 

 

 

 

 

 

 

 

 

945

 

Employee stock plan

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

533

 

 

 

 

 

 

 

 

 

533

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,015

)

 

 

 

 

 

(1,015

)

Balances as of February 28, 2023

 

 

8,819

 

 

$

9

 

 

 

1,000

 

 

$

1

 

 

$

121,149

 

 

$

(28,789

)

 

$

 

 

$

92,370

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

975

 

 

 

 

 

 

 

 

 

975

 

Employee stock plan

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

423

 

 

 

 

 

 

 

 

 

423

 

Issuance of common stock in connection with follow-on public offering, net of underwriter discounts and issuance costs

 

 

1,265

 

 

 

1

 

 

 

 

 

 

 

 

 

64,298

 

 

 

 

 

 

 

 

 

64,299

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,680

 

 

 

 

 

 

1,680

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

Balances as of May 31, 2023

 

 

10,101

 

 

$

10

 

 

 

1,000

 

 

$

1

 

 

$

186,845

 

 

$

(27,109

)

 

$

(7

)

 

$

159,740

 

 

The accompanying notes are an integral part of these condensed financial statements.

3


 

Kura Sushi USA, Inc.

Condensed Statements of Cash Flows

(amounts in thousands)

(Unaudited)

 

 

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(3,603

)

 

$

(1,423

)

Adjustments to reconcile net loss to net cash provided by operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

8,612

 

 

 

5,574

 

Stock-based compensation, net of amounts capitalized

 

 

3,169

 

 

 

2,570

 

Loss on disposal of property and equipment

 

 

 

 

 

53

 

Non-cash lease expense

 

 

3,407

 

 

 

2,820

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts and other receivables

 

 

(587

)

 

 

(230

)

Inventories

 

 

(385

)

 

 

(267

)

Due from affiliate

 

 

104

 

 

 

156

 

Prepaid expenses and other current assets

 

 

1,326

 

 

 

(1,876

)

Deposits and other assets

 

 

443

 

 

 

122

 

Accounts payable

 

 

11

 

 

 

(71

)

Accrued expenses and other current liabilities

 

 

1,485

 

 

 

(1,176

)

Salaries and wages payable

 

 

1,001

 

 

 

977

 

Operating lease liabilities

 

 

3

 

 

 

(341

)

Due to affiliate

 

 

(23

)

 

 

26

 

Sales tax payable

 

 

(20

)

 

 

149

 

Net cash provided by operating activities

 

 

14,943

 

 

 

7,063

 

Cash flows from investing activities

 

 

 

 

 

 

Payments for property and equipment

 

 

(33,977

)

 

 

(27,215

)

Payments for initial direct costs

 

 

(309

)

 

 

(320

)

Payments for purchases of liquor licenses

 

 

(219

)

 

 

(947

)

Purchases of short-term investments

 

 

(3,251

)

 

 

(8,749

)

Redemption of short-term investments

 

 

10,499

 

 

 

 

Net cash used in investing activities

 

 

(27,257

)

 

 

(37,231

)

Cash flows from financing activities

 

 

 

 

 

 

Repayment of principal on finance leases

 

 

(60

)

 

 

(446

)

Taxes paid on vested restricted stock awards

 

 

(217

)

 

 

 

Proceeds from exercise of stock options

 

 

2,299

 

 

 

1,007

 

Proceeds from the follow-on public offering, net of discounts and commissions

 

 

 

 

 

64,895

 

Payments of costs related to the follow-on offering

 

 

 

 

 

(596

)

Net cash provided by financing activities

 

 

2,022

 

 

 

64,860

 

Decrease in cash and cash equivalents

 

 

(10,292

)

 

 

34,692

 

Cash and cash equivalents, beginning of period

 

 

69,697

 

 

 

35,782

 

Cash and cash equivalents, end of period

 

$

59,405

 

 

$

70,474

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash paid for income taxes

 

$

282

 

 

$

185

 

Noncash investing activities

 

 

 

 

 

 

Amounts unpaid for purchases of property and equipment

 

$

1,276

 

 

$

1,706

 

 

The accompanying notes are an integral part of these condensed financial statements.

4


 

Kura Sushi USA, Inc.

Notes to Condensed Financial Statements

(Unaudited)

Note 1. Organization and Basis of Presentation

Kura Sushi USA, Inc. is a technology-enabled Japanese restaurant concept that provides guests with a distinctive dining experience by serving authentic Japanese cuisine through an engaging revolving sushi service model, which the Company refers to as the “Kura Experience.” Kura Sushi encourages healthy lifestyles by serving freshly prepared Japanese cuisine using high-quality ingredients that are free from artificial seasonings, sweeteners, colorings, and preservatives. Kura Sushi aims to make quality Japanese cuisine accessible to its guests across the United States through affordable prices and an inviting atmosphere. “Kura Sushi USA,” “Kura Sushi,” “Kura,” “our” and the “Company” refer to Kura Sushi USA, Inc. unless expressly indicated or the context otherwise requires.

Basis of Presentation

The accompanying unaudited condensed financial statements (the “Condensed Financial Statements”) have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. As such, these Condensed Financial Statements should be read in conjunction with the Company’s audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended August 31, 2023.

The accounting policies followed by the Company are set forth in Part II, Item 8, Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to Financial Statements included in the Company’s Annual Report on Form 10‑K for the fiscal year ended August 31, 2023. In the opinion of management, all adjustments necessary to fairly state the Condensed Financial Statements have been made. All such adjustments are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of results to be expected for the fiscal year ending August 31, 2024 or for any other future annual or interim period.

Fiscal Year

The Company’s fiscal year begins on September 1 and ends on August 31, and references made to “fiscal year 2024” and “fiscal year 2023” refer to the Company’s fiscal years ending August 31, 2024 and ended August 31, 2023, respectively.

Use of Estimates

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented.

Significant items subject to such estimates include asset retirement obligations, stock-based compensation, the useful lives of assets, the assessment of the recoverability of long-lived assets, and income taxes. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions.

Short-Term Investments

Short-term investments consist of certificates of deposits and Treasury bills. The Company considers all highly liquid investments with an original maturity date greater than three months but less than one year as short-term investments. The carrying value of the short-term investments is equivalent to their amortized cost basis. As of May 31, 2024 and August 31, 2023, short-term investments were $1.3 million and $8.5 million, respectively. The certificates of deposits are deposited at Federal Deposit Insurance Corporation (“FDIC”) insured banks. The certificates of deposits are in amounts of $250,000 and deposited in multiple banks to ensure that the entire deposit balance is eligible for FDIC insurance. Certificates of deposits and Treasury bills are classified as available-for-sale debt securities which are measured at fair value with unrealized gains or losses recorded in other comprehensive income (loss). As of May 31, 2024, the Company recorded no unrealized gains or losses on short-term investments in accumulated other comprehensive income (loss). The Company reclassified $76 thousand out of accumulated other comprehensive income into earnings for the period related to maturities of certificates of deposits and a Treasury bill, which consisted of $75 thousand in realized gains on a Treasury bill and $1 thousand in realized gains on certificates of deposits. The Company determines realized gains or losses

5


 

on the available-for-sale debt securities on a specific identification method basis. Based on the evaluation of credit risk factors, the Company has concluded that an allowance for credit losses is unnecessary for its short-term investments.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s short-term investments consist of certificates of deposits and Treasury bills that are classified as available-for-sale debt securities which are measured at fair value with unrealized gains or losses recorded in other comprehensive income (loss).

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which requires greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid and effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the effects of this pronouncement on its financial statements and expects the update to result in additional disclosures.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance in this update is effective for all public entities for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the effects of this pronouncement on its financial statements and expects the update to result in additional disclosures.

 

Note 2. Balance Sheet Components

 

Accounts and Other Receivables

 

 

 

May 31, 2024

 

 

August 31, 2023

 

 

 

(amounts in thousands)

 

Lease receivables

 

$

3,813

 

 

$

3,973

 

Credit card and other receivables

 

 

1,697

 

 

 

1,075

 

Total accounts and other receivables

 

$

5,510

 

 

$

5,048

 

 

Property and Equipment - net

 

 

 

May 31, 2024

 

 

August 31, 2023

 

 

 

(amounts in thousands)

 

Leasehold improvements

 

$

97,827

 

 

$

75,472

 

Lease assets

 

 

6,229

 

 

 

6,247

 

Furniture and fixtures

 

 

49,114

 

 

 

34,213

 

Computer equipment

 

 

3,650

 

 

 

2,792

 

Vehicles

 

 

220

 

 

 

220

 

Software

 

 

1,017

 

 

 

1,016

 

Construction in progress

 

 

8,620

 

 

 

14,369

 

Property and equipment – gross

 

 

166,677

 

 

 

134,329

 

Less: accumulated depreciation and amortization

 

 

(36,014

)

 

 

(27,902

)

Total property and equipment – net

 

$

130,663

 

 

$

106,427

 

 

Depreciation and amortization expense for property and equipment was $3.2 million and $2.1 million for the three months ended May 31, 2024 and May 31, 2023, respectively, and was $8.6 million and $5.6 million for the nine months ended May 31, 2024 and May 31, 2023, respectively.

 

6


 

Note 3. Leases

The Company has operating and finance leases for its corporate office, restaurant locations, office equipment, kitchen equipment and automobiles. The Company’s finance leases are immaterial. The Company’s leases have remaining lease terms of less than 1 year to 20 years, some of which include options to extend the leases.

Lease related costs recognized in the statements of operations and comprehensive income (loss) are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended May 31,

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(amounts in thousands)

 

Operating lease cost

Classification

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost

Occupancy and related expenses, other costs and general and administrative expenses

$

3,380

 

 

$

3,208

 

 

$

9,678

 

 

$

7,450

 

Variable lease cost

Occupancy and related expenses, and general and administrative expenses

 

992

 

 

 

1,072

 

 

 

2,567

 

 

 

2,307

 

Total operating lease cost

 

$

4,372

 

 

$

4,280

 

 

$

12,245

 

 

$

9,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental balance sheet information related to leases is as follows:

 

Operating Leases

 

 

 

May 31, 2024

 

 

August 31, 2023

 

 

 

(amounts in thousands)

 

Right-of-use assets

 

$

117,030

 

 

$

103,884

 

 

 

 

 

 

 

 

Lease liabilities – current

 

$

11,734

 

 

$

9,225

 

Lease liabilities – non-current

 

 

123,848

 

 

 

110,234

 

Total lease liabilities

 

$

135,582

 

 

$

119,459

 

 

 

 

 

 

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

Weighted Average Remaining Lease Term (Years)

 

 

 

 

 

 

Operating leases

 

 

16.5

 

 

 

16.3

 

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

 

 

Operating leases

 

 

7.1

%

 

 

6.6

%

 

Supplemental disclosures of cash flow information related to leases are as follows:

 

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

 

 

(amounts in thousands)

 

Operating cash flows paid for operating lease liabilities

 

$

7,769

 

 

$

5,775

 

Operating right-of-use assets obtained in exchange for new operating lease liabilities

 

$

17,774

 

 

$

18,415

 

 

7


 

 

As of May 31, 2024, the Company had an additional $44.7 million of operating leases related to restaurants for which the Company had not yet taken possession. Subsequent to May 31, 2024, the Company entered into two additional operating leases related to restaurants for which the Company has not yet taken possession. The lease liabilities associated with the leases after May 31, 2024 are $15.6 million. The operating leases are expected to commence in fiscal year 2025, with lease terms of up to 30 years.

 

Maturities of lease liabilities, net of lease receivables, were as follows:

 

 

 

Operating Leases

 

 

 

(amounts in thousands)

 

Remainder of 2024

 

$

380

 

2025

 

 

9,940

 

2026

 

 

12,373

 

2027

 

 

13,111

 

2028

 

 

12,730

 

Thereafter

 

 

184,104

 

Total lease payments

 

 

232,638

 

Less: imputed interest

 

 

(97,056

)

Present value of lease liabilities

 

$

135,582

 

 

Note 4. Related Party Transactions

Kura Sushi, Inc. (“Kura Japan”) is the majority stockholder of the Company and is incorporated and headquartered in Japan. In August 2019, the Company entered into a Shared Services Agreement with Kura Japan, pursuant to which Kura Japan provides the Company with certain strategic, operational and other support services, including assigning certain employees to work for the Company as expatriates to provide support to the Company’s operations, sending its employees to the Company on a short-term basis to provide support for the opening of new restaurants or renovation of existing restaurants, and providing the Company with certain supplies, parts and equipment for use in the Company’s restaurants. In addition, the Company has agreed to continue to provide Kura Japan with certain translational support services and market research. In exchange for such services, supplies, parts and equipment, the parties pay fees to each other as set forth under the Shared Services Agreement. A right of setoff is not required; however, from time to time, either party will net settle transactions as needed. Purchases of administrative supplies, expatriate salaries and travel and other administrative expenses payable to Kura Japan are included in general and administrative expenses in the accompanying statements of operations and comprehensive income (loss). Purchases of equipment from Kura Japan are included in property and equipment in the accompanying balance sheets.

In August 2019, the Company entered into an Amended and Restated Exclusive License Agreement (the “License Agreement”) with Kura Japan. Pursuant to the License Agreement, the Company pays Kura Japan a royalty fee of 0.5% of the Company’s net sales in exchange for an exclusive, royalty-bearing license for the use of certain of Kura Japan’s intellectual property rights, including, but not limited to, Kura Japan’s trademarks for “Kura Sushi,” “Mr. Fresh” and “Kura Revolving Sushi Bar,” and patents for a food management system and the Mr. Fresh protective dome, among other intellectual property rights necessary to continue operation of the Company’s restaurants. Royalty payments to Kura Japan are included in other costs at the restaurant level in the accompanying statements of operations and comprehensive income (loss).

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement, as amended, to provide the Company a revolving credit line of $45.0 million (the “Revolving Credit Agreement”). For additional information, see “Note 6. Debt.”

Balances with Kura Japan are as follows:

 

 

 

May 31, 2024

 

 

August 31, 2023

 

 

 

(amounts in thousands)

 

Due from affiliate

 

$

 

$

104

 

Due to affiliate

 

$

123

 

$

555

 

 

8


 

 

Reimbursements and other payments by the Company to Kura Japan were as follows:

 

 

 

Three Months Ended May 31,

 

 

Nine Months Ended May 31

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(amounts in thousands)

 

Related party transactions:

 

 

 

 

 

 

 

 

 

 

 

 

Expatriate salaries expense

 

$

33

 

 

$

33

 

 

$

124

 

 

$

87

 

Royalty payments

 

 

314

 

 

 

246

 

 

 

859

 

 

 

663

 

Travel and other administrative expenses

 

 

 

 

 

 

 

 

6

 

 

 

30

 

Purchases of equipment

 

 

374

 

 

 

568

 

 

 

1,811

 

 

 

2,024

 

Total related party transactions

 

$

721

 

 

$

847

 

 

$

2,800

 

 

$

2,804

 

 

Reimbursements by Kura Japan to the Company were $42 thousand and $7 thousand for the three months ended May 31, 2024 and May 31, 2023, respectively and were $264 thousand and $67 thousand for the nine months ended May 31, 2024 and May 31, 2023, respectively. The reimbursements were primarily for directors and officers liability insurance, travel, professional fees and other administrative expenses.

Note 5. Stock-based Compensation

The following table summarizes the stock option activity under the Company’s 2018 Incentive Compensation Plan, as amended and restated (the “Stock Incentive Plan”):

 

 

 

Options Outstanding

 

 

 

Number of Shares
Underlying
Outstanding Options

 

 

Weighted Average
Exercise
Price Per Share

 

 

 

 

 

 

 

 

 Outstanding — August 31, 2023

 

 

653,395

 

 

$

34.25

 

Granted

 

 

16,360

 

 

$

72.25

 

Exercised

 

 

(7,241

)

 

$

15.15

 

Cancelled/forfeited

 

 

(3,816

)

 

$

56.75

 

 Outstanding — November 30, 2023

 

 

658,698

 

 

$

35.27

 

Granted

 

 

49,420

 

 

$

95.04

 

Exercised

 

 

(64,581

)

 

$

25.00

 

Cancelled/forfeited

 

 

(6,786

)

 

$

71.09

 

 Outstanding — February 29, 2024

 

 

636,751

 

 

$

40.57

 

Granted

 

 

3,199

 

 

$

104.47

 

Exercised

 

 

(16,391

)

 

$

35.30

 

Cancelled/forfeited

 

 

(2,169

)

 

$

69.57

 

 Outstanding — May 31, 2024

 

 

621,390

 

 

$

40.94

 

 

9


 

The following table summarizes the restricted stock unit (“RSU”) activity under the Stock Incentive Plan:

 

 

Number of Shares
Underlying
Outstanding RSU

 

 

Weighted Average
Grant Date
 Fair Value

 

Outstanding — August 31, 2023

 

 

31,105

 

 

$

69.88

 

Granted

 

 

 

 

 

 

Vested

 

 

(1,359

)

 

$

73.58

 

Cancelled/forfeited

 

 

(351

)

 

$

62.14

 

 Outstanding — November 30, 2023

 

 

29,395

 

 

$

69.80

 

Granted

 

 

19,939

 

 

$

98.13

 

Vested

 

 

(8,095

)

 

$

62.14

 

Cancelled/forfeited

 

 

(436

)

 

$

66.10

 

 Outstanding — February 29, 2024

 

 

40,803

 

 

$

85.20

 

Granted

 

 

 

 

 

 

Vested

 

 

(8

)

 

$

62.14

 

Cancelled/forfeited

 

 

(495

)

 

$

83.73

 

 Outstanding — May 31, 2024

 

 

40,300

 

 

$

85.23

 

The total stock-based compensation recognized under the Stock Incentive Plan in the statements of operations and comprehensive income (loss) is as follows:

 

 

Three Months Ended May 31,

 

 

Nine Months Ended May 31,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

(amounts in thousands)

 

Restaurant-level stock-based compensation included in other costs

$

194

 

 

$

163

 

 

$

497

 

 

$

382

 

Corporate-level stock-based compensation included in general and administrative expenses

 

1,003

 

 

 

812

 

 

 

2,672

 

 

 

2,188

 

Stock-based compensation, net of amounts capitalized

 

1,197

 

 

 

975

 

 

 

3,169

 

 

 

2,570

 

Amount capitalized to Property and Equipment - net

 

39

 

 

 

 

 

 

181

 

 

 

 

Total stock-based compensation

$

1,236

 

 

$

975

 

 

$

3,350

 

 

$

2,570

 

 

Note 6. Debt

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement, as amended, establishing a $45.0 million revolving credit line for the Company. The maturity date for each advance is 60 months from the date of disbursement and the last day of the period of availability for advances is April 10, 2025. The Revolving Credit Note under the Revolving Credit Agreement has an interest rate for advances fixed at 130% of the Annual Compounding Long-Term Applicable Federal Rate (“AFR”) on the date such advance is made. There are no financial covenants under the Revolving Credit Agreement with which the Company must comply.

As of May 31, 2024 and August 31, 2023, the Company had no outstanding balance and $45.0 million of availability remaining under the Revolving Credit Agreement. For additional information, see “Note 4. Related Party Transactions.”

Note 7. (Loss) Income Per Share

The net income (loss) per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the income for the year had been distributed. As the liquidation and dividend rights for Class A and Class B common stock are identical, the net loss attributable to all common stockholders is allocated on a proportionate basis.

10


 

The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share:

 

 

 

Three Months Ended May 31,

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

 

 

2024

 

 

2023

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

 

 

(amounts in thousands, except per share data)

 

Net income (loss) attributable to common stockholders

 

$

(508

)

 

$

(50

)

 

$

1,520

 

 

$

160

 

 

 

$

(3,280

)

 

$

(323

)

 

$

(1,281

)

 

$

(142

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders – diluted

 

$

(508

)

 

$

(50

)

 

$

1,525

 

 

$

155

 

 

 

$

(3,280

)

 

$

(323

)

 

$

(1,281

)

 

$

(142

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic

 

 

10,188

 

 

 

1,000

 

 

 

9,485

 

 

 

1,000

 

 

 

 

10,167

 

 

 

1,000

 

 

 

9,028

 

 

 

1,000

 

Dilutive effect of stock-based awards

 

 

 

 

 

 

 

 

322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – diluted

 

 

10,188

 

 

 

1,000

 

 

 

9,807

 

 

 

1,000

 

 

 

 

10,167

 

 

 

1,000

 

 

 

9,028

 

 

 

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders – basic

 

$

(0.05

)

 

$

(0.05

)

 

$

0.16

 

 

$

0.16

 

 

 

$

(0.32

)

 

$

(0.32

)

 

$

(0.14

)

 

$

(0.14

)

Net income (loss) per share attributable to common stockholders – diluted

 

$

(0.05

)

 

$

(0.05

)

 

$

0.16

 

 

$

0.16

 

 

 

$

(0.32

)

 

$

(0.32

)

 

$

(0.14

)

 

$

(0.14

)

 

The Company computes basic income (loss) per common share using net income (loss) and the weighted average number of common shares outstanding during the period, and computes diluted income (loss) per common share using net income (loss) and the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include dilutive outstanding employee stock options and restricted stock units.

For the three and nine months ended May 31, 2024, there were 662 thousand shares of common stock subject to outstanding employee stock options and RSUs that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive. For the three months ended May 31, 2023 , there were 201 thousand shares of common stock subject to outstanding employee stock options and RSUs that were excluded from the calculation of diluted income per share because their inclusion would have been anti-dilutive. For the nine months ended May 31, 2023, there were 729 thousand shares of common stock subject to outstanding employee stock options and RSUs that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.


 

Note 8. Commitments and Contingencies

On January 19, 2024, two former employees initiated arbitration against the Company. Subsequently, on February 26, 2024, three additional former employees initiated a separate arbitration against the Company. Both sets of claimants allege violations of the Fair Labor Standards Act (“FLSA”) and violations of certain Washington, D.C. wage laws. Each arbitration will proceed separately. The Company recorded an accrued liability of $0.6 million related to these matters within general and administrative expenses in the statements of operations during the three months ended May 31, 2024, as the liability associated with these matters became probable and reasonably estimable based on information available to the Company. As the Company receives new information, it will reevaluate its estimated liability, which may exceed the amount accrued and could adversely affect the Company’s financial position, results of operations or cash flows.

The Company is involved from time to time in various legal proceedings that arise in the ordinary course of business, including but not limited to commercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation in connection with transactions, including acquisitions and divestitures. In the opinion of management, the Company does not believe that such litigation, claims, and administrative proceedings will have a material adverse effect on its business, financial position, results of operations or cash flows. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims, including the putative class action referenced above, could materially and adversely affect its business, financial condition, results of operations or cash flows. The Company records a liability when a loss is considered probable, and the amount can be reasonably estimated.

11


 

Note 9. Income Taxes

The Company recorded an income tax expense of $60 thousand and $41 thousand for the three months ended May 31, 2024 and May 31, 2023, respectively and income tax expense of $148 thousand and $66 thousand for the nine months ended May 31, 2024 and May 31, 2023, respectively. The Company’s effective tax rates for the three and nine months ended May 31, 2024 substantially differed from the federal statutory tax rate of 21% primarily due to a valuation allowance for the Company’s deferred tax assets and permanent difference related to employer tip credit.

The Company continually monitors and performs an assessment of the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets using a “more likely than not” standard. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Based on the Company’s review of this evidence, management determined that a full valuation allowance against all of the Company’s net deferred tax assets at May 31, 2024 was appropriate.

12


 

Note 10. Fair Value Measurements

The following table sets forth the Company’s assets measured at fair value on a recurring basis as of May 31, 2024.

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

(amounts in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposits

$

 

 

$

1,250

 

 

$

 

 

$

1,250

 

Treasury bills

 

 

 

 

 

 

 

 

 

 

 

Total assets at fair value

$

 

 

$

1,250

 

 

$

 

 

$

1,250

 

 

The Company’s cash and cash equivalents include cash on hand, deposits in banks, certificates of deposits and money market funds. Due to their short-term nature, the carrying amounts reported in the accompanying balance sheets approximate the fair value of cash and cash equivalents. The fair value of our certificates of deposits are considered using Level 2 inputs of the fair value hierarchy. Level 2 inputs are based on market data that include factors such as interest rates, market and pricing activity and other market-based valuation techniques. The Company determines realized gains or losses on the available-for-sale debt securities on a specific identification method basis.

13


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

delete

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited financial statements and the related notes included in this Quarterly Report on Form 10-Q and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2023 (the “Annual Report”).

In addition to historical information, the following discussion and analysis contains forward-looking statements, such as statements about our plans, objectives, expectations, and intentions, which are based on current expectations and that involve risks, uncertainties and assumptions as set forth and described in the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of the Annual Report. You should review those sections in our Annual Report for a discussion of important factors, including the continuing development of our business and other factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q.

“Kura Sushi USA,” “Kura Sushi,” “Kura,” “we,” “us,” “our,” “our company” and the “Company” refer to Kura Sushi USA, Inc. unless expressly indicated or the context otherwise requires.

Overview

Kura Sushi USA is a technology-enabled Japanese restaurant concept that provides guests with a distinctive dining experience by serving authentic Japanese cuisine through an engaging revolving sushi service model, which we refer to as the “Kura Experience.” We encourage healthy lifestyles by serving freshly prepared Japanese cuisine using high-quality ingredients that are free from artificial seasonings, sweeteners, colorings, and preservatives. We aim to make quality Japanese cuisine accessible to our guests across the United States through affordable prices and an inviting atmosphere.

Business Trends

During the nine months ended May 31, 2024, we opened 13 restaurants and expanded our restaurant base to 63 restaurants in seventeen states and Washington, DC. We expect to open a total of 14 new restaurants in fiscal year 2024 and therefore, we expect our revenue and restaurant operating costs to increase in fiscal year 2024. We also expect our general and administrative expenses to increase on a dollar basis in fiscal 2024 to support the growth of the company and the compliance requirements of no longer being an emerging growth company.

We have experienced inflationary pressures affecting our operations in certain areas such as labor, repairs and maintenance, restaurant supplies and energy costs. We have been able to partially offset these inflationary and other cost pressures to some extent through various actions, such as increasing menu prices, productivity improvements, and supply chain initiatives. Although inflation has moderated so far in 2024, inflation may continue to affect our results in the near future. In addition, our restaurant sales have softened since mid-April due to macroeconomic conditions of lower consumer spending.

Key Financial Definitions

Sales. Sales represent sales of food and beverages in restaurants. Restaurant sales in a given period are directly impacted by the number of restaurants we operate and comparable restaurant sales performance.

Food and beverage costs. Food and beverage costs are variable in nature, change with sales volume and are influenced by menu mix and subject to increases or decreases based on fluctuations in commodity costs. Other important factors causing fluctuations in food and beverage costs include seasonality and restaurant-level management of food waste. Food and beverage costs are a substantial expense and are expected to grow proportionally as our sales grow.

Labor and related expenses. Labor and related expenses include all restaurant-level management and hourly labor costs, including wages, employee benefits and payroll taxes. Similar to the food and beverage costs that we incur, labor and related expenses are expected to grow proportionally as our sales grow. Factors that influence fluctuations in our labor and related expenses include minimum wage and payroll tax legislation, the frequency and severity of workers’ compensation claims, healthcare costs and the performance of our restaurants.

14


 

Occupancy and related expenses. Occupancy and related expenses include rent for all restaurant locations and related taxes.

Depreciation and amortization expenses. Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including equipment and capitalized leasehold improvements. Depreciation is determined using the straight-line method over the assets’ estimated useful lives, which range from three to 20 years.

Other costs. Other costs include credit card processing fees, repairs and maintenance, restaurant-level advertising and promotions, restaurant supplies, royalty payments to Kura Japan, stock-based compensation for restaurant-level employees, utilities and other restaurant-level expenses.

General and administrative expenses. General and administrative expenses include expenses associated with corporate and regional supervision functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, travel expenses, stock-based compensation for corporate-level employees, legal and professional fees, marketing costs, information systems, corporate office rent and other related corporate costs. General and administrative expenses are expected to grow as our unit base grows.

Interest expense. Interest expense includes cash and non-cash charges related to our line of credit and finance lease obligations.

Interest income. Interest income includes income earned on our money market funds.

Income tax expense (benefit). Provision for income taxes represents federal, state and local current and deferred income tax expense (benefit).

 

15


 

Results of Operations

The following tables present selected comparative results of operations for the three and nine months ended May 31, 2024 and May 31, 2023. Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods. Certain totals for the tables below may not recalculate or sum to 100% due to rounding.

 

 

 

Three Months Ended May 31,

 

 

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

 

 

 

(dollar amounts in thousands)

 

 

Sales

 

$

63,082

 

 

$

49,238

 

 

$

13,844

 

 

 

28.1

 

%

Restaurant operating costs

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

18,391

 

 

 

14,770

 

 

 

3,621

 

 

 

24.5

 

 

Labor and related costs

 

 

20,378

 

 

 

14,362

 

 

 

6,016

 

 

 

41.9

 

 

Occupancy and related expenses

 

 

4,318

 

 

 

3,554

 

 

 

764

 

 

 

21.5

 

 

Depreciation and amortization expenses

 

 

3,124

 

 

 

1,975

 

 

 

1,149

 

 

 

58.2

 

 

Other costs

 

 

9,076

 

 

 

6,165

 

 

 

2,911

 

 

 

47.2

 

 

Total restaurant operating costs

 

 

55,287

 

 

 

40,826

 

 

 

14,461

 

 

 

35.4

 

 

General and administrative expenses

 

 

8,857

 

 

 

7,012

 

 

 

1,845

 

 

 

26.3

 

 

Depreciation and amortization expenses

 

 

107

 

 

 

92

 

 

 

15

 

 

 

16.3

 

 

Total operating expenses

 

 

64,251

 

 

 

47,930

 

 

 

16,321

 

 

 

34.1

 

 

Operating (loss) income

 

 

(1,169

)

 

 

1,308

 

 

 

(2,477

)

 

 

(189.4

)

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

15

 

 

 

23

 

 

 

(8

)

 

 

(34.8

)

 

Interest income

 

 

(686

)

 

 

(436

)

 

 

(250

)

 

 

57.3

 

 

(Loss) income before income taxes

 

 

(498

)

 

 

1,721

 

 

 

(2,219

)

 

 

(128.9

)

 

Income tax expense

 

 

60

 

 

 

41

 

 

 

19

 

 

 

46.3

 

 

Net (loss) income

 

$

(558

)

 

$

1,680

 

 

$

(2,238

)

 

 

133.2

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended May 31,

 

 

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

 

 

 

(dollar amounts in thousands)

 

 

Sales

 

$

171,848

 

 

$

132,500

 

 

$

39,348

 

 

 

29.7

 

%

Restaurant operating costs

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

50,691

 

 

 

40,440

 

 

 

10,251

 

 

 

25.3

 

 

Labor and related costs

 

 

55,409

 

 

 

40,751

 

 

 

14,658

 

 

 

36.0

 

 

Occupancy and related expenses

 

 

12,179

 

 

 

9,504

 

 

 

2,675

 

 

 

28.1

 

 

Depreciation and amortization expenses

 

 

8,294

 

 

 

5,309

 

 

 

2,985

 

 

 

56.2

 

 

Other costs

 

 

25,023

 

 

 

17,352

 

 

 

7,671

 

 

 

44.2

 

 

Total restaurant operating costs

 

 

151,596

 

 

 

113,356

 

 

 

38,240

 

 

 

33.7

 

 

General and administrative expenses

 

 

25,634

 

 

 

20,776

 

 

 

4,858

 

 

 

23.4

 

 

Depreciation and amortization expenses

 

 

318

 

 

 

265

 

 

 

53

 

 

 

20.0

 

 

Total operating expenses

 

 

177,548

 

 

 

134,397

 

 

 

43,151

 

 

 

32.1

 

 

Operating loss

 

 

(5,700

)

 

 

(1,897

)

 

 

(3,803

)

 

 

(200.5

)

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

35

 

 

 

53

 

 

 

(18

)

 

 

(34.0

)

 

Interest income

 

 

(2,280

)

 

 

(593

)

 

 

(1,687

)

 

 

284.5

 

 

Loss before income taxes

 

 

(3,455

)

 

 

(1,357

)

 

 

(2,098

)

 

 

154.6

 

 

Income tax expense

 

 

148

 

 

 

66

 

 

 

82

 

 

 

124.2

 

 

Net loss

 

$

(3,603

)

 

$

(1,423

)

 

$

(2,180

)

 

 

153.2

 

%

 

16


 

 

 

 

Three Months Ended May 31,

 

 

 

Nine Months Ended May 31,

 

 

 

 

2024

 

 

 

2023

 

 

 

2024

 

 

 

2023

 

 

 

 

(as a percentage of sales)

 

 

Sales

 

 

100.0

 

%

 

 

100.0

 

%

 

 

100.0

 

%

 

 

100.0

 

%

Restaurant operating costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

29.2

 

 

 

 

30.0

 

 

 

 

29.5

 

 

 

 

30.5

 

 

Labor and related costs

 

 

32.3

 

 

 

 

29.2

 

 

 

 

32.2

 

 

 

 

30.8

 

 

Occupancy and related expenses

 

 

6.8

 

 

 

 

7.2

 

 

 

 

7.1

 

 

 

 

7.2

 

 

Depreciation and amortization expenses

 

 

5.0

 

 

 

 

4.0

 

 

 

 

4.8

 

 

 

 

4.0

 

 

Other costs

 

 

14.4

 

 

 

 

12.5

 

 

 

 

14.6

 

 

 

 

13.1

 

 

Total restaurant operating costs

 

 

87.6

 

 

 

 

82.9

 

 

 

 

88.2

 

 

 

 

85.6

 

 

General and administrative expenses

 

 

14.0

 

 

 

 

14.2

 

 

 

 

14.9

 

 

 

 

15.7

 

 

Depreciation and amortization expenses

 

 

0.2

 

 

 

 

0.2

 

 

 

 

0.2

 

 

 

 

0.2

 

 

Total operating expenses

 

 

101.8

 

 

 

 

97.3

 

 

 

 

103.3

 

 

 

 

101.5

 

 

Operating (loss) income

 

 

(1.8

)

 

 

 

2.7

 

 

 

 

(3.3

)

 

 

 

(1.6

)

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

Interest income

 

 

(1.1

)

 

 

 

(0.9

)

 

 

 

(1.3

)

 

 

 

(0.4

)

 

(Loss) income before income taxes

 

 

(0.7

)

 

 

 

3.6

 

 

 

 

(2.0

)

 

 

 

(1.2

)

 

Income tax expense

 

 

0.1

 

 

 

 

0.1

 

 

 

 

0.1

 

 

 

 

 

 

Net (loss) income

 

 

(0.8

)

%

 

 

3.5

 

%

 

 

(2.1

)

%

 

 

(1.2

)

%

 

Three Months Ended May 31, 2024 Compared to Three Months Ended May 31, 2023

Sales. Sales were $63.1 million for the three months ended May 31, 2024 compared to $49.2 million for the three months ended May 31, 2023, representing an increase of $13.9 million, or 28.1%. The increase in sales was primarily driven by the sales resulting from seventeen new restaurants opened subsequent to May 31, 2023, as well as increases in menu prices during the same period. Comparable restaurant sales increased 0.6% for the three months ended May 31, 2024, as compared to the three months ended May 31, 2023.

Food and beverage costs. Food and beverage costs were $18.4 million for the three months ended May 31, 2024 compared to $14.8 million for the three months ended May 31, 2023, representing an increase of $3.6 million, or 24.5%. The increase in food and beverage costs was primarily driven by costs associated with sales from seventeen new restaurants opened subsequent to May 31, 2023. As a percentage of sales, food and beverage costs decreased to 29.2% in the three months ended May 31, 2024 as compared to 30.0% in the three months ended May 31, 2023, primarily due to increases in menu prices and supply chain initiatives.

Labor and related costs. Labor and related costs were $20.4 million for the three months ended May 31, 2024 compared to $14.4 million for the three months ended May 31, 2023, representing an increase of $6.0 million, or 41.9%. This increase in labor and related costs was primarily driven by additional labor costs incurred from seventeen new restaurants opened subsequent to May 31, 2023. As a percentage of sales, labor and related costs increased to 32.3% in the three months ended May 31, 2024 as compared to 29.2% in the three months ended May 31, 2023. The increase in cost as a percentage of sales was primarily due to increases in wage rates and higher pre-opening labor costs.

17


 

Occupancy and related expenses. Occupancy and related expenses were $4.3 million for the three months ended May 31, 2024 compared to $3.6 million for the three months ended May 31, 2023, representing an increase of $0.7 million, or 21.5%. The increase was primarily a result of additional lease expense related to the opening of seventeen new restaurants subsequent to May 31, 2023. As a percentage of sales, occupancy and related expenses decreased to 6.8% in the three months ended May 31, 2024 as compared to 7.2% in the three months ended May 31, 2023, primarily driven by leverage benefits from the increase in sales.

Depreciation and amortization expenses. Depreciation and amortization expenses incurred as part of restaurant operating costs were $3.1 million for the three months ended May 31, 2024 compared to $2.0 million for the three months ended May 31, 2023, representing an increase of $1.1 million, or 58.2%. The increase consists of depreciation of property and equipment related to the seventeen new restaurants that opened subsequent to May 31, 2023. As a percentage of sales, depreciation and amortization expenses at the restaurant level increased to 5.0% in the three months ended May 31, 2024 as compared to 4.0% in the three months ended May 31, 2023, primarily driven by increases in depreciation and amortization due to the new restaurants opened as well as accelerated depreciation on planned restaurant remodels. Depreciation and amortization expenses incurred at the corporate level were $0.1 million for both the three months ended May 31, 2024 and May 31, 2023, and as a percentage of sales were both 0.2%, respectively.

Other costs. Other costs were $9.1 million for the three months ended May 31, 2024 compared to $6.2 million for the three months ended May 31, 2023, representing an increase of $2.9 million, or 47.2%. The increase was primarily driven by an increase in costs related to the seventeen new restaurants that opened subsequent to May 31, 2023. As a percentage of sales, other costs increased to 14.4% in the three months ended May 31, 2024 as compared to 12.5% in the three months ended May 31, 2023, primarily driven by advertising and promotion, software licenses, repairs and maintenance, utilities, operating supplies and travel expenses.

General and administrative expenses. General and administrative expenses were $8.9 million for the three months ended May 31, 2024 compared to $7.0 million for the three months ended May 31, 2023, representing an increase of $1.9 million, or 26.3%. This increase was primarily due to increases in $0.7 million in professional fees, $0.6 million in litigation accrual, compensation-related costs of $0.4 million due to additional headcount and $0.2 million in travel expenses. As a percentage of sales, general and administrative expenses decreased to 14.0% in the three months ended May 31, 2024 as compared to 14.2% in the three months ended May 31, 2023, primarily driven by leverage benefits from the increase in sales.

Interest expense. Interest expense was $15 thousand for the three months ended May 31, 2024 compared to $23 thousand for the three months ended May 31, 2023, respectively.

Interest income. Interest income was $686 thousand for the three months ended May 31, 2024 compared to $436 thousand for the three months ended May 31, 2023. The increase was primarily driven by investing our net cash proceeds from our $64.3 million follow-on offering completed in April 2023 into cash and cash equivalents and short-term investments.

Income tax expense. Income tax expense was $60 thousand for the three months ended May 31, 2024 compared to an income tax expense of $41 thousand for the three months ended May 31, 2023. For further discussion of our income taxes, see “Note 9. Income Taxes” in the Notes to Condensed Financial Statements.

Nine Months Ended May 31, 2024 Compared to Nine Months Ended May 31, 2023

Sales. Sales were $171.8 million for the nine months ended May 31, 2024 compared to $132.5 million for the nine months ended May 31, 2023, representing an increase of $39.3 million, or 29.7%. The increase in sales was primarily driven by the sales resulting from seventeen new restaurants opened subsequent to May 31, 2023, as well as increases in menu prices during the same period. Comparable restaurant sales increased 2.4% for the nine months ended May 31, 2024, as compared to the nine months ended May 31, 2023.

Food and beverage costs. Food and beverage costs were $50.7 million for the nine months ended May 31, 2024 compared to $40.4 million for the nine months ended May 31, 2023, representing an increase of $10.3 million, or 25.3%. The increase in food and beverage costs was primarily driven by costs associated with sales from seventeen new restaurants opened subsequent to May 31, 2023. As a percentage of sales, food and beverage costs decreased to 29.5% in the nine months ended May 31, 2024 as compared to 30.5% in the nine months ended May 31, 2023, primarily due to increases in menu prices and supply chain initiatives.

Labor and related costs. Labor and related costs were $55.4 million for the nine months ended May 31, 2024 compared to $40.8 million for the nine months ended May 31, 2023, representing an increase of $14.6 million, or 36.0%. This increase in labor and related costs was primarily driven by additional labor costs incurred from seventeen new restaurants opened subsequent to May 31, 2023. As a percentage of sales, labor and related costs increased to 32.2% in the nine months ended May 31, 2024 as compared to 30.8% in the nine months ended May 31, 2023. The increase in cost as a percentage of sales was primarily due to increases in wage rates and higher pre-opening labor costs.

18


 

Occupancy and related expenses. Occupancy and related expenses were $12.2 million for the nine months ended May 31, 2024 compared to $9.5 million for the nine months ended May 31, 2023, representing an increase of $2.7 million, or 28.1%. The increase was primarily a result of additional lease expense related to the opening of seventeen new restaurants opened subsequent to May 31, 2023. As a percentage of sales, occupancy and related expenses remained consistent at 7.1% in the nine months ended May 31, 2024, compared to 7.2% in the nine months ended May 31, 2023.

Depreciation and amortization expenses. Depreciation and amortization expenses incurred as part of restaurant operating costs were $8.3 million for the nine months ended May 31, 2024 compared to $5.3 million for the nine months ended May 31, 2023, representing an increase of $3.0 million, or 56.2%. The increase consists of depreciation of property and equipment related to seventeen new restaurants opened subsequent to May 31, 2023. As a percentage of sales, depreciation and amortization expenses at the restaurant level increased to 4.8% for the nine months ended May 31, 2024 as compared to 4.0% for the nine months ended May 31, 2023, primarily driven by increases in depreciation and amortization due to the new restaurants opened as well as accelerated depreciation on planned restaurant remodels. Depreciation and amortization expenses incurred at the corporate level were $0.3 million for the nine months ended May 31, 2024 and May 31, 2023, and as a percentage of sales were both 0.2%, respectively.

Other costs. Other costs were $25.0 million for the nine months ended May 31, 2024 compared to $17.4 million for the nine months ended May 31, 2023, representing an increase of $7.6 million, or 44.2%. The increase was primarily driven by an increase in costs related to seventeen new restaurants opened subsequent to May 31, 2023. As a percentage of sales, other costs increased to 14.6% in the nine months ended May 31, 2024 from 13.1% in the nine months ended May 31, 2023, primarily driven by operating supplies, advertising and promotion, software licenses, repairs and maintenance, travel expenses and utilities.

General and administrative expenses. General and administrative expenses were $25.6 million for the nine months ended May 31, 2024 compared to $20.8 million for the nine months ended May 31, 2023, representing an increase of $4.8 million, or 23.4%. This increase was primarily due to increases in compensation related costs of $1.9 million due to additional headcount, $1.4 million in professional fees, $0.8 million in litigation accrual, $0.4 million in travel expenses and $0.3 in accounts with differences under $0.1 million. As a percentage of sales, general and administrative expenses decreased to 14.9% in the nine months ended May 31, 2024 from 15.7% in the nine months ended May 31, 2023, primarily driven by leverage benefits from the increase in sales.

Interest expense. Interest expense was $35 thousand for the nine months ended May 31, 2024 compared to $53 thousand for the nine months ended May 31, 2023.

Interest income. Interest income was $2.3 million for the nine months ended May 31, 2024 compared to $0.6 million for the nine months ended May 31, 2023. The increase was primarily driven by investing our net cash proceeds from our $64.3 million follow-on offering completed in April 2023 into cash and cash equivalents and short-term investments.

Income tax expense. Income tax expense was $148 thousand for the nine months ended May 31, 2024 compared to $66 thousand for the nine months ended May 31, 2023. For further discussion of our income taxes, see “Note 9. Income Taxes” in the Notes to Condensed Financial Statements.

Key Performance Indicators

In assessing the performance of our business, we consider a variety of financial and performance measures. The key measures for determining how our business is performing include sales, EBITDA, Adjusted EBITDA, Restaurant-level Operating Profit, Restaurant-level Operating Profit margin, comparable restaurant sales performance, and the number of restaurant openings.

Sales

Sales represents sales of food and beverages in restaurants, as shown on our statements of operations and comprehensive income (loss). Several factors affect our restaurant sales in any given period, including the number of restaurants in operation, guest traffic and average check.

EBITDA and Adjusted EBITDA

EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus stock-based compensation expense, non-cash lease expense and asset disposals, closure costs and restaurant impairments, as well as certain items, such as litigation accrual that we believe are not indicative of our core operating results. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by sales. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP. We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provide useful

19


 

information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. However, these measures may not provide a complete understanding of the operating results of the Company as a whole and such measures should be reviewed in conjunction with our GAAP financial results.

We believe that the use of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware when evaluating EBITDA, Adjusted EBITDA and Adjusted EBITDA margin that in the future we may incur expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA and Adjusted EBITDA margin in the same fashion.

Because of these limitations, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA, Adjusted EBITDA and Adjusted EBITDA margin on a supplemental basis. You should review the reconciliation of net income (loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDA margin below and not rely on any single financial measure to evaluate our business.

The following table reconciles net loss to EBITDA and Adjusted EBITDA:

 

 

 

Three Months Ended May 31,

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(amounts in thousands)

 

Net (loss) income

 

$

(558

)

 

$

1,680

 

 

$

(3,603

)

 

$

(1,423

)

Interest income, net

 

 

(671

)

 

 

(413

)

 

 

(2,245

)

 

 

(540

)

Income tax expense

 

 

60

 

 

 

41

 

 

 

148

 

 

 

66

 

Depreciation and amortization expenses

 

 

3,231

 

 

 

2,067

 

 

 

8,612

 

 

 

5,574

 

EBITDA

 

 

2,062

 

 

 

3,375

 

 

 

2,912

 

 

 

3,677

 

Stock-based compensation expense(a)

 

 

1,197

 

 

 

975

 

 

 

3,169

 

 

 

2,570

 

Non-cash lease expense(b)

 

 

630

 

 

 

768

 

 

 

2,220

 

 

 

1,818

 

Litigation accrual(c)

 

 

562

 

 

 

 

 

 

767

 

 

 

 

Adjusted EBITDA

 

$

4,451

 

 

$

5,118

 

 

$

9,068

 

 

$

8,065

 

Adjusted EBITDA margin

 

 

7.1

%

 

 

10.4

%

 

 

5.3

%

 

 

6.1

%

 

(a)
Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in other costs and of corporate-level stock-based compensation included in general and administrative expenses in the statements of operations and comprehensive income (loss). For further details of stock-based compensation, see “Note 5. Stock-based Compensation” in the notes to condensed financial statements included in this Quarterly Report on Form 10-Q.
(b)
Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods.
(c)
Litigation accrual includes accruals related to legal claims or settlements.

Restaurant-level Operating Profit and Restaurant-level Operating Profit Margin

Restaurant-level Operating Profit (Loss) is defined as operating income (loss) plus depreciation and amortization; stock-based compensation expense; pre-opening costs and general and administrative expenses which are considered normal, recurring, cash operating expenses and are essential to support the development and operations of our restaurants; non-cash lease expense; asset disposals, closure costs and restaurant impairments; less corporate-level stock-based compensation expense recognized within general and administrative expenses. Restaurant-level Operating Profit (Loss) margin is defined as Restaurant-level Operating Profit (Loss) divided by sales. Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin are non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP. We believe that Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results, as this measure depicts normal, recurring cash operating expenses essential to supporting the development and operations of our restaurants. However, these measures may not provide a complete understanding of the operating results of the Company as a whole and such measures should be reviewed in conjunction with our GAAP financial results. We expect

20


 

Restaurant-level Operating Profit (Loss) to increase in proportion to the number of new restaurants we open and our comparable restaurant sales growth.

We present Restaurant-level Operating Profit (Loss) because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant level. We also use Restaurant-level Operating Profit (Loss) to measure operating performance and returns from opening new restaurants. Restaurant-level Operating Profit (Loss) margin allows us to evaluate the level of Restaurant-level Operating Profit (Loss) generated from sales.

However, you should be aware that Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin are financial measures that are not indicative of overall results for the Company, and Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin do not accrue directly to the benefit of stockholders because of corporate-level expenses excluded from such measures.

In addition, when evaluating Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin, you should be aware that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin in the same fashion. Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP.

The following table reconciles operating loss to Restaurant-level Operating Profit and Restaurant-level Operating Profit margin:

 

 

 

Three Months Ended May 31,

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(amounts in thousands)

 

Operating (loss) income

 

$

(1,169

)

 

$

1,308

 

 

$

(5,700

)

 

$

(1,897

)

Depreciation and amortization expenses

 

 

3,231

 

 

 

2,067

 

 

 

8,612

 

 

 

5,574

 

Stock-based compensation expense(a)

 

 

1,197

 

 

 

975

 

 

 

3,169

 

 

 

2,570

 

Pre-opening costs(b)

 

 

861

 

 

 

258

 

 

 

2,611

 

 

 

1,011

 

Non-cash lease expense(c)

 

 

630

 

 

 

768

 

 

 

2,220

 

 

 

1,818

 

General and administrative expenses

 

 

8,857

 

 

 

7,012

 

 

 

25,634

 

 

 

20,776

 

Corporate-level stock-based compensation in general and administrative expenses

 

 

(1,003

)

 

 

(812

)

 

 

(2,672

)

 

 

(2,188

)

Restaurant-level operating profit

 

$

12,604

 

 

$

11,576

 

 

$

33,874

 

 

$

27,664

 

Operating (loss) income margin

 

 

(1.9

)%

 

 

2.7

%

 

 

(3.3

)%

 

 

(1.4

)%

Restaurant-level operating profit margin

 

 

20.0

%

 

 

23.5

%

 

 

19.7

%

 

 

20.9

%

 

(a)
Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in other costs and of corporate-level stock-based compensation included in general and administrative expenses in the statements of operations and comprehensive income (loss). For further details of stock-based compensation, see “Note 5. Stock-based Compensation” in the notes to condensed financial statements included in this Quarterly Report on Form 10-Q.
(b)
Pre-opening costs consist of labor costs and travel expenses for new employees and trainers during the training period, recruitment fees, legal fees, cash-based lease expenses incurred between the date of possession and the opening day of our restaurants, and other related pre-opening costs.
(c)
Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods.

21


 

Comparable Restaurant Sales Performance

Comparable restaurant sales performance refers to the change in year-over-year sales for the comparable restaurant base. We include restaurants in the comparable restaurant base that have been in operation for at least 18 months prior to the start of the accounting period presented due to new restaurants experiencing a period of higher sales upon opening. For restaurants that were temporarily closed for consecutive days, which primarily occurs during renovations, the comparative period was also adjusted.

Measuring our comparable restaurant sales performance allows us to evaluate the performance of our existing restaurant base. Various factors impact comparable restaurant sales, including:

consumer recognition of our brand and our ability to respond to changing consumer preferences;
overall economic trends, particularly those related to consumer spending;
our ability to operate restaurants effectively and efficiently to meet consumer expectations;
pricing;
guest traffic;
per-guest spend and average check;
marketing and promotional efforts;
local competition; and
opening of new restaurants in the vicinity of existing locations.

Since opening new restaurants will be a significant component of our sales growth, comparable restaurant sales performance is only one measure of how we evaluate our performance. The following table shows the comparable restaurant sales performance:

 

 

 

Three Months Ended May 31,

 

Nine Months Ended May 31,

 

 

2024

 

2023

 

2024

 

2023

Comparable restaurant sales performance (%)

 

0.6%

 

10.3%

 

2.4%

 

11.0%

Comparable restaurant base

 

40

 

32

 

36

 

30

 

Number of Restaurant Openings

The number of restaurant openings reflects the number of restaurants opened during a particular reporting period. Before we open new restaurants, we incur pre-opening costs. New restaurants may not be profitable, and their sales performance may not follow historical patterns. The number and timing of restaurant openings has had, and is expected to continue to have, an impact on our results of operations. The following table shows the growth in our restaurant base:

 

 

 

Three Months Ended May 31,

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Restaurant activity:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

 

59

 

 

 

45

 

 

 

50

 

 

 

40

 

Openings

 

 

4

 

 

 

1

 

 

 

13

 

 

 

6

 

End of period

 

 

63

 

 

 

46

 

 

 

63

 

 

 

46

 

 

Liquidity and Capital Resources

Our primary uses of cash are for operational expenditures and capital investments, including new restaurants, costs incurred for restaurant remodels and restaurant fixtures.

On April 13, 2023, we completed an underwritten public offering of common stock pursuant to our universal shelf registration statement on Form S-3, selling an aggregate of 1,265,000 shares of Class A common stock, including the exercise in full of the underwriters’ option to purchase 165,000 additional shares, at the price of $54.00 per share less an underwriting discount of $2.70 per share. We received aggregate net proceeds of $64.3 million after deducting the underwriting discounts and commissions and offering expenses payable by us. The proceeds will be used for general corporate purposes, including capital expenditures, working capital, and

22


 

other business purposes. We made no payments to directors, officers or persons owning 10% or more of our common stock or to their associates, or to our affiliates.

During the nine months ended May 31, 2024, we had no borrowings under the Revolving Credit Agreement and have $45.0 million of availability remaining. As of May 31, 2024, we did not have any material off-balance sheet arrangements.

The significant components of our working capital are liquid assets such as cash, cash equivalents, receivables and short-term investments reduced by accounts payable and accrued expenses. Our working capital position benefits from the fact that we generally collect cash from sales to guests the same day or, in the case of credit or debit card transactions, within several days of the related sale, while we typically have longer payment terms with our vendors.

We believe that cash provided by operating activities, cash on hand, cash equivalents, short-term investments and availability under our existing Revolving Credit Agreement, will be sufficient to fund our lease obligations, capital expenditures and working capital needs for at least the next 12 months.

Summary of Cash Flows

Our primary sources of liquidity and cash flows are operating cash flows, cash on hand, cash equivalents and short-term investments. We use this to fund investing expenditures for new restaurant openings, reinvest in our existing restaurants, and our working capital. Our working capital position benefits from the fact that we generally collect cash from sales to guests the same day, or in the case of credit or debit card transactions, within several days of the related sale, and we typically have at least 30 days to pay our vendors.

The following table summarizes our cash flows for the periods presented:

 

 

 

Nine Months Ended May 31,

 

 

 

2024

 

 

2023

 

Statement of Cash Flow data:

 

(amounts in thousands)

 

Net cash provided by operating activities

 

$

14,943

 

 

$

7,063

 

Net cash used in investing activities

 

$

(27,257

)

 

$

(37,231

)

Net cash provided by financing activities

 

$

2,022

 

 

$

64,860

 

 

Cash Flows Provided by Operating Activities

Net cash provided by operating activities during the nine months ended May 31, 2024 was $14.9 million, primarily due to a net loss of $3.6 million, non-cash charges of $8.6 million for depreciation and amortization, $3.2 million for stock-based compensation, and $3.4 million in non-cash lease expense, and net cash outflows of $3.4 million from changes in operating assets and liabilities.

Net cash provided by operating activities during the nine months ended May 31, 2023 was $7.1 million, which results from a net loss of $1.4 million, non-cash charges of $5.6 million for depreciation and amortization, $2.6 million for stock-based compensation, and $2.8 million in non-cash lease expense, and net cash outflows of $2.5 million from changes in operating assets and liabilities.

Cash Flows Used in Investing Activities

Net cash used in investing activities during the nine months ended May 31, 2024 was $27.3 million, primarily due to $3.3 million in purchases of short-term investments, $34.0 million in purchases of property and equipment and $0.2 million in purchases of liquor licenses offset by $10.5 million of redemption of short-term investments. The increase in purchases of property and equipment in the nine months ended May 31, 2024 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the nine months ended May 31, 2023 was $37.2 million, primarily due to $8.7 million in purchases of short-term investments, $27.2 million in purchases of property and equipment and $0.9 million in purchases of liquor licenses. The purchases of property and equipment in the nine months ended May 31, 2023 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects.

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Cash Flows Provided by Financing Activities

Net cash provided by financing activities during the nine months ended May 31, 2024 was $2.0 million and is primarily due to $2.3 million of proceeds from exercise of stock options offset by $0.2 million in taxes paid on vested RSUs.

Net cash provided by financing activities during the nine months ended May 31, 2023 was $64.9 million and is primarily due to aggregate net proceeds of $64.3 million after deducting the underwriting discounts and commissions and offering expenses payable, and $1.0 million of proceeds from exercise of stock options offset by $0.4 million in repayments of principal on finance leases.

Material Cash Requirements

As of May 31, 2024, we had $13.0 million in contractual obligations relating to the construction of new restaurants and purchase commitments for goods related to restaurant operations. All contractual obligations are expected to be paid during the next 12 months utilizing cash and cash equivalents on hand and provided by operations. For operating and finance lease obligations, see “Note 3. Leases” in the Notes to Condensed Financial Statements included in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncement

For a description of our recently adopted accounting pronouncement, including the respective date of adoption and expected effect on our results of operations and financial condition, see “Part I, Item 1, Note 1. Organization and Basis of Presentation” of the Notes to Condensed Financial Statements included in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Our discussion and analysis of operating results and financial condition are based on our financial statements. Preparing our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

Our critical accounting policies are those that materially affect our financial statements. Our critical accounting estimates are those that involve subjective or complex judgments by management. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates. We believe the assessment of potential impairments of long-lived assets is affected by significant judgments and estimates used in the preparation of our financial statements and that the judgments and estimates are reasonable.

There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10‑K for the fiscal year ended August 31, 2023. Please refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” of our Annual Report on Form 10‑K for the fiscal year ended August 31, 2023 for a discussion of our critical accounting policies and estimates.

Jumpstart Our Business Startups Act of 2012

We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

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Subject to certain conditions set forth in the JOBS Act, we are also eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We may take advantage of these exemptions until we are no longer an emerging growth company. We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which our annual gross revenues exceed $1.235 billion during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering, or August 31, 2024.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

delete

There have been no material changes to our market risk during the nine months ended May 31, 2024. For a discussion of our exposure to market risk, refer to our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our 2023 Form 10-K.

Item 4. Controls and Procedures.

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Disclosure Controls and Procedures

Our management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

For a description of our legal proceedings, see Part I, Item 1, Note 8 – Commitments and Contingencies, of the Notes to Condensed Financial Statements of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A. Risk Factors.

A description of the risk factors associated with our business is contained in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended August 31, 2023. There have been no material changes to our Risk Factors as therein previously reported.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

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During the nine months ended May 31, 2024, no director or officer of the Company, adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.

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Item 6. Exhibits.

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Exhibit

Number

Description

 

 

 

  31.1*

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2*

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1*

Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.2*

Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

 

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

KURA SUSHI USA, INC.

Date: July 9, 2024

By:

/s/ Jeffrey Uttz

Jeffrey Uttz

Chief Financial Officer

(Principal Financial Officer)

 

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