# Kura Sushi USA, Inc.: Form 10-Q for the period ended Feb 28, 2023

- Company: [Kura Sushi USA, Inc.](/companies/krus.md) (CIK 1772177)
- Form: 10-Q
- Filed: 2023-04-04
- Accepted by EDGAR: Apr 4, 2023, 16:31 ET
- Period: 2023-02-28
- Accession: 0000950170-23-011783
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1772177/000095017023011783/krus-20230228.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1772177/000095017023011783/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-02-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-12-01 to 2023-02-28 | $43.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2022-09-01 to 2023-02-28 | $83.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2022-12-01 to 2023-02-28 | −$1.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-09-01 to 2023-02-28 | −$3.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-12-01 to 2023-02-28 | $14.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-09-01 to 2023-02-28 | $30.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-12-01 to 2023-02-28 | $15.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-09-01 to 2023-02-28 | $25.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-12-01 to 2023-02-28 | −$1.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-09-01 to 2023-02-28 | −$3.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-12-01 to 2023-02-28 | −$0.10 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-09-01 to 2023-02-28 | −$0.32 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-12-01 to 2023-02-28 | −$0.10 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-09-01 to 2023-02-28 | −$0.32 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-12-01 to 2023-02-28 | 9,801,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-09-01 to 2023-02-28 | 9,795,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-09-01 to 2023-02-28 | $1.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-09-01 to 2023-02-28 | $14.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-02-28 | $22.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-02-28 | $30.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-02-28 | $212.7m | us-gaap:Assets |
| Current liabilities | at 2023-02-28 | $25.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-02-28 | $120.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-02-28 | $92.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,629 characters.

*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, 2022 (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

We have experienced inflationary pressures affecting our operations in certain areas such as food and beverage costs, labor costs, construction costs and energy costs. We have also experienced temporary shortages in food, equipment and other goods, as well as an increase in freights costs, due in part to supply chain impacts of overall economic conditions in the markets in which we operate. We have been able to offset to some extent these inflationary and other cost pressures through various actions, such as increasing menu prices, productivity improvements, and supply chain initiatives, however, we expect these inflationary and other cost pressures to continue throughout the remainder of fiscal year 2023.

### 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.

***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, ranging 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).

### Results of Operations

The following tables present selected comparative results of operations for the three and six months ended February 28, 2023 and February 28, 2022. 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.

*(dollar amounts in thousands)*

|  | Three Months Ended February 28, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales | $43,944 | $31,290 | $12,654 | 40.4% |
| Restaurant operating costs |  |  |  |  |
| Food and beverage costs | 13,240 | 9,376 | 3,864 | 41.2 |
| Labor and related costs | 13,854 | 10,342 | 3,512 | 34.0 |
| Occupancy and related expenses | 3,065 | 2,302 | 763 | 33.1 |
| Depreciation and amortization expenses | 1,758 | 1,267 | 491 | 38.8 |
| Other costs | 5,866 | 4,344 | 1,522 | 35.0 |
| Total restaurant operating costs | 37,783 | 27,631 | 10,152 | 36.7 |
| General and administrative expenses | 7,122 | 5,454 | 1,668 | 30.6 |
| Depreciation and amortization expenses | 88 | 83 | 5 | 6.0 |
| Total operating expenses | 44,993 | 33,168 | 11,825 | 35.7 |
| Operating loss | (1,049) | (1,878) | 829 | (44.1) |
| Other expense (income): |  |  |  |  |
| Interest expense | 14 | 22 | (8) | (36.4) |
| Interest income | (63) | (24) | (39) | 162.5 |
| Loss before income taxes | (1,000) | (1,876) | 876 | (46.7) |
| Income tax expense | 15 | 3 | 12 | 400.0 |
| Net loss | $(1,015) | $(1,879) | $864 | (46.0)% |
|  | **Six Months Ended February 28,** |  |  |  |
|  | **2023** | **2022** | **$ Change** | **% Change** |
|  | **(dollar amounts in thousands)** |  |  |  |
| Sales | $83,262 | $61,122 | $22,140 | 36.2% |
| Restaurant operating costs |  |  |  |  |
| Food and beverage costs | 25,670 | 18,333 | 7,337 | 40.0 |
| Labor and related costs | 26,389 | 20,052 | 6,337 | 31.6 |
| Occupancy and related expenses | 5,950 | 4,502 | 1,448 | 32.2 |
| Depreciation and amortization expenses | 3,334 | 2,438 | 896 | 36.8 |
| Other costs | 11,187 | 7,954 | 3,233 | 40.6 |
| Total restaurant operating costs | 72,530 | 53,279 | 19,251 | 36.1 |
| General and administrative expenses | 13,764 | 10,814 | 2,950 | 27.3 |
| Depreciation and amortization expenses | 173 | 171 | 2 | 1.2 |
| Total operating expenses | 86,467 | 64,264 | 22,203 | 34.5 |
| Operating loss | (3,205) | (3,142) | (63) | (2.0) |
| Other expense (income): |  |  |  |  |
| Interest expense | 30 | 47 | (17) | (36.2) |
| Interest income | (157) | (50) | (107) | 214.0 |
| Loss before income taxes | (3,078) | (3,139) | 61 | (1.9) |
| Income tax expense | 25 | 15 | 10 | 66.7 |
| Net loss | $(3,103) | $(3,154) | $51 | (1.6)% |

15

|  | Three Months Ended February 28, 2023 (as a percentage of sales) | 2022 | Six Months Ended February 28, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Restaurant operating costs |  |  |  |  |
| Food and beverage costs | 30.1 | 30.0 | 30.8 | 30.0 |
| Labor and related costs | 31.5 | 33.1 | 31.7 | 32.8 |
| Occupancy and related expenses | 7.0 | 7.4 | 7.1 | 7.4 |
| Depreciation and amortization expenses | 4.0 | 4.0 | 4.0 | 4.0 |
| Other costs | 13.3 | 13.9 | 13.4 | 13.0 |
| Total restaurant operating costs | 86.0 | 88.3 | 87.0 | 87.2 |
| General and administrative expenses | 16.2 | 17.4 | 16.5 | 17.7 |
| Depreciation and amortization expenses | 0.2 | 0.3 | 0.2 | 0.3 |
| Total operating expenses | 102.4 | 106.0 | 103.7 | 105.2 |
| Operating loss | (2.4) | (6.0) | (3.8) | (5.2) |
| Other expense (income): |  |  |  |  |
| Interest expense | - | 0.1 | - | 0.1 |
| Interest income | (0.1) | (0.1) | (0.2) | (0.1) |
| Loss before income taxes | (2.3) | (6.0) | (3.6) | (5.2) |
| Income tax expense | — | — | — | — |
| Net loss | (2.3)% | (6.0)% | (3.6)% | (5.2)% |

### Three Months Ended February 28, 2023 Compared to Three Months Ended February 28, 2022

*Sales.* Sales were $43.9 million for the three months ended February 28, 2023 compared to $31.3 million for the three months ended February 28, 2022, representing an increase of $12.6 million, or 40.4%. Comparable restaurant sales increased 17.4% for the three months ended February 28, 2023, as compared to the three months ended February 28, 2022. The increase in sales was primarily driven by the sales resulting from nine new restaurants opened subsequent to February 28, 2022, as well as increases in menu prices during the same period.

*Food and beverage costs.* Food and beverage costs were $13.2 million for the three months ended February 28, 2023 compared to $9.4 million for the three months ended February 28, 2022, representing an increase of $3.8 million, or 41.2%. The increase in food and beverage costs was primarily driven by costs associated with sales from nine new restaurants opened subsequent to February 28, 2022. As a percentage of sales, food and beverage costs increased to 30.1% in the three months ended February 28, 2023 as compared to 30.0% in the three months ended February 28, 2022, primarily due to food cost inflation partially offset by increases in menu prices.

*Labor and related costs.* Labor and related costs were $13.9 million for the three months ended February 28, 2023 compared to $10.3 million for the three months ended February 28, 2022, representing an increase of $3.6 million, or 34.0%. This increase in labor and related costs was primarily driven by additional labor costs incurred from nine new restaurants opened subsequent to February 28, 2022. As a percentage of sales, labor and related costs decreased to 31.5% in the three months ended February 28, 2023 as compared to 33.1% in the three months ended February 28, 2022. The decrease in cost as a percentage of sales was primarily due to increases in menu prices and technological initiatives, partially offset by increases in wage rates.

*Occupancy and related expenses.* Occupancy and related expenses were $3.1 million for the three months ended February 28, 2023 compared to $2.3 million for the three months ended February 28, 2022, representing an increase of $0.8 million, or 33.1%. The increase was primarily a result of additional lease expense related to the opening of nine new restaurants subsequent to February 28, 2022. As a percentage of sales, occupancy and related expenses decreased to 7.0% in the three months ended February 28, 2023 as compared to 7.4% in the three months ended February 28, 2022, 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 $1.8 million for the three months ended February 28, 2023 compared to $1.3 million for the three months ended February 28, 2022, representing an increase of $0.5 million, or 38.8%. The increase was primarily due to depreciation of property and equipment related to the nine new restaurants opened subsequent to February 28, 2022. As a percentage of sales, depreciation and amortization expenses at the restaurant level remained consistent at 4.0% in the three months ended February 28, 2023 and February 28, 2022. Depreciation and amortization expenses incurred at the corporate level were $0.1 million for both the three months ended February 28, 2023 and February 28, 2022, and as a percentage of sales were 0.2% and 0.3%, respectively.

*Other costs.* Other costs were $5.9 million for the three months ended February 28, 2023 compared to $4.3 million for the three months ended February 28, 2022, representing an increase of $1.6 million, or 35.0%. The increase was primarily driven by an increase in costs related to nine new restaurants opened subsequent to February 28, 2022. As a percentage of sales, other costs decreased to 13.3% in the three months ended February 28, 2023 as compared to 13.9% in the three months ended February 28, 2022, primarily driven by leverage benefits from the increase in sales.

*General and administrative expenses.* General and administrative expenses were $7.1 million for the three months ended February 28, 2023 compared to $5.5 million for the three months ended February 28, 2022, representing an increase of $1.6 million, or 30.6%. This increase was primarily due to increases in compensation related costs of $1.3 million due to additional headcount, $0.2 million of professional fees and $0.1 million in travel expenses. As a percentage of sales, general and administrative expenses decreased to 16.2% in the three months ended February 28, 2023 from 17.4% in the three months ended February 28, 2022, primarily driven by leverage benefits from the increase in sales.

*Interest expense.* Interest expense was $14 thousand for the three months ended February 28, 2023 compared to $22 thousand for the three months ended February 28, 2022.

*Interest income.* Interest income was $63 thousand for the three months ended February 28, 2023 compared to $24 thousand for the three months ended February 28, 2022.

*Income tax expense.* Income tax expense was $15 thousand for the three months ended February 28, 2023 compared to $3 thousand for the three months ended February 28, 2022. For further discussion of our income taxes, see “Note 9. Income Taxes” in the Notes to Condensed Financial Statements.

### Six Months Ended February 28, 2023 Compared to Six Months Ended February 28, 2022

*Sales.* Sales were $83.3 million for the six months ended February 28, 2023 compared to $61.1 million for the six months ended February 28, 2022, representing an increase of $22.2 million, or 36.2%. Comparable restaurant sales increased 11.8% for the six months ended February 28, 2023, as compared to the six months ended February 28, 2022. The increase in sales was primarily driven by the sales resulting from nine new restaurants opened subsequent to February 28, 2022, as well as increases in menu prices during the same period.

*Food and beverage costs.* Food and beverage costs were $25.7 million for the six months ended February 28, 2023 compared to $18.3 million for the six months ended February 28, 2022, representing an increase of $7.4 million, or 40.0%. The increase in food and beverage costs was primarily driven by costs associated with sales from nine new restaurants opened subsequent to February 28, 2022. As a percentage of sales, food and beverage costs increased to 30.8% in the six months ended February 28, 2023 as compared to 30.0% in the six months ended February 28, 2022, primarily due to food cost inflation partially offset by increases in menu prices.

*Labor and related costs.* Labor and related costs were $26.4 million for the six months ended February 28, 2023 compared to $20.1 million for the six months ended February 28, 2022, representing an increase of $6.3 million, or 31.6%. This increase in labor and related costs was primarily driven by additional labor costs incurred from nine new restaurants opened subsequent to February 28, 2022. As a percentage of sales, labor and related costs decreased to 31.7% in the six months ended February 28, 2023 as compared to 32.8% in the six months ended February 28, 2022. The decrease in cost as a percentage of sales was primarily due to increases in menu prices and technological initiatives, partially offset by increases in wage rates.

*Occupancy and related expenses.* Occupancy and related expenses were $6.0 million for the six months ended February 28, 2023 compared to $4.5 million for the six months ended February 28, 2022, representing an increase of $1.5 million, or 32.2%. The increase was primarily a result of additional lease expense related to the opening of nine new restaurants opened subsequent to February 28, 2022. As a percentage of sales, occupancy and related expenses decreased to 7.1% in the six months ended February 28, 2023, compared to 7.4% in the six months ended February 28, 2022, 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 $3.3 million for the six months ended February 28, 2023 compared to $2.4 million for the six months ended February 28, 2022, representing an increase of $0.9 million, or 36.8%. The increase was primarily due to depreciation of property and equipment related to nine new restaurants opened subsequent to February 28, 2022. As a percentage of sales, depreciation and amortization expenses at the restaurant level was 4.0% for the six months ended February 28, 2023 and February 28, 2022. Depreciation and amortization expenses incurred at the corporate level were $0.2 million for the six months ended February 28, 2023 and February 28, 2022, and as a percentage of sales were 0.2% and 0.3%, respectively.

*Other costs.* Other costs were $11.2 million for the six months ended February 28, 2023 compared to $8.0 million for the six months ended February 28, 2022, representing an increase of $3.2 million, or 40.6%. The increase was primarily driven by an increase in costs related to nine new restaurants opened subsequent to February 28, 2022. As a percentage of sales, other costs increased to 13.4% in the six months ended February 28, 2023 from 13.0% in the six months ended February 28, 2022, primarily driven by increases in repair and maintenance costs and travel costs.

*General and administrative expenses.* General and administrative expenses were $13.8 million for the six months ended February 28, 2023 compared to $10.8 million for the six months ended February 28, 2022, representing an increase of $3.0 million, or 27.3%. This increase was primarily due to increases in compensation related costs of $2.6 million due to additional headcount and $0.3 million in travel expenses and $0.1 million in professional fees. As a percentage of sales, general and administrative expenses decreased to 16.5% in the six months ended February 28, 2023 from 17.7% in the six months ended February 28, 2022, primarily driven by leverage benefits from the increase in sales.

*Interest expense.* Interest expense was $30 thousand for the six months ended February 28, 2023 compared to $47 thousand for the six months ended February 28, 2022.

*Interest income.* Interest income was $157 thousand for the six months ended February 28, 2023 compared to $50 thousand for the six months ended February 28, 2022.

*Income tax expense.* Income tax expense was $25 thousand for the six months ended February 28, 2023 compared to $15 thousand for the six months ended February 28, 2022. 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, Average Unit Volumes (“AUVs”), 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. 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, 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 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:

*(amounts in thousands)*

|  | Three Months Ended February 28, 2023 | 2022 | Six Months Ended February 28, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(1,015) | $(1,879) | $(3,103) | $(3,154) |
| Interest income, net | (49) | (2) | (127) | (3) |
| Income tax expense | 15 | 3 | 25 | 15 |
| Depreciation and amortization expenses | 1,846 | 1,350 | 3,507 | 2,609 |
| EBITDA | 797 | (528) | 302 | (533) |
| Stock-based compensation expense(a) | 945 | 596 | 1,595 | 1,039 |
| Non-cash lease expense(b) | 568 | 318 | 1,050 | 672 |
| Adjusted EBITDA | $2,310 | $386 | $2,947 | $1,178 |
| Adjusted EBITDA margin | 5.3% | 1.2% | 3.5% | 1.9% |

(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. 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.

### 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 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 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 which 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:

*(amounts in thousands)*

|  | Three Months Ended February 28, 2023 | 2022 | Six Months Ended February 28, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Operating loss | $(1,049) | $(1,878) | $(3,205) | $(3,142) |
| Depreciation and amortization expenses | 1,846 | 1,350 | 3,507 | 2,609 |
| Stock-based compensation expense(a) | 945 | 596 | 1,595 | 1,039 |
| Pre-opening costs(b) | 316 | 243 | 753 | 316 |
| Non-cash lease expense(c) | 568 | 318 | 1,050 | 672 |
| General and administrative expenses | 7,122 | 5,454 | 13,764 | 10,814 |
| Corporate-level stock-based compensation in general and administrative expenses | (820) | (524) | (1,376) | (932) |
| Restaurant-level operating profit | $8,928 | $5,559 | $16,088 | $11,376 |
| Operating loss margin | (2.4)% | (6.0)% | (3.8)% | (5.1)% |
| Restaurant-level operating profit margin | 20.3% | 17.8% | 19.3% | 18.6% |

(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. 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 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.

### 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, including those temporarily closed for renovations during the year. For restaurants that were temporarily closed for renovations during the year, we make fractional adjustments to sales such that sales are annualized in the associated period.

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 February 28, 2023 | 2022 | Six Months Ended February 28, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Comparable restaurant sales performance (%) | 17.4% | 182.9% | 11.8% | 167.8% |
| Comparable restaurant base | 31 | 25 | 30 | 25 |

### 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:

| Restaurant activity: | Three Months Ended February 28, 2023 | 2022 | Six Months Ended February 28, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Beginning of period | 42 | 33 | 40 | 32 |
| Openings | 3 | 3 | 5 | 4 |
| End of period | 45 | 36 | 45 | 36 |

### 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 December 28, 2022, we filed a universal shelf registration statement on Form S-3 (the “Registration Statement”) with the SEC in accordance with the Securities Act of 1933, as amended (the “Securities Act”). The Registration Statement was declared effective on January 6, 2023, and registered Class A common stock, preferred stock, depositary shares, warrants, subscription rights, share purchase contracts, share purchase units, and any combination of the foregoing, for a maximum aggregate offering price of up to $125.0 million, which may be sold from time to time. The terms of any securities offered under the Registration Statement and intended use of proceeds will be established at the times of the offerings and will be described in prospectus supplements filed with the SEC at the times of the offerings. The Registration Statement has a three-year term from the date of effectiveness.

During the six months ended February 28, 2023, we had no borrowings under the Revolving Credit Agreement and have $45.0 million of availability remaining. As of February 28, 2023, 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 and receivables, 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 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 and cash on hand. We use this to fund investing expenditures for new restaurant openings, reinvest in our existing restaurants, and increase 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:

*(amounts in thousands)*

| Statement of Cash Flow data: | Six Months Ended February 28, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $1,677 | $9,722 |
| Net cash used in investing activities | $(15,408) | $(13,172) |
| Net cash provided by (used in) financing activities | $243 | $(630) |

### Cash Flows Provided by Operating Activities

Net cash provided by operating activities during the six months ended February 28, 2023 was $1.7 million, which results from a net loss of $3.1 million, non-cash charges of $3.5 million for depreciation and amortization, $1.6 million for stock-based compensation, and $1.8 million in non-cash lease expense, and net cash outflows of $2.1 million from changes in operating assets and liabilities.

Net cash provided by operating activities during the six months ended February 28, 2022 was $9.7 million, which results from a net loss of $3.2 million offset by non-cash charges of $2.6 million for depreciation and amortization, $1.0 million for stock-based compensation, and $1.4 million in non-cash lease expense, and net cash inflows of $7.8 million from changes in operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities were primarily the result of decreases of $7.7 million in prepaid expenses and other current assets, which was primarily due to collection of $8.0 million of our total of $12.0 million of employee retention credits.

### Cash Flows Used in Investing Activities

Net cash used in investing activities during the six months ended February 28, 2023 was $15.4 million, primarily due to $14.3 million in purchases of property and equipment and $0.8 million in purchases of liquor licenses. The purchases of property and equipment in the six months ended February 28, 2023 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 six months ended February 28, 2022 was $13.2 million, primarily due to $12.3 million in purchases of property and equipment, $0.6 million in purchases of liquor licenses and $0.3 in payments for initial direct costs. The purchases of property and equipment in the six months ended February 28, 2022 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects.

### Cash Flows Provided by (Used in) Financing Activities

Net cash provided by financing activities during the six months ended February 28, 2023 was $0.2 million and is primarily due $0.6 million of proceeds from exercise of stock options offset by $0.2 million in repayments of principal on finance leases.

Net cash used in financing activities during the six months ended February 28, 2022 was $0.6 million and is primarily due to $0.5 million in repayments of principal on finance leases.

### Material Cash Requirements

As of February 28, 2023, we had $10.0 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 Pronouncements

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 upon our financial statements. The preparation of 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, 2022. 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, 2022 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.

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.

## Market risk

As filed, 3,005 characters.

### Commodity and Food Price Risks

Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and beverages and other commodities. We have been able to partially offset cost increases resulting from a number of factors, including market conditions, shortages or interruptions in supply due to weather or other conditions beyond our control, governmental regulations, and inflation, by increasing our menu prices, as well as making other operational adjustments that increase productivity. However, substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be offset by menu price increases or operational adjustments.

### Inflation Risk

The primary inflationary factors affecting our operations are food and beverage costs, labor costs, construction costs and energy costs. Our restaurant operations are subject to federal and state minimum wage and other laws governing such matters as working conditions, overtime and tip credits. Significant numbers of our restaurant personnel are paid at rates related to the federal and/or state minimum wage and, accordingly, increases in the minimum wage increase our labor costs. To the extent permitted by competition and the economy, we have mitigated increased costs by increasing menu prices and may continue to do so if deemed necessary in future years. Substantial increases in costs and expenses could impact our operating results to the extent such increases cannot be passed through to our guests. Historically, inflation has not had a material effect on our results of operations, although inflationary pressures have increased across our business, including with respect to food and beverage costs, due in part to supply chain impacts of overall economic conditions in the markets in which we operate. Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse impact on our business, financial condition or results of operations.

While we have been able to partially offset inflation and other changes in the costs of core operating resources by gradually increasing menu prices, coupled with more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future. From time to time, competitive conditions could limit our menu pricing flexibility. In addition, macroeconomic conditions could make additional menu price increases imprudent. There can be no assurance that future cost increases can be offset by increased menu prices or that increased menu prices will be fully absorbed by our guests without any resulting change to their visit frequencies or purchasing patterns. In addition, there can be no assurance that we will generate the same sales growth in an amount sufficient to offset inflationary or other cost pressures.

## Controls and procedures

As filed, 1,009 characters.

### 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.

## Risk factors

As filed, 270 characters.

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, 2022. There have been no material changes to our Risk Factors as therein previously reported.

Filed Apr 4, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-011783. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.