ROC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
par value $0.001 per share |
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The (The Nasdaq Global Market) |
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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 November 10, 2024 the registrant had
Table of Contents
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Page |
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PART I. |
1 |
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Item 1. |
1 |
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1 |
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2 |
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Condensed Consolidated Statements of Changes in Permanent Equity (Deficit) |
3 |
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5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
37 |
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Item 4. |
38 |
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PART II. |
39 |
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Item 1. |
39 |
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Item 1A. |
39 |
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Item 2. |
Unregistered Sales of Equity Securities Use of Proceeds and Issuer Purchases of Equity Securities |
39 |
Item 3. |
39 |
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Item 4. |
39 |
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Item 5. |
39 |
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Item 6. |
40 |
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41 |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
GEN RESTAURANT GROUP, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information) |
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September 30, |
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December 31, 2023 |
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(unaudited) |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Inventories |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Equity method investment |
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Property and equipment, net |
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Goodwill |
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Operating lease assets |
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Deferred tax asset |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and equity |
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Current liabilities |
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Accounts payable |
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Accrued salaries and benefits |
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Accrued interest |
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Notes payable, current |
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Notes payable to related parties |
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Obligations under finance leases, current |
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Operating lease liabilities, current |
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Deferred Restaurant Revitalization Fund grant |
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Advances from members |
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Gift card liabilities |
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Other current liabilities |
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Total current liabilities |
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Notes payable, net of current portion |
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Tax receivable agreement liability |
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Operating lease liabilities, net of current portion |
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Total liabilities |
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Mezzanine equity |
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EB-5 Members’ equity |
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Permanent equity |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Retained Earnings |
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Non-controlling interest |
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Total permanent equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
1
GEN RESTAURANT GROUP, INC
Condensed Consolidated Income Statements
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Three months ended September 30, |
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Nine months ended September 30, |
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(in thousands, except per share amounts) |
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2024 |
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2023 |
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2024 |
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2023 |
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(unaudited) |
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(unaudited) |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Restaurant operating expenses: |
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Food cost |
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Payroll and benefits |
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Occupancy expenses |
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Operating expenses |
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Depreciation and amortization |
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Pre-opening costs |
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Total restaurant operating expenses |
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General and administrative |
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Consulting fees - related party |
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— |
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— |
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— |
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Management fees |
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— |
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— |
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— |
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Depreciation and amortization - corporate |
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Total costs and expenses |
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Income from operations |
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Employee retention credits |
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— |
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— |
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Other income (loss) |
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— |
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— |
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— |
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( |
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Gain on remeasurement of previously held interest (see Note 3) |
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— |
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— |
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— |
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Interest income (expense), net |
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Equity in income (loss) of equity method investee |
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— |
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Net income before income taxes |
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Provision for income taxes |
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Net income |
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Less: Net income attributable to noncontrolling interest |
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Net income attributable to GEN Restaurant Group, Inc. |
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Net income attributable to Class A common stock per share - basic and diluted (1) |
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$ |
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$ |
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$ |
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$ |
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Weighted-average shares of Class A common stock outstanding - basic (1) |
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Weighted-average shares of Class A common stock outstanding - diluted (2) |
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Net income per share of Class A common stock - basic (1) |
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$ |
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$ |
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$ |
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$ |
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Net income per share of Class A common stock - diluted (2) |
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$ |
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$ |
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$ |
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$ |
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(1) (2) Basic and diluted net income per share of Class A common stock is presented only for the period after the Company’s organization transactions effective June 30, 2023.
See Note 15 for calculation of net income per share.
See accompanying notes to condensed consolidated financial statements.
2
GEN RESTAURANT GROUP, INC.
Condensed Consolidated Statements of Changes in Permanent Equity (Deficit)
(unaudited)
Nine months ended September 30, 2024 and September 30, 2023
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Redeemable |
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Members' equity |
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Class A |
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Class B |
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Additional |
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Retained |
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Non- |
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Stockholders' |
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(in thousands) |
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Units |
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(deficit) |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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Earnings |
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Interest |
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(deficit) |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Redemption of Class A and B common units |
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Net income |
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Member distributions |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Activity prior to the initial public offering and related organizational transactions: |
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Net income prior to the organizational transactions |
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Conversion of related party loans to equity |
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Member distributions |
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Effects of initial public offering and related organization transactions: |
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Effects of the organizational transactions |
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Issuance of Class A common stock in the IPO, net of underwriting discount |
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Issuance of Class A common stock to underwriters upon exercise of overallotment option |
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Issuance of Class B common stock in the IPO, net of underwriting discount |
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Conversion of Class B common units into Class B Shares |
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Capitalization of initial public offering costs |
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Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increase in tax basis |
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Activity subsequent to the initial public offering and related organizational transactions: |
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Net income |
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NCI Adjustment |
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Balance, June 30, 2023 |
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$ |
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$ |
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Net income |
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Stock-based compensation |
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Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increase in tax basis |
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Balance, September 30, 2023 |
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$ |
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$ |
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$ |
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3
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Class A |
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Class B |
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Additional |
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Retained |
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Non- |
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Stockholders' |
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(in thousands) |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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Earnings |
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Interest |
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Balance, December 31, 2023 |
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$ |
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$ |
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Net income |
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Stock-based compensation |
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Adjustment to tax liabilities and assets under TRA |
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Shares issued upon RSU vesting |
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Exchange of noncontrolling interest for Class A common stock |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|||||
Balance, March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||||||
Issuance of Class A common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Contribution by shareholder in final IPO settlement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance, June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||||||
Shares issued upon RSU vesting |
|
|
|
|
$ |
1 |
|
|
|
|
|
|
|
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
||||||
Adjustment to tax liabilities and assets under TRA |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
$ |
(331 |
) |
||||||
Balance, September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
See accompanying notes to condensed consolidated financial statements.
4
GEN RESTAURANT GROUP, INC.
Condensed Consolidated Statements of Cash Flows
|
|
For the nine months ended September 30, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
|
|
(unaudited) |
|
|||||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net Income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to cash provided by operating activities |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Equity in income of equity method investee, net of distributions |
|
|
|
|
|
|
||
Gain on remeasurement of previously held interest |
|
|
( |
) |
|
|
— |
|
Acquisition related costs |
|
|
( |
) |
|
|
— |
|
Stock-based compensation |
|
|
|
|
|
|
||
Amortization of operating lease assets |
|
|
|
|
|
|
||
Interest income earned on Notes receivable from related party |
|
|
( |
) |
|
|
( |
) |
Deferred tax benefit |
|
|
( |
) |
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
— |
|
Inventories |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
( |
) |
|
Accrued salaries and benefits |
|
|
( |
) |
|
|
( |
) |
Accrued interest |
|
|
|
|
|
|
||
Gift card liabilities |
|
|
|
|
|
— |
|
|
Other current liabilities |
|
|
( |
) |
|
|
|
|
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Income tax payable |
|
|
— |
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
|
||
Proceeds from recovery of Notes receivable from related party |
|
|
— |
|
|
|
|
|
Advances made to related party |
|
|
— |
|
|
|
( |
) |
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Acquisition of GKBH, net of cash acquired |
|
|
( |
) |
|
|
— |
|
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from issuance of Class A common stock sold in IPO, net of underwriting discount |
|
|
— |
|
|
|
|
|
Payments to members for advances |
|
|
( |
) |
|
|
( |
) |
Advance from members |
|
|
— |
|
|
|
|
|
Payments for deferred offering costs |
|
|
— |
|
|
|
( |
) |
Payments on EIDL loans |
|
|
( |
) |
|
|
( |
) |
Payments on finance leases |
|
|
( |
) |
|
|
( |
) |
Payments on third party loans |
|
|
( |
) |
|
|
( |
) |
Payments on related party loans |
|
|
— |
|
|
|
( |
) |
Payment on line of credit |
|
|
— |
|
|
|
( |
) |
Proceeds from line of credit |
|
|
— |
|
|
|
|
|
Proceeds from third party loans |
|
|
|
|
|
|
||
Proceeds from related party loans |
|
|
— |
|
|
|
|
|
Member distributions |
|
|
— |
|
|
|
( |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
||
Net increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of the period |
|
$ |
|
|
$ |
|
||
Supplemental disclosures of other cash flow information: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash paid for taxes |
|
|
|
|
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Unpaid purchases of property and equipment |
|
|
|
|
|
|
||
Unpaid deferred offering costs |
|
|
- |
|
|
|
|
|
Leased assets obtained in exchange for new operating lease liabilities |
|
|
|
|
|
|
||
Conversion of related party loans to equity |
|
|
|
|
|
|
||
Issuance of promissory note for business acquisition |
|
|
|
|
|
— |
|
|
Contribution by shareholder in final IPO settlement |
|
|
|
|
|
— |
|
|
See accompanying notes to condensed consolidated financial statements.
5
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
The accompanying consolidated financial statements represent the consolidated balance sheets, income statements, changes in permanent equity (deficit), and cash flows of GEN Restaurant Group, Inc, Gen Restaurant Companies, LLC and its consolidated subsidiaries (the “Company”). All of the operations are owned by Gen Restaurant Companies, LLC. The Company operates restaurants which are located in California, Arizona, Hawaii, Nevada, New York, Washington, Florida, and Texas, specializing in a variety of special flavored meats for Korean barbeque.
The following tables lists the Company’s entities in operation as of September 30, 2024:
Name |
|
Operating Name |
|
State |
|
Purpose |
GEN Restaurant Group, LLC |
|
GEN Tustin |
|
CA |
|
|
|
|
GEN Huntington Beach |
|
CA |
|
|
|
|
GEN Oxnard |
|
CA |
|
|
JC Group International Inc. (S Corp) |
|
GEN Henderson |
|
NV |
|
|
|
|
GEN West Covina |
|
CA |
|
|
|
|
GEN Corona |
|
CA |
|
|
GEN Restaurant Investment, LLC |
|
GEN Glendale |
|
CA |
|
|
GEN California, LLC |
|
GEN Fullerton |
|
CA |
|
|
|
|
GEN Mira Mesa |
|
CA |
|
|
GEN Arizona, LLC |
|
GEN Tempe |
|
AZ |
|
|
GEN Chandler, LLC |
|
GEN Chandler |
|
AZ |
|
|
GEN Nevada, LLC |
|
GEN Sahara |
|
NV |
|
|
|
|
GEN Miracle Mile |
|
NV |
|
|
GEN Alhambra, LLC |
|
GEN Alhambra |
|
CA |
|
|
GEN Arlington, LP |
|
GEN Arlington |
|
TX |
|
|
GEN Cerritos, LLC |
|
GEN Cerritos |
|
CA |
|
|
GEN Cerritos II, LP |
|
Gen Cerritos II |
|
CA |
|
|
GEN Torrance, LLC |
|
GEN Torrance |
|
CA |
|
|
GEN Rancho Cucamonga, LP |
|
GEN Rancho Cucamonga |
|
CA |
|
|
GEN San Jose, LP |
|
GEN San Jose |
|
CA |
|
|
GEN Northridge, LP |
|
GEN Northridge |
|
CA |
|
|
GEN Chino Hills, LP |
|
GEN Chino Hills |
|
CA |
|
|
GEN Carrollton, LP |
|
GEN Carrollton |
|
TX |
|
|
GEN Fort Lauderdale, LP |
|
GEN Fort Lauderdale |
|
FL |
|
|
GEN Fremont, LP |
|
GEN Fremont |
|
CA |
|
|
GEN Concord, LP |
|
GEN Concord |
|
CA |
|
|
GEN Webster, LP |
|
GEN Webster |
|
TX |
|
|
GEN Westgate, LP |
|
GEN Westgate |
|
CA |
|
|
GEN Westheimer, LLC |
|
GEN Westheimer |
|
TX |
|
|
GEN Manhattan NYU, LP |
|
GEN Manhattan |
|
NY |
|
|
GEN Maui, LP |
|
GEN Maui |
|
HI |
|
|
GEN Mountain View, LP |
|
GEN Mountain View |
|
CA |
|
|
GKBH Restaurant, LLC |
|
GEN Korean BBQ |
|
HI |
|
|
GEN Hawaii, LLC |
|
Investment Company |
|
HI |
|
|
GEN Online, LLC |
|
GEN Online |
|
CA |
|
|
GEN Sacramento, LP |
|
GEN Sacramento |
|
CA |
|
|
GEN Pearlridge, LLC |
|
GEN Pearlridge |
|
HI |
|
|
GEN Kapolei, LP |
|
GEN Kapolei |
|
HI |
|
|
GEN Frisco, LP |
|
GEN Frisco |
|
TX |
|
|
GEN Houston, LLC |
|
GEN Houston |
|
TX |
|
|
GEN Seattle, LP |
|
GEN Seattle |
|
WA |
|
|
GEN Jacksonville, LP |
|
GEN Jacksonville |
|
FL |
|
|
GEN Dallas, LP |
|
GEN Dallas |
|
TX |
|
|
GEN Texas, LLC |
|
Investment Company |
|
TX |
|
|
GEN Master, LLC |
|
Holding Company |
|
NV |
|
|
GEN Restaurant Management, LLC |
|
GRM |
|
DE |
|
As of September 30, 2024, all of the above entities are collectively owned 100% by the controlling group. The Company had an equity method investment through GEN Hawaii, with a 50% ownership share of GKBH Restaurant, LLC (“GKBH”). On February 18, 2024, the Company purchased the other
During the third quarter of 2024, the Company signed leases for three restaurants in Clearwater, FL, Naperville, IL, and South Austin (Southpark), TX.
6
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
Organization
GEN Restaurant Group, Inc. (“GEN Inc.”) was formed as a Delaware corporation on October 28, 2021 and is based in Cerritos, California. As the managing member of Gen Restaurant Companies, LLC (the “Operating Company”), GEN Inc. operates and controls all the business and affairs of the Operating Company, and through the Operating Company and its consolidated subsidiaries, conducts its business. Unless the context otherwise requires, references to the “Company” refer to GEN Inc., and its consolidated subsidiaries, including the Operating Company.
On June 30, 2023 the Company completed an initial public offering (the “IPO”) of
The accompanying unaudited condensed consolidated financial statements of the Company, collectively, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”). These unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements, and, in the opinion of management, reflect all adjustments (all of which were considered of a normal recurring nature) considered necessary to present fairly the Company's financial results. The results of the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024 and for any other interim period or future year.
The Company, as an emerging growth company, has elected to use the extended transition period which allows us to defer the adoption of new or revised standards. This allows the Company to adopt new or revised accounting standards as of the effective date for non-public business entities.
In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, “Leases (Topic 842): Common Control Arrangements”. The new guidance requires all lessees in a lease with a lessor under common control to amortize leasehold improvement over the useful life of the common control group and provides new guidance for recognizing a transfer of assets between entities under common control as an adjustment to equity when the lessee no longer controls the use of the underlying asset. This guidance is effective for fiscal years beginning after December 15, 2023. The
Accounting Standards Codification (“ASC”) Topic 320, “Investments-Debt Securities,” requires that an enterprise classify all debt securities as either held-to-maturity, trading, or available-for-sale. During the third quarter of 2023, the Company adopted ASC 320 and classified its U.S. Treasury and equivalent securities as held-to-maturity. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 820): Improvements to Reportable Segment Disclosures” which provides guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of this standard on our consolidated financial statements and will adopt this pronouncement in the fourth quarter of 2024.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) Improvements to Income Tax Disclosures,” which is effective for fiscal years beginning after December 31, 2024. The Company is evaluating the presentational effect that ASU 2023-09 will have on our consolidation financial statements.
7
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities in the accompanying unaudited condensed consolidated financial statements of the Company. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Annual Report.
Goodwill is calculated under ASC 805-30-30, which represents the excess of the fair value of purchase consideration of an acquired business over the fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at a reporting unit level on an annual basis, or more frequently if circumstances change or an event occurs that would more likely than not reduce the fair value of the reporting unit below its carrying amount.
The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations”. Under the acquisition method, we recognize 100% of the assets we acquire and liabilities we assume, regardless of the percentage we own, at their estimated fair values as of the date of acquisitions. Any excess of the purchase price over the fair value of the net assets and other identifiable intangible assets we acquire is recorded as goodwill. The assets we acquire, and liabilities we assume from contingencies, are recognized at fair value if we can readily determine the fair value during the measurement period. The operating results of the business the Company acquired are included in the consolidated statements of operations from the date of acquisition. Acquisition-related costs are expensed as incurred.
The Company accounts for equity-based compensation grants to employees in accordance with ASC Topic 718, “Stock Based Compensation”. The Company issued restricted stock units to its employees.
The Company estimates the fair value of the restricted stock units on the grant-date and recognizes the resulting fair value over the requisite service period. The fair value of each restricted stock unit or award is determined based upon the value of the common stock granted. The Company has elected to treat stock-based awards with graded vesting schedules and time-based service conditions as a single award and recognizes stock-based compensation on a straight-line basis over the requisite service period. Forfeitures are accounted for as they occur
The Company and its related entities consider all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. As of September 30, 2024 and December 31, 2023, cash and cash equivalents consisted principally of cash, money market accounts and short-term investments. Short-term investments are classified as available for sale, which are carried at fair value, with changes in fair value reported in earnings. Cash equivalents also include credit card transactions in transit.
As of September 30, 2024 and December 31, 2023, there were deposits in excess of federally insured amounts of $
|
|
Carrying |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money Market Accounts (included in cash and cash equivalents) |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
U.S. Treasury Securities (included in cash and cash equivalents) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Represent money market accounts. Excludes $ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
8
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
The Company relies on third parties for specified food products and supplies. In instances where these parties fail to perform their obligation, the Company may be unable to find alternative suppliers.
The Company relies on Sysco Los Angeles, Inc., or Sysco, an unrelated third-party, for a significant portion of its food supplies. During the fourth quarter of 2023, the Company entered into an agreement with Sysco to purchase certain food supplies. For the three and nine months ended September 30, 2023, the Company did not purchase from Sysco. For the three and nine months ended September 30, 2024 Sysco accounted for approximately
The Company previously relied on U.S. Foods, an unrelated third-party for a significant portion of its food products. For the nine months ending September 30, 2024, the Company did not purchase from U.S. Foods. For the three months ended September 30, 2023, U.S. Foods accounted for approximately
The Company relies on Pacific Global Distribution, Inc. (“PGD”), which provides restaurant supplies such as tableware, napkins, soda, and sauces. PGD is owned by a related party. For the three months ended September 30, 2024 and September 30, 2023, PGD accounted for approximately
The Company previously relied on Wise Universal, Inc. (“Wise”), an entity
During the three and nine months ended September 30, 2024, two third party vendors accounted for
Inventories consist principally of food and beverages and are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method (FIFO) for all inventories.
The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers.” Revenue from the operation of the restaurants is recognized as food and beverage products are delivered to customers and payment is tendered at the time of sale.
During the third quarter of 2024, the Company sold gift cards to customers through a third party vendor and at restaurant locations. The gift cards do not have an expiration date. Gift card sales are recorded as a contract liability when sold and are recognized as revenue, net of discounts, when the gift card is redeemed. Once the Company has sufficient historical data to reasonably estimate the amount of gift cards for which redemption is remote (also referred to as “breakage”), the Company will recognize breakage over an appropriate period in proportion to historical redemption trends and classify as revenue. The Company also offers discounts on the gift cards sold to its customers. The discounts are recorded as sales discount when gift cards have been redeemed. Revenue recognized from the redemption of gift cards is included in restaurant revenue. The Company’s contract liability related to gift cards was $
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Property and equipment under finance leases are stated at the present value of minimum lease payments.
9
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
The estimated useful service lives are as follows:
Equipment |
|
|
Furniture and fixtures |
|
|
Leasehold improvements |
|
The Company capitalizes certain costs in conjunction with improvements to specific sites for planned future restaurants and in conjunction with construction of new restaurants. The Company and its related entities did not capitalize any internal costs related to site preparation and construction activities during the nine months ended September 30, 2024 and September 30, 2023 as any amounts were deemed immaterial.
Other assets as of September 30, 2024 and December 31, 2023 consist of the following:
(in thousands) |
|
September 30, |
|
|
December 31, |
|
||
Other Assets |
|
|
|
|
|
|
||
Security Deposits |
|
$ |
|
|
$ |
|
||
Liquor Licenses |
|
|
|
|
|
|
||
Total Other Assets |
|
$ |
|
|
$ |
|
||
Other Current Liabilities as of September 30, 2024 and December 31, 2023 consist of the following:
(in thousands) |
|
September 30, |
|
|
December 31, |
|
||
Other Current Liabilities |
|
|
|
|
|
|
||
Sales tax payable |
|
$ |
|
|
$ |
|
||
Accrued percentage rent |
|
|
|
|
|
|
||
Misc. accrued expenses |
|
|
|
|
|
|
||
Total Other Current Liabilities |
|
$ |
|
|
$ |
|
||
Advances from members consist of funding received from member owners. During the nine months ended September 30, 2024, the Company satisfied $
Pre-opening costs, incurred in connection with the opening of new restaurants, are expensed as incurred. Pre-opening costs were $
Deferred tax assets are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets of a change in tax rates is recognized in income in the period that includes the enactment date.
10
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
The Company recognizes positions taken or expected to be taken in a tax return in accordance with existing accounting guidance on income taxes which prescribes a recognition threshold and measurement process. Under GAAP, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than
In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
Long-lived assets are reviewed quarterly for impairment and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, undiscounted cash flows expected to be generated by that asset or asset group are compared to its carrying amount. If the carrying amount of the long-lived asset or asset group is not expected to be recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. We assessed our long-lived assets for potential impairment with the result that
A reconciliation of total interest cost to interest income/expense as reported in the condensed consolidated income statement for the three and nine months ended September 30, 2024 and September 30, 2023 is as follows:
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
(in thousands) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest (income) expense, net |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Liquor licenses are deemed to have indefinite useful lives and are quantitatively tested on an annual basis for impairment. Liquor licenses are included in other assets in the accompanying balance sheets.
Sales taxes are imposed by state, county, and city governmental authorities, collected from customers and remitted to the appropriate governmental agency. The Company’s policy is to record the sales taxes collected as a liability on the books and then remove the liability when the sales tax is remitted. There is no impact on the condensed consolidated income statements as restaurant sales are recorded net of sales tax.
Advertising costs are expensed as incurred and are included in General and Administrative costs in the accompanying condensed consolidated income statements. The Company incurred approximately $
11
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
Management continues to evaluate the potential impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s future financial position and the results of its operations, the specific impact is not readily determinable as of the date of these unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Several of the Company’s restaurants received, between May and August 2021, a total of approximately $
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus measures, including the Employee Retention Credit (“ERC”), a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. We qualified for the ERC in the first and second quarters of 2019, second and fourth quarters of 2020 and first, second and third quarters of 2021. During the three months ended September 30, 2024 and 2023, the Company did
(x) Deferred Offering Costs
The Company capitalized certain legal, accounting, and other third-party fees that were directly attributable to GEN Inc.’s IPO. Following the successful consummation of the IPO in June 2023, deferred offering costs of approximately $
(y) Net Income Per Share
Basic net income per share is computed by dividing net income attributable to the Company by the weighted-average number of shares outstanding during the period. Diluted net income per share is computed by giving effect to all potential weighted-average dilutive shares including stock options, restricted stock units, dividend equivalent units, restricted stock awards, and Class B Common Units exchangeable for shares of Class A common stock for the periods after the closing of the IPO on June 30, 2023. The dilutive effect of outstanding awards, if any, is reflected in diluted earnings per share by application of the treasury stock method or if-converted method, as applicable. See “Note 15—Net Income per Share.”
On February 18, 2024, we acquired the remaining
12
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
The following table summarizes the fair value of GKBH’s assets and liabilities at the acquisition date, and the resulting goodwill.
(in thousands) |
|
|
|
|
Purchase price of |
|
$ |
|
|
Acquisition-date fair value of previously held interest (Level 2) |
|
|
|
|
Fair value of GKBH at acquisition date |
|
|
|
|
(in thousands) |
|
|
|
|
Cash |
|
$ |
|
|
Accounts Receivable |
|
|
|
|
Inventories |
|
|
|
|
Prepaid and Other assets |
|
|
|
|
Deposits |
|
|
|
|
Property and equipment |
|
|
|
|
Operating lease right-of use assets |
|
|
|
|
Liabilities assumed |
|
|
( |
) |
Total identifiable net assets |
|
$ |
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
$ |
|
|
Goodwill is calculated as the excess of the purchase price over the net assets acquired. The Company expects that a portion of the goodwill balance to be deductible for tax purposes over a period of
The following table presents unaudited consolidated pro forma results as if the acquisition of GKBH had occurred on January 1, 2023.
|
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
||||||||||
(in thousands, except per share data) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
||||||||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The unaudited pro forma financial information reflects the acquisition of GKBH by the application of pro forma adjustments to the Company’s historical financial statements as if the acquisition had occurred on January 1, 2023. The unaudited pro forma financial information should not be considered indicative of actual results that would have been achieved had the acquisition of GKBH actually been consummated on the date indicated and does not purport to be indicative of the Company’s future financial position or results of operations. There were no material nonrecurring pro forma adjustments directly attributable to the acquisition included within the unaudited pro forma financial information.
The fair value of the previously held noncontrolling interest was determined based on the fair value of total consideration transferred and application of a discount for lack of control, which was determined using historical market data on control premiums and other industry data.
13
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
The Company's financial instruments consist of cash and cash equivalents and investments. The carrying amounts reported in the accompanying condensed consolidated balance sheets for cash and cash equivalents approximate fair value because of the short-term maturity of those instruments. Fair value measurements are classified and disclosed in one of the following three categories:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets of liabilities.
As of September 30, 2024, all of the Company's financial assets that were subject to fair value measurement were valued using observable inputs. The Company's financial assets valued based on Level 1 inputs consist of cash and money market funds and U.S. treasury securities.
|
|
|
|
|
Fair Value Measurements at September 30, 2024 |
|
||||||||||
(in thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Money Market Account (included in Cash and Cash Equivalents) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
U.S. Treasury Securities (included in Cash and Cash Equivalents) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
Fair Value Measurements at December 31, 2023 |
|
||||||||||
Money Market Account (included in Cash and Cash Equivalents) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
U.S. Treasury Securities (included in Cash and Cash Equivalents) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
The costs and related accumulated depreciation and amortization of major classes of property:
|
|
|
|
|||||
(in thousands) |
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Equipment |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and Equipment, Net |
|
$ |
|
|
$ |
|
||
The construction in progress balance on September 30, 2024 and December 31, 2023 is related to new restaurants being developed for openings expected in 2024 and 2025.
Total depreciation and amortization for the three months ended September 30, 2024 and September 30, 2023 was $
Total depreciation and amortization for the nine months ended September 30, 2024 and September 30, 2023 was $
14
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
On April 1, 2016, GEN Hawaii made an investment of $
On February 18, 2024, the Company purchased the remaining
Prior to the purchase of the remaining
A summary of the GKBH financial position as of December 31, 2023 and results of operations for the three and nine months ended September 30, 2023 is as follows (unaudited):
(in thousands) |
|
December 31, |
|
|
Current assets |
|
|
|
|
Noncurrent assets |
|
|
|
|
Current liabilities |
|
|
|
|
Noncurrent liabilities |
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||
(in thousands) |
|
|
2023 |
|
|
2023 |
|
||
Net sales or gross revenue |
|
|
|
|
|
|
|
||
Operating income |
|
|
|
|
|
|
|
||
Net income |
|
|
|
|
|
|
|
||
Net income attributable to the entity |
|
|
|
|
|
|
|
||
During March 2022 the Company entered into a line of credit for $
On September 29, 2023, the Company entered into a new line of credit agreement for $
Note Payable to WDI
On February 18, 2024, the Company finalized an agreement with WDI International, Inc. (“WDI”), to acquire the remaining
Notes Payable to Bank
On September 13, 2017, the Company and a commercial bank entered into a loan agreement in the amount of $
15
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
During the first quarter of 2023, the Company and a commercial bank entered into a loan agreement in the amount of $
During the third quarter of 2024, the Company and a commercial bank entered into a loan agreement in the amount of $
Economic Injury Disaster Loan (“EIDL”)
On July 1, 2020, the Company executed the standard loan documents for restaurants required for securing EIDLs from the United States Small Business Administration under its Economic Injury Disaster Loan assistance program. This assistance was sought in light of the impact of the COVID-19 pandemic on the Company’s business.
As of both September 30, 2024 and December 31, 2023, the total principal amount of the EIDLs was $
Note Payable to Landlord
In August 2017, GEN Fremont entered into a note agreement with a landlord. The Company is making equal monthly payments on this note which has a
Total Obligations of Notes Payable
The aggregate maturities of all third party notes payable as of September 30, 2024:
(in thousands) |
|
|
|
|
2024 - remaining |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
Less current portion of notes payable |
|
|
( |
) |
Long term portion |
|
$ |
|
|
During 2022, the member owners loaned $
In December 2022, the member owners loaned an additional $
16
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
Interest expense incurred for the related party debt was $
Interest expense incurred for the related party debt was $
Issuance of Common Stock for Repayment of Notes Payable to Related Parties and Advances from Members
During the second quarter of 2024, the Company satisfied $
At inception of a contract, the Company assesses whether a contract is a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification, measurement, and recognition are determined at lease commencement, which is the date the underlying asset is available for use by the Company. The accounting classification of a lease is based on whether the arrangement is effectively a financed purchase of the underlying asset (finance lease) or not (operating lease). The Company has operating and finance leases for its corporate office, restaurant locations, office equipment and kitchen equipment. The leases have remaining lease terms of less than
Operating leases are accounted for on the balance sheet with the lease assets and liabilities recognized in “Operating lease assets”, “Operating lease liabilities, current” and “Operating lease liabilities, net of current portion”. Finance lease liabilities are recognized on the balance sheet in “Obligations under finance leases, current” and “Obligations under finance leases, net of current portion”.
Lease assets and liabilities are recognized at the lease commencement date. All lease liabilities are measured at the present value of the lease payments not yet paid. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the maturities of the leases. We estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. Operating lease assets are initially measured based on the lease liability, adjusted for initial direct costs, prepaid or deferred rent, and lease incentives. The operating lease liabilities are subsequently measured at the carrying amount of the lease liability adjusted for initial direct costs, prepaid or accrued lease payments, and lease incentives.
The following table summarizes the operating and finance lease activities to the income statements for the three months ended September 30, 2024 and 2023 and the nine months ended September 30, 2024 and 2023, and balance sheets as of September 30, 2024 and December 31, 2024:
(in thousands) |
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
||||||||||
Operating lease cost |
|
Classification |
|
2024 |
|
|
2023 |
|
2024 |
|
|
2023 |
|
||||
Operating lease cost |
|
Occupancy and related expenses, and General and administrative expenses |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Variable lease cost |
|
Occupancy and related expenses, and General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating lease cost |
|
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
17
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
Supplemental balance sheet information related to leases: |
|
|
|
|
|
|
||
Operating leases (in thousands) |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Operating lease assets |
|
$ |
|
|
$ |
|
||
Operating lease liabilities, current |
|
|
|
|
|
|
||
Operating lease liabilities, net of current portion |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
$ |
|
|
$ |
|
||
Finance lease assets, net (in thousands) |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Property and equipment |
|
$ |
|
|
$ |
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Finance lease liabilities (in thousands) |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Obligations under finance leases, current |
|
$ |
|
|
$ |
|
||
Obligations under finance leases, net of current portion |
|
|
|
|
|
|
||
Total finance lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
September 30, 2024 |
|
|
Weighted-Average Remaining Lease Term (Years) |
|
|
|
|
Operating leases |
|
|
|
|
Finance leases |
|
|
|
|
Weighted-Average Discount Rate |
|
|
|
|
Operating leases |
|
|
% |
|
Finance leases |
|
|
% |
|
Maturities of lease liabilities as of September 30, 2024:
(in thousands) |
|
Operating Leases |
|
|
Finance Leases |
|
||
2024 - remaining |
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total undiscounted lease payments |
|
$ |
|
|
$ |
|
||
Present value discount/interest |
|
|
( |
) |
|
|
|
|
Present value |
|
|
|
|
|
|
||
Lease liabilities, current |
|
|
|
|
|
|
||
Lease liabilities, net of current |
|
|
|
|
|
|
||
Total operating lease liability |
|
$ |
|
|
$ |
|
||
As of September 30, 2024, the Company had additional operating leases related to new restaurants the Company has not yet taken possession of that will total $
The Company is obligated under finance leases covering certain property and equipment that expire at various dates during the next
(in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||
Property and equipment |
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Amortization of assets held under finance leases is included with depreciation expense in the condensed consolidated income statements.
18
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
On November 23, 2016, pursuant to the U.S. government’s Immigrant Investor Program, commonly known as the EB-5 program (the “EB-5 Program”), Gen Restaurant Investment, LLC entered into an operating agreement with an investor (the “EB-5 Investor”). Under the terms and conditions of the EB-5 program, the Company is subject to certain job creation requirements.
As part of the EB-5 Program operating agreement, Gen Restaurant Investment, LLC issued 3 units of Series II Preferred Member Interest in exchange for a
Accordingly, this has been presented as mezzanine equity, not permanent equity, in the accompanying condensed consolidated balance sheets.
The Company and its related entities are involved in various claims and legal actions arising in the ordinary course of business. The outcomes of these actions are not predictable but the Company does not believe that the ultimate resolution of these other actions will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims, could materially and adversely affect its business, financial condition, results of operations or cash flows.
The Company is a party to several lawsuits brought in Los Angeles County, California by ex-employees alleging labor law violations. The Company plans to continue to defend against these claims and does not expect the outcome of these lawsuits to have a material impact on the financial statements of the Company.
Income Taxes, General
As a result of the IPO and the related transactions, the Company owns a portion of the common units of the Operating Company, which is treated as a partnership for U.S. federal, and most applicable state and local income tax purposes. As a partnership, the Operating Company is generally not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by the Operating Company is passed through to and included in the taxable income or loss of its members in accordance with the terms of the Operating Agreement. The Company is subject to U.S. federal, state and local income taxes based on its share of the Operating Company’s pass-through taxable income.
The effective tax rate differs from the statutory tax rate primarily due to the Operating Company’s pass-through structure for U.S. income tax purposes.
For the nine months ended September 30, 2024, the Company did
For the three months ended September 30, 2024, the Company recorded an income tax expense of $
For the nine months ended September 30, 2024, the Company recorded an income tax expense of $
19
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
Tax Receivable Agreement (“TRA”)
Gen, Inc. entered into the TRA with the Operating Company and each of the members of the Operating Company (the “Members”) that provides for the payment by Gen Inc. to the Members of
The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The Operating Company expects to benefit from the remaining
As of September 30, 2024, the Company had a liability related to its projected obligations under the TRA of $
As discussed in “Note 1 – Organization and Description of Business,” the Company consolidates the financial results of the Operating Company and reports a non-controlling interest related to the Class B Common Units held by non-controlling interest holders on its consolidated financial statements.
As of September 30, 2024, the Company owned
The Company purchased approximately $
The Company previously relied on Wise, an entity
As of December 31, 2023, GEN Mountain View had a related party account payable to a company owned by Mr. David Kim, our Co-Chief Executive Officer, for purchases of fixed assets during 2018.
Basic net income per share of Class A common stock is computed by dividing net income attributable to GEN Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted net income per share of Class A common stock is computed by dividing net income attributable to GEN Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities. Diluted net income per share for any periods for which loss per share is presented is the same as basic net income per share as the inclusion of potentially issuable shares would be antidilutive.
20
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
A calculation of the numerator and denominator used in the calculation of basic and diluted net income per share of Class A common stock is as follows:
|
|
|
|
|
|
|
|||||||||
|
|
Three months ended September 30, |
Nine months ended September 30, |
|
|||||||||||
(in thousands, except per share data) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
||||
Less: Net income attributable to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Class A common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares of Class A common stock outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares of Class A common stock outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per share of Class A common stock - basic |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
||||
Net income per share of Class A common stock - basic and diluted |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
||||
For the three and nine months ended September 30, 2024,
Shares of Class B common stock do not share in the earnings or losses of GEN Inc. and are therefore not participating securities. Separate calculations of basic and diluted net income per share for Class B common stock has not been presented.
In connection with the IPO, the Company granted restricted stock units (“RSUs”) to certain team members that generally vest on the
|
|
Number of RSUs |
|
|
RSUs |
|
(Thousands) |
|
|
Non-vested as December 31, 2023 |
|
|
|
|
Granted |
|
|
— |
|
Vested |
|
|
( |
) |
Canceled |
|
|
— |
|
Non-vested as of September 30, 2024 |
|
|
|
|
The aggregate fair value of the RSU's granted during the year ended December 31, 2023 was $
21
GEN RESTAURANT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024 and 2023
The Company and its related parties evaluated subsequent events from the balance sheet date through November 12, 2024, the date at which the condensed consolidated financial statements were issued.
Store Openings
During the month of October 2024 the Company opened
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of GEN Restaurant Group, Inc., included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and with the audited consolidated financial statements and related notes, which are included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”), filed with the Securities and Exchange Commission (the “SEC”). The terms “we”, “our”, and “us” as used herein refer to GEN Restaurant Group, LLC (the “Operating Company”) and its consolidated subsidiaries prior to our IPO and reorganization transactions completed in June 2023 that are described in this Form 10-Q (the “Transactions”), and to GEN Restaurant Group, Inc. and its consolidated subsidiaries, including the Operating Company, following the Transactions.
This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. All statements other than statements of historical fact contained in this Quarterly Report, including, without limitation, statements regarding our future results of operations or financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “consider,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the Annual Report, and in our subsequent filings with the SEC, which are available on the SEC's website at www.sec.gov. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements to reflect future events or circumstances, new information, or the occurrence of unanticipated events, except as required by law.
Overview
GEN Restaurant Group is an Asian casual dining restaurant concept that offers an extensive menu of traditional Korean and Korean-American food, including high-quality meats, poultry, and seafood, all at a superior value. Founded in 2011 by two Korean immigrants, since the opening of our first restaurant in September 2011 we have grown to 43 company-owned restaurants located in California, Arizona, Hawaii, Nevada, Texas, New York, Washington, Oregon and Florida. as of October 31, 2024. Our restaurants have modern décor, lively Korean pop music playing in the background and embedded grills in the center of each table. We believe we offer our customers a unique dining experience in which guests cook the majority of the food themselves, reducing the need for chefs and servers and providing a similar customer experience across the restaurants.
We expect to continue growing our number of restaurants in the future. Our new restaurants have generated average payback periods of approximately 1.4 years prior to the IPO. The projected average payback periods for new restaurants range from 2.0 to 2.5 years. Restaurants range in size from 4,500 to 12,000 square feet, and are typically located in high-activity commercial areas.
Business Trends
Our long-term growth strategy is to continue to open new restaurants in locations that we believe will achieve profitability levels consistent with our pre-pandemic experience. During 2023, we opened six new restaurants. Through October 2024, we opened six restaurants in Seattle, WA, Dallas, TX, Jacksonville, FL, Tigard, OR, Maui, HI and Pflugerville, TX. As of November 8, 2024 we have eighteen new restaurant locations with leases that have been signed, including four leases in Texas, three in Florida, two in New York, two in Massachusetts, and one each in the following states: Tennessee, California, Hawaii, Arizona, North Carolina, New Jersey and Illinois. We currently expect to open four additional restaurants during 2024.
Recent Events Concerning Our Financial Position
During the year ended December 31, 2022 we received $2.6 million in additional Economic Injury Disaster Loans, or “EIDLs”. There are no additional EIDLs expected. The EIDLs mature in 2050 and 2051, and carry an interest rate of 3.75%. The range of monthly payments under the EIDLs are from $700 to $9,770. As of September 30, 2024, the balance outstanding on the EIDLs was approximately $4.4 million.
On September 29, 2023, the Company entered into a $20 million line of credit with a bank. During September 2024, the Company extended the line of credit, which matures on September 25, 2025 and bears interest at a variable rate per annum equal to
23
8.75% as of September 30, 2024. No amounts have been borrowed under the line of credit as of September 30, 2024 and December 31, 2023.
During the third quarter of 2024, the Company entered into a $3.0 million loan with a commercial bank. The loan matures on June 26, 2026 and bears interest at a variable rate per annum equal to 8.25% as of September 30, 2024. The balance was $2.7 million as of September 30, 2024.
We have received approximately $16.8 million in Restaurant Revitalization Fund, or RRF, grants. These grants were recognized as income as the money was spent, with $13.0 million recorded as income as of December 31, 2021, and $3.8 million was deferred as of December 31, 2023 and September 30, 2024.
We assessed our long-lived assets for potential impairment each quarter with the result that no impairment charges were recorded in any of the periods presented.
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 Net Income Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Restaurant-Level Adjusted EBITDA, Restaurant-Level Adjusted EBITDA Margin, Average Unit Volumes, comparable restaurant sales growth, the number of restaurant openings and revenue per square foot.
Net Income Margin
Net Income Margin is net income measured under GAAP divided by revenue.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA represents net income excluding interest expense, net, income taxes, depreciation and amortization, stock-based compensation, consulting fees paid to a related party, gain on extinguishments of debt, RRF grants, employee retention credits, litigation accruals, aborted deferred IPO costs written off, non-cash lease expense and non-cash lease expense included in pre-opening costs. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenue. Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP. For a discussion of why we consider these measures to be useful and their material risks and limitations, see “Non-GAAP Financial Measures.”
Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin
Restaurant-Level Adjusted EBITDA is Income from operations plus adjustments to add-back the following expenses: depreciation and amortization, pre-opening costs, general and administrative expenses, related party consulting fees, management fees and non-cash lease expense. Non-cash items such as charges for asset impairments and asset disposals are not included in Restaurant-Level Adjusted EBITDA. Restaurant-Level Adjusted EBITDA Margin is the calculation of Restaurant-Level Adjusted EBITDA divided by revenue. For a discussion of why we consider these measures to be useful and their material risks and limitations, see “Non-GAAP Financial Measures.”
Average Unit Volume
“Average Unit Volume” or “AUV” means the average annual restaurant sales for all restaurants open for a full 12 months before the end of the period measured. AUV is calculated by dividing annual revenue for the year presented for all such restaurants by the total number of restaurants in that base. This measurement allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.
The following table shows the AUV for the twelve months ended September 30, 2024 and September 30, 2023 :
|
|
Twelve months ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
(in thousands) |
|
|
|
|||||
Average Unit Volume |
|
$ |
5,514 |
|
|
$ |
5,963 |
|
24
Comparable Restaurant Sales Growth
Comparable restaurant sales growth 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 12 full months prior to the accounting period presented. Once a restaurant has been open 12 full months, it must have had continuous operations during both the current period and the prior year period being measured to remain a comparable restaurant. If operations were to be substantially impacted by unusual events that closed the location or significantly changed its capacity, that location is excluded from the comparable sales calculation until it has been operating continuously under normal conditions for both the current period and the prior year comparison period.
|
|
Three months ended September 30, |
|
|
Nine Months Ended September 30, |
|||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|||
Comparable restaurant sales change (%) |
|
|
-9.6 |
% |
|
|
-1.2 |
% |
|
|
-5.7 |
% |
|
N/A |
Comparable restaurant base |
|
|
33 |
|
|
|
28 |
|
|
|
33 |
|
|
N/A |
Since opening new restaurants is expected to be a significant component of our sales growth, comparable restaurant sales growth is only one measure of how we evaluate our performance.
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. We temporarily stopped opening new restaurants in 2021 and 2020 due to the COVID-19 pandemic, but began openings again in 2022. The following table shows the change in our restaurant base for the nine months ended September 30, 2024 and September 30, 2023:
|
|
Three Months Ended |
|
|
For the Nine Months |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Restaurant activity |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning of period |
|
|
40 |
|
|
|
34 |
|
|
|
36 |
|
|
|
31 |
|
Openings |
|
|
1 |
|
|
|
— |
|
|
|
5 |
|
|
|
3 |
|
Closings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
End of period |
|
|
41 |
|
|
|
34 |
|
|
|
41 |
|
|
|
34 |
|
During October 2024, we opened two new restaurants in Oregon and Texas.
Revenue Per Square Foot
Revenue per square foot means the restaurant sales for all restaurants opened a full 12 months before the end of the twelve month period measured divided by the average square footage of such restaurants. This measurement allows management to assess the effectiveness of our approach to real estate selection and the overall performance of our restaurant base. The following table shows the revenue per square foot for the twelve month periods ended September 30, 2024 and September 30, 2023:
|
|
Twelve Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenue per square foot |
|
$ |
783 |
|
|
$ |
888 |
|
Components of Results of Operations
Revenues. Revenues represent sales of food and beverages in restaurants and, to a minor extent, through our online portal. Restaurant revenues in a given period are directly impacted by the number of restaurants we operate, menu pricing, the number of customers visiting and comparable restaurant sales growth.
Food costs. Food costs are variable in nature, change with sales volume and are influenced by menu mix and subject to increases or decreases based upon fluctuations in commodity costs. Another important factor causing fluctuations in food costs includes restaurant management of food waste. Food costs are a substantial expense and are expected to grow proportionally as our sales grow.
25
Payroll and benefits. Payroll and benefits include all restaurant-level management and hourly labor costs, including wages, employee benefits and payroll taxes. Similar to the food costs that we incur, labor and related expenses at our restaurants are expected to grow proportionally as our sales grow. Factors that influence fluctuations in our labor and related expenses include the volume of sales at our restaurants, minimum wage and payroll tax legislation, payroll rate increases due to labor shortages or inflationary pressures, the frequency and severity of workers’ compensation claims, and healthcare costs.
Occupancy expenses. Occupancy expenses include rent, common area maintenance and taxes for all restaurant locations, but exclude any related pre-opening costs.
Operating expenses. Operating expenses include supplies, utilities, repairs and maintenance, and other costs incurred directly at the restaurant level.
Depreciation and amortization expenses. Depreciation and amortization expenses are periodic non-cash charges at our restaurants that consist of depreciation of fixed assets, including equipment, software and capitalized leasehold improvements. Depreciation is determined using the straight-line method over the assets’ estimated useful lives, ranging from five to ten years.
Pre-opening costs. Pre-opening costs include pre-opening period rent, maintenance, taxes, payroll and benefits costs, advertising and other expenses directly incurred by the new restaurant until the date of the restaurant opening. Pre-opening costs can fluctuate significantly from period to period, based on the number and timing of restaurant openings.
General and administrative expenses. General and administrative expenses include expenses associated with corporate management supervisory functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, stock-based compensation, travel expenses, 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 sales grow, including incremental legal, accounting, insurance and other expenses incurred as a public company including becoming compliant with the requirements of Sarbanes-Oxley and addressing our internal control weaknesses through implementing new accounting systems and hiring additional staff.
Consulting fees — related party. Prior to the IPO, consulting fees include expenses paid to a related party entity, which provided for annual fees of up to 25% of gross revenue in exchange for various consulting services. The related party is 100% owned by an executive officer, the services were for 21 of the restaurants, and such consulting fees were only paid to the extent we had adequate resources. Following the effective date of our IPO, these consulting fees were eliminated as services transitioned to us, although corporate general and administrative expenses increased correspondingly.
Management fees. Prior to the IPO, management fees include expenses paid to a related third-party entity, which provided fixed fees for 12 restaurants and a percentage of gross revenue for one restaurant in exchange for management services. Following the IPO, management fees were eliminated and corporate general and administrative expenses increased correspondingly.
Depreciation and amortization - corporate. These are periodic non-cash charges at the corporate level that consist of depreciation of fixed assets, including equipment, information systems software and capitalized leasehold improvements, if any. Depreciation is determined using the straight-line method over the assets’ estimated useful lives, ranging from five to seven years.
Employee retention credits. Employee retention credits include refundable credits recognized under the provisions of the CARES Act and extension thereof.
Other income (loss). Other income (loss) consists of one-time legal accruals and other miscellaneous items.
Gain on remeasurement of previously held interest. This reflects the business acquisition of GKBH (a restaurant in Hawaii) during the first quarter of 2024.
Interest income (expense), net. Interest expense includes cash and non-cash charges related to our debt outstanding and finance lease obligations. Interest income reflects income earned on deposits and notes receivable.
Equity in income (loss) of equity method investee. Equity in income (loss) of equity method investee reflected our 50% ownership in GKBH that was accounted for using the equity method until the date of acquisition on February 18, 2024.
Provision for income taxes. Represents federal, state, and local current and deferred income tax expense.
26
Results of Operations for the three months ended September 30, 2024 and September 30, 2023
The following table presents selected comparative results of operations for the three months ended September 30, 2024 and September 30, 2023. Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods.
|
|
Three months ended September 30, |
|
|
Increase/(decrease) |
|
||||||||||
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Revenue |
|
$ |
49,105 |
|
|
$ |
45,564 |
|
|
$ |
3,541 |
|
|
|
7.8 |
% |
Restaurant operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Food cost |
|
|
15,442 |
|
|
|
14,523 |
|
|
|
919 |
|
|
|
6.3 |
% |
Payroll and benefits |
|
|
14,977 |
|
|
|
14,444 |
|
|
|
533 |
|
|
|
3.7 |
% |
Occupancy expenses |
|
|
4,116 |
|
|
|
3,772 |
|
|
|
344 |
|
|
|
9.1 |
% |
Operating expenses |
|
|
5,728 |
|
|
|
4,582 |
|
|
|
1,146 |
|
|
|
25.0 |
% |
Depreciation and amortization |
|
|
1,695 |
|
|
|
1,232 |
|
|
|
463 |
|
|
|
37.6 |
% |
Pre-opening costs |
|
|
1,807 |
|
|
|
723 |
|
|
|
1,084 |
|
|
|
149.9 |
% |
Total restaurant operating expenses |
|
|
43,765 |
|
|
|
39,276 |
|
|
|
4,489 |
|
|
|
11.4 |
% |
General and administrative |
|
|
5,221 |
|
|
|
3,802 |
|
|
|
1,419 |
|
|
|
37.3 |
% |
Depreciation and amortization - corporate |
|
|
31 |
|
|
|
21 |
|
|
|
10 |
|
|
|
47.6 |
% |
Total costs and expenses |
|
|
49,017 |
|
|
|
43,099 |
|
|
|
5,918 |
|
|
|
13.7 |
% |
Income from operations |
|
|
88 |
|
|
|
2,465 |
|
|
|
(2,377 |
) |
|
|
(96.4 |
)% |
Interest income (expense), net |
|
|
196 |
|
|
|
190 |
|
|
|
6 |
|
|
|
3.2 |
% |
Equity in income (loss) of equity method investee |
|
|
— |
|
|
|
53 |
|
|
|
(53 |
) |
|
|
(100.0 |
)% |
Net Income before income taxes |
|
|
284 |
|
|
|
2,708 |
|
|
|
(2,424 |
) |
|
|
(89.5 |
)% |
Provision for income taxes |
|
|
(115 |
) |
|
|
(74 |
) |
|
|
(41 |
) |
|
|
55.4 |
% |
Net income |
|
|
169 |
|
|
|
2,634 |
|
|
|
(2,465 |
) |
|
|
(93.6 |
)% |
Net Income attributable to noncontrolling interest |
|
|
144 |
|
|
|
2,297 |
|
|
|
(2,153 |
) |
|
|
(93.7 |
)% |
Net income attributable to GEN Restaurant Group, Inc. |
|
$ |
25 |
|
|
$ |
337 |
|
|
$ |
(312 |
) |
|
|
(92.7 |
)% |
|
|
% of Revenue |
|
|||||
|
|
Three months ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Restaurant operating expenses: |
|
|
|
|
|
|
||
Food cost |
|
|
31.4 |
% |
|
|
31.9 |
% |
Payroll and benefits |
|
|
30.5 |
% |
|
|
31.7 |
% |
Occupancy expenses |
|
|
8.4 |
% |
|
|
8.3 |
% |
Operating expenses |
|
|
11.7 |
% |
|
|
10.1 |
% |
Depreciation and amortization |
|
|
3.5 |
% |
|
|
2.7 |
% |
Pre-opening costs |
|
|
3.7 |
% |
|
|
1.6 |
% |
Total restaurant operating expenses |
|
|
89.1 |
% |
|
|
86.2 |
% |
General and administrative |
|
|
10.6 |
% |
|
|
8.3 |
% |
Depreciation and amortization - corporate |
|
|
0.1 |
% |
|
|
0.0 |
% |
Total costs and expenses |
|
|
99.8 |
% |
|
|
94.6 |
% |
Income from operations |
|
|
0.2 |
% |
|
|
5.4 |
% |
Interest income (expense), net |
|
|
0.4 |
% |
|
|
0.4 |
% |
Equity in income (loss) of equity method investee |
|
|
0.0 |
% |
|
|
0.1 |
% |
Net Income before income taxes |
|
|
0.6 |
% |
|
|
5.9 |
% |
Provision for income taxes |
|
|
(0.2 |
)% |
|
|
(0.2 |
)% |
Net income |
|
|
0.3 |
% |
|
|
5.8 |
% |
Net Income attributable to noncontrolling interest |
|
|
0.3 |
% |
|
|
5.0 |
% |
Net income attributable to GEN Restaurant Group, Inc. |
|
|
0.1 |
% |
|
|
0.7 |
% |
27
Revenues. Revenues were $49.1 million for the three months ended September 30, 2024, compared to $45.6 million for the three months ended September 30, 2023, an increase of $3.5 million, or 7.8%. This reflects revenue increases due to having 41 restaurants open in the three months ended September 30, 2024 compared to 34 restaurants open in the three months ended September 30, 2023.
Food costs. Food costs were $15.4 million for the three months ended September 30, 2024, compared to $14.5 million for the three months ended September 30, 2023, an increase of $0.9 million, or 6.3%. The increase in food costs reflects more restaurants in operation and inflationary cost increases. As a percentage of revenue, food costs decreased from 31.9% to 31.4%.
Payroll and benefits. Payroll and benefits costs were $15.0 million for the three months ended September 30, 2024, compared to $14.4 million for the three months ended September 30, 2023, an increase of $0.5 million, or 3.7%. The increase in payroll and benefits costs reflects the staffing needed to support the higher customer volumes from new restaurants as well as inflationary payroll increases. As a percentage of revenue, payroll and benefits costs decreased from 31.7% to 30.5%.
Occupancy expenses. Occupancy expenses were $4.1million for the three months ended September 30, 2024 compared to $3.8 million for the three months ended September 30, 2023, an increase of $0.3 million, or 9.1%. The increase in occupancy expenses reflects the addition of seven new locations. As a percentage of revenue, occupancy expenses were 8.4% in the three months ended September 30, 2024 compared to 8.3% in the three months ended September 30, 2023.
Operating expenses. Operating expenses were $5.7 million for the three months ended September 30, 2024 compared to $4.6 million for the three months ended September 30, 2023, an increase of $1.1 million, or 25.0%. The increase in expenses is related to support the revenue growth and reflected inflationary cost increases. As a percentage of revenue, operating expenses were 11.7% in the three months ended September 30, 2024 and 10.1% in the three months ended September 30, 2023.
Depreciation and amortization expenses. Depreciation and amortization expenses were $1.7 million for the three months ended September 30, 2024 and $1.2 million for the three months ended September 30, 2023. As a percentage of revenue, depreciation and amortization expenses at the restaurant-level were 3.5% during the three months ended September 30, 2024 and 2.7% during the three months ended September 30, 2023, with the increase related to more restaurants in operation.
Pre-opening costs. Pre-opening costs were $1.8 million for the three months ended September 30, 2024 compared to $0.7 million for the three months ended September 30, 2023. This increase was due to more restaurants under development in 2024 than in 2023.
General and administrative expenses. General and administrative expenses were $5.2 million for the three months ended September 30, 2024 compared to $3.8 million for the three months ended September 30, 2023, an increase of $1.4 million, or 37.3%. The increase in general and administrative expenses are largely due to increases in additional personnel required for new restaurant development as well as increased insurance costs. As a percentage of revenue, general and administrative expenses increased from 8.3% for the three months ended September 30, 2023 to 10.6% for the three months ended September 30, 2024.
Consulting fees - related party. We did not incur consulting fees - related party during the three months ended September 30, 2024, or the three months ended September 30, 2023. These fees were eliminated following the IPO.
Management Fees. We did not incur management fees during the three months ended September 30, 2024 or for the three months ended September 30, 2023. These fees were eliminated following the IPO.
Employee retention credits. During three months ended September 30, 2024, and September 30, 2023 we did not receive any funds related to employee retention credits from the IRS.
Other income (loss). These were immaterial amounts in the three months ended September 30, 2024 and 2023.
Interest income (expense), net. During the three months ended September 30, 2024, interest income (expense), net was $196 thousand of income compared to $190 thousand of income for the three months ended September 30, 2023.
Equity in income (loss) of equity method investee. We did not have equity in income (loss) of equity method investee during the three months ended September 30, 2024, but we had $53 thousand during the three months ended September 30, 2023. During February 2024, the remaining ownership interest in GKBH was acquired and operations were consolidated as of the date of acquisition, February 18, 2024.
28
Results of Operations for the nine months ended September 30, 2024 and September 30, 2023
|
|
Nine Months Ended September 30, |
|
|
Increase/(decrease) |
|
||||||||||
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Revenue |
|
$ |
153,726 |
|
|
$ |
135,899 |
|
|
$ |
17,827 |
|
|
|
13.1 |
% |
Restaurant operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Food cost |
|
|
50,110 |
|
|
|
43,614 |
|
|
|
6,496 |
|
|
|
14.9 |
% |
Payroll and benefits |
|
|
47,491 |
|
|
|
42,419 |
|
|
|
5,072 |
|
|
|
12.0 |
% |
Occupancy expenses |
|
|
12,799 |
|
|
|
10,876 |
|
|
|
1,923 |
|
|
|
17.7 |
% |
Operating expenses |
|
|
16,185 |
|
|
|
13,007 |
|
|
|
3,178 |
|
|
|
24.4 |
% |
Depreciation and amortization |
|
|
4,938 |
|
|
|
3,476 |
|
|
|
1,462 |
|
|
|
42.1 |
% |
Pre-opening costs |
|
|
5,354 |
|
|
|
2,123 |
|
|
|
3,231 |
|
|
|
152.2 |
% |
Total restaurant operating expenses |
|
|
136,877 |
|
|
|
115,515 |
|
|
|
21,362 |
|
|
|
18.5 |
% |
General and administrative |
|
|
14,952 |
|
|
|
7,815 |
|
|
|
7,137 |
|
|
|
91.3 |
% |
Consulting fees - related party |
|
|
— |
|
|
|
2,325 |
|
|
|
(2,325 |
) |
|
|
(100.0 |
)% |
Management fees |
|
|
— |
|
|
|
1,176 |
|
|
|
(1,176 |
) |
|
|
(100.0 |
)% |
Depreciation and amortization - corporate |
|
|
89 |
|
|
|
58 |
|
|
|
31 |
|
|
|
53.4 |
% |
Total costs and expenses |
|
|
151,918 |
|
|
|
126,889 |
|
|
|
25,029 |
|
|
|
19.7 |
% |
Income from operations |
|
|
1,808 |
|
|
|
9,010 |
|
|
|
(7,202 |
) |
|
|
(79.9 |
)% |
Employee retention credits |
|
|
200 |
|
|
|
2,483 |
|
|
|
(2,283 |
) |
|
|
(91.9 |
)% |
Other income (loss) |
|
|
— |
|
|
|
(7 |
) |
|
|
7 |
|
|
|
(100.0 |
)% |
Gain on remeasurement of previously held interest |
|
|
3,402 |
|
|
|
— |
|
|
|
3,402 |
|
|
|
100.0 |
% |
Interest income (expense), net |
|
|
734 |
|
|
|
(206 |
) |
|
|
940 |
|
|
|
(456.3 |
)% |
Equity in income (loss) of equity method investee |
|
|
(17 |
) |
|
|
520 |
|
|
|
(537 |
) |
|
|
(103.3 |
)% |
Income before income taxes |
|
|
6,127 |
|
|
|
11,800 |
|
|
|
(5,673 |
) |
|
|
(48.1 |
)% |
Provision for income taxes |
|
|
(198 |
) |
|
|
(171 |
) |
|
|
(27 |
) |
|
|
15.8 |
% |
Net income |
|
|
5,929 |
|
|
|
11,629 |
|
|
|
(5,700 |
) |
|
|
(49.0 |
)% |
Net Income attributable to noncontrolling interest |
|
|
5,133 |
|
|
|
3,198 |
|
|
|
1,935 |
|
|
|
60.5 |
% |
Net income attributable to GEN Restaurant Group, Inc. |
|
$ |
796 |
|
|
$ |
8,431 |
|
|
$ |
(7,635 |
) |
|
|
(90.6 |
)% |
|
|
% of Revenue |
|
|||||
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|||||
Revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Restaurant operating expenses: |
|
|
|
|
|
|
||
Food cost |
|
|
32.6 |
% |
|
|
32.1 |
% |
Payroll and benefits |
|
|
30.9 |
% |
|
|
31.2 |
% |
Occupancy expenses |
|
|
8.3 |
% |
|
|
8.0 |
% |
Operating expenses |
|
|
10.5 |
% |
|
|
9.6 |
% |
Depreciation and amortization |
|
|
3.2 |
% |
|
|
2.6 |
% |
Pre-opening costs |
|
|
3.5 |
% |
|
|
1.6 |
% |
Total restaurant operating expenses |
|
|
89.0 |
% |
|
|
85.0 |
% |
General and administrative |
|
|
9.7 |
% |
|
|
5.7 |
% |
Consulting fees - related party |
|
|
— |
|
|
|
1.7 |
% |
Management fees |
|
|
— |
|
|
|
0.9 |
% |
Depreciation and amortization - corporate |
|
|
0.1 |
% |
|
|
0.0 |
% |
Total costs and expenses |
|
|
98.8 |
% |
|
|
93.4 |
% |
Income from operations |
|
|
1.2 |
% |
|
|
6.6 |
% |
Gain on remeasurement of previously held interest |
|
|
2.2 |
% |
|
|
(0.0 |
)% |
Interest income (expense), net |
|
|
0.5 |
% |
|
|
(0.2 |
)% |
Equity in income of equity method investee |
|
|
0.0 |
% |
|
|
0.4 |
% |
Income before income taxes |
|
|
4.0 |
% |
|
|
8.7 |
% |
Provision for income taxes |
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
Net income |
|
|
3.9 |
% |
|
|
8.6 |
% |
Net Income attributable to noncontrolling interest |
|
|
3.3 |
% |
|
|
2.4 |
% |
Net income attributable to GEN Restaurant Group, Inc. |
|
|
0.5 |
% |
|
|
6.2 |
% |
29
Revenues. Revenues were $153.7million for the nine months ended September 30, 2024, compared to $135.9 million for the nine months ended September 30, 2023, an increase of $17.8 million, or 13.1%. This reflects revenue increases due to having 41 restaurants open in the nine months ended September 30, 2024 compared to 34 restaurants open in the nine months ended September 30, 2023.
Food costs. Food costs were $50.1 million for the nine months ended September 30, 2024, compared to $43.6 million for the nine months ended September 30, 2023, an increase of $6.5 million, or 14.9%. The increase in food costs reflects more restaurants in operation and inflationary cost increases. As a percentage of revenue, food costs increased from 32.1% to 32.6%.
Payroll and benefits. Payroll and benefits costs were $47.5 million for the nine months ended September 30, 2024, compared to $42.4 million for the nine months ended September 30, 2023, an increase of $5.0 million, or 12.0%. The increase in payroll and benefits costs reflects the staffing needed to support the higher customer volumes from new restaurants as well as inflationary payroll increases. As a percentage of revenue, payroll and benefits costs decreased slightly from 31.2% to 30.9%.
Occupancy expenses. Occupancy expenses were $12.8 million for the nine months ended September 30, 2024, compared to $10.9 million for the nine months ended September 30, 2023, an increase of $1.9 million, or 17.7%. The increase in occupancy expenses reflects the addition of seven new locations. As a percentage of revenue, occupancy expenses were 8.3% in the nine months ended September 30, 2024 compared to 8.0% in the nine months ended September 30, 2023.
Operating expenses. Operating expenses were $16.2 million for the nine months ended September 30, 2024 compared to $13.0 million for the nine months ended September 30, 2023, an increase of $3.2 million, or 24.4%, as expenses increased to support the revenue growth and reflected inflationary cost increases. As a percentage of revenue, operating expenses were 10.5% in the nine months ended September 30, 2024 and 9.6% in the nine months ended September 30, 2023.
Depreciation and amortization expenses. Depreciation and amortization expenses were $4.9 million for the nine months ended September 30, 2024 and $3.5 million for the nine months ended September 30, 2023. As a percentage of revenue, depreciation and amortization expenses at the restaurant-level were 3.2% during the nine months ended September 30, 2024 and 2.6% during the nine months ended September 30, 2023, with the increase related to more restaurants in operation.
Pre-opening costs. Pre-opening costs were $5.3 million for the nine months ended September 30, 2024 compared to $2.1 million for the nine months ended September 30, 2023. This increase was due to more restaurants under development in 2024 than in 2023.
General and administrative expenses. General and administrative expenses were $15.0 million for the nine months ended September 30, 2024 compared to $7.8 million for the nine months ended September 30, 2023 an increase of $7.1 million, (including a $1.5 million increase in stock-based compensation), or 91.3%. As a percentage of revenue, general and administrative expenses increased from 5.7% for the nine months ended September 30, 2023 to 9.7% for the nine months ended September 30, 2024 as costs shifted post-IPO from consulting and management fees previously paid to related parties and additional costs were incurred to operate as a public company.
Consulting fees - related party. We did not incur consulting fees-related party during the nine months ended September 30, 2024 compared to $2.3 million for the nine months ended September 30, 2023. These fees were eliminated following the IPO.
Management Fees. We did not incur management fees for the nine months ended September 30, 2024, compared to $1.2 million for the nine months ended September 30, 2023. This includes expenses paid to a related third-party entity, which consisted of fixed fees for twelve restaurants and a percentage of gross revenue for one restaurant in exchange for management services. These fees were eliminated following the IPO.
Employee retention credits. During the nine months ended September 30, 2024, we received approximately $0.2 million in employee retention credits from the IRS, compared to $2.5 million received in the nine months ended September 30, 2023.
Other income (loss). These were immaterial amounts in the nine months ended September 30, 2024 and 2023.
Gain on remeasurement of previously held interest. This reflects the business acquisition of GKBH (a restaurant in Hawaii) during the first quarter of 2024.
30
Interest income (expense), net. During the nine months ended September 30, 2024 interest income (expense), net was $0.7 million of income compared to $0.2 million of expense during the nine months ended September 30, 2023. The increase in net interest income was primarily due to the interest income earned on the proceeds from the IPO transaction.
Equity in income (loss) of equity method investee. We had negative $17 thousand equity in income of equity method investee during the nine months ended September 30, 2024, compared to $520 thousand during the nine months ended September 30, 2023. During February 2024, the remaining ownership interest in GKBH was acquired and operations were consolidated as of the date of acquisition, February 18, 2024.
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA represents net income excluding interest expense, income taxes, depreciation and amortization, and we also exclude non-recurring items and certain other non-cash items, such as gain on extinguishment of debt, stock-based compensation expense, RRF grants, consulting fees paid to a related party, employee retention credits, litigation accruals, aborted deferred IPO costs written off, non-cash lease expense and non-cash lease expense related to pre-opening costs. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenue. We believe that 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, as these measures depict normal recurring cash operating expenses essential to supporting the operations of our company. We expect Adjusted EBITDA to increase with the number of new restaurants we open and with comparable restaurant sales growth.
Adjusted Net Income and Adjusted EPS
Adjusted Net Income and Adjusted net income per share represents net income before income taxes, adjusted for stock-based compensation, and the related tax impact of the stock-based compensation adjustment, and provision for income taxes. “Adjusted EPS” is Adjusted Net income, converted to a per share amount.
The following table reconciles net income to Adjusted EBITDA for the three and nine months ended September 30, 2024 and September 30, 2023.
(amounts in thousands) |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
||||||||||
EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
169 |
|
|
$ |
2,634 |
|
|
$ |
5,929 |
|
|
$ |
11,629 |
|
Net Income Margin |
|
|
0.3 |
% |
|
|
5.8 |
% |
|
|
3.9 |
% |
|
|
8.6 |
% |
Interest income (expense), net |
|
|
(196 |
) |
|
|
(190 |
) |
|
|
(734 |
) |
|
|
206 |
|
Provision for income taxes |
|
|
115 |
|
|
|
74 |
|
|
|
198 |
|
|
|
171 |
|
Depreciation and amortization |
|
|
1,726 |
|
|
|
1,253 |
|
|
|
5,027 |
|
|
|
3,534 |
|
EBITDA |
|
$ |
1,814 |
|
|
$ |
3,771 |
|
|
$ |
10,420 |
|
|
$ |
15,540 |
|
EBITDA Margin |
|
|
3.7 |
% |
|
|
8.3 |
% |
|
|
6.8 |
% |
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjustments to EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
EBITDA |
|
$ |
1,814 |
|
|
$ |
3,771 |
|
|
$ |
10,420 |
|
|
$ |
15,540 |
|
Stock-based compensation expense (1) |
|
|
734 |
|
|
|
759 |
|
|
|
2,252 |
|
|
|
759 |
|
Consulting fees - related party (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,325 |
|
Employee retention credits (3) |
|
|
— |
|
|
|
— |
|
|
|
(200 |
) |
|
|
(2,483 |
) |
Non-cash lease expense (4) |
|
|
119 |
|
|
|
144 |
|
|
|
495 |
|
|
|
303 |
|
Non-cash lease expense related to pre-opening costs (5) |
|
|
769 |
|
|
|
338 |
|
|
|
1,711 |
|
|
|
763 |
|
Adjusted EBITDA |
|
$ |
3,436 |
|
|
$ |
5,012 |
|
|
$ |
14,678 |
|
|
$ |
17,207 |
|
Adjusted EBITDA Margin |
|
|
7.0 |
% |
|
|
11.0 |
% |
|
|
9.5 |
% |
|
|
12.7 |
% |
31
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
(in thousands, except per share amounts) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(unaudited) |
|
|
(unaudited) |
|
||||||||||
Net income before income taxes |
|
$ |
284 |
|
|
$ |
2,708 |
|
|
$ |
6,127 |
|
|
$ |
11,800 |
|
Stock based compensation, net of taxes |
|
|
710 |
|
|
|
736 |
|
|
|
2,179 |
|
|
|
736 |
|
Provision for income taxes |
|
|
(115 |
) |
|
|
(74 |
) |
|
|
(198 |
) |
|
|
(171 |
) |
Adjusted Net income |
|
|
879 |
|
|
|
3,370 |
|
|
|
8,108 |
|
|
|
12,365 |
|
Less: Net income attributable to noncontrolling interest |
|
|
750 |
|
|
|
2,939 |
|
|
|
7,002 |
|
|
|
3,198 |
|
Net income attributable to GEN Restaurant Group, Inc. |
|
|
129 |
|
|
|
431 |
|
|
|
1,106 |
|
|
|
9,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted Net income attributable to Class A common stock per share - basic and diluted (1) |
|
$ |
129 |
|
|
$ |
431 |
|
|
$ |
1,106 |
|
|
$ |
526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares of Class A common stock outstanding - basic (1) |
|
|
4,861 |
|
|
|
4,140 |
|
|
|
4,585 |
|
|
|
4,140 |
|
Weighted-average shares of Class A common stock outstanding - diluted (2) |
|
|
4,861 |
|
|
|
4,140 |
|
|
|
4,585 |
|
|
|
4,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted Net income per share of Class A common stock - basic (1) |
|
$ |
0.03 |
|
|
$ |
0.10 |
|
|
$ |
0.24 |
|
|
$ |
0.13 |
|
Adjusted Net income per share of Class A common stock - diluted (2) |
|
$ |
0.03 |
|
|
$ |
0.10 |
|
|
$ |
0.24 |
|
|
$ |
0.13 |
|
(1) (2) Basic and diluted adjusted net income per share of Class A common stock is presented only for the period after the Company’s organization transactions effective June 30, 2023.
Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin
We define Restaurant-Level Adjusted EBITDA as Income from operations plus adjustments to add-back the following expenses: depreciation and amortization, pre-opening costs, general and administrative expense, related party consulting fees, management fees and non-cash lease expense. We define Restaurant-Level Adjusted EBITDA Margin as Restaurant-Level Adjusted EBITDA divided by revenue.
As with Adjusted EBITDA and Adjusted EBITDA Margin, we believe that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results, as these measures depict normal, recurring cash operating expenses essential to supporting the operations of our restaurants. We expect Restaurant-Level Adjusted EBITDA to increase in proportion to the number of new restaurants we open and with our comparable restaurant sales growth.
However, you should be aware that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin are financial measures that are not indicative of overall results for our company, and Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin do not accrue directly to the benefit of stockholders because of corporate-level and non-cash expenses excluded from such measures.
32
The following table reconciles Income from Operations to Restaurant-Level Adjusted EBITDA for the three and nine months ended September 30, 2024 and September 30, 2023:
(amounts in thousands) |
|
Three months ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
||||||||||
Income from Operations |
|
$ |
88 |
|
|
$ |
2,465 |
|
|
$ |
1,808 |
|
|
$ |
9,010 |
|
Income Margin from Operations |
|
|
0.2 |
% |
|
|
5.4 |
% |
|
|
1.2 |
% |
|
|
6.6 |
% |
Depreciation and amortization |
|
|
1,726 |
|
|
|
1,253 |
|
|
|
5,027 |
|
|
|
3,534 |
|
Pre-opening costs |
|
|
1,807 |
|
|
|
723 |
|
|
|
5,354 |
|
|
|
2,123 |
|
General and administrative |
|
|
5,221 |
|
|
|
3,802 |
|
|
|
14,952 |
|
|
|
7,815 |
|
Consulting fees - related party |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,325 |
|
Management Fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,176 |
|
Non-cash lease expense |
|
|
119 |
|
|
|
144 |
|
|
|
495 |
|
|
|
303 |
|
Restaurant-Level Adjusted EBITDA |
|
$ |
8,961 |
|
|
$ |
8,387 |
|
|
$ |
27,636 |
|
|
$ |
26,286 |
|
Restaurant-Level Adjusted EBITDA Margin |
|
|
18.2 |
% |
|
|
18.4 |
% |
|
|
18.0 |
% |
|
|
19.3 |
% |
Adjusted EBITDA, Adjusted EBITDA Margin, Restaurant-Level Adjusted EBITDA, and Restaurant-Level Adjusted EBITDA Margin are non-GAAP measures intended as supplemental measures of our performance and are neither required by, nor presented in accordance with GAAP. 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, Adjusted EBITDA Margin, Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin may not be comparable to other similarly titled measures presented by other companies, because all companies may not calculate Adjusted EBITDA, Adjusted EBITDA Margin, Restaurant-Level Adjusted EBITDA, and Restaurant-Level Adjusted EBITDA Margin in the same fashion. These non-GAAP financial measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.
Liquidity and Capital Resources
As of September 30, 2024 we had $22.0 million of cash and $(2.7) million of working capital, which is calculated as current assets minus current liabilities, compared with $32.6 million in cash and $5.5 million of working capital as of December 31, 2023. On June 30, 2023, we completed the IPO of 4,140,000 shares of Class A common stock. The public offering prices of the shares sold in the IPO was $12.00 per share, resulting in aggregate net proceeds to us of approximately $46.2 million after deducting the underwriting discounts and commission and offering expenses payable by us.
Our primary uses of cash are for operational expenditures and capital investments, including new restaurants, costs incurred for restaurant remodels and restaurant equipment and fixtures. There is no guarantee that if we need to raise any additional capital that we will be able to do so.
Prior to the IPO certain companies within GEN Restaurant Group made distributions to their members, which impacted our cash position upon completion of the IPO. The operating agreements of most of the companies within GEN Restaurant Group, as separate private entities prior to the Transactions, mandate annual or quarterly distributions of available cash and/or tax distributions in an amount sufficient to allow members to pay taxes on income allocated to them. We determined the amount of these distributions based on the operating cash flow of each such entity.
We believe that cash provided by operating activities and cash on hand will be sufficient to fund our lease obligations, capital expenditures and working capital needs for at least the next 12 months.
Upon consummation of the IPO, GEN Inc. became a holding company with no operations of its own. Accordingly, GEN Inc. is dependent on distributions from GEN LLC to pay its taxes, its obligations under the Tax Receivable Agreement and other expenses.
33
In connection with the Transactions, certain members of GEN LLC received the right to receive future payments pursuant to the Tax Receivable Agreement. The amount payable under the Tax Receivable Agreement will be based on an annual calculation of the reduction in our U.S. federal, state and local taxes resulting from the utilization of certain tax benefits resulting from sales and exchanges by certain members of GEN LLC. We expect that payments that we may be required to make under the Tax Receivable Agreement may be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the Tax Receivable Agreement, we expect that the reduction in tax payments for us associated with the federal, state and local tax benefits described above would aggregate to approximately $117.2 million through 2037. Under such scenario we would be required to pay certain members of GEN LLC 85% of such amount, or approximately $99.6 million through 2037.
The actual amounts may materially differ from these hypothetical amounts as potential future reductions in tax payments for us and Tax Receivable Agreement payments by us will be calculated using prevailing tax rates applicable to us over the life of the Tax Receivable Agreement and will be dependent on us generating sufficient future taxable income to realize the benefit.
We cannot reasonably estimate future annual payments under the Tax Receivable Agreement given the difficulty in determining those estimates as they are dependent on a number of factors, including the extent of exchanges by continuing GEN LLC unitholders, the associated fair value of the underlying GEN LLC units at the time of those exchanges, the tax rates applicable, our future income, and the associated tax benefits that might be realized that would trigger a Tax Receivable Agreement payment requirement.
However, a significant portion of any potential future payments under the Tax Receivable Agreement is anticipated to be payable over 15 years, consistent with the period over which the associated tax deductions would be realized by GEN Inc., assuming GEN LLC generates sufficient income to utilize the deductions. If sufficient income is not generated by GEN LLC, the associated taxable income of GEN Inc. will be impacted and the associated tax benefits to be realized will be limited, thereby similarly reducing the associated Tax Receivable Agreement payments to be made. Given the length of time over which payments would be payable, the impact to liquidity in any single year may be greatly reduced.
Summary of Cash Flows
Our primary sources of liquidity are operating cash flows, cash on hand and debt borrowings. We use these sources to fund 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:
|
|
Nine months ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
(amounts in thousands) |
|
|
|
|||||
Summary of Cash Flows |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
$ |
10,519 |
|
|
$ |
13,486 |
|
Net cash (used in) provided by investing activities |
|
|
(22,658 |
) |
|
|
1,388 |
|
Net cash provided by financing activities |
|
|
1,561 |
|
|
|
6,080 |
|
Cash Provided by Operating Activities
Net cash provided by operating activities during the nine months ended September 30, 2024 was $10.5 million, the result of net income of $5.9 million, adjusted by non-cash charges of depreciation and amortization of $5.0 million, amortization of operating lease assets of $5.4 million, stock-based compensation of $2.2 million and a reduction related to the gain on the acquisition of the remaining ownership interest in GKBH. The net cash outflows from changes in operating assets and liabilities were collectively a decrease of $4.2 million.
Net cash provided by operating activities during the nine months ended September 30, 2023 was $13.5 million, the result of net income of $11.6 million, adjusted by non-cash charges of depreciation and amortization of $3.5 million, and amortization of operating lease assets of $3.5 million, and stock based compensation of $0.8 million, offset by net cash outflows of approximately $5.9 million from changes in operating assets and liabilities. The net cash outflows from changes in operating assets and liabilities were primarily the result of an increase in accounts payable of $2.8 million, an increase in prepaid expenses of $2.0 million and an increase in operating lease liabilities of $2.5 million.
34
Cash (Used in) Provided by Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2024 was $22.6 million, reflecting $16.7 million for the purchase of property and equipment and a $6.0 million payment for the acquisition of the remaining ownership interest in GKBH.
Net cash provided in investing activities during the nine months ended September 30, 2023 was $1.4 million, reflecting $10.9 million in recovery of net proceeds from the advances made to a related party, partially offset by $9.5 million for the purchase of property and equipment.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2024 was $1.6 million, primarily due to proceeds from third party loans of $3.0 million, offset by payments to members and repayments of third party loans.
Net cash provided by financing activities during the nine months ended September 30, 2023 was $6.1 million, primarily due to $46.2 million in proceeds from the issuance of Class A common stock issued in the IPO transaction, offset by $26.5 million in member distributions.
Contractual Obligations
The following table presents our commitments and contractual obligations as of September 30, 2024:
|
|
Payments Due by Period as of September 30, 2024 |
|
|||||||||||||||||
|
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than 5 years |
|
|||||
|
|
|
|
|||||||||||||||||
|
|
(amounts in thousands) |
|
|||||||||||||||||
Operating lease payments (1) |
|
$ |
253,720 |
|
|
$ |
3,097 |
|
|
$ |
28,751 |
|
|
$ |
30,094 |
|
|
$ |
191,778 |
|
Finance lease payments (2) |
|
|
34 |
|
|
|
34 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Notes payable (3) |
|
|
7,245 |
|
|
|
1,677 |
|
|
|
1,554 |
|
|
|
230 |
|
|
|
3,784 |
|
Notes payable interest (4) |
|
|
2,812 |
|
|
|
78 |
|
|
|
345 |
|
|
|
313 |
|
|
|
2,076 |
|
Notes payable - related party (5) |
|
|
310 |
|
|
|
310 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Notes payable - related party interest (6) |
|
|
52 |
|
|
|
52 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total Contractual obligations |
|
$ |
264,173 |
|
|
$ |
5,248 |
|
|
$ |
30,650 |
|
|
$ |
30,637 |
|
|
$ |
197,638 |
|
Off-Balance Sheet Arrangements
As of September 30, 2024 and December 31, 2023 we did not have any material off-balance sheet arrangements.
35
Critical Accounting 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 and 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 following critical accounting policies are affected by significant judgments and estimates used in the preparation of our financial statements and that the judgments and estimates are reasonable.
Operating and Finance Leases
Our office leases provide for fixed minimum rent payments. Our restaurant leases provide for fixed minimum rent payments and some require additional contingent rent payments based upon sales in excess of specified thresholds. When achievement of such sales thresholds is deemed probable, contingent rent is accrued in proportion to the sales recognized in the period. For operating leases that include free-rent periods and rent escalation clauses, we recognize rent expense based on the straight-line method. For the purpose of calculating rent expenses under the straight-line method, the lease term commences on the date we obtain control of the property. Lease incentives used to fund leasehold improvements are recognized when earned and reduce the operating right-of-use asset related to the lease. These are amortized through the operating right-of-use asset as reductions of expense over the lease term. Restaurant lease expense is included in occupancy expenses, while office lease expense is included in general and administrative expenses on the accompanying financial statements.
We currently lease all of our restaurant locations, corporate office, and some of the equipment used in our restaurants. On January 1, 2022, we adopted ASU 2016-02, Leases (Topic 842), or “Topic 842”, using a modified retrospective approach. See "Note 10—Leases" to the financial statements. At commencement of the lease, we determine the appropriate classification as an operating lease or a finance lease. All of our restaurant and office leases are classified as operating leases and some of our equipment leases are classified as finance leases.
Assets we acquired under finance lease arrangements are recorded at the lower of the present value of future minimum lease payments or fair value of the assets at the inception of the lease. Finance lease assets are amortized over the shorter of the useful life of the assets or the lease term, and the amortization expense is included in depreciation and amortization on the accompanying financial statements.
Impairment of Long-Lived Assets
We assess potential impairments of our long-lived assets, which includes property and equipment and operating lease right-of-use assets, in accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 360—Property, Plant and Equipment. An impairment test is performed on a quarterly basis or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. In determining the recoverability of the asset value, an analysis is performed at the individual restaurant level. Assets are grouped at the individual restaurant-level for purposes of the impairment assessment because a restaurant represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated forecasted restaurant cash flows expected to be generated by the asset group. Factors considered by us in estimating future cash flows include, but are not limited to: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets; and significant negative industry or economic trends. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset.
No impairment loss was recognized during any of the periods presented.
36
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we have taken advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” We may take advantage of these exemptions until we are no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.235 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.
Recently Adopted Accounting Pronouncements
Please see “Note 2 - Basis of Presentation and Summary of Significant Accounting Policies” to the financial statements included in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
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 beverage and other commodities. We have been able to partially offset cost increases that have resulted from a number of factors, including market conditions, shortages or interruptions in supply due to weather or other conditions beyond our control and 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 areas where inflation impacts our operations are food, beverage, labor 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, until 2022, inflation has not had a material effect on our results of operations. 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 sales growth in an amount sufficient to offset inflationary or other cost pressures.
37
Interest Rate Risk
The Company is exposed to market interest rates reflected in the line of credit which bears an interest rate at the Wall Street Journal Prime Rate plus 0.25%.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined by Rule 13a-15(e) of the Exchange Act) as of the end of period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our Chief Executive Officers and Chief Financial Officer have concluded that as of September 30, 2024, due to material weaknesses in internal control over financial reporting, that our disclosure controls and procedures were not effective in ensuring that the information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and is accumulated and communicated to our management, including our Chief Executive Officers and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The material weaknesses related to (a) a lack of adequate and timely review of accounts and reconciliations by management, primarily due to a large number of accounting journal entries across GEN Restaurant Group's operating entities resulting in material audit adjustments and significant post-closing adjustments and (b) an inadequate design of our information technology controls and inadequate access by members of our finance team, primarily due to our accounting system's open architecture and a lack of segregation of duties within our finance team.
38
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Although the outcome of these and other claims cannot be predicted with certainty, we do not believe the ultimate resolution of the current matters will have a material adverse effect on our business, financial condition, results of operations or cash flows. See “Note 11 - Commitments and Contingencies” to the financial statements in this Quarterly Report for further details.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
(a)
(b) Not applicable.
(c) None
39
Item 6. Exhibits.
Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).
Exhibit Number |
|
Description |
31.1* |
|
|
31.2* |
|
|
32.1* |
|
|
32.2* |
|
|
|
|
|
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 Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
40
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.
|
|
GEN Restaurant Group, Inc. |
|
|
|
|
|
Date: November 12, 2024 |
|
By: |
/s/ David Kim |
|
|
|
David Kim |
|
|
|
Co-Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: November 12 , 2024 |
|
By: |
/s/ Jae Chang |
|
|
|
Jae Chang |
|
|
|
Co-Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: November 12, 2024 |
|
By: |
/s/ Thomas V. Croal |
|
|
|
Thomas Croal |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer) |
41