GEN Restaurant Group Inc
For the period ended Jun 30, 2024. Filed Jul 31, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 31, 2024
GENK$1.27-2.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-14.
0000950170-24-059545
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-31.
0000950170-24-088608
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 129 previous paragraphs and 141 current paragraphs.
80 unchanged; 40 reworded; 12 added; 9 removed; 0 previous and 9 current paragraphs rearranged.
Tables are not compared: 10 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (12)
Current report
Other income (loss). These were immaterial amounts in the three months ended June 30, 2024 and 2023.
Current report
Results of Operations for the six months ended June 30, 2024 and June 30, 2023
Current report
Revenues. Revenues were $104.6 million for the six months ended June 30, 2024, compared to $90.3 million for the six months ended June 30, 2023, an increase of $14.3 million, or 15.8%. This reflects revenue increases due to having 40 restaurants open in the six months ended June 30, 2024 compared to 34 restaurants open in the six months ended June 30, 2023.
Current report
Food costs. Food costs were $34.7 million for the six months ended June 30, 2024, compared to $29.1 million for the six months ended June 30, 2023, an increase of $5.6 million, or 19.2%. The increase in food costs reflects more restaurants in operation and inflationary cost increases. As a percentage of revenue, food costs increased from 32.2% to 33.1%.
Current report
Occupancy expenses. Occupancy expenses were $8.7 million for the six months ended June 30, 2024, compared to $7.1 million for the six months ended June 30, 2023, an increase of $1.6 million, or 22.2%. The increase in occupancy expenses reflects the addition of eight new locations. As a percentage of revenue, occupancy expenses were 8.3% in the six months ended June 30, 2024 compared to 7.9% in the six months ended June 30, 2023.
Current report
Operating expenses. Operating expenses were $10.5 million for the six months ended June 30, 2024 compared to $8.4 million for the six months ended June 30, 2023, an increase of $2.0 million, or 24.1%, as expenses increased to support the revenue growth and reflected inflationary cost increases. As a percentage of revenue, operating expenses were 10.0% in the six months ended June 30, 2024 and 9.3% in the six months ended June 30, 2023.
Current report
Consulting fees - related party. We did not incur consulting fees-related party during the six months ended June 30, 2024 compared to $2.3 million for the six months ended June 30, 2023. These fees were eliminated following the IPO.
Current report
Management Fees. We did not incur management fees for the six months ended June 30, 2024, compared to $1.2 million for the six months ended June 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.
Current report
Employee retention credits. During the six months ended June 30, 2024, we received approximately $0.2 million in employee retention credits from the IRS, compared to $2.5 million received in the six months ended June 30, 2023.
Current report
Other income (loss). These were immaterial amounts in the six months ended June 30, 2024 and 2023.
Current report
Net cash provided by financing activities during the six months ended June 30, 2023 was $27.2 million, primarily due to $46.2 million in proceeds from the issuance of Class A common stock issued in the IPO transaction, offset by $18.3 million in member distributions.
Current report
Please see “Note 2 - Basis of Presentation and Summary of Significant Accounting Policies” to the financial statements included in this Quarterly Report.
Removed paragraphs (9)
Previous report
During the first quarter of 2024, we signed three new leases for restaurants in Huebner Oaks, TX, Pflugerville, TX, and Bayside, NY.
Previous report
During 2022, we entered into a new line of credit for $8.0 million with Pacific City Bank with the funds used to pay off related party loans payable. On August 16, 2023, the Company paid the outstanding balance on the line of credit and the related interest payable in full reflecting a balance at December 31, 2023 and March 31, 2024 of $0.
Previous report
Other gain (loss). During the three months ended March 31, 2024 other gain represented the gain on the previously held equity interest. In the three months ended March 31, 2023 we did not have other gain (loss).
Previous report
Cash Used in Investing Activities
Previous report
Net cash provided by financing activities during the three months ended March 31, 2023 was $0.7 million, primarily due to $3.0 million in advances from members, $1.3 million in proceeds from third party loans and $0.5 million in related party loans, largely offset by $0.7 million in payments on related party loans and $3.1 million in member distributions.
Previous report
In April 2020, the staff of the Financial Accounting Standards Board (“FASB”) issued a question-and-answer document that stated that entities may elect to account for lease concessions related to the effects of the COVID-19 pandemic as though the rights and obligations for those concessions existed as of the commencement of the contract rather than as a lease modification. Lessees may make the election for any lessor- provided lease concession related to the impact of the COVID-19 pandemic as long as the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. We have made such election. We have received immaterial rent concessions that did not result in an extension of lease term. As such, this election did not have a material impact on the balance sheets, the statements of operations, statements of stockholders’ equity or statements of cash flows.
Previous report
On September 1, 2019, the FASB issued Topic 842 along with related clarifications and improvements. This pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. We adopted this pronouncement for the year beginning after December 31, 2021 using the modified retrospective method to apply the standard as of the effective date of January 1, 2022 and therefore prior period amounts were not adjusted.
Previous report
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 was effective for us beginning in fiscal year 2022, although applicability only began after we became a publicly traded corporation in June 2023.
Previous report
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” ("ASU 2016-13"). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including receivables. In January 2023, the Company adopted ASU No. 2016-13, and concluded that the adoption of ASC 326 did not have a material impact on the Company’s recognition of financial instruments within the scope of the standard.
Reworded paragraphs (40)
Previous wording
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 the Operating Company and its consolidated subsidiaries prior to the Transactions described in this Form 10-Q and to GEN Restaurant Group, Inc. and its consolidated subsidiaries, including the Operating Company, following the Transactions.
Current wording
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.
Previous wording
We expect to continue growing our number of restaurants in the future. Our new restaurants have historically generated average payback periods of approximately 1.4 years. The projected payback periods for stores open since 2022 range from 1.9 to 3.1 years. Restaurants range in size from 4,700 to 12,000 square feet, and are typically located in high-activity commercial areas.
Current wording
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 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.
Previous wording
Although we temporarily paused our new restaurant opening plans during the pandemic, 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 and through April 2024, we opened three restaurants in Seattle, WA, Dallas, TX, and Jacksonville, FL. As of March 31, 2024 we have eight new restaurant locations with leases that have been signed. These locations are in Maui, Hawaii, Manhattan Sixth New York, NY, Orlando FL, Austin, TX, Portland, OR, Huebner Oaks, TX, Pflugerville, TX and Bayside, NY. We currently expect to open five of these locations during the remainder of 2024.
Current wording
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 and through June 2024, we opened three restaurants in Seattle, WA, Dallas, TX, and Jacksonville, FL. As of June 30, 2024 we have sixteen new restaurant locations with leases that have been signed, including eight leases signed during the second quarter of 2024. These locations are in El Paso, TX, La Jolla (San Diego), CA, Waco, TX, Kona, HI, Allston (Boston), MA, Cary, NC, Nashville, TN and Tucson, AZ. We currently expect to open seven to eight additional restaurants during 2024.
Previous wording
On September 29, 2023, the Company entered into a $20 million line of credit with a bank. The line of credit matures on September 25, 2024 and bears interest at a variable rate per annum equal to 8.750% as of September 30, 2023. No amounts have been borrowed under the line of credit as of March 31, 2024
Current wording
On September 29, 2023, the Company entered into a $20 million line of credit with a bank. The line of credit matures on September 25, 2024 and bears interest at a variable rate per annum equal to 8.75% as of June 30, 2024. No amounts have been borrowed under the line of credit as of June 30, 2024 and December 31, 2023.
Previous wording
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 extinguishment 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.”
Current wording
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.”
Previous wording
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 three months ended March 31, 2024 and March 31, 2023:
Current wording
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 six months ended June 30, 2024 and June 30, 2023:
Previous wording
Consulting fees — related party. Consulting fees include expenses paid to a related party entity, which provides 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.
Current wording
Consulting fees — related party. 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.
Previous wording
Management fees. Management fees include expenses paid to a related third-party entity, which provides 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.
Current wording
Management fees. 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.
Previous wording
Employee retention credits. Employee retention credits include refundable credits recognized under the provisions of the CARES Act and extension thereof. During the three months ended March 31, 2024 and March 31, 2023, $0 and $1.2 million respectively, of these credits were received and recorded.
Current wording
Employee retention credits. Employee retention credits include refundable credits recognized under the provisions of the CARES Act and extension thereof. During the three months ended June 30, 2024 and June 30, 2023, $0.2 million and $1.3 million respectively, of these credits were received and recorded.
Previous wording
Other gain (loss). Other gain (loss) consists of one-time legal accruals and other miscellaneous items such as the business acquisition of GKBH (a restaurant in Hawaii) during the first quarter of 2024.
Current wording
Other income (loss). Other gain (loss) consists of one-time legal accruals and other miscellaneous items.
Previous wording
Equity in income of equity method investee. Equity in income of equity method investee reflects our 50% ownership in a restaurant located in Hawaii that was accounted for using the equity method until the date of acquisition on February 18, 2024.
Current wording
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.
Previous wording
Revenues. Revenues were $50.8 million for the three months ended March 31, 2024, compared to $43.9 million for the three months ended March 31, 2023, an increase of $6.9 million, or 15.7%. This reflects revenue increases due to having 39 restaurants open in the three months ended March 31, 2024 compared to 31 restaurants open in the three months ended March 31, 2023.
Current wording
Revenues. Revenues were $53.9 million for the three months ended June 30, 2024, compared to $46.5 million for the three months ended June 30, 2023, an increase of $7.4 million, or 15.9%. This reflects revenue increases due to having 40 restaurants open in the three months ended June 30, 2024 compared to 34 restaurants open in the three months ended June 30, 2023
Previous wording
Food costs. Food costs were $17.0 million for the three months ended March 31, 2024, compared to $14.3 million for the three months ended March 31, 2023, an increase of $2.7 million, or 18.6%. The increase in food costs reflects more restaurants in operation and inflationary cost increases. As a percentage of revenue, food costs increased from 32.6% to 33.4%.
Current wording
Food costs. Food costs were $17.7 million for the three months ended June 30, 2024, compared to $14.8 million for the three months ended June 30, 2023, an increase of $2.9 million, or 19.7%. The increase in food costs reflects more restaurants in operation and inflationary cost increases. As a percentage of revenue, food costs increased from 31.8% to 32.9%.
Previous wording
Payroll and benefits. Payroll and benefits costs were $16.2 million for the three months ended March 31, 2024, compared to $13.7 million for the three months ended March 31, 2023, an increase of $2.5 million, or 18.3%. The increase in payroll and benefits costs reflects the staffing needed to support the higher customer volumes from new and existing restaurants as well as inflationary payroll increases. As a percentage of revenue, payroll and benefits costs increased from 31.1% to 31.8%.
Current wording
Payroll and benefits. Payroll and benefits costs were $16.4 million for the three months ended June 30, 2024, compared to $14.3 million for the three months ended June 30, 2023, an increase of $2.0 million, or 14.2%. 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 30.8% to 30.4%.
Previous wording
Occupancy expenses. Occupancy expenses were $4.3 million for the three months ended March 31, 2024 compared to $3.4 million for the three months ended March 31, 2023, an increase of $0.9 million, or 25.1%. The increase in occupancy expenses reflects the addition of eight new locations. As a percentage of revenue, occupancy expenses were 8.5% in the three months ended March 31, 2024 compared to 7.8% in the three months ended March 31, 2023.
Current wording
Occupancy expenses. Occupancy expenses were $4.4 million for the three months ended June 30, 2024 compared to $3.7 million for the three months ended June 30, 2023, an increase of $0.7 million, or 19.5%. The increase in occupancy expenses reflects the addition of six new locations. As a percentage of revenue, occupancy expenses were 8.1% in the three months ended June 30, 2024 compared to 7.9% in the three months ended June 30, 2023.
Previous wording
Operating expenses. Operating expenses were $5.1 million for the three months ended March 31, 2024 compared to $4.1 million for the three months ended March 31, 2023, an increase of $1.0 million, or 23.6%, as expenses increased to support the revenue growth and reflected inflationary cost increases. As a percentage of revenue, operating expenses were 10.0% in the three months ended March 31, 2024 and 9.4% in the three months ended March 31, 2023.
Current wording
Operating expenses. Operating expenses were $5.4 million for the three months ended June 30, 2024 compared to $4.3 million for the three months ended June 30, 2023, an increase of $1.1 million, or 24.6%, as expenses increased to support the revenue growth and reflected inflationary cost increases. As a percentage of revenue, operating expenses were 9.9% in the three months ended June 30, 2024 and 9.3% in the three months ended June 30, 2023.
Previous wording
Depreciation and amortization expenses. Depreciation and amortization expenses were $1.5 million for the three months ended March 31, 2024 and $1.1 million for the three months ended March 31, 2023. As a percentage of revenue, depreciation and amortization expenses at the restaurant-level were 3.0% during the three months ended March 31, 2024 and 2.5% during the three months ended March 31, 2023, with the increase related to more stores in operation.
Current wording
Depreciation and amortization expenses. Depreciation and amortization expenses were $1.7 million for the three months ended June 30, 2024 and $1.1 million for the three months ended June 30, 2023. As a percentage of revenue, depreciation and amortization expenses at the restaurant-level were 3.2% during the three months ended June 30, 2024 and 2.4% during the three months ended June 30, 2023, with the increase related to more restaurants in operation.
Previous wording
Pre-opening costs. Pre-opening costs were $1.9 million for the three months ended March 31, 2024 compared to $0.5 million for the three months ended March 31, 2023. This increase was due to more restaurants under development in 2024 than in 2023.
Current wording
Pre-opening costs. Pre-opening costs were $1.6 million for the three months ended June 30, 2024 compared to $0.9 million for the three months ended June 30, 2023. This increase was due to more restaurants under development in 2024 than in 2023.
Previous wording
General and administrative expenses. General and administrative expenses were $4.7 million for the three months ended March 31, 2024 compared to $2.1 million for the three months ended March 31, 2023, an increase of $2.6 million, or 127.4%. As a percentage of revenue, general and administrative expenses increased from 4.7% for the three months ended March 31, 2023 to 9.2% for the three months ended March 31, 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.
Current wording
General and administrative expenses. General and administrative expenses were $5.1 million for the three months ended June 30, 2024 compared to $2.0 million for the three months ended June 30, 2023, an increase of $3.1 million, or 158.3%. As a percentage of revenue, general and administrative expenses increased from 4.2% for the three months ended June 30, 2023 to 9.4% for the three months ended June 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.
Previous wording
Consulting fees - related party. Consulting fees were $0 for the three months ended March 31, 2024 compared to $0.9 million for the three months ended March 31, 2023. These fees were eliminated following the IPO.
Current wording
Consulting fees - related party. Consulting fees were $0 for the three months ended June 30, 2024 compared to $1.4 million for the three months ended June 30, 2023. These fees were eliminated following the IPO.
Previous wording
Management Fees. Management fees were $0 million for the three months ended March 31, 2024 and $0.6 million for the three months ending March 31, 2023. This includes expenses paid to a related third-party entity, which consist 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.
Current wording
Management Fees. We did not incur management fees during the three months ended June 30, 2024 compared to $0.6 million for the three months ended June 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.
Previous wording
Employee retention credits. During the three months ended March 31, 2024, we did not receive employee retention credits from the IRS, compared to $1.2 million received in three months ended March 31, 2023.
Current wording
Employee retention credits. During the three months ended June 30, 2024, we received approximately $0.2 million in employee retention credits from the IRS, compared to $1.3 million received in the three months ended June 30, 2023.
Previous wording
Interest income (expense), net. During the three months ended March 31, 2024, interest income (expense), net was $276 thousand in income compared to $189 thousand in expense during the three months ended March 31, 2023. The increase in net interest income was primarily due to the interest income earned on the proceeds from the IPO transaction.
Current wording
Interest income (expense), net. During the three months ended June 30, 2024, interest income (expense), net was $262 thousand in income compared to $207 thousand in expense during the three months ended June 30, 2023. The increase in net interest income was primarily due to the interest income earned on the proceeds from the IPO transaction.
Previous wording
Equity in income of equity method investee. Equity in income of equity method investee was a loss of $17 thousand during the three months ended March 31, 2024 compared to $0.4 million during the three months ended March 31, 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.
Current wording
Equity in income (loss) of equity method investee. We did not have equity in income of equity method investee during the six months ended June 30, 2024, compared to $467 thousand during the six months ended June 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.
Previous wording
Adjusted EBITDA represents net income excluding interest expense, income taxes, depreciation and amortization, and we also exclude non-recurring items, such as gain on extinguishment of debt, 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 measure 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.
Current wording
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.
Previous wording
The following table reconciles net income to Adjusted EBITDA for the three months ended March 31, 2024 and March 31, 2023.
Current wording
The following table reconciles net income to Adjusted EBITDA for the three and six months ended June 30, 2024 and June 30, 2023.
Previous wording
Stock-based compensation expense: During the first quarter of 2024 we incurred expenses related to the granting of Restricted Stock Units (“RSUs”) to employees.
Current wording
Stock-based compensation expense: During the first quarter and second quarter of 2024 we incurred expenses related to the granting of Restricted Stock Units (“RSUs”) to employees.
Previous wording
Non-cash lease expense related to pre-opening costs: Cost for stores in development in which the lease expense is greater than the contractual rent.
Current wording
Non-cash lease expense related to pre-opening costs: Cost for restaurants in development in which the lease expense is greater than the contractual rent.
Previous wording
The following table reconciles Income from Operations to Restaurant-Level Adjusted EBITDA for the three months ended March 31, 2024 and March 31, 2023:
Current wording
The following table reconciles Income from Operations to Restaurant-Level Adjusted EBITDA for the three and six months ended June 30, 2024 and June 30, 2023:
Previous wording
As of March 31, 2024 we had $28.1 million of cash and $(1.6) 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.
Current wording
As of June 30, 2024 we had $29.2 million of cash and $1.7 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.
Previous wording
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 Reorganization, 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.
Current wording
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.
Previous wording
Upon the IPO transaction, GEN Inc. became a holding company with no operations of its own. Accordingly, GEN Inc. will be dependent on distributions from GEN LLC to pay its taxes, its obligations under the Tax Receivable Agreement and other expenses.
Current wording
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.
Previous wording
In connection with the Reorganization, 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 $99.6 million through 2037.
Current wording
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.
Previous wording
Net cash provided by operating activities during the three months ended March 31, 2024 was $3.5 million, the result of net income of $3.7 million, adjusted by non-cash charges of depreciation and amortization of $1.6 million, amortization of operating lease assets of $1.3 million, stock-based compensation of $0.8 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 $41 thousand.
Current wording
Net cash provided by operating activities during the six months ended June 30, 2024 was $9.1 million, the result of net income of 5.7 million, adjusted by non-cash charges of depreciation and amortization of $3.3 million, amortization of operating lease assets of $3.7 million, stock-based compensation of $1.5 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 $1.3 million.
Previous wording
Net cash provided by operating activities during the three months ended March 31, 2023 was $2.8 million, the result of net income of $4.5 million, adjusted by non-cash charges of depreciation and amortization of $1.1 million, and amortization of operating lease assets of $1.1 million, and net cash outflows of approximately $3.9 million from changes in operating assets and liabilities. The net cash outflows from changes in operating assets and liabilities were primarily the result of a decrease of $3.0 million in accounts payable, $1.1 million in accrued salaries and benefits and $1.0 million in operating lease liabilities, offset partially by a $1.2 million decrease in inventories.
Current wording
Net cash provided by operating activities during the six months ended June 30, 2023 was $10.5 million, the result of net income of $9.0 million, adjusted by non-cash charges of depreciation and amortization of $2.3 million, and amortization of operating lease assets of $2.3 million, and net cash outflows of approximately $2.9 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.
Previous wording
Net cash used in investing activities during the three months ended March 31, 2024 was $7.1 million, reflecting $4.1 million for the purchase of property and equipment and $3.0 million of payment for the acquisition of the remaining ownership interest in GKBH.
Current wording
Net cash used in investing activities during the six months ended June 30, 2024 was $11.4 million, reflecting $8.4 million for the purchase of property and equipment and a $3.0 million payment for the acquisition of the remaining ownership interest in GKBH.
Previous wording
Net cash used in investing activities during the three months ended March 31, 2023 was $4.9 million, reflecting $2.1 million in advances made to a related party and $2.8 million for the purchase of property and equipment.
Current wording
Net cash provided in investing activities during the six months ended June 30, 2023 was $6.0 million, reflecting $10.8 million in net payments from a related party, partially offset by $4.8 million for the purchase of property and equipment.
Previous wording
Net cash used in financing activities during the three months ended March 31, 2024 was $0.9 million, primarily due to payment to members for advances of $0.9 million.
Current wording
Net cash used in financing activities during the six months ended June 30, 2024 was $1.1 million, primarily due to payments to members for advances of $0.9 million.
Previous wording
Reflects the principal payment on third party notes. Refer to “Note 8—Notes Payable” to the financial statements included elsewhere in this Quarterly Report.
Current wording
Reflects the principal payment on third party notes. Refer to “Note 8—Notes Payable” to the financial statements included in this Quarterly Report.
Previous wording
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 (and we have been a public company for at least 12 months or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.
Current wording
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.
Rearranged current paragraphs (9)
Current report — wording carried from elsewhere
Gain on remeasurement of previously held interest. This reflects the business acquisition of GKBH (a restaurant in Hawaii) during the first quarter of 2024.
Current report — wording carried from elsewhere
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 June 30, 2024, but we had $86 thousand during the three months ended June 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.
Current report — wording carried from elsewhere
Payroll and benefits. Payroll and benefits costs were $32.5 million for the six months ended June 30, 2024, compared to $28.0 million for the six months ended June 30, 2023, an increase of $4.5 million, or 16.2%. 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 increased slightly from 31.0% to 31.1%.
Current report — wording carried from elsewhere
Depreciation and amortization expenses. Depreciation and amortization expenses were $3.2 million for the six months ended June 30, 2024 and $2.2 million for the six months ended June 30, 2023. As a percentage of revenue, depreciation and amortization expenses at the restaurant-level were 3.1% during the six months ended June 30, 2024 and 2.5% during the six months ended June 30, 2023, with the increase related to more restaurants in operation.
Current report — wording carried from elsewhere
Pre-opening costs. Pre-opening costs were $3.5 million for the six months ended June 30, 2024 compared to $1.4 million for the six months ended June 30, 2023. This increase was due to more restaurants under development in 2024 than in 2023.
Current report — wording carried from elsewhere
General and administrative expenses. General and administrative expenses were $9.7 million for the six months ended June 30, 2024 compared to $4.0 million for the six months ended June 30, 2023, an increase of $5.7 million, or 142.5%. As a percentage of revenue, general and administrative expenses increased from 4.4% for the six months ended June 30, 2023 to 9.3% for the six months ended June 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.
Current report — wording carried from elsewhere
Gain on remeasurement of previously held interest. This reflects the business acquisition of GKBH (a restaurant in Hawaii) during the first quarter of 2024.
Current report — wording carried from elsewhere
Interest income (expense), net. During the six months ended June 30, 2024 interest income (expense), net was $0.5 million of income compared to $0.4 million of expense during the six months ended June 30, 2023. The increase in net interest income was primarily due to the interest income earned on the proceeds from the IPO transaction.
Current report — wording carried from elsewhere
Cash (Used in) Provided by Investing Activities