What changed in this filing

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Item 1. Financial Statements

2024-01-04 compared with 2023-07-06 · 138 added, 229 removed, 580 unchanged (39% of the section changed)

3 unchanged sentences

(amounts in thousands, except par value)

November 30, 2023

August 31, 2023

32 unchanged sentences

50,000 shares authorized,

10,101 and 8,788 shares issued and outstanding as of May 31, 2023

10,155 and 10,147 shares issued and outstanding as of November 30, 2023

and August 31, 2023, respectively

1 unchanged sentence

10,000 shares authorized,

1,000 shares issued and outstanding as of May 31, 2023

1,000 shares issued and outstanding as of November 30, 2023

and August 31, 2023

1 unchanged sentence

Accumulated deficit

Accumulated other comprehensive loss

Accumulated other comprehensive income

Total stockholders' equity

2 unchanged sentences

Kura Sushi USA, Inc.

Condensed Statements of Operations and Comprehensive Income (Loss)

Condensed Statements of Operations and Comprehensive Loss

(amounts in thousands, except per share data)

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Restaurant operating costs:

7 unchanged sentences

Total operating expenses

Operating income (loss)

Operating loss

Other expense (income):

1 unchanged sentence

Interest income

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

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

Loss before income taxes

Income tax expense

Net loss per Class A and Class B shares

Weighted average Class A and Class B shares outstanding

Other comprehensive income (loss):

Unrealized loss on short-term investments

Comprehensive income (loss)

Unrealized gain on short-term investments

Comprehensive loss

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

7 unchanged sentences

Employee stock plan

Other comprehensive income

Balances as of November 30, 2023

Stock-based compensation

Employee stock plan

Balances as of February 28, 2023

Stock-based compensation

Employee stock plan

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

Other comprehensive loss

Balances as of May 31, 2023

Stockholders'

3 unchanged sentences

Balances as of November 30, 2022

Stock-based compensation

Employee stock plan

Taxes paid on vested restricted stock awards

Balances as of February 28, 2022

Stock-based compensation

Employee stock plan

Balances as of May 31, 2022

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

2 unchanged sentences

(amounts in thousands)

Nine Months Ended May 31,

Three Months Ended November 30,

Cash flows from operating activities

1 unchanged sentence

Depreciation and amortization

Stock-based compensation

Loss on disposal of property and equipment

Stock-based compensation, net of amounts capitalized

Non-cash lease expense

16 unchanged sentences

Purchases of short-term investments

Redemption of short-term investments

Net cash used in investing activities

1 unchanged sentence

Repayment of principal on finance leases

Taxes paid on vested restricted stock awards

Proceeds from exercise of stock options

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

Payments of costs related to the follow-on offering

Net cash provided by (used in) financing activities

18 unchanged sentences

“Kura,”

“our”

and the “Company”

21 unchanged sentences

The carrying value of the short-term investments is equivalent to their amortized cost basis.

As of May 31, 2023 and August 31, 2022, short-term investments were $ 8.7 million and none , respectively.

As of November 30, 2023 and August 31, 2023, short-term investments were $ 7.0 million and $ 8.5 million, respectively.

The certificates of deposits are deposited at Federal Deposit Insurance Corporation (“FDIC”) insured banks.

1 unchanged sentence

Certificates of deposits and Treasury bills are classified as available-for-sale debt securities which are measured at fair value with unrealized gains or losses recorded in other comprehensive income (loss).

As of May 31, 2023, the Company recorded $ 7 thousand in unrealized losses on short-term investments in comprehensive income (loss).

Based on the evaluation of credit risk factors, the Company has concluded that an allowance for credit losses is unnecessary for its short-term investments.

As of November 30, 2023, the Company recorded $ 46 thousand in unrealized gains on short-term investments in accumulated other comprehensive income (loss), which consisted of $ 48 thousand in unrealized gains on Treasury bills and $ 2 thousand i n unrealized losses on certificates of deposits.

The Compan y reclassified $ 106 thousand out of accumulated other comprehensive income into earnings for the period related to maturities of certificates of deposits and a Treasury bill, which consisted of $ 62 thousand in realized

gains on certificates of deposits and $ 44 thousand in realized gains on a Treasury bill.

T he Company determines realized gains or losses on the available-for-sale debt securities on a specific identification method basis.

Base d on the evaluation of credit risk factors, the Company has concluded that an allowance for credit losses is unnecessary for its short-term investments.

Comprehensive Income (Loss)

1 unchanged sentence

The Company’s short-term investments consist of certificates of deposits and Treasury bills that are classified as available-for-sale debt securities which are measured at fair value with unrealized gains or losses recorded in other comprehensive income (loss).

Recently Adopted Accounting Pronouncement

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance,”

which provides guidance on disclosures for transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.

The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted.

The Company adopted this update effective September 1, 2022.

The adoption of this update did not have a material impact to the consolidated financial statements.

Follow-On Offering

On April 13, 2023, the Company completed an underwritten public offering of common stock pursuant to the Company’s universal shelf registration statement on Form S-3, selling an aggregate of 1,265,000 shares of Class A common stock, including the exercise in full of the underwriters’

option to purchase 165,000 additional shares, at the price of $ 54.00 per share less an underwriting discount of $ 2.70 per share.

The Company received aggregate net proceeds of $ 64.3 million after deducting the underwriting discounts and commissions and offering expenses payable by the Company.

The proceeds are to be used for general corporate purposes, including capital expenditures, working capital, and other business purposes .

No payments were made by the Company to directors, officers or persons owning 10 % or more of the Company’s common stock or to their associates, or to the Company’s affiliates.

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”, which requires greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid and effective for fiscal year beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued.

The amendments should be applied on a prospective basis although retrospective application is permitted.

The Company is currently in the process of evaluating the effects of this pronouncement on its financial statements and expects the update to result in additional disclosures.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures,”

which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The guidance in this update is effective for all public entities for fiscal years beginning after December 15, 2023, with early adoption permitted.

The Company is currently in the process of evaluating the effects of this pronouncement on its financial statements and expects the update to results in additional disclosures.

Balance Sheet Components

Accounts and Other Receivables

November 30, 2023

August 31, 2023

4 unchanged sentences

Property and Equipment - net

November 30, 2023

August 31, 2023

7 unchanged sentences

Total property and equipment –

Depreciation and amortization expense for property and equipment was $ 2.1 million and $ 1.5 million for the three months ended May 31, 2023 and May 31, 2022, respectively, and was $ 5.6 million and $ 4.1 million for the nine months ended May 31, 2023 and May 31, 2022 , respectively.

Depreciation and amortization expense for property and equipment was $ 2.6 million and $ 1.7 million for the three months ended November 30, 2023 and November 30, 2022 , respectively.

The Company has operating and finance leases for its corporate office, restaurant locations, office equipment, kitchen equipment and automobiles.

1 unchanged sentence

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

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands)

6 unchanged sentences

Total finance lease cost

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands)

8 unchanged sentences

Operating Leases

November 30, 2023

August 31, 2023

5 unchanged sentences

Finance Lease Assets –

November 30, 2023

August 31, 2023

4 unchanged sentences

Finance Leases Liabilities

November 30, 2023

August 31, 2023

3 unchanged sentences

Total finance lease liabilities

Nine months ended May 31,

Three months ended November 30,

Weighted Average Remaining Lease Term (Years)

5 unchanged sentences

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

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands)

1 unchanged sentence

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

As of May 31, 2023, the Company has an additional $ 39.0 million of operating leases related to restaurants for which the Company has not yet taken possession.

Subsequent to May 31, 2023, the Company entered into an additional operating lease related to a restaurant for which the Company has not yet taken possession.

The lease liability associated with the lease after May 31, 2023 is $ 0.6 million .

The operating lease is expected to commence in fiscal year 2024, with a lease term of 20 years.

As of November 30, 2023, the Company had an additional $ 43.3 million of operating leases related to restaurants for which the Company had not yet taken possession.

Subsequent to November 30, 2023, the Company entered into two additional operating leases related to restaurants for which the Company has not yet taken possession.

The lease liabilities associated with the leases after November 30, 2023 is $ 6.7 million .

The operating leases are expected to commence in fiscal year 2024, with a lease terms of 20 years.

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

17 unchanged sentences

In August 2019, the Company entered into an Amended and Restated Exclusive License Agreement (the “License Agreement”) with Kura Japan.

Pursuant to the License Agreement, the Company pays Kura Japan a royalty fee of 0.5 % of the Company’s net sales in exchange for an exclusive, royalty-bearing license for use of certain of Kura Japan’s intellectual property rights, including, but not limited to, Kura Japan’s trademarks “Kura Sushi”, “Mr.

Fresh”

7 unchanged sentences

Balances with Kura Japan are as follows:

November 30, 2023

August 31, 2023

3 unchanged sentences

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

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands)

5 unchanged sentences

Total related party transactions

Reimbursements by Kura Japan to the Company were $ 7 thousand and none for the three months ended May 31, 2023 and May 31, 2022, respectively, and were $ 67 thousand and $ 28 thousand for the nine months ended May 31, 2023 and May 31, 2022, respectively.

The reimbursements were for professional fees, travel and other administrative expenses.

Reimbursements by Kura Japan to the Company were $ 157 thousand and $ 34 thousand for the three months ended November 30, 2023 and November 30, 2022, respectively.

The reimbursements were primarily for directors and officers liability insurance and other administrative expenses.

Stock-based Compensation

9 unchanged sentences

Options exercised

Options canceled/forfeited

Options cancelled/forfeited

Outstanding —

November 30, 2023

Options granted

Options exercised

Options canceled/forfeited

Outstanding —

February 28, 2023

Options granted

Options exercised

Options canceled/forfeited

Outstanding —

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

4 unchanged sentences

August 31, 2023

RSU's granted

RSUs cancelled/forfeited

Outstanding —

November 30, 2023

RSU's granted

Outstanding —

February 28, 2023

RSU's canceled/forfeited

Outstanding —

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

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands)

1 unchanged sentence

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

Total stock-based compensation

Amount capitalized to Property and Equipment - net

Total stock-based compensation, net of amounts capitalized

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement, as amended, establishing a $ 45.0 million revolving credit line for the Company.

2 unchanged sentences

There are no financial covenants under the Revolving Credit Agreement with which the Company must comply.

As of May 31, 2023 and August 31, 2022, the Company had no o utstanding balance and $ 45.0 million of availability remaining under the Revolving Credit Agreement.

As of November 30, 2023 and August 31, 2023, the Company had no o utstanding balance and $ 45.0 million of availability remaining under the Revolving Credit Agreement.

For additional information, see “Note 4.

4 unchanged sentences

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

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands, except per share data)

Net income (loss) attributable to common stockholders –

Net income (loss) attributable to common stockholders

Weighted average common shares outstanding –

5 unchanged sentences

Potentially dilutive common shares include dilutive outstanding employee stock options and restricted stock units.

For the three months ended May 31, 2023 and May 31, 2022, there were 201 thousand and 250 thousand shares of common stock subject to outstanding employee stock options and restricted stock units that were excluded from the calculation of diluted income per share because their inclusion would have been anti-dilutive.

For the nine months ended May 31, 2023 and May 31, 2022, there were 729 thousand and 762 thousand shares of common stock subject to outstanding employee stock options and RSU’s that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.

For the three months ended November 30, 2023 and November 30, 2022, there were 688 thousand and 708 thousand shares of common stock subject to outstanding employee stock options and RSUs that were excluded from the calculation of diluted income per share because their inclusion would have been anti-dilutive.

Commitments and Contingencies

5 unchanged sentences

During the mediation, a settlement was agreed upon in the amount of $ 1.75 million.

Th e Company recorded an accrued liability of $ 1.78 million, i ncluding an estimated $ 30 thousand in em ployer payroll taxes, related to this settlement within general and administrative expenses in the statements of operations and comprehensive income (loss) during the fiscal year ended August 31, 2021.

The Company recorded an accrued liability of $ 1.78 million, including an estimated $ 30 thousand in employer payroll taxes, related to this settlement within general and administrative expenses in the statements of operations and comprehensive income (loss) during the fiscal year ended August 31, 2021.

The court granted final approval of the settlement on November 18, 2022.

In December 2022, pursuant to the court’s order granting final approval of the settlement, the Company deposited $ 1.78 million into an account controlled by a settlement administrator for disbursement to class participants and other parties to the litigation.

A final report regarding the distribution of settlement funds is due on July 6, 2023, and a non-appearance case review is scheduled for July 13, 2023.

A final report regarding the distribution of settlement funds was filed on July 6, 2023.

The parties are awaiting the court to sign the amended judgment, which was filed on August 16, 2023

The Company is involved from time to time in various legal proceedings that arise in the ordinary course of business, including but not limited to commercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation in connection with transactions including acquisitions and divestitures.

2 unchanged sentences

The Company records a liability when a loss is considered probable, and the amount can be reasonably estimated.

The Company recorded an income tax expense of $ 41 thousand and an income tax benefit of $ 2 thousand for the three months ended May 31, 2023 and May 31, 2022, respectively, and income tax expense of $ 66 thousand and $ 13 thousand for the nine months ended May 31, 2023 and May 31, 2022, respectively.

The Company’s effective tax rates for the three and nine months ended May 31, 2023 substantially differed from the federal statutory tax rate of 21 % primarily due to a valuation allowance for the Company’s deferred tax assets.

The Company recorded an income tax expense of $ 38 thousand and $ 10 thousand for the three months ended November 30, 2023 and November 30, 2022, respectively.

The Company’s effective tax rates for the three months ended November 30, 2023 substantially differed from the federal statutory tax rate of 21 % primarily due to a valuation allowance for the Company’s deferred tax assets.

The Company continually monitors and performs an assessment of the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies.

1 unchanged sentence

In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses.

Based on the Company’s review of this evidence, management determined that a full valuation allowance against all of the Company’s net deferred tax assets at May 31, 2023 was appropriate.

Based on the Company’s review of this evidence, management determined that a full valuation allowance against all of the Company’s net deferred tax assets at November 30, 2023 was appropriate.

Fair Value Measurements

The following table sets forth the Company’s assets measured at fair value on a recurring basis as of May 31, 2023.

The Company did no t have any assets and liabilities measured at fair value on a recurring basis as of August 31, 2022.

The following table sets forth the Company’s assets measured at fair value on a recurring basis as of November 30, 2023.

(amounts in thousands)

4 unchanged sentences

Due to their short-term nature, the carrying amounts reported in the accompanying balance sheets approximate the fair value of cash and cash equivalents.

The fair value of our certificates of deposits are estimated using Level 2 of the fair value hierarchy.

The fair value of our certificates of deposits are considered using Level 2 inputs of the fair value hierarchy.

Level 2 inputs are based on market data that include factors such as interest rates, market and pricing activity and other market-based valuation techniques.

The Company determines realized gains or losses on the available-for-sale debt securities on a specific identification method basis.

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

19 unchanged sentences

We have experienced inflationary pressures affecting our operations in certain areas such as food and beverage costs, labor costs, construction costs and energy costs.

We have also experienced temporary shortages in food, equipment and other goods, as well as an increase in freights costs, due in part to supply chain impacts of overall economic conditions in the markets in which we operate.

We have been able to offset to some extent these inflationary and other cost pressures through various actions, such as increasing menu prices, productivity improvements, and supply chain initiatives, however, we expect these inflationary and other cost pressures to continue throughout the remainder of fiscal year 2023.

Key Financial Definitions

27 unchanged sentences

Results of Operations

The following tables present selected comparative results of operations for the three and nine months ended May 31, 2023 and May 31, 2022.

The following tables present selected comparative results of operations for the three months ended November 30, 2023 and 2022.

Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods.

Certain totals for the tables below may not recalculate or sum to 100% due to rounding.

Three Months Ended May 31,

(dollar amounts in thousands)

Restaurant operating costs

Food and beverage costs

Labor and related costs

Occupancy and related expenses

Depreciation and amortization expenses

Total restaurant operating costs

General and administrative expenses

Depreciation and amortization expenses

Total operating expenses

Operating income

Other expense (income):

Interest expense

Interest income

Income before income taxes

Income tax expense (benefit)

Nine Months Ended May 31,

Three Months Ended November 30,

(dollar amounts in thousands)

14 unchanged sentences

Income tax expense

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(as a percentage of sales)

8 unchanged sentences

Total operating expenses

Operating income (loss)

Operating loss

Other expense (income):

1 unchanged sentence

Interest income

Income (loss) before income taxes

Income tax expense

Net income (loss)

Three Months Ended May 31, 2023 Compared to Three Months Ended May 31, 2022

Sales were $49.2 million for the three months ended May 31, 2023 compared to $38.0 million for the three months ended May 31, 2022, representing an increase of $11.2 million, or 29.7%.

Comparable restaurant sales increased 10.3% for the three months ended May 31, 2023, as compared to the three months ended May 31, 2022.

The increase in sales was primarily driven by the sales resulting from nine new restaurants opened subsequent to May 31, 2022, as well as increases in menu prices during the same period.

Food and beverage costs.

Food and beverage costs were $14.8 million for the three months ended May 31, 2023 compared to $11.3 million for the three months ended May 31, 2022, representing an increase of $3.5 million, or 30.9%.

The increase in food and beverage costs was primarily driven by costs associated with sales from nine new restaurants opened subsequent to May 31, 2022.

As a percentage of sales, food and beverage costs increased to 30.0% in the three months ended May 31, 2023 as compared to 29.7% in the three months ended May 31, 2022, primarily due to food cost inflation partially offset by increases in menu prices.

Labor and related costs.

Labor and related costs were $14.4 million for the three months ended May 31, 2023 compared to $11.8 million for the three months ended May 31, 2022, representing an increase of $2.6 million, or 21.8%.

This increase in labor and related costs was primarily driven by additional labor costs incurred from nine new restaurants opened subsequent to May 31, 2022.

As a percentage of sales, labor and related costs decreased to 29.2% in the three months ended May 31, 2023 as compared to 31.0% in the three months ended May 31, 2022.

The decrease in cost as a percentage of sales was primarily due to increases in menu prices and technological initiatives, partially offset by increases in wage rates.

Occupancy and related expenses.

Occupancy and related expenses were $3.6 million for the three months ended May 31, 2023 compared to $2.7 million for the three months ended May 31, 2022, representing an increase of $0.9 million, or 32.0%.

The increase was primarily a result of additional lease expense related to the opening of nine new restaurants subsequent to May 31, 2022.

As a percentage of sales, occupancy and related expenses remained consistent at 7.2% in the three months ended May 31, 2023 as compared to 7.1% in the three months ended May 31, 2022.

Depreciation and amortization expenses.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $2.0 million for the three months ended May 31, 2023 compared to $1.4 million for the three months ended May 31, 2022, representing an increase of $0.6 million, or 43.5%.

The increase was primarily due to depreciation of property and equipment related to the nine new restaurants opened subsequent to May 31, 2022.

As a percentage of sales, depreciation and amortization expenses at the restaurant level increased to 4.0% in the three months ended May 31, 2023 as compared to 3.6% in the three months ended May 31, 2022.

Depreciation and amortization expenses incurred at the corporate level were $0.1 million for both the three months ended May 31, 2023 and May 31, 2022, and as a percentage of sales were both 0.2%, respectively.

Other costs were $6.2 million for the three months ended May 31, 2023 compared to $4.4 million for the three months ended May 31, 2022, representing an increase of $1.8 million, or 41.0%.

The increase was primarily driven by an increase in costs related to nine new restaurants opened subsequent to May 31, 2022.

As a percentage of sales, other costs increased to 12.5% in the three months ended May 31, 2023 as compared to 11.5% in the three months ended May 31, 2022, primarily driven by advertising, repair and maintenance and travel costs.

General and administrative expenses.

General and administrative expenses were $7.0 million for the three months ended May 31, 2023 compared to $5.9 million for the three months ended May 31, 2022, representing an increase of $1.1 million, or 18.8%.

This increase was primarily due to increases in compensation related costs of $0.7 million due to additional headcount, $0.2 million of professional fees and $0.1 million in travel expenses.

As a percentage of sales, general and administrative expenses decreased to 14.2% in the three months ended May 31, 2023 from 15.5% in the three months ended May 31, 2022, primarily driven by leverage benefits from the increase in sales.

Interest expense.

Interest expense was $23 thousand for both the three months ended May 31, 2023 and May 31, 2022, respectively.

Interest income.

Interest income was $436 thousand for the three months ended May 31, 2023 compared to $25 thousand for the three months ended May 31, 2022.

The increase was primarily driven by investing our net cash proceeds from our $64.3 million follow-on offering completed in April 2023 into cash and cash equivalents and short-term investments.

Loss before income taxes

Income tax expense

Income tax expense was $41 thousand for the three months ended May 31, 2023 compared to an income tax benefit of $2 thousand for the three months ended May 31, 2022.

For further discussion of our income taxes, see “Note 9.

Income Taxes”

in the Notes to Condensed Financial Statements.

Nine Months Ended May 31, 2023 Compared to Nine Months Ended May 31, 2022

Sales were $132.5 million for the nine months ended May 31, 2023 compared to $99.1 million for the nine months ended May 31, 2022, representing an increase of $33.4 million, or 33.7%.

Comparable restaurant sales increased 11.0% for the nine months ended May 31, 2023, as compared to the nine months ended May 31, 2022.

The increase in sales was primarily driven by the sales resulting from nine new restaurants opened subsequent to May 31, 2022, as well as increases in menu prices during the same period.

Three Months Ended November 30, 2023 Compared to Three Months Ended November 30, 2022

Sales were $51.5 million for the three months ended November 30, 2023 compared to $39.3 million for the three months ended November 30, 2022, representing an increase of $12.2 million, or 30.9%.

Comparable restaurant sales increased 3.8% for the three months ended November 30, 2023, as compared to the three months ended November 30, 2022.

The increase in sales was primarily driven by the sales resulting from twelve new restaurants opened subsequent to November 30, 2022, as well as increases in menu prices during the same period.

Food and beverage costs.

Food and beverage costs were $40.4 million for the nine months ended May 31, 2023 compared to $29.6 million for the nine months ended May 31, 2022, representing an increase of $10.8 million, or 36.6%.

The increase in food and beverage costs was primarily driven by costs associated with sales from nine new restaurants opened subsequent to May 31, 2022.

As a percentage of sales, food and beverage costs increased to 30.5% in the nine months ended May 31, 2023 as compared to 29.9% in the nine months ended May 31, 2022, primarily due to food cost inflation partially offset by increases in menu prices.

Food and beverage costs were $15.4 million for the three months ended November 30, 2023 compared to $12.4 million for the three months ended November 30, 2022, representing an increase of $3.0 million, or 23.6%.

The increase in food and beverage costs was primarily driven by costs associated with sales from twelve new restaurants opened subsequent to November 30, 2022.

As a percentage of sales, food and beverage costs decreased to 29.8% in the three months ended November 30, 2023 as compared to 31.6% in the three months ended November 30, 2022, primarily due to increases in menu prices, partially offset by food cost inflation.

Labor and related costs.

Labor and related costs were $40.8 million for the nine months ended May 31, 2023 compared to $31.8 million for the nine months ended May 31, 2022, representing an increase of $9.0 million, or 28.0%.

This increase in labor and related costs was primarily driven by additional labor costs incurred from nine new restaurants opened subsequent to May 31, 2022.

As a percentage of sales, labor and related costs decreased to 30.8% in the nine months ended May 31, 2023 as compared to 32.1% in the nine months ended May 31, 2022.

Labor and related costs were $16.3 million for the three months ended November 30, 2023 compared to $12.5 million for the three months ended November 30, 2022, representing an increase of $3.8 million, or 29.7%.

This increase in labor and related costs was primarily driven by additional labor costs incurred from twelve new restaurants opened subsequent to November 30, 2022.

As a percentage of sales, labor and related costs decreased to 31.6% in the three months ended November 30, 2023 as compared to 31.9% in the three months ended November 30, 2022.

The decrease in cost as a percentage of sales was primarily due to increases in menu prices and technological initiatives, partially offset by increases in wage rates.

Occupancy and related expenses.

Occupancy and related expenses were $9.5 million for the nine months ended May 31, 2023 compared to $7.2 million for the nine months ended May 31, 2022, representing an increase of $2.3 million, or 32.1%.

The increase was primarily a result of additional lease expense related to the opening of nine new restaurants opened subsequent to May 31, 2022.

As a percentage of sales, occupancy and related expenses remained consistent at 7.2% in the nine months ended May 31, 2023, compared to 7.3% in the nine months ended May 31, 2022.

Occupancy and related expenses were $3.9 million for the three months ended November 30, 2023 compared to $2.9 million for the three months ended November 30, 2022, representing an increase of $1.0 million, or 35.5%.

The increase was primarily a result of additional lease expense related to the opening of twelve new restaurants subsequent to November 30, 2022.

As a percentage of sales, occupancy and related expenses remained consistent at 7.6% in the three months ended November 30, 2023 as compared to 7.3% in the three months ended November 30, 2022.

Depreciation and amortization expenses.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $5.3 million for the nine months ended May 31, 2023 compared to $3.8 million for the nine months ended May 31, 2022, representing an increase of $1.5 million, or 39.2%.

The increase was primarily due to depreciation of property and equipment related to nine new restaurants opened subsequent to May 31, 2022.

As a percentage of sales, depreciation and amortization expenses at the restaurant level increased to 4.0% for the nine months ended May 31, 2023 as compared to 3.8% for the nine months ended May 31, 2022.

Depreciation and amortization expenses incurred at the corporate level were $0.3 million for the nine months ended May 31, 2023 and May 31, 2022, and as a percentage of sales were 0.2% and 0.3%, respectively.

Other costs were $17.4 million for the nine months ended May 31, 2023 compared to $12.3 million for the nine months ended May 31, 2022, representing an increase of $5.1 million, or 40.8%.

The increase was primarily driven by an increase in costs related to nine new restaurants opened subsequent to May 31, 2022.

As a percentage of sales, other costs increased to 13.1% in the nine months ended May 31, 2023 from 12.4% in the nine months ended May 31, 2022, primarily driven by advertising, repair and maintenance and travel costs.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $2.5 million for the three months ended November 30, 2023 compared to $1.6 million for the three months ended November 30, 2022, representing an increase of $0.9 million, or 57.1%.

The increase was primarily due to depreciation of property and equipment related to the twelve new restaurants opened subsequent to November 30, 2022.

As a percentage of sales, depreciation and amortization expenses at the restaurant level increased to 4.8% in the three months ended November 30, 2023 as compared to 4.0% in the three months ended November 30, 2022.

Depreciation and amortization expenses incurred at the corporate level were $0.1 million for both the three months ended November 30, 2023 and November 30, 2022, and as a percentage of sales were both 0.2%, respectively.

Other costs were $7.6 million for the three months ended November 30, 2023 compared to $5.3 million for the three months ended November 30, 2022, representing an increase of $2.3 million, or 42.7%.

The increase was primarily driven by an increase in costs related to twelve new restaurants opened subsequent to November 30, 2022.

As a percentage of sales, other costs increased to 14.7% in the three months ended November 30, 2023 as compared to 13.5% in the three months ended November 30, 2022, primarily driven by general inflationary pressures on advertising and promotion, repairs and maintenance, utilities and travel expenses associated with new restaurant openings.

General and administrative expenses.

General and administrative expenses were $20.8 million for the nine months ended May 31, 2023 compared to $16.7 million for the nine months ended May 31, 2022, representing an increase of $4.1 million, or 24.3%.

This increase was primarily due to increases in compensation related costs of $3.3 million due to additional headcount and $0.5 million in travel expenses and $0.3 million in professional fees.

As a percentage of sales, general and administrative expenses decreased to 15.7% in the nine months ended May 31, 2023 from 16.9% in the nine months ended May 31, 2022, primarily driven by leverage benefits from the increase in sales.

General and administrative expenses were $8.6 million for the three months ended November 30, 2023 compared to $6.6 million for the three months ended November 30, 2022, representing an increase of $2.0 million, or 29.6%.

This increase was primarily due to increases in compensation-related costs of $1.0 million due to additional headcount, $0.5 million of professional fees, $0.3 million in travel expenses and $0.2 million in legal costs.

As a percentage of sales, general and administrative expenses remained consistent at 16.7% in the three months ended November 30, 2023 as compared to 16.9% in the three months ended November 30, 2022.

Interest expense.

Interest expense was $53 thousand for the nine months ended May 31, 2023 compared to $70 thousand for the nine months ended May 31, 2022.

Interest expense was $8 thousand for the three months ended November 30, 2023 compared to $16 thousand for the three months ended November 30, 2022, respectively.

Interest income.

Interest income was $593 thousand for the nine months ended May 31, 2023 compared to $75 thousand for the nine months ended May 31, 2022.

Interest income was $840 thousand for the three months ended November 30, 2023 compared to $94 thousand for the three months ended November 30, 2022.

The increase was primarily driven by investing our net cash proceeds from our $64.3 million follow-on offering completed in April 2023 into cash and cash equivalents and short-term investments.

Income tax expense.

Income tax expense was $66 thousand for the nine months ended May 31, 2023 compared to $13 thousand for the nine months ended May 31, 2022.

Income tax expense was $38 thousand for the three months ended November 30, 2023 compared to an income tax benefit of $10 thousand for the three months ended November 30, 2022.

For further discussion of our income taxes, see “Note 9.

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In assessing the performance of our business, we consider a variety of financial and performance measures.

The key measures for determining how our business is performing include sales, EBITDA, Adjusted EBITDA, Restaurant-level Operating Profit, Restaurant-level Operating Profit margin, Average Unit Volumes (“AUVs”), comparable restaurant sales performance, and the number of restaurant openings.

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

Sales represents sales of food and beverages in restaurants, as shown on our statements of operations and comprehensive income (loss).

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EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization.

Adjusted EBITDA is defined as EBITDA plus stock-based compensation expense, non-cash lease expense and asset disposals, closure costs and restaurant impairments, that we believe are not indicative of our core operating results.

Adjusted EBITDA is defined as EBITDA plus stock-based compensation expense, non-cash lease expense and asset disposals, closure costs and restaurant impairments, as well as certain items, such as litigation accrual that we believe are not indicative of our core operating results.

Adjusted EBITDA margin is defined as Adjusted EBITDA divided by sales.

EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP.

We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provide useful information to management and investors regarding

certain financial and business trends relating to our financial condition and operating results.

EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor

presented in accordance with, GAAP.

We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results.

However, these measures may not provide a complete understanding of the operating results of the Company as a whole and such measures should be reviewed in conjunction with our GAAP financial results.

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

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands)

Net income (loss)

Interest income, net

Income tax expense (benefit)

Income tax expense

Depreciation and amortization expenses

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Non-cash lease expense (b)

Litigation accrual (c)

Adjusted EBITDA

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(b) Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods.

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

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Restaurant-level Operating Profit (Loss) margin is defined as Restaurant-level Operating Profit (Loss) divided by sales.

Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP.

Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin are non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP.

We believe that Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results, as this measure depicts normal, recurring cash operating expenses essential to supporting the development and operations of our restaurants.

However, these measures may not provide a complete understanding of the operating results of the

Company as a whole and such measures should be reviewed in conjunction with our GAAP financial results.

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

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

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands)

Operating income (loss)

Operating loss

Depreciation and amortization expenses

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Restaurant-level operating profit

Operating income (loss) margin

Operating loss margin

Restaurant-level operating profit margin

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Comparable restaurant sales performance refers to the change in year-over-year sales for the comparable restaurant base.

We include restaurants in the comparable restaurant base that have been in operation for at least 18 months prior to the start of the accounting period presented due to new restaurants experiencing a period of higher sales upon opening, including those temporarily closed for renovations during the year.

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

For restaurants that were temporarily closed for consecutive days, which primarily occurs during renovations, the comparative period was also adjusted.

Measuring our comparable restaurant sales performance allows us to evaluate the performance of our existing restaurant base.

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The following table shows the comparable restaurant sales performance:

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Comparable restaurant sales performance (%)

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The following table shows the growth in our restaurant base:

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Restaurant activity:

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No payments were made by us to directors, officers or persons owning 10% or more of our common stock or to their associates, or to our affiliates.

During the nine months ended May 31, 2023, we had no borrowings under the Revolving Credit Agreement and have $45.0 million of availability remaining.

As of May 31, 2023, we did not have any material off-balance sheet arrangements.

During the three months ended November 30, 2023, we had no borrowings under the Revolving Credit Agreement and have $45.0 million of availability remaining.

As of November 30, 2023, we did not have any material off-balance sheet arrangements.

The significant components of our working capital are liquid assets such as cash, cash equivalents, receivables and short-term investments reduced by accounts payable and accrued expenses.

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

Nine Months Ended May 31,

Three Months Ended November 30,

Statement of Cash Flow data:

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Cash Flows Provided by Operating Activities

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

Net cash provided by operating activities during the nine months ended May 31, 2022 was $17.0 million, which results from a net loss of $2.7 million, non-cash charges of $4.1 million for depreciation and amortization, $1.8 million for stock-based compensation, and $2.3 million in non-cash lease expense, and net cash inflows of $11.5 million from changes in operating assets and liabilities.

The net cash inflows from changes in operating assets and liabilities were primarily the result of decreases of $7.8 million in prepaid expenses and other current assets, which was primarily due to collection of $8.0 million of employee retention credits.

Net cash provided by operating activities during the three months ended November 30, 2023 was $2.4 million, primarily due to a net loss of $2.0 million, non-cash charges of $2.6 million for depreciation and amortization, $1.0 million for stock-based compensation, and $1.1 million in non-cash lease expense, and net cash outflows of $0.2 million from changes in operating assets and liabilities.

Net cash provided by operating activities during the three months ended November 30, 2022 was $0.5 million, primarily due to a net loss of $2.1 million, non-cash charges of $1.7 million for depreciation and amortization, $0.7 million for stock-based compensation, and $0.8 million in non-cash lease expense, and net cash outflows of $0.5 million from changes in operating assets and liabilities.

Cash Flows Used in Investing Activities

Net cash used in investing activities during the nine months ended May 31, 2023 was $37.2 million, primarily due to $8.7 million in purchases of short-term investments, $27.2 million in purchases of property and equipment and $0.9 million in purchases of liquor licenses.

The purchases of property and equipment in the nine months ended May 31, 2023 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the nine months ended May 31, 2022 was $20.7 million, primarily due to $19.5 million in purchases of property and equipment, $0.8 million in purchases of liquor licenses and $0.4 million in payments for initial direct costs.

The purchases of property and equipment in the nine months ended May 31, 2022 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the three months ended November 30, 2023 was $8.0 million, primarily due to $3.0 million in purchases of short-term investments, $9.4 million in purchases of property and equipment and $0.1 million in purchases of liquor licenses offset by $4.5 million of redemption of short-term investments.

The increase in purchases of property and equipment in the three months ended November 30, 2023 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the three months ended November 30, 2022 was $9.3 million, primarily due to $8.3 million in purchases of property and equipment and $0.8 million in purchases of liquor licenses.

The purchases of property and equipment in the three months ended November 30, 2022 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects.

Cash Flows Provided by (Used in) Financing Activities

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

Net cash used in financing activities during the nine months ended May 31, 2022 was $0.7 million and is primarily due to $0.8 million in repayments of principal on finance leases.

Net cash provided by financing activities during the three months ended November 30, 2023 was $56 thousand and is primarily due to $110 thousand of proceeds from exercise of stock options offset by $54 thousand in repayments of principal on finance leases.

Net cash used in financing activities during the three months ended November 30, 2022 was $0.1 million and is primarily due to $0.2 million in repayments of principal on finance leases.

Material Cash Requirements

As of May 31, 2023, we had $11.4 million in contractual obligations relating to the construction of new restaurants and purchase commitments for goods related to restaurant operations.

As of November 30, 2023, we had $9.1 million in contractual obligations relating to the construction of new restaurants and purchase commitments for goods related to restaurant operations.

All contractual obligations are expected to be paid during the next 12 months utilizing cash and cash equivalents on hand and provided by operations.

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We may take advantage of these exemptions until we are no longer an emerging growth company.

We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which our annual gross revenues exceed $1.235 billion during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering.

Quantitative and Qualitati ve Disclosures About Market Risk.

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We have been able to partially offset cost increases resulting from a number of factors, including market conditions, shortages or interruptions in supply due to weather or other conditions beyond our control, governmental regulations, and inflation, by increasing our menu prices, as well as making other operational adjustments that increase productivity.

However, substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be offset by menu price increases or operational adjustments.

However, substantial increases in costs and expenses could impact our operating results to the extent that menu prices increase or operational adjustments cannot offset such increases.

Inflation Risk

The primary inflationary factors affecting our operations are food and beverage costs, labor costs, construction costs and energy costs.

Our restaurant operations are subject to federal and state minimum wage and other laws governing such matters as working conditions, overtime and tip credits.

Our restaurant operations are subject to federal and state minimum wage and other laws governing 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.

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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.

There can be no assurance that increased menu prices can offset future cost increases or that our guests will fully absorb increased menu prices without any resulting change to their visit frequencies or purchasing patterns.

In addition, there can be no assurance that we will generate the same sales growth in an amount sufficient to offset inflationary or other cost pressures.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements