What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-14 compared with 2020-04-14 · 171 added, 185 removed, 222 unchanged (62% of the section changed)

Management’s Discussion and A nalysis of Financial Condition and Results of Operations.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited financial statements and the related notes and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2019 (the “Annual Report”).

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Kura Sushi USA, Inc.

is a fast-growing, technology-enabled Japanese restaurant concept that provides guests with a distinctive dining experience by serving authentic Japanese cuisine through an engaging revolving sushi service model, which we refer to as the “Kura Experience”.

is a technology-enabled Japanese restaurant concept that provides guests with a distinctive dining experience by serving authentic Japanese cuisine through an engaging revolving sushi service model, which we refer to as the “Kura Experience”.

We encourage healthy lifestyles by serving freshly prepared Japanese cuisine using high-quality ingredients that are free from artificial seasonings, sweeteners, colorings, and preservatives.

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Business Trends;

Negative Effects of COVID-19 on our Business

We have expanded our restaurant base from eight restaurants in California as of the beginning of fiscal year 2016 to 25 restaurants in five states as of February 29, 2020.

We opened four restaurants in fiscal year 2018 and six restaurants in fiscal year 2019.

We opened two new restaurants during the three months ended February 29, 2020.

The negative effects of the novel strain of coronavirus (“COVID-19”) on our business have been significant.

In March 2020, the World Health Organization declared COVID-19 a global pandemic.

Effects of COVID-19 on Our Business

The negative effects of the COVID-19 on our business have been significant.

In March 2020, the World Health Organization declared the novel strain of coronavirus COVID-19 a global pandemic.

This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and financial markets globally.

It has also disrupted the normal operations of many businesses, including ours.

In response to this outbreak, many state and local authorities have mandated the temporary closure of non-essential businesses and dine-in restaurant activity.

On March 18, 2020, we announced the temporary closure of all of our 25 restaurants located across five states, and have since furloughed certain of our employees.

The duration of our restaurant closures and our ability to implement our growth strategy is highly uncertain, as the full impact and duration of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report.

The restaurant closures effectively eliminate our ability to generate restaurant sales during this closure period, due to the fact that we have no take-out or delivery service offerings.

As a result, management believes the current restaurant closures and ongoing length and severity of the economic downturn caused by the pandemic will have a material adverse impact on our future business, financial condition, liquidity and financial results for the fiscal year ending August 31, 2020.

We are also assessing the potential impact on the impairment analysis of our long-lived assets and the realization of our deferred tax assets.

As a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act") signed into law on March 27, 2020, additional avenues of relief may be available to workers and families through enhanced unemployment insurance provisions and to small businesses through programs administered by the Small Business Administration (“SBA”).

The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property.

We are currently evaluating the impact of the provisions of the CARES Act.

The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.

The loan may be forgiven if the funds are used for payroll and other qualified expenses.

We have submitted our application for a PPP loan.

There is no certainty that our application will be approved or that, if granted, the loan will qualify for forgiveness, in whole or in part.

We are currently assessing the availability of assistance under these programs as well as other capital and liquidity options as may be necessary.

In response to this outbreak, many state and local authorities mandated the temporary closure of non-essential businesses and dine-in restaurant activity.

COVID-19 and the government measures taken to control it have caused a significant disruption to our business operation.

On March 18, 2020, we announced the temporary closure of all of our 25 restaurants located across five states and has since furloughed certain of our employees.

As of May 31, 2020, we had reopened seven restaurants and as of the filing date of this Quarterly Report, have reopened all 25 restaurants, with 14 of them in California currently only providing takeout due to government restrictions on indoor dining.

The reopened restaurants that allow indoor dining have been operating at reduced capacities of 25% or 50% depending on local requirements.

To support our employees during this challenging time, we have maintained payroll for store managers and key kitchen staff.

We maintained payroll for all employees through April 5, 2020 and all kitchen employees through May 9, 2020.

We also continued to pay our employee’s portion of health insurance for all furloughed employees.

In response to the ongoing COVID-19 pandemic, we have prioritized taking steps to protect the health and safety of our employees and customers.

Currently, the restaurants are not utilizing the revolving conveyor belt and all food is ordered from the tableside touchscreen.

The food is delivered either by the express belt directly from the kitchen to the customers’ tables or by the restaurant employees.

We have also increased cleaning and sanitizing protocols of our restaurants and have implemented additional training and operational manuals for our restaurant employees, as well as increased handwashing procedures.

We also provide each restaurant employee with face masks and gloves, and require each employee to pass a health screening process, which includes a temperature check, before the start of each shift.

The temporary restaurant closure and the reduced capacities at the reopened restaurants have caused a substantial decline in our sales in the most recent fiscal quarter.

The future sales levels of our restaurants and our ability to implement our growth strategy remain highly uncertain, as the full impact and duration of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report.

We expect the current decreased restaurant sales levels and ongoing length and severity of the economic downturn caused by the pandemic will continue to have a material adverse impact on our future business, financial condition, liquidity and financial results.

Recent Events Concerning Our Financial Position

On April 10, 2020, we and Kura Sushi, Inc.

(“Kura Japan”), our controlling stockholder, entered into a Revolving Credit Agreement establishing a $20 million revolving credit line with a termination date of March 31, 2024, to provide us with additional liquidity as may be necessary as a result of the recent closures and economic downturn.

The maturity date for amounts borrowed under the Revolving Credit Agreement is twelve months after the disbursement date, unless renewed or extended by mutual agreement of both parties for an additional twelve months.

This is in addition to the existing borrowing capacity available under our existing non-revolving credit facility with a commercial bank.

See below under “—Liquidity and Capital Resources.”

(“Kura Japan”), a majority stockholder, entered into a Revolving Credit Agreement establishing a $20 million revolving credit line with a termination date of March 31, 2024, to provide us with additional liquidity as may be necessary.

Related Party Transactions” and “Note 6.

On April 14, 2020, we entered into a Promissory Note with Bank of the West, which provide d for a loan in the amount of $6.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) sig ned into law on March 27, 2020 .

On April 29, 2020, we returned the proceeds received from the PPP Loan.

Under the provisions of the CARES Act, we are eligible for a refundable employee retention credit subject to certain criteria.

In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credit when earned and to offset the credit against the related expenditure.

Accordingly, we recorded a $1.6 million employee retention credit during the three months ended May 31, 2020, which is included in Labor and related costs in the statements of operations.

We have received rent concessions from our landlords for certain of our restaurants in the form of rent abatements and rent deferrals which were immaterial for the three months ended May 31, 2020.

We continue to have discussions with our landlords regarding potential future rent concessions.

Due to the impact of COVID-19, we assessed our long-lived assets for potential impairment which resulted in no impairment charges recorded as of May 31, 2020.

We also assessed the realizability of our deferred tax assets and recorded a valuation allowance of $1.1 million during the three months ended May 31, 2020.

Income Taxes”.

Key Financial Definitions

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Results of Operations

The following tables present selected comparative results of operations for the three months ended February 29, 2020 and February 28, 2019 and for the six months ended February 29, 2020 and February 28, 2019.

The following tables present selected comparative results of operations for the three months ended May 31, 2020 and May 31, 2019 and for the nine months ended May 31, 2020 and May 31, 2019.

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 table below may not sum to 100% due to rounding.

Three Months Ended

Three Months Ended May 31,

Increase / (Decrease)

February 29, 2020

February 28, 2019

(dollar amounts in thousands)

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Net income (loss)

Six Months Ended

Nine Months Ended May 31,

Increase / (Decrease)

February 29, 2020

February 28, 2019

(dollar amounts in thousands)

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Total operating expenses

Operating loss

Operating income (loss)

Other expense (income):

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Interest income

Loss before income taxes

Income tax expense (benefit)

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

Income (loss) before income taxes

Income tax expense

Net income (loss)

Three Months Ended May 31,

Nine Months Ended May 31,

(as a percentage of sales)

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Income (loss) before income taxes

Income tax expense (benefit)

Income tax expense

Net income (loss)

Three Months Ended February 29, 2020 Compared to Three Months Ended February 28, 2019

Sales were $19.4 million for the three months ended February 29, 2020 compared to $15.1 million for the three months ended February 28, 2019, representing an increase of approximately $4.3 million or 28.3%.

The increase in sales was primarily driven by the opening of five new restaurants subsequent to February 28, 2019, as well as our 10.8% comparable restaurant sales growth for the three months ended February 29, 2020.

Three Months Ended May 31, 2020 Compared to Three Months Ended May 31, 2019

Sales were $2.8 million for the three months ended May 31, 2020 compared to $17.0 million for the three months ended May 31, 2019, representing a decrease of approximately $14.2 million or 83.4%.

Due to COVID-19, on March 18, 2020 we temporarily closed all of our 25 restaurants.

As of May 31, 2020, we had reopened seven restaurants at reduced capacity levels.

The decrease in sales was primarily driven by restaurant closures during the three months ended May 31, 2020, and was slightly offset by sales from the opening of four new restaurants subsequent to May 31, 2019.

Food and beverage costs.

Food and beverage costs were $6.1 million for the three months ended February 29, 2020 compared to $4.9 million for the three months ended February 28, 2019, representing an increase of approximately $1.2 million, or 25.8%.

The increase in food and beverage costs was primarily driven by sales from the opening of five new restaurants subsequent to February 28, 2019.

As a percentage of sales, food and beverage costs decreased to 31.5% in the three months ended February 29, 2020, compared to 32.1% in the three months ended February 28, 2019.

The decrease in food and beverage costs as a percentage of sales was primarily driven by an increase in menu prices, and to a lesser degree, reduced waste.

Food and beverage costs were $1.1 million for the three months ended May 31, 2020 compared to $5.5 million for the three months ended May 31, 2019, representing a decrease of approximately $4.4 million or 80.6%.

The decrease in food and beverage costs was primarily driven by the temporary restaurant closures during the three months ended May 31, 2020, and was slightly offset by the costs associated with the sales from the opening of four new restaurants subsequent to May 31, 2019.

As a percentage of sales, food and beverage costs increased to 38.0% in the three months ended May 31, 2020, compared to 32.5% in the three months ended May 31, 2019.

The increase in food and beverage costs as a percentage of sales was primarily driven by inventory spoilage incurred during the three months ended May 31, 2020.

Labor and related costs.

Labor and related costs were $6.1 million for the three months ended February 29, 2020 compared to $4.9 million for the three months ended February 28, 2019, representing an increase of approximately $1.2 million, or 26.2%.

The increase in labor and related costs was driven by additional labor costs incurred with respect to the opening of five new restaurants subsequent to February 28, 2019, as well as wage increases.

As a percentage of sales, labor and related costs decreased to 31.7% in the three months ended February 29, 2020, compared to 32.2% in the three months ended February 28, 2019, which was primarily driven by increases in our menu prices and more efficient staffing practices.

Labor and related costs were $3.6 million for the three months ended May 31, 2020 compared to $5.3 million for the three months ended May 31, 2019, representing a decrease of approximately $1.7 million, or 32.7%.

Labor and related costs decreased due to a $1.6 million employee retention credit as a result of the CARES Act, as well as the furlough of certain employees as a result of the temporary restaurant closures during the three months ended May 31, 2020, partially offset by additional labor costs incurred from the opening of four new restaurants subsequent to May 31, 2019.

As a percentage of sales, labor and related costs increased to 126.3% in the three months ended May 31, 2020, compared to 31.1% in the three months ended May 31, 2019.

The increase in labor and related costs as a percentage of sales was primarily due to retaining certain restaurant employees during the temporary restaurant closures.

Occupancy and related expenses.

Occupancy and related expenses were $1.6 million for the three months ended February 29, 2020 compared to $1.1 million for the three months ended February 28, 2019, representing an increase of approximately $0.5 million, or 52.3%.

The increase was primarily a result of additional lease expense incurred with respect to the opening of five new restaurants subsequent to February 28, 2019.

As a percentage of sales, occupancy and other operating expenses increased to 8.4% in the three months ended February 29, 2020, compared to 7.1% in the three months ended February 28, 2019.

The increase in occupancy and related expenses as a percentage of sales was primarily driven by higher occupancy rates in our newer restaurants and the increase in pre-opening lease expense.

Occupancy and related expenses were $1.6 million for the three months ended May 31, 2020 compared to $1.3 million for the three months ended May 31, 2019, representing an increase of approximately $0.3 million, or 22.5%.

The increase was primarily a result of additional lease expense incurred with respect to the opening of four new restaurants subsequent to May 31, 2019.

As a percentage of sales, occupancy and other operating expenses increased to 56.5% in the three months ended May 31, 2020, compared to 7.6% in the three months ended May 31, 2019.

The increase in occupancy and related expenses as a percentage of sales was primarily driven by the decrease in sales due to the temporary restaurant closures during the three months ended May 31, 2020, as well as higher occupancy rates in our newer restaurants and an increase in pre-opening lease expense .

Depreciation and amortization expenses.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $ 0.7 million for the three months ended February 29, 2020 compared to $ 0.5 million for the three months ended February 28, 2019 , representing an increase of approxi mately $ 0.2 million , or 44.7 %.

The increase was primarily due to depreciation of property and equipment related to the opening of five new restaurants subsequent to February 28, 2019 .

As a percentage of sales, depreciation and amortization expenses at the restaurant-level increased to 3.7 % in the three months ended February 29, 2020 as compared to 3.3 % in the three months ended February 28, 2019 .

The increase is primarily due to higher build-out costs of our newer restaurants.

Depreciation and amortization expenses incurred at the corporate-level were immaterial for the three months ended February 29, 2020 and February 28, 2019 , and as a percentage of sales remained relatively consistent at 0.2 % and 0.2 %, respectively .

Other costs were $2.2 million for the three months ended February 29, 2020 compared to $1.7 million for the three months ended February 28, 2019, representing an increase in approximately $0.5 million, or 29.9%.

The increase was primarily due to costs related to operating five new restaurants subsequent to February 28, 2019, such as credit card fees, kitchen supplies, promotional expenses and utilities.

The remaining year-over-year increase is due to other individually insignificant items.

As a percentage of sales, other costs remained relatively consistent at 11.4% in the three months ended February 29, 2020 and 11.3% in the three months ended February 28, 2019.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $ 0.7 million for the three months ended May 31, 2020 compared to $ 0.5 million for the three months ended May 31, 2019 , representing an increase of approximately $ 0.2 million , or 43.7 %.

The increase was primarily due to depreciation of property and equipment related to the opening of four new restaurants subsequent to May 31, 2019 .

As a percentage of sales, depreciation and amortization expenses at the restaurant-level increased to 26.4 % in the three months ended May 31, 2020 as compared to 3.0 % in the three months ended May 31, 2019 .

The increase is primarily due to the de crease in sales due to the temporary restaurant closures during the three months ended May 31, 2020, as well as higher build-out costs of our newer restaurants.

Depreciation and amortization expenses incurred at the corporate-level were immaterial for the three months ended May 31, 2020 and May 31, 2019 , and as a percentage of sales were 1.4 % and 0.2 %, respectively.

Other costs were $1.0 million for the three months ended May 31, 2020 compared to $1.8 million for the three months ended May 31, 2019, representing a decrease of approximately $0.8 million, or 45.1%.

The decrease was primarily due to lower operating costs due to the temporary restaurant closures during the three months ended May 31, 2020, such as credit card fees, restaurant supplies, promotional expenses and royalties.

As a percentage of sales, other costs increased to 34.3% in the three months ended May 31, 2020 from 10.4% in the three months ended May 31, 2019 primarily due to costs that are not directly variable with the decrease in sales from the temporary restaurant closures, such as utilities and business insurance.

General and administrative expenses.

General and administrative expenses were $2.8 million for the three months ended February 29, 2020 compared to $1.8 million for the three months ended February 28, 2019, representing an increase of approximately $1.0 million, or 53.2%.

General and administrative expenses were $2.9 million for the three months ended May 31, 2020 compared to $1.7 million for the three months ended May 31, 2019, representing an increase of approximately $1.2 million, or 66.4%.

This increase in general and administrative expenses was primarily due to $0.7 million of insurance, accounting, and legal costs associated with operating as a public company costs and $0.4 million in employee compensation-related expenses associated with increased wages and additional headcount to support our growth in operations.

As a percentage of sales, general and administrative expenses increased to 14.4% in the three months ended February 29, 2020 from 12.0% in three months ended February 28, 2019, primarily due to the increase in the expenses mentioned above.

As a percentage of sales, general and administrative expenses increased to 102.6% in the three months ended May 31, 2020 from 10.2% in three months ended May 31, 2019, primarily due to the increase in the expenses mentioned above as well as the decrease in sales due to the temporary restaurant closures during the three months ended May 31, 2020.

Interest expense.

Interest expense was insignificant in both the three months ended February 29, 2020 and February 28, 2019, and as a percentage of sales remained relatively consistent at 0.2% and 0.3%, respectively.

Interest expense was insignificant in both the three months ended May 31, 2020 and May 31, 2019, and as a percentage of sales was 1.3% and 0.3%, respectively.

Interest income.

Interest income was $0.2 million for the three months ended February 29, 2020 compared to $5 thousand for the three months ended February 28, 2019, due to a higher cash and cash equivalents balance.

Interest income was $0.1 million for the three months ended May 31, 2020 compared to $1 thousand for the three months ended May 31, 2019, due to a higher cash and cash equivalents balance.

Income tax expense.

Income tax expense was insignificant in both the three months ended February 29, 2020 and February 28, 2019.

For further discussion of our income taxes, see “Note 9 – Income Taxes”.

Six Months Ended February 29, 2020 Compared to Six Months Ended February 28, 2019

Sales were $36.8 million for the six months ended February 29, 2020 compared to $28.5 million for the six months ended February 28, 2019, representing an increase of approximately $8.3 million, or 29.1%.

The increase in sales was primarily driven by the opening of five new restaurants subsequent to February 28, 2019, as well as our 8.9% comparable restaurant sales growth for the six months ended February 29, 2020.

Income tax expense was $1.2 million for the three months ended May 31, 2020 compared to $71 thousand for the three months ended May 31, 2019 primarily due to a $1.1 million one-time, non-cash charge to record a valuation allowance on our deferred tax assets.

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

Income Taxes”.

Nine Months Ended May 31, 2020 Compared to Nine Months Ended May 31, 2019

Sales were $39.6 million for the nine months ended May 31, 2020 compared to $45.5 million for the nine months ended May 31, 2019, representing a decrease of approximately $5.9 million, or 12.9%.

The decrease in sales was primarily driven by the temporary restaurant closures during the three months ended May 31, 2020, and was partially offset by sales from the opening of four new restaurants subsequent to May 31, 2019.

Food and beverage costs.

Food and beverage costs were $11.8 million for the six months ended February 29, 2020 compared to $9.4 million for the six months ended February 28, 2019, representing an increase of approximately $2.4 million, or 25.9%.

The increase in food and beverage costs was primarily driven by sales from the opening of five new restaurants subsequent to February 28, 2019.

As a percentage of sales, food and beverage costs decreased to 32.0% in the six months ended February 29, 2020, compared to 32.8% in the six months ended February 28, 2019.

The decrease in food and beverage costs as a percentage of sales was primarily driven by an increase in menu prices, and to a lesser degree, reduced waste.

Food and beverage costs were $12.9 million for the nine months ended May 31, 2020 compared to $14.9 million for the nine months ended May 31, 2019, representing a decrease of approximately $2.0 million, or 13.5%.

The decrease in food and beverage costs was primarily driven by the temporary restaurant closures during the three months ended May 31, 2020, and was partially offset by the costs associated with the sales from the opening of four new restaurants subsequent to May 31, 2019.

As a percentage of sales, food and beverage costs remained relatively consistent at 32.5% in the nine months ended May 31, 2020, compared to 32.7% in the nine months ended May 31, 2019.

Labor and related costs.

Labor and related costs were $11.8 million for the six months ended February 29, 2020 compared to $9.0 million for the six months ended February 28, 2019, representing an increase of approximately $2.8 million, or 30.8%.

The increase in labor and related costs was driven by additional labor costs incurred from the opening of five new restaurants subsequent to February 28, 2019, as well as wage increases.

As a percentage of sales, labor and related costs increased to 32.0% in the six months ended February 29, 2020, compared to 31.6% in the six months ended February 28, 2019, which was primarily driven by higher wage rates in our newer restaurants and wage increases in existing restaurants, partially offset by increases in our menu prices.

Labor and related costs were $15.3 million for the nine months ended May 31, 2020 compared to $14.3 million for the nine months ended May 31, 2019, representing an increase of approximately $1.0 million, or 7.3%.

The increase in labor and related costs was driven by additional labor costs incurred from the opening of four new restaurants subsequent to May 31, 2019, partially offset by a $1.6 million employee retention credit as a result of the CARES Act, as well as the furlough of certain employees as a result of the temporary restaurant closures during the three months ended May 31, 2020.

As a percentage of sales, labor and related costs increased to 38.7% in the nine months ended May 31, 2020, compared to 31.4% in the nine months ended May 31, 2019, which was primarily due to retaining certain restaurant employees during the temporary restaurant closures.

Occupancy and related expenses.

Occupancy and related expenses were $ 3.1 million for the six months ended February 29, 2020 compared to $ 2.0 million for the six months ended February 28, 2019 , representing an increase of approximately $ 1.1 million , or 54.2 %.

The increase was primarily a result of additional lease expense incurred from the opening of five new restaurants subsequent to February 28, 2019 .

As a percen tage of sales, occupancy and other operating expenses increased to 8.4 % in the six months ended February 29, 2020 , compared to 7.0 % in the six months ended February 28, 2019 .

The increase in occupancy and related expenses as a percentage of sales was primarily driven by higher occupancy rates in our newer restaurants and the increase in pre-opening lease expense.

Occupancy and related expenses were $ 4.7 million for the nine months ended May 31, 2020 compared to $ 3.3 million for the nine months ended May 31, 2019 , representing an increase of approximately $ 1.4 million , or 41.7 %.

The increase was primarily a result of additional lease expense incurred from the opening of four new restaurant s subsequent to May 31, 2019 .

As a percentage of sales, occupancy and other operating expenses increased to 11.8 % in the nine months ended May 31, 2020 , compared to 7.2 % in the nine months ended May 31, 2019 .

Depreciation and amortization expenses.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $1.4 million for the six months ended February 29, 2020 compared to $0.9 million for the six months ended February 28, 2019, representing an increase of approximately $0.5 million, or 46.3%.

The increase was primarily due to depreciation of property and equipment related to the opening of five new restaurants subsequent to February 28, 2019.

As a percentage of sales, depreciation and amortization expenses at the restaurant-level increased to 3.7% in the six months ended February 29, 2020 as compared to 3.3% in the six months ended February 28, 2019.

The increase is primarily due to higher build-out costs of our newer restaurants.

Depreciation and amortization expenses incurred at the corporate-level were immaterial for the six months ended February 29, 2020 and February 28, 2019, and as a percentage of sales remained relatively consistent at 0.2% and 0.2%, respectively.

Other costs were $4.3 million for the six months ended February 29, 2020 compared to $3.3 million for the six months ended February 28, 2019, representing an increase in approximately $1.0 million, or 27.2%.

The increase was primarily due to costs related to operating five new restaurants subsequent to February 28, 2019, such as credit card fees, kitchen supplies, promotional expenses and utilities.

The remaining year-over-year increase is due to other individually insignificant items.

As a percentage of sales, other costs remained relatively consistent at 11.6% in the six months ended February 29, 2020 and 11.7% in the six months ended February 28, 2019.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $2.1 million for the nine months ended May 31, 2020 compared to $1.5 million for the nine months ended May 31, 2019, representing an increase of approximately $0.6 million, or 45.4%.

The increase was primarily due to depreciation of property and equipment related to the opening of four new restaurants subsequent to May 31, 2019.

As a percentage of sales, depreciation and amortization expenses at the restaurant-level increased to 5.3% in the nine months ended May 31, 2020 as compared to 3.2% in the nine months ended May 31, 2019.

The increase is primarily driven by the decrease in sales due to the temporary restaurant closures during the three months ended May 31, 2020, as well as higher build-out costs of our newer restaurants.

Depreciation and amortization expenses incurred at the corporate-level were immaterial for the nine months ended May 31, 2020 and May 31, 2019, and as a percentage of sales remained relatively consistent at 0.2% and 0.2%, respectively.

Other costs were $5.2 million for the nine months ended May 31, 2020 compared to $5.1 million for the nine months ended May 31, 2019, representing an increase in approximately $0.1 million, or 2.3%.

The increase was primarily due to costs related to operating four new restaurants subsequent to May 31, 2019, offset by lower operating costs due to the temporary restaurant closures during the three months ended May 31, 2020, such as credit card fees, restaurant supplies, promotional expenses and royalties.

As a percentage of sales, other costs increased to 13.2% in the nine months ended May 31, 2020 compared to 11.2% in the nine months ended May 31, 2019, primarily due to costs that are not directly variable with the decrease in sales from the temporary restaurant closures, such as utilities and business insurance.

General and administrative expenses.

General and administrative expenses were $6.1 million for the six months ended February 29, 2020 compared to $4.0 million for the six months ended February 28, 2019, representing an increase of approximately $2.1 million, or 54.1%.

General and administrative expenses were $9.0 million for the nine months ended May 31, 2020 compared to $5.7 million for the nine months ended May 31, 2019, representing an increase of approximately $3.3 million, or 57.8%.

This increase in general and administrative expenses was primarily due to $1.7 million of insurance, accounting, and legal costs associated with operating as a public company, $0.4 million of other legal costs, and $0.9 million in employee compensation-related expenses associated with increased wages and additional headcount to support our growth in operations.

As a percentage of sales, general and administrative expenses increased to 16.6% in the six months ended February 29, 2020 from 13.9% in the six months ended February 28, 2019, primarily due to the increase in the expenses mentioned above.

As a percentage of sales, general and administrative expenses increased to 22.7% in the nine months ended May 31, 2020 from 12.5% in the nine months ended May 31, 2019, primarily due to the increase in the expenses mentioned above as well as the decrease in sales due to the temporary restaurant closures during the three months ended May 31, 2020.

Interest expense.

Interest expense was insignificant in both the six months ended February 29, 2020 and February 28, 2019, and as a percentage of sales remained relatively consistent at 0.2% and 0.3%, respectively.

Interest expense was insignificant in both the nine months ended May 31, 2020 and May 31, 2019, and as a percentage of sales remained consistent at 0.3%.

Interest income.

Interest income was $0.4 million for the six months ended February 29, 2020 compared to $10 thousand for the six months ended February 28, 2019, due to a higher cash and cash equivalents balance.

Interest income was $0.4 million for the nine months ended May 31, 2020 compared to $11 thousand for the nine months ended May 31, 2019, due to a higher cash and cash equivalents balance.

Income tax expense (benefit).

Income tax expense was insignificant in the both the six months ended February 29, 2020 and February 28, 2019.

Income tax expense was $1.2 million for the nine months ended May 31, 2020 compared to $41 thousand for the nine months ended May 31, 2019 primarily due to a $1.1 million one-time, non-cash charge to record a valuation allowance for the Company’s deferred tax assets.

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 Contribution, Restaurant-level Contribution margin, comparable restaurant sales growth, and 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 growth, and number of restaurant openings.

Sales represents sales of food and beverages in restaurants, as shown on our statements of operations.

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

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

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

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

We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors.

However, you should be aware when evaluating E BITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures.

However, you should be aware when evaluating EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures.

In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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You should review the reconciliation of net income to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the three months ended February 29, 2020 and February 28, 2019 and the six months ended February 29, 2020 and February 28, 2019:

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

The following table reconciles net income to EBITDA and Adjusted EBITDA for the three months ended May 31, 2020 and May 31, 2019 and the nine months ended May 31, 2020 and May 31, 2019:

Three Months Ended May 31,

Nine Months Ended May 31,

(amounts in thousands)

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Depreciation and amortization

Stock-based compensation expense (a)

Pre-opening lease expense (b)

Pre-opening costs (c)

Non-cash lease expense (d)

Stock-based compensation expense (b)

Non-cash lease expense (c)

Employee retention credit (d)

Adjusted EBITDA

Adjusted EBITDA margin

Effective May 31, 2020, we no longer exclude pre-opening lease expense and pre-opening costs from our computation of Adjusted EBITDA.

Adjusted EBITDA for the three and nine months ended May 31, 2019 has been restated to the current period computation methodology.

Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in other costs in the statements of operations and of corporate-level stock-based compensation included in general and administrative expenses in the statements of operations.

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Stock-based Compensation” to the financial statements included in this Quarterly Report.

Pre-opening lease expense includes lease expenses incurred between date of possession and opening date of our restaurants.

Pre-opening costs consist of labor costs and travel expenses for new employees and trainers during the training period, recruitment fees, legal fees and other related pre-opening costs.

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

Restaurant-level Contribution and Restaurant-level Contribution Margin

Restaurant-level Contribution is defined as operating income plus depreciation and amortization, stock-based compensation expense, pre-opening lease expense, pre-opening costs, non-cash lease expense, asset disposals, closure costs and restaurant impairments, and general and administrative expenses, less corporate-level stock-based compensation expense and pre-opening costs recognized within general and administrative expenses.

Restaurant-level Contribution margin is defined as Restaurant-level Contribution divided by sales.

Restaurant-level Contribution and Restaurant-level Contribution margin are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP.

We believe that Restaurant-level Contribution and Restaurant-level Contribution margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results.

We expect Restaurant-level Contribution to increase in proportion to the number of new restaurants we open and our comparable restaurant sales growth.

We present Restaurant-level Contribution because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant-level.

We also use Restaurant-level Contribution to measure operating performance and returns from opening new restaurants.

Restaurant-level Contribution margin allows us to evaluate the level of Restaurant-level Contribution generated from sales.

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

In addition, when evaluating Restaurant-level Contribution and Restaurant-level Contribution margin, you should be aware that in the future we may incur expenses similar to those excluded when calculating these measures.

Refundable credit against certain employment taxes recognized under the provisions of the CARES Act.

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

Restaurant-level Operating Profit is defined as operating income plus depreciation and amortization;

stock-based compensation expense;

pre-opening lease expense, pre-opening costs and general and administrative expenses, which are considered normal, recurring cash operating expenses and are essential to supporting the development and operations of our restaurants;

non-cash lease expense, asset disposals, closure costs and restaurant impairments;

less corporate-level stock-based compensation expense and pre-opening costs recognized within general and administrative expenses.

Restaurant-level Operating Profit margin is defined as

R estaurant-level Operating Profit divided by sales.

Restaurant-level Operating Profit and Restaurant-level Operating Profit margin 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 and Restaurant-level Operating Profit margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results.

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

We present Restaurant-level Operating Profit because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant-level.

We also use Restaurant-level Operating Profit to measure operating performance and returns from opening new restaurants.

Restaurant-level Operating Profit margin allows us to evaluate the level of Restaurant-level Operating Profit generated from sales.

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

In addition, when evaluating Restaurant-level Operating Profit and Restaurant-level Operating Profit margin, you should be aware that in the future we may incur expenses similar to those excluded when calculating these measures.

Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Our computation of Restaurant-level Contribution and Restaurant-level Contribution margin may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Restaurant-level Contribution and Restaurant-level Contribution margin in the same fashion.

Restaurant-level Contribution and Restaurant-level Contribution margin have limitations as analytical tools, and you should not consider those measures in isolation or as a substitute for analysis of our results as reported under GAAP.

The following table reconciles operating income to Restaurant-level Contribution and Restaurant-level Contribution margin for the three months ended February 29, 2020 and February 28, 2019 and for the six months ended February 29, 2020 and February 28, 2019:

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

Our computation of Restaurant-level Operating Profit and Restaurant-level Operating Profit margin may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Restaurant-level Operating Profit and Restaurant-level Operating Profit margin in the same fashion.

Restaurant-level Operating Profit and Restaurant-level Operating Profit margin have limitations as analytical tools, and you should not consider those measures in isolation or as a substitute for analysis of our results as reported under GAAP.

The following table reconciles operating income to Restaurant-level Operating Profit and Restaurant-level Operating Profit margin for the three months ended May 31, 2020 and May 31, 2019 and for the nine months ended May 31, 2020 and May 31, 2019:

Three Months Ended May 31,

Nine Months Ended May 31,

(amounts in thousands)

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Non-cash lease expense (d)

Employee retention credit (e)

General and administrative expenses

Corporate-level stock-based compensation and pre-opening costs included in General and administrative expenses

Restaurant-level Contribution

Restaurant-level operating profit (loss)

Operating profit margin

Restaurant-level Contribution margin

Restaurant-level operating profit margin

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

Refundable credit against certain employment taxes recognized under the provisions of the CARES Act.

Comparable Restaurant Sales Growth

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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.

We did not make any adjustments for the temporary restaurant closures due to COVID-19 during three and nine months ended May 31, 2020.

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

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

The following table shows the comparable restaurant sales growth for the three and six months ended February 29, 2020 and February 28, 2019:

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

The following table shows the comparable restaurant sales growth for the three and nine months ended May 31, 2020 and May 31, 2019:

Three Months Ended May 31,

Nine Months Ended May 31,

Comparable restaurant sales growth (%)

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The number and timing of restaurant openings has had, and is expected to continue to have, an impact on our results of operations.

The following table shows the growth in our restaurant base for the three and six months ended February 29, 2020 and February 28, 2019:

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

The following table shows the growth in our restaurant base for the three and nine months ended May 31, 2020 and May 31, 2019:

Three Months Ended May 31,

Nine Months Ended May 31,

Restaurant activity:

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Since the completion of our initial public offering, w e did not expect to receive any additional capital contributions from Kura Japan.

However, the impact of the COVID-19 pandemic is highly uncertain and management expects that the recent restaurant closures and ongoing length and severity of the economic downturn will have a material adverse impact on our business, financial condition, liquidity and financial results.

However, the impact of the COVID-19 pandemic is highly uncertain and management expects that the current restaurant sales levels and ongoing length and severity of the economic downturn will have a material adverse impact on our business, financial condition, liquidity and financial results.

For further discussion, see above under “—Business Trends;

Negative Effects of COVID-19 on our Business” and “Note 10.

Subsequent Events” to the financial statements included in this Quarterly Report.

As a result of the CARES Act signed into law on March 27, 2020, additional avenues of relief may be available to workers and families through enhanced unemployment insurance provisions and to small businesses through progra ms administered by the SBA.

The CARES Act also established a PPP, whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.

The loan may be forgiven if the funds are used for payroll and other qualified ex penses.

We have submitted our application for a PPP loan.

There is no certainty that our application will be approved or that, if granted, the loan will qualify for forgiveness, in whole or in part.

Management is currently assessing the availability of assistance under these programs as well as other capital and liquidity options as may be necessary.

On April 10, 2020, we and Kura Japan entered into a Revolving Credit Agreement establishing a $20 million revolving credit line with a termination date of March 31, 2024, to provide us with additional liquidity as may be necessary as a result of the recent closures and economic downturn.

Effects of COVID-19 on our Business”.

On April 10 , 2020, we and Kura Japan entered into a Revolving Credit Agreement establishing a $ 20 million revolving credit line with a termination date of March 31, 2024 , t o provide us w ith additional liquidity as may be necessary as a result of the recent closures and economic downturn.

The maturity date for amounts borrowed under the Revolving Credit Agreement is twelve months after the disbursement date, unless renewed or extended by m utual agreement of both parties for an additional twelve months.

We also have $1.1 million available under our non-revolving line of credit (the “Credit Facility”) that matures on July 31, 2020, which Credit Facility is further described in “Note 6.

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Our working capital position benefits from the fact that we generally collect cash from sales to guests the same day or, in the case of credit or debit card transactions, within several days of the related sale, while we typically have longer payment terms with our vendors.

We believe that cash provided by operating activities, cash on hand and availability under our existing lines of credit, both with our commercial bank as well as the recently established credit facility provided by Kura Japan, along with potential sources of liquidity that management may obtain through available CARES Act financing programs for which we may qualify, will be sufficient to fund our lease obligations, capital expenditures and working capital needs for at least the next 12 months.

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

Summary of Cash Flows

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

Six Months Ended

February 29, 2020

February 28, 2019

Nine Months Ended May 31,

Statement of Cash Flow Data:

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Cash Flows (Used in) Provided by Operating Activities

Net cash used in operating activities during the six months ended February 29, 2020 was $0.3 million, which results from net loss of $1.4 million, non-cash charges of $1.4 million for depreciation and amortization, $0.3 million for stock-based compensation, $1.1 million in noncash lease expense, and net cash outflows of approximately $1.7 million from changes in operating assets and liabilities.

The net cash outflows from changes in operating assets and liabilities were primarily the result of decreases of $1.2 million for accounts payable, $0.5 million for accrued expenses and other current liabilities, and $0.6 million for operating lease liabilities, as well as increases of $0.2 million for amounts due from affiliate and $0.1 million for accounts receivable.

Net cash used in operating activities during the nine months ended May 31, 2020 was $10.7 million, which results from net loss of $10.5 million, non-cash charges of $2.2 million for depreciation and amortization, $0.6 million for stock-based compensation, $1.7 million in noncash lease expense, $1.1 million for deferred income taxes, and net cash outflows of approximately $5.8 million from changes in operating assets and liabilities.

The net cash outflows from changes in operating assets and liabilities were primarily the result of decreases of $3.0 million for accounts payable, $0.9 million for operating lease liabilities, $0.9 million for accrued expenses and other current liabilities, $0.5 million for sales tax payable, and $0.3 million for salary and wages payable, as well as increases of $0.8 million for accounts receivable, $1.2 million for prepaid expenses and other current assets, and $0.2 million for amounts due from affiliate.

The decrease in accounts payable and accrued expenses and other current liabilities was primarily driven by timing of payment for certain liabilities.

The increase in accounts receivable was due to the timing of tenant allowance receivables.

Net cash provided by operating activities during the six months ended February 28, 2019 was $1.0 million, which resulted from net loss of $0.2 million, non-cash charges of $1.0 million for depreciation and amortization, $0.3 million for stock-based compensation, and net cash outflows of $0.1 million from changes in operating assets and liabilities.

The net cash outflows from changes in operating assets and liabilities were primarily the result of decreases of $0.5 million for prepaid expenses and other current assets and $0.1 million in deposits and other assets, partially offset by an increase of $0.5 million for deferred rent and tenant allowances.

The increase in the above-mentioned items was primarily due to the opening of three restaurants during the six months ended February 28, 2019.

The increase in accounts receivable was due to the timing of tenant allowance receivables as well as lower credit card receivable balances at May 31, 2020 due to the temporary restaurant closures.

Net cash provided by operating activities during the nine months ended May 31, 2019 was $3.4 million, which resulted from net income of $0.5 million, non-cash charges of $1.5 million for depreciation and amortization, $0.5 million for stock-based compensation, and net cash inflows of $0.9 million from changes in operating assets and liabilities.

The net cash inflows from changes in operating assets and liabilities were primarily the result of increases of $1.0 million for deferred rent and tenant allowances and $0.4 million for salaries and wages payable, partially offset by a decrease of $0.4 million for prepaid expense.

The increase in the above-mentioned items was primarily due to the opening of four restaurants during the nine months ended May 31, 2019.

Cash Flows Used in Investing Activities

Net cash used in investing activities during the six months ended February 29, 2020 was $7.3 million, primarily due to purchases of property and equipment.

The purchases of property and equipment in the six months ended February 29, 2020 are primarily related to capital expenditures for current and future restaurant openings, renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the six months ended February 28, 2019 was $4.9 million, primarily due to purchases of property and equipment.

The increase in purchases of property and equipment in the six months ended February 28, 2019 is primarily related to capital expenditures for current and future restaurant openings, renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the nine months ended May 31, 2020 was $9.6 million, primarily due to purchases of property and equipment.

The purchases of property and equipment in the nine months ended May 31, 2020 are primarily related to capital expenditures for current and future restaurant openings, renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the nine months ended May 31, 2019 was $ 7.7 million , primarily due to purchases of property and equipment.

The increase in purchases of property and equipment in the nine months ended May 31, 2019 is primarily related to capital expenditures for current and future restaurant openings, renovations, maintaining our existing restaurants and other projects.

Cash Flows Used in Financing Activities

Net cash used in financing activities during the six months ended February 29, 2020 was $0.5 million primarily due to repayment of principal on financing leases of equipment.

Net cash used in financing activities during the six months ended February 28, 2019 was $1.7 million primarily due to payments of costs related to our initial public offering, which was completed in August 2019, and repayments of principal balances on financing leases of equipment.

Net cash used in financing activities during the nine months ended May 31, 2020 was $0.7 million primarily due to repayment of principal on financing leases of equipment.

Net cash used in financing activities during the nine months ended May 31, 2019 was $0.2 million primarily due to payments of $2.4 million related to our initial public offering, which was completed in August 2019, repayments $0.8 million principal balances on financing leases of equipment as well as repayment of debt of $0.9 million during nine months ended May 31, 2019.

This was partially offset by proceeds from the issuance of long-term debt of $3.9 million.

Contractual Obligations

As of February 29, 2020, we had $4.0 million in contractual obligations relating to purchase commitments for goods related to restaurant operations and commitments for construction of new restaurants.

As of May 31, 2020, we had $4.9 million in contractual obligations relating to purchase commitments for goods related to restaurant operations and commitments for construction of new restaurants.

All purchase commitments are expected to be paid during the current fiscal year.

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Off-Balance Sheet Arrangements

As of February 29, 2020, we did not have any material off-balance sheet arrangements.

As of May 31, 2020, we did not have any material off-balance sheet arrangements.

Recent Accounting Pronouncements

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Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” of our Annual Report on Form 10‑K for the fiscal year ended August 30, 2019 for a discussion of our critical accounting policies and estimates.

Jumpstart Our Busine ss Startups Act of 2012

Jumpstart Our Business Startups Act of 2012

We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act.

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We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Subject to certain conditions set forth in the JOBS Act, we are also eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

Subject to certain conditions set forth in the JOBS Act, we are also eligible for and intend to t ake advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodi c reports and proxy statements.

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

We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we had total annual gross revenue of $1 billion or more 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.

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 m arket 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 we had total annual gross revenue of $1 billion or more 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 .

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 2. Management’s Discussion and Analysis