GENK GEN Restaurant Group Inc

GEN Restaurant Group, Inc. (“GEN” or the “Company”), owner of GEN Korean BBQ, a fast-growing cook-it-yourself casual dining concept, today announced financial results for the third quarter ended September 30, 2023.

Highlights for the Third quarter ended September 30, 2023 were as follows:

• Revenue increased 7.4% to $45.6 million, compared to $42.4 million in the third quarter of 2022;
• Comparable restaurant sales decreased 1.2% as compared to fiscal 2022;
• Income from operations was $2.5 million and 5.4% of revenue;
• Restaurant-level adjusted EBITDA(1) was $8.4 million and 18.4% of revenue;
• Net Income was $2.6 million and 5.8% of revenue;
• Adjusted EBITDA(1) was $5.0 million and 11.0% of revenue inclusive of pre-opening expense of approximately $0.4 million;

(1) Adjusted EBITDA and restaurant-level adjusted EBITDA are non-GAAP measures. For reconciliations of adjusted EBITDA and restaurant-level adjusted EBITDA to the most directly comparable GAAP measure see the accompanying financial tables. For definitions and a discussion of why we consider them useful, see “Non-GAAP Measures” below.

David Kim, Co-Chief Executive Officer of GEN Restaurant Group, Inc. stated, “We are pleased with the performance of our four new restaurants in Chandler, Manhattan, Miracle Mile and Webster. These restaurants are collectively generating annualized average unit volumes of approximately $5 million and currently on track for an average payback period of approximately 2.1 years, in-line with our expectations. As we look ahead, we already have 12 leases signed or in final signing stages for new unit and an additional 8 locations in the LOI stage of negotiation for a total of 20 future locations. With leases for the majority of our 2024 locations signed or in final stages of negotiation, we are now in the process of securing our 2025 and 2026 locations, and we remain confident in the long-term trajectory of our unique brand.”

Third Quarter 2023 Financial Results

Revenue was $45.6 million in the third quarter of 2023 compared to $42.4 million in the third quarter of 2022. Comparable restaurant sales decreased 1.2% in the third quarter of 2023 compared to the same period last year.

Total restaurant operating expenses as a percentage of revenue increased by 260 basis points to 86.2% in the third quarter of 2023 from 83.6% in the third quarter of 2022 primarily driven by the following:

• Cost of goods sold decreased 100 basis points primarily due to primarily due to more favorable commodity pricing and ongoing negotiations with our vendors.
• Payroll and benefits increased 190 basis points due to increases in minimum wage rates in certain markets which we operate, primarily California; short-term high labor costs in newly open restaurants as we train staff and management; and increases in managers in training in preparation for our ramp up in new restaurant development.
• Occupancy costs increased 80 basis points primarily due to new restaurant openings since the third quarter of 2022, including openings on the strip in Las Vegas and New York, which are higher rent markets.
• Other operating costs increased 30 basis points.
• Depreciation and amortization increased 10 basis points.
• Restaurant pre-opening expenses increased 65% to $0.7 million for the third quarter of 2023 due to the timing of new store openings.

General and administrative expenses increased by $1.6 million to $3.8 million for the third quarter of 2023. As a percentage of revenues, general and administrative expenses were approximately 8.3% including management fees.

Net income was $2.6 million and 5.8% of revenue.

Adjusted EBITDA was $5.0 million and 11.0% of revenue inclusive of pre-opening expense of approximately $0.7 million.

Development Update

Subsequent to the end of the third quarter of 2023, the Company opened one new restaurants, bringing the total restaurant count to 35 as of November 14, 2023.

• Westheimer Road in Houston, TX opened in October 2023

The following definitions apply to terms as used in this release:

Comparable restaurant sales 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 full months prior to the accounting period presented. Once a restaurant has been open 18 full months, it must have had continuous operations during both the current period and the prior year period being measured to remain a comparable restaurant. If operations were to be substantially impacted by unusual events that closed the location or significantly changed its capacity, that location is excluded from the comparable sales calculation until it has been operating continuously under normal conditions for both the current period and the prior year comparison period.

Total restaurant operating expenses includes food cost, payroll & benefits, occupancy, operating, depreciation and amortization, and pre-opening costs.

Non-GAAP Measures

Restaurant-level adjusted EBITDA represents income (loss) from operations plus adjustments to add-back the following expenses: depreciation and amortization, pre-opening costs, general and administrative expenses, related party consulting fees, management fees and non-cash lease expense. Management believes that restaurant-level adjusted EBITDA is useful to investors because this measure highlights trends in our core business that may not otherwise be apparent to investors when relying solely on GAAP financial measures and enabling investors to more effectively compare the Company’s performance to prior and future periods.

Adjusted EBITDA represents net income (loss) before net interest expense, income taxes, depreciation and amortization, and consulting fees paid to a related party and we also exclude non-recurring items, such as gain on extinguishment of debt, and Restaurant Revitalization Fund, or RRF, grants, employee retention credits, litigation accruals, aborted deferred IPO costs written off and non-cash lease expenses.   Management believes that restaurant-level adjusted EBITDA is useful to investors because this measure highlights trends in our core business that may not otherwise be apparent to investors when relying solely on GAAP financial measures and enabling investors to more effectively compare the Company’s performance to prior and future periods .

Conference Call

The Company will host a conference call to discuss financial results for the third quarter of 2023 today at 5:00 p.m. Eastern Time. David Kim, Co-Chief Executive Officer, and Tom Croal, Chief Financial Officer, will host the call.

The conference call can be accessed live over the phone by dialing 201-689-8263. A replay will be available after the call and can be accessed by dialing 412-317-6671; the passcode is 13741320. The replay will be available until Tuesday, November 21, 2023.

The conference call will also be webcast live from the Company’s corporate website at www.genkoreanbbq.com under the Investor section. An archive of the webcast will be available on the Company's corporate website shortly after the call has concluded.

About GEN Restaurant Group, Inc.

GEN Korean BBQ is a fast-growing cook-it-yourself casual dining concept with over 30 locations in 7 states. The Company offers guests a unique dining experience where guests serve as their own chefs preparing meals on embedded grills in the center of each table. The extensive menu consists of traditional Korean and Korean-American food, including high-quality meats, poultry, seafood and mixed vegetables. With its unique culinary experience alongside its modern décor and lively atmosphere, GEN Korean BBQ delivers an engaging and interactive dining experience. For more information, please visit GEN’s website at www.genkoreanbbq.com.

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements may be identified by the use of words such as “believe,” “intend,” “expect”, “will,” “may”, and other similar words or expressions that predict or indicate future events. All statements that are not statements of historical fact are forward-looking statements, including any statements regarding our strategy, future operations, and growth prospects, any statements regarding future economic conditions or performance, any statements of belief or expectation, and any statements of assumptions underlying any of the foregoing or other future events. Forward-looking statements are based on current information available at the time the statements are made and on management’s reasonable belief or expectations with respect to future events, and are subject to risks and uncertainties, many of which are beyond the Company’s control, that could cause actual performance or results to differ materially from the belief or expectations expressed in or suggested by the forward-looking statements. Additional factors or events that could cause actual results to differ may also emerge from time to time, and it is not possible for the Company to predict all of them. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update any forward-looking statement to reflect future events, developments or otherwise, except as may be required by applicable law. Investors are referred to the Company’s Registration Statement on Form S-1(File No. 333-272253), as amended, and in our subsequent filings with the Securities and Exchange Commission (“SEC”), which are available on the SEC’s website at www.sec.gov, for additional information regarding the risks and uncertainties that may cause actual results to differ materially from those expressed in any forward-looking statement.

Investor RelationsJeff Priester(332) 242-4370investor@genbbqoffice.com

GEN RESTAURANT GROUPCondensed Consolidated Income Statements(in thousands, except per share amounts; unaudited)
	Three months ended September 30,								Nine months ended September 30,
	2023				2022				2023				2022
Revenue	$	45,564			$	42,419			$	135,899			$	122,880
Restaurant operating expenses:
Food cost		14,523				13,954				43,614				40,968
Payroll and benefits		14,444				12,649				42,419				36,128
Occupancy expenses		3,772				3,168				10,876				9,051
Operating expenses		4,582				4,159				13,007				11,178
Depreciation and amortization		1,232				1,095				3,476				3,234
Pre-opening Costs		723				437				2,123				975
Total restaurant operating expenses		39,276				35,462				115,515				101,534
General and administrative		3,802				2,191				7,815				5,720
Consulting fees - related party		-				1,320				2,325				4,897
Management fees		-				588				1,176				1,745
Depreciation and amortization - corporate		21				9				58				24
Total costs and expenses		43,099				39,570				126,889				113,920
Income from operations		2,465				2,849				9,010				8,960
Gain on extinguishment of PPP debt		-				-				-				387
Employee retention credits		-				64				2,483				2,583
Other income (loss)		-				(6	)			(7	)			(854	)
Interest expense, net		190				(203	)			(206	)			(440	)
Equity in income of equity method investee		53				70				520				921
Net income before income taxes		2,708				2,774				11,800				11,557
Provision for income taxes		(74	)			-				(171	)			-
Net income		2,634				2,774				11,629				11,557
Less: Net Income attributable to noncontrolling interest		2,297				387				3,198				1,067
Net income attributable to Gen Restaurant Group, Inc.		337				2,387				8,431				10,490
Net income attributable to Class A common stock – basic and diluted(1)		337				—				348				—
Net income attributable to Class A common stock per share - basic and diluted(1)	$	0.08				—			$	0.08				—
Weighted-average shares of Class A common stock outstanding - basic and diluted(1)		4,140				0				4,249				0
(1) Basic and diluted net loss per Class A common stock is presented only for the period after the Company's organizational transactions.

GEN RESTAURANT GROUPSelected Balance Sheet Data and Selected Operating Data(in thousands, except restaurants and percentages; unaudited)
Selected Balance Sheet Data:	September 30,2023				December 31,2022
Cash and cash equivalents	$	32,149			$	11,195
Total assets	$	175,628			$	138,878
Total liabilities	$	139,117			$	144,139
Total stockholders’ equity	$	35,011			$	(6,761	)

	Three months ended September 30,								Nine months ended September 30,
	2023				2022				2023				2022
Selected Operating Data:
Restaurants at the end of period		34				30				34				30
Comparable restaurant sales performance(1)		(1.2	%)			n/a				n/a				n/a
Net income		2,634				2,774				11,629				11,557
Net income margin		5.8	%			6.5	%			8.6	%			9.4	%
Adjusted EBITDA		5,012				5,851				17,207				19,155
Adjusted EBITDA margin		11.0	%			13.8	%			12.7	%			15.6	%
Income from operations		2,465				2,849				9,010				8,960
Income from operations margin		5.4	%			6.7	%			6.6	%			7.3	%
Restaurant-level Adjusted EBITDA		8,387				8,566				26,286				25,762
Restaurant-level Adjusted EBITDA margin		18.4	%			20.2	%			19.3	%			21.0	%

GEN RESTAURANT GROUPReconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA(in thousands; unaudited)
	Three months ended September 30,								Nine months ended September 30,
	2023				2022				2023				2022
	(unaudited)								(unaudited)
EBITDA:
Net income	$	2,634			$	2,774			$	11,629			$	11,557
Net Income Margin		5.8	%			6.5	%			8.6	%			9.4	%
Interest expense, net		(190	)			203				206				440
Provision for income taxes		74				—				171				—
Depreciation and amortization		1,253				1,104				3,534				3,258
EBITDA	$	3,771			$	4,081			$	15,540			$	15,255
EBITDA Margin		8.3	%			9.6	%			11.4	%			12.4	%
Adjustments to EBITDA:
EBITDA	$	3,771			$	4,081			$	15,540			$	15,255
Stock-based compensation expense(1)		759				—				759				—
Gain on extinguishment of debt(2)		—				—				—				(387	)
Consulting fees - related party(3)		—				1,320				2,325				4,897
Employee retention credits(4)		—				(64	)			(2,483	)			(2,583	)
Litigation accrual(5)		—				—				—				850
Non-cash lease expense(6)		144				77				303				207
Non-cash lease expense related to pre-opening costs(7)		338				437				763				916
Adjusted EBITDA	$	5,012			$	5,851			$	17,207			$	19,155
Adjusted EBITDA Margin		11.0	%			13.8	%			12.7	%			15.6	%

Reconciliation of Income from Operations to Restaurant-level Adjusted EBITDA(in thousands; unaudited)
	Three months ended September 30,								Nine months ended September 30,
	2023				2022				2023				2022
Income from Operations	$	2,465			$	2,849			$	9,010			$	8,960
Income Margin from Operations		5.4	%			6.7	%			6.6	%			7.3	%
Depreciation and amortization		1,253				1,104				3,534				3,258
Pre-opening costs		723				437				2,123				975
General and administrative		3,802				2,191				7,815				5,720
Consulting fees - related party(3)		-				1,320				2,325				4,897
Management Fees		-				588				1,176				1,745
Non-cash lease expense(6)		144				77				303				207
Restaurant-Level Adjusted EBITDA	$	8,387			$	8,566			$	26,286			$	25,762
Restaurant-Level Adjusted EBITDA Margin		18.4	%			20.3	%			19.3	%			21.0	%

(1) Stock-based compensation expense: During the third quarter of 2023, we incurred expenses related to the granting of Restricted Stock Units ("RSUs") to employees. .

(2) Gain on extinguishment of debt: In the first quarter of 2022, we received loan forgiveness from the SBA related to the PPP Loans in the amount of $0.4 million. We do not anticipate receiving additional funds as the program has not been extended under the CARES Act.

(3) Consulting fees—related party: We do not anticipate these costs being incurred beyond the first three months after completion of the offering.

(4) Employee retention credits: These are refundable credits recognized under the provisions of the CARES Act.

(5) Litigation accruals: This is an accrual in 2022 related to a specific, one-time, litigation claim.

(6) Non-cash lease expense: This reflects the extent to which lease expense is greater than or less than contractual rent.

(7) Non-cash lease expense related to pre-opening costs: Cost for stores in development in which the lease expense is greater than the contractual rent.