GEN Restaurant (GENK) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited statements present the company's financial position, results of operations, and cash flows for the recent three and six-month periods Condensed Consolidated Balance Sheets As of June 30, 2025, total assets increased to $246.3 million, driven by new property and equipment, while cash and cash equivalents decreased significantly | Balance Sheet Highlights (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,610 | $23,675 | | Property and equipment, net | $63,978 | $52,639 | | Operating lease assets | $142,025 | $131,542 | | Total assets | $246,327 | $240,415 | | Liabilities & Equity | | | | Total current liabilities | $37,880 | $41,069 | | Operating lease liabilities, net of current | $159,898 | $147,898 | | Total liabilities | $203,801 | $194,798 | | Total permanent equity | $41,026 | $44,117 | Condensed Consolidated Statements of Operations Revenue grew slightly in Q2 2025, but rising operating expenses led to a net loss of $1.7 million, reversing a prior-year profit | Income Statement Summary (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $55,041 | $53,860 | $112,377 | $104,620 | | Total costs and expenses | $56,921 | $52,247 | $116,433 | $102,899 | | (Loss) income from operations | ($1,880) | $1,613 | ($4,056) | $1,721 | | Net (loss) income | ($1,698) | $2,064 | ($3,662) | $5,761 | | Net (loss) income per share (diluted) | ($0.05) | $0.06 | ($0.11) | $0.17 | Condensed Consolidated Statements of Cash Flows For the first half of 2025, significant cash usage in investing activities for expansion led to a net decrease in cash of $14.1 million | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,480 | $9,070 | | Net cash used in investing activities | ($16,467) | ($11,383) | | Net cash used in financing activities | ($3,228) | ($1,089) | | Net change in cash and cash equivalents | ($14,065) | ($3,402) | | Cash and cash equivalents at end of period | $9,610 | $29,229 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's expansion to 50 restaurants, significant supplier concentration, and total lease and TRA liabilities - The company expanded to 50 restaurants in operation as of June 30, 2025, up from 43 at the end of 2024, with six new leases signed in Q2 2025[26] - The company has a significant concentration risk with its food supplier, Sysco, which accounted for 71.8% of total food costs for the six months ended June 30, 2025[44] - Total operating lease liabilities amounted to $166.2 million as of June 30, 2025, with a weighted-average remaining lease term of 15.3 years[104][106] - The liability related to the Tax Receivable Agreement (TRA) increased to $1.1 million as of June 30, 2025, from $691 thousand at the end of 2024[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth from new stores offset by declining comparable sales and rising costs, leading to a net loss and reduced liquidity Business Trends and Overview The company is focused on aggressive expansion, opening seven new restaurants in the first half of 2025 with seven more under development - The company has grown to 52 company-owned restaurants across 12 states and South Korea[144] - In the first half of 2025, seven new restaurants were opened, with an additional seven under development for completion by year-end[146] Key Performance Indicators Key performance indicators showed negative trends, with declines in Average Unit Volume, revenue per square foot, and comparable restaurant sales | Key Metrics | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :--- | :--- | :--- | | Average Unit Volume (in thousands) | $5,342 | $5,706 | | Revenue per square foot | $797 | $841 | | Comparable Restaurant Sales Change | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Change (%) | (7.2)% | (4.4)% | | Comparable restaurant base | 36 | 36 | Results of Operations Revenue growth from new stores was outpaced by rising operating and administrative expenses, resulting in an operating loss of $4.1 million for H1 2025 - Q2 2025 revenue increased 2.2% YoY, primarily due to operating 50 restaurants versus 40 in the prior year[179] - Q2 2025 food costs rose 5.2% YoY, increasing as a percentage of revenue to 33.8% from 32.9% due to inflation and more restaurants[180] - General and administrative expenses for H1 2025 increased by 31.3% to $12.8 million, driven by marketing and personnel costs for expansion[197] Non-GAAP Financial Measures Non-GAAP metrics like Adjusted EBITDA and Restaurant-Level Adjusted EBITDA showed significant year-over-year declines in both absolute value and margin percentage | Reconciliation to Adjusted EBITDA (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net (loss) income | ($1,698) | $2,064 | | EBITDA | $376 | $3,548 | | Adjusted EBITDA | $1,854 | $4,875 | | Adjusted EBITDA Margin | 3.4% | 9.1% | | Reconciliation to Restaurant-Level Adjusted EBITDA (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | (Loss) income from Operations | ($1,880) | $1,613 | | Restaurant-Level Adjusted EBITDA | $8,958 | $10,243 | | Restaurant-Level Adjusted EBITDA Margin | 16.3% | 19.0% | Liquidity and Capital Resources The company's cash position declined to $9.6 million due to $16.4 million in capital expenditures for new restaurants, resulting in a working capital deficit - Cash and cash equivalents decreased to $9.6 million as of June 30, 2025, from $23.7 million at December 31, 2024[209] - Net cash used in investing activities for H1 2025 was $16.4 million, reflecting the purchase of property and equipment for expansion[221] - In May 2025, the Board declared a $0.03 per share dividend, which was paid in June 2025 for a total of $988 thousand[216] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity price volatility, broad inflation impacting costs, and interest rate changes on its variable-rate debt - Profitability is dependent on reacting to changes in food and beverage costs, which are affected by exchange rates, tariffs, and commodity prices[236] - Inflation impacts food, labor, and energy costs, and the ability to mitigate this through price increases may be limited[237][238] - The company is exposed to interest rate risk through its line of credit and a $2.0 million loan, both with variable interest rates[239] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls during the quarter - Based on an evaluation, management concluded that disclosure controls and procedures were effective as of June 30, 2025[241] - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2025[242] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal claims, including several lawsuits from ex-employees, none of which are expected to be materially adverse - The company is a party to several lawsuits brought by ex-employees in Los Angeles County, California, alleging labor law violations[113] - Management does not expect the outcome of current legal proceedings to have a material impact on the company's financial statements[113][245] Item 1A. Risk Factors There have been no material changes to previously disclosed risk factors, except for the removal of the risk related to not paying dividends - The risk factor stating the company does not intend to pay dividends has been deleted, reflecting the recent dividend declaration[246] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period - Not Applicable[247] Item 5. Other Information No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the most recent fiscal quarter - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the quarter[250] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including required CEO and CFO certifications and Inline XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[253]