GEN Restaurant Group, Inc.

Good day, and welcome to the GenRestaurant Group, Inc. Third Quarter 2024 Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Tom Kroll. Please go ahead, sir.

Thank you, operator, and good afternoon. By now, everyone should have access to our third quarter 2024 earnings release. If not, it can be found at www.genkoreanbbq.com in the investor relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements within the meaning of federal security laws, including but not limited to statements regarding how growth plans and potential new store openings, as well as those types of statements identified in our quarterly report on Form 10-Q for the period ended September 30th, 2024, and our subsequent reports filed with the FTC. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements represent our views only as of the date of this call and are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect. We refer you to our recent SEC filings, including our quarterly report on Form 10Q for a more detailed discussion of the risk that could impact our future operating results and financial condition. Except as required by law, we undertake no obligation to update or revise these forward-looking statements in light of new information or future events. During today's call, we will discuss some non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings press release and our SEC filing. which are available in the investor relations section of our website. Now, I'd like to turn it over to our board chair and co-CEO, David Kim.

Thank you, Tom, and good afternoon, everyone. The third quarter marked another period of successful execution as we continued to provide exceptional value and taste to our customers. While expanding our footprint to 43 locations nationwide, and preparing to open a large slate of new locations before year end. Overall, we delivered total revenue of 49.1 million for the third quarter, nearly an 8% increase year over year, driven by success of our newer restaurants. We also delivered 0.2 million in net income or 0.01 of diluted earnings per share, and 0.9 million in adjusted net income, or 0.03 of adjusted diluted earnings per share, while estimates had us losing money for the quarter. We opened one restaurant in the third quarter and opened two restaurants in October. We have been very surprised at how well these three openings are doing. In fact, depending on how the holiday season goes, one of these new restaurants will be our number one restaurant in terms of revenue. Another one will be at the top five and the third will be on the top 10. We did not expect these restaurants to hit these levels. Furthermore, we achieved the restaurant level adjusted EBITDA margin slightly over 18%, meeting our expectations for the third quarter. With the steady profitability of our current stores, impressive revenue growth from our new locations, and our ongoing efforts to optimize costs, we're in a strong position to successfully execute our strategic initiatives for the remainder of the year and beyond. Historically, quarter three is a slower quarter across our restaurant industry as quarter four benefits from the holiday season. With that, our state store sales growth declined 9.6% year over year. Consumer environment remained mixed with ongoing inflationary pressures affecting discretionary spending. Additionally, our quarter was impacted by four hurricanes that caused temporary disruptions across several of our regions. extremely hot summer weather that we believe kept consumers at home more and we had some cannibalization in Texas and Hawaii with new restaurant openings this year. However, we have seen improvement in our October and November revenue. We are proactively working to increase our same store sales. We have been introducing training programs across our restaurants to drive premium menu sales, which we are measuring performance and starting to see improvements. We've also been working hard to drive additional drink sales, like the cocktail soju mixes. We're also testing a new concept called Gen Grills, which we go cook for our guests at their businesses or homes. Another test we're doing is participating in outdoor fairs in an effort to gain more sales regionally. Lastly, as I will continue further, we began a gift card program with Costco. As we mentioned previously, it's important to note that the focus of Jen's business model is on expanding our store count to capitalize on the growing demand for Korean barbecue. On a restaurant level, our model is expected to generate an average cash on cash return of 40% with a payback period of approximately two to two and a half years. Is it driven by an average of four to 5 million in annual unit volume and restaurant level adjusted EBITDA margin of 18% to 20%. The three new restaurants I mentioned earlier, are all substantially exceeding these average unit level economics by a lot. Transitioning to restaurant level expenses, cost of goods sold decreased by 50 basis points to 31.4% of total revenue compared to 31.9% in the year ago period. Payroll and benefit decreased by 120 basis points to 30.5% compared to 31.7 in the third quarter of last year. Our general and administrative expenses excluding stock-based compensation for the quarter were 9.1% of total revenue compared to 8% in the second quarter of 2024. The increases in line with our expectations reflecting investments in our team and infrastructure to support future growth, along with an increase in insurance costs as our footprint has grown. At this point, we're now investing in brand building through our incubator, which includes the gift card program with Costco, which we are also working on additional agreement with large big box retailers, international expansion, Asian food distribution channels, and GenGrills. Given this pipeline of activity, we have started a marketing department to push these initiatives forward. Next quarter, we'll give some updates to the initiatives from our brand building incubator projects. We remain focused on completing our goal of opening 10 to 11 new restaurants in 2024. while maintaining a restaurant level EBITDA margin of approximately 18%. We're well on our way to achieving this goal. Not only are we on track to hit our growth target for 2024, but we're also strongly positioned for even more growth in 2025. In fact, we have 17 additional locations lined up with leases signed or in the process of being signed. We also have 15 to 20 leases and negotiations, which should lead to having 75 to 80 total locations open by the end of 2026. We're seeing strong momentum in our expansion pipeline and remain highly confident in our ability to reach our long-term growth objectives. Now, I want to shift the focus of the call to one of our key incubator initiatives. This quarter, we launched Gen gift cards at Costco. Currently, the gift cards are available at 76 Costco locations, all within a five-mile radius of most of our restaurants across the U.S. The gift cards have been selling exceptionally well. In fact, our regional Costco representative have reported that we are far and away the best-selling gift card they have seen at these locations. The information we have obtained from the rollout of our Costco gift card program shows that our brand is much stronger than we thought. We're very proud of the initial success we've seen with this initiative, and we look forward to expanding our gift card offerings to additional retailers. We're currently in discussion with Sam's Club for implementations in possibly spring of next year. To conclude, consumers demand for the Gen Korean barbecue experience remains strong and our new stores are performing well above our expected per unit range. Our operational initiatives are gaining traction reinforcing our confidence in our ability to deliver consistent, strong and profitable results for our shareholders. Looking ahead, our promising pipeline of new restaurant openings and lease agreements underscore our commitment to expanding our footprint and reaching our growth targets. With a solid foundation, a profitable operating model, and a healthy balance sheet. We're poised for sustained success and dedicated to creating significant value for our shareholders in the years to come. Thank you for your continued support as we continue on this exciting journey. Now, we'd like to hand the call over to Tom for a deeper look at our third quarter financial performance.