GlobeNewswire Inc | Jul 14, 2020 04:05PM EDT

July 14, 2020

- Provides COVID-19 Update -

IRVINE, Calif., July 14, 2020 (GLOBE NEWSWIRE) -- Kura Sushi USA, Inc. (Kura Sushi or the Company) (NASDAQ: KRUS), a technology-enabled Japanese restaurant concept, today provided a COVID-19 business update and reported fiscal third quarter financial results for the period ended May 31, 2020.

COVID-19 Business Update

As previously announced, in conjunction with the impact of COVID-19 and state and local guidelines for public activities, the Company temporarily closed all 25 of its restaurants across five states as of March 18, 2020. While the Company began to re-open certain restaurants beginning on May 22, 2020, its restaurants were largely closed during the fiscal third quarter ended May 31, 2020.

Of the Companys 25 restaurants open prior to the COVID-19 related shutdown, 11 restaurants are currently operating at reduced indoor seating capacities, and 14 restaurants in California are currently offering takeout only after reclosing its indoor dining operations on July 1, 2020 due to new government restrictions.

In response to COVID-19, the Company has increased cleaning and sanitizing protocols at its restaurants. For its restaurant employees, the Company has implemented additional training and operating processes, increased handwashing procedures, provided face masks and gloves, and is requiring each employee to pass a health screening process, which includes a temperature check, before the start of each shift.

As of July 13, 2020, the Company has cash and cash equivalents of approximately $14 million and no debt. Additionally, the Company has not borrowed on the $20 million revolving line of credit established in April 2020 with Kura Sushi, Inc., a majority stockholder. As permitted under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), the Company recognized a $1.6 million employee retention credit during the fiscal third quarter ended May 31, 2020. Additionally, the Company assessed the realizability of its deferred tax assets and recorded a valuation allowance of $1.1 million during the fiscal third quarter ended May 31, 2020.

Hajime Uba, President and Chief Executive Officer of Kura Sushi, stated, We are excited to be serving our customers again and have successfully reopened all 25 restaurants in varying capacities. While the operating environment remains extremely fluid, we have taken the necessary steps advised by state and local guidelines to create a safe environment in our restaurants as the health and safety of our guests and team members will always remain a top priority. I am confident in our ability to navigate through this pandemic and remain excited about the long-term growth opportunities of our business.

Fiscal Third Quarter 2020 Highlights

-- Total sales were $2.8 million, a decrease of $14.1 million compared to the third quarter of 2019; -- Operating loss was $8.0 million, compared to operating income of $0.8 million in the third quarter of 2019; -- Net loss was $9.2 million, or ($1.10) per diluted share, compared to net income of $0.7 million, or $0.14 per diluted share, in the third quarter of 2019; -- Restaurant-level operating loss* was $5.3 million, compared to restaurant-level operating profit* of $3.5 million in the third quarter of 2019; and -- Adjusted EBITDA* was ($8.4) million, compared to $1.6 million in the third quarter of 2019.

* Restaurant-level operating profit (loss) and Adjusted EBITDA are non-GAAP measures and are defined below under Key Financial Definitions. Please see the reconciliation of non-GAAP measures accompanying this release. See also non-GAAP Financial Measures below.

Review of Fiscal Third Quarter 2020 Financial Results

As a result of the impact of COVID-19 and state and local guidelines for public activities, the Companys restaurants were largely closed during the fiscal third quarter ended May 31, 2020.

Total sales were $2.8 million and food and beverage costs were $1.1 million, representing a decrease of $14.1 million and $4.4 million, respectively, compared to the third quarter of 2019. These decreases were primarily due to the temporary restaurant closures, partially offset by the opening of four new restaurants subsequent to the third quarter of 2019.

Labor and related costs were $3.6 million, net of a $1.6 million employee retention credit recognized as permitted under the CARES Act. Excluding the impact of the retention credit, labor and related costs would have remained relatively flat compared to the third quarter of 2019 due to retaining certain restaurant employees during the temporary restaurant closures and the opening of four new restaurants subsequent to the third quarter of 2019.

Occupancy and related expenses were $1.6 million, representing an increase of $0.3 million compared to the third quarter of 2019. This increase was primarily a result of additional lease expense incurred with the opening of four new restaurants subsequent to the third quarter of 2019 and an increase in pre-opening lease expense.

General and administrative costs were $2.9 million, representing an increase of $1.2 million compared to the third quarter of 2019. This increase was primarily due to $0.7 million of public company related costs and $0.4 million in employee compensation related to additional headcount to support our growth in operations.

Operating loss was $8.0 million, compared to operating income of $0.8 million in third quarter of 2019.

Income tax expense was $1.2 million, including a $1.1 million valuation allowance on our deferred tax assets, compared to an expense of $71 thousand in the third quarter of 2019.

Net loss was $9.2 million, or ($1.10) per diluted share, compared to net income of $0.7 million, or $0.14 per diluted share, in the third quarter of 2019.

Restaurant-level operating loss* was $5.3 million, compared to restaurant-level operating profit* of $3.5 million in the third quarter of 2019.

Adjusted EBITDA* was ($8.4) million, compared to $1.6 million in the third quarter of 2019.

Restaurant Development

During the third quarter of fiscal year 2020, no new restaurants were opened. Five restaurants are currently under construction, including Fort Lee, NJ and Koreatown (Los Angeles), CA, both of which are nearly complete, although their opening dates will depend on the COVID-19 situation in their respective areas.

Conference Call

A conference call and webcast to discuss Kura Sushis financial results is scheduled for 4:30 p.m. ET today. Hosting the conference call and webcast will be Hajime Jimmy Uba, President and Chief Executive Officer; Koji Shinohara, Chief Financial Officer; and Benjamin Porten, Investor Relations Manager.

Interested parties may listen to the conference call via telephone by dialing 201-689-8471. A telephone replay will be available shortly after the call has concluded and can be accessed by dialing 412-317-6671; the passcode is 13706498. The replay will be available until Tuesday, July 21, 2020. The webcast will be available at www.kurasushi.com under the investor relations section and will be archived on the site shortly after the call has concluded.

About Kura Sushi USA, Inc.

Kura Sushi USA, Inc. is a technology-enabled Japanese restaurant concept with 25 locations in five states. The Company offers guests a distinctive dining experience built on authentic Japanese cuisine and an engaging revolving sushi service model. Kura Sushi USA, Inc. was established in 2008 as a subsidiary of Kura Sushi, Inc., a Japan-based revolving sushi chain with over 450 restaurants and 35 years of brand history. For more information, please visit www.kurasushi.com.

Key Financial Definitions

Restaurant-level Operating Profit (Loss), a non-GAAP measure, is defined as operating income (loss) 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 and 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 restaurant-level operating profit (loss) divided by sales.

EBITDA, a non-GAAP measure, is defined as net income (loss) before interest, income taxes and depreciation and amortization.

Adjusted EBITDA, a non-GAAP measure, is defined as EBITDA plus stock-based compensation expense, non-cash lease expense, asset disposals, closure costs and restaurant impairments, as well as certain items that the Company believes are not indicative of its core operating results. Adjusted EBITDA margin is defined as adjusted EBITDA divided by sales. Effective May 31, 2020, the Company no longer excludes pre-opening lease expense and pre-opening costs from its computation of Adjusted EBITDA. Adjusted EBITDA for the three and nine months ended May 31, 2019 has been restated to conform to the current period computation methodology.

Comparable Restaurant Sales Growth refers to the change in year-over-year sales for the comparable restaurant base. The Company include restaurants in the comparable restaurant base that have been in operation for at least 18 months prior to the start of the accounting period presented, including those temporarily closed for renovations during the year. For restaurants that were temporarily closed for renovations during the year, the Company makes fractional adjustments to sales such that sales are annualized in the associated period. Growth in comparable restaurant sales represents the percent change in sales from the same period in the prior year for the comparable restaurant base. The Company did not make any adjustments for the temporary restaurant closures due to COVID-19 during three and nine months ended May 31, 2020.

Non-GAAP Financial Measures

To supplement the condensed financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), certain financial measures, such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, restaurant-level operating profit and restaurant-level operating profit margin (Non-GAAP measures) are not recognized under GAAP. These Non-GAAP measures are intended as supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP. The Company is presenting these Non-GAAP measures because the Company believes that they 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. Additionally, the Company presents restaurant-level operating profit because it excludes the impact of general and administrative expenses which are not incurred at the restaurant-level. The Company also uses restaurant-level operating profit to measure operating performance and returns from opening new restaurants.

The Company believes that the use of these Non-GAAP measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Companys financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. 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, you should be aware when evaluating these Non-GAAP measures that in the future the Company may incur expenses similar to those excluded when calculating these measures. The Companys 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 these Non-GAAP measures may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate these Non-GAAP measures in the same fashion. Because of these limitations, these Non-GAAP measures should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. The Company compensates for these limitations by relying primarily on our GAAP results and using these Non-GAAP measures on a supplemental basis.

Forward-Looking Statements

Except for historical information contained herein, the statements in this press release or otherwise made by our management in connection with the subject matter of this press release are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and involve risks and uncertainties and are subject to change based on various important factors. This press release includes forward-looking statements that are based on managements current estimates or expectations of future events or future results. These statements are not historical in nature and can generally be identified by such words as target, may, might, will, objective, intend, should, could, can, would, expect, believe, design, estimate, continue, predict, potential, plan, anticipate or the negative of these terms, and similar expressions. Managements expectations and assumptions regarding future results are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements included in this press release. These risks and uncertainties include but are not limited to: risks related to the COVID-19 outbreak; our ability to successfully maintain increases in our comparable restaurant sales; our ability to successfully execute our growth strategy and open new restaurants that are profitable; our ability to expand in existing and new markets; our projected growth in the number of our restaurants; macroeconomic conditions and other economic factors; our ability to compete with many other restaurants; our reliance on vendors, suppliers and distributors, including our parent company Kura Sushi, Inc.; concerns regarding food safety and foodborne illness; changes in consumer preferences and the level of acceptance of our restaurant concept in new markets; minimum wage increases and mandated employee benefits that could cause a significant increase in our labor costs; the failure of our automated equipment or information technology systems or the breach of our network security; the loss of key members of our management team; the impact of governmental laws and regulations; volatility in the price of our common stock; and other risks and uncertainties as described in our filings with the Securities and Exchange Commission (SEC). These and other factors that could cause results to differ materially from those described in the forward-looking statements contained in this press release can be found in the Companys other filings with the SEC. Undue reliance should not be placed on forward-looking statements, which are only current as of the date they are made. The Company assumes no obligation to update or revise its forward-looking statements, except as may be required by applicable law.

Investor Relations Contact:Ron Viener or Fitzhugh Taylor(657) 333-4010investor@kurausa.com

Kura Sushi USA, Inc.Condensed Statements of Operations(in thousands, except per share amounts; unaudited)

Three Months Ended May Nine Months Ended May 31, 31, 2020 2019 2020 2019 Sales $ 2,812 $ 16,955 $ 39,640 $ 45,492 Restaurant operating costs:Food and beverage costs 1,069 5,509 12,868 14,880 Labor and related costs 3,551 5,279 15,336 14,286 Occupancy and related 1,589 1,297 4,665 3,292 expensesDepreciation and 743 517 2,118 1,457 amortization expensesOther costs 964 1,756 5,221 5,102 Total restaurant operating 7,916 14,358 40,208 39,017 costsGeneral and administrative 2,885 1,734 8,994 5,699 expensesDepreciation and 39 29 97 80 amortization expensesTotal operating expenses 10,840 16,121 49,299 44,796 Operating income (loss) (8,028 ) 834 (9,659 ) 696 Other expense (income): Interest expense 36 45 103 126 Interest income (65 ) (1 ) (432 ) (11 )Income (loss) before (7,999 ) 790 (9,330 ) 581 income taxesIncome tax expense 1,153 71 1,179 41 (benefit)Net income (loss) $ (9,152 ) $ 719 $ (10,509 ) $ 540 Net income (loss) perClass A and Class B common shareBasic $ (1.10 ) $ 0.14 $ (1.26 ) $ 0.11 Diluted $ (1.10 ) $ 0.14 $ (1.26 ) $ 0.10 Weighted average Class Aand Class B shares outstandingBasic 8,341 5,000 8,337 5,000 Diluted 8,341 5,171 8,337 5,151



Kura Sushi USA, IncSelected Balance Sheet Data and Selected Operating Data(in thousands; except restaurants and percentages; unaudited)

May 31, 2020 August31, 2019 Selected Balance Sheet Data: Cash and cash equivalents $ 17,030 $ 38,044 Total assets^(1) $ 113,831 $ 76,410 Total liabilities^(1) $ 61,549 $ 14,229 Total stockholders? equity $ 52,282 $ 62,181



^(1)In fiscal first quarter 2020, the Company adopted Accounting StandardsCodification 842, ?Leases?, resulting in the recognition of operating leaseright-of-use assets of $37 million and operating lease liabilities of $40million in the condensed balance sheet.

Three Months Ended May Nine Months Ended May 31, 31, 2020 2019 2020 2019 Selected Operating Data:Restaurants at the 25 21 25 21 end of periodComparablerestaurant sales (85.4 )% 7.6 % (24.5 )% 5.8 %growthEBITDA $ (7,246 ) $ 1,380 $ (7,444 ) $ 2,233 Adjusted EBITDA $ (8,438 ) $ 1,644 $ (8,045 ) $ 3,034 Adjusted EBITDA (300.1 )% 9.7 % (20.3 )% 6.7 %marginOperating income $ (8,028 ) $ 834 $ (9,659 ) $ 696 (loss)Operating profit (285.5 )% 4.9 % (24.4 )% 1.5 %marginRestaurant-leveloperating profit $ (5,345 ) $ 3,467 $ 1,597 $ 8,890 (loss)Restaurant-leveloperating profit (190.1 )% 20.4 % 4.0 % 19.5 %margin

Kura Sushi USA, IncReconciliation of GAAP Net Income (Loss) to EBITDA and Adjusted EBITDA(in thousands; unaudited)

Three Months Ended Nine Months Ended May May 31, 31, 2020 2019^ 2020 2019^ (1) (1)Net income (loss) $ (9,152 ) $ 719 $ (10,509 ) $ 540 Interest (income) expense, net (29 ) 44 (329 ) 115 Taxes 1,153 71 1,179 41 Depreciation and amortization 782 546 2,215 1,537 EBITDA (7,246 ) 1,380 (7,444 ) 2,233 Stock-based compensation 248 155 580 476 expense^(2)Non-cash lease expense^(5) 140 109 399 325 Employee retention credit^(6) (1,580 ) ? (1,580 ) ? Adjusted EBITDA $ (8,438 ) $ 1,644 $ (8,045 ) $ 3,034



Kura Sushi USA, IncReconciliation of GAAP Operating Income (Loss) to Restaurant-level Operating Profit (Loss)(in thousands; unaudited)

Three Months Ended Nine Months Ended May 31, May 31, 2020 2019 2020 2019 Operating income (loss) $ (8,028 ) $ 834 $ (9,659 ) $ 696 Depreciation and amortization 782 546 2,215 1,537 Stock-based compensation expense^(2) 248 155 580 476 Pre-opening lease expense^(3) 290 156 719 419 Pre-opening costs^(4) 177 71 581 152 Non-cash lease expense^(5) 140 109 399 325 Employee retention credit^(6) (1,580 ) ? (1,580 ) ? General and administrative expenses 2,885 1,734 8,994 5,699 Corporate-level stock-basedcompensation and pre-opening costs (259 ) (138 ) (652 ) (414 )included in General andadministrative expensesRestaurant-level operating profit $ (5,345 ) $ 3,467 $ 1,597 $ 8,890 (loss)



^(1) Effective May 31, 2020, the Company no longer excludes pre-opening leaseexpense and pre-opening costs from its computation of Adjusted EBITDA.Adjusted EBITDA for the three and nine months ended May 31, 2019 has beenrestated to conform to the current period computation methodology.^(2) Stock-based compensation expense includes non-cash stock-basedcompensation, which is comprised of restaurant-level stock-based compensationincluded in other costs in the statements of operations and of corporate-levelstock-based compensation included in general and administrative expenses in thestatements of operations.^(3) Pre-opening lease expense includes lease expenses incurred between date ofpossession and opening date of our restaurants.^(4) Pre-opening costs consist of labor costs and travel expenses for newemployees and trainers during the training period, recruitment fees, legal feesand other related pre-opening costs.^(5)Non-cash lease expense includes lease expense after the opening date ofour restaurants that did not require cash outlay in the respective periods.^(6) Refundable credit against certain employment taxes as permitted under theCARES Act.