Ark Restaurants Corp (ARKR) 2021 Q2 法說會逐字稿

Greetings, and welcome to Ark Restaurants' Second Quarter 2021 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn this conference over to your host, Ms. Sonal Shah, General Counsel. Thank you. You may begin.

(technical difficulty) 2021. My name is Sonal Shah, and I'm General Counsel of Ark Restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO; and Vinny Pascal, (technical difficulty). For those of you who have not yet obtained a copy of our press release, it was issued over the wires yesterday and is available on our website. To review the full text of that press release, along with associated financial tables, please go to our homepage at www.arkrestaurants.com.

Before we begin, however, I'd like to read the safe harbor statement. I need to remind everyone that part of our discussion this morning will include forward-looking statements and that these statements are not guarantees of future performance and therefore, undue reliance should not be placed on them. We refer everyone to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance and financial condition.

I'll now turn the call over to Michael.

Hi, everybody. First of all, I want to point out that Anthony Sirica, our CFO, is not on the call today. He is ill, not with COVID. It is not anything extreme. He'll get better in the next couple of days. But today, he was at his doctor's office, taking some tests. So he apologizes for not being here. I'll do the best I can with any financial questions that you may have during the Q&A. I would like to just make a statement related to how fortunate we are in our company to have had the cooperation of all our employees during a very, very difficult time.

These restaurants have been up and running for some time now. But during the shutdown and for a few months into the beginnings of reopening, most of our key employees have given up anywhere from 50% to 90% of their base pay to remain with us, and that was a big help in enabling us to get these operations open quickly, getting -- running smoothly. We are, as many companies, are complaining, trying to find good people to work. There is a shortage right now. But we are operating at very, very good smooth levels and seeing a lot of revenue come into these restaurants. And we're very happy with where we are now. A couple of things that I'm sort of [hassle] with, but Anthony would have been better at explaining it.

For the quarter, we showed a negative EBITDA after adjusting for the PPP loan forgiveness of $495,000. That means we removed from the EBITDA some $4 million plus of loan forgiveness. So that's -- this is truly an operating number. Has nothing to do with the PPP forgiveness. So it was negative $495,000 for the quarter. But in the quarter, we had 2 other adjustments, which we cannot include in EBITDA, but we increased our vacation pay accrual of $500,000 after discussions with our outside auditors. That's a noncash item, but shows as a noncash expense, which reduced EBITDA by that amount. And we also had $700,000 in lease adjustments because of new accounting rules regarding straight-lining leases.

So roughly, somewhere between $1.1 million and $1.2 million of additional noncash expenses. If they were to add it back to EBITDA, as an adjusted number, we would have been positive some $600,000 to $650,000 in cash flow for the quarter.

What we experienced during the quarter was a very bad January, very bad February. Somewhere towards the middle of the third week in February, we started to see a huge pickup in revenue in Las Vegas, Alabama and Florida. Those restaurants continue to do extremely well. Florida usually slows down right after Mother's Day. We -- it's too early to tell, but we're sort of confident that we're not going to see the usual slowdown that's typical.

For Southern Florida, there seems to be a lot more activities in the first few days post-Mother's Day. So we're very excited about that. We're doing well when the weather is good in Sequoia in Washington, D.C.. We have 600 outdoor seats. We've been under restrictions of 25% of indoor seating in Washington, D.C., that will probably go away in the next couple of weeks. We've also been under severe restrictions in New York and Washington, D.C. in what we're allowed to do in events. Events are very important to us at Robert in New York, Bryant Park and Sequoia.

We are seeing demand for events in Washington, D.C. And as the restrictions are relaxed, we think we'll see significant return of events volume. But we're doing well in Sequoia when the weather is nice, the weather is right -- nice right now. So we're seeing some of the cash flow numbers. New York is still a problem for us. Bryant Park sits in the middle of the city. There's 6 million square feet of office buildings facing us. The last survey done, they're only 9% occupied. There's very little tourism. There is no theater district, all of which Bryant Park relies on heavily.

So all volumes there have literally been during the early January, February before the weather got nice, those volumes were probably 10% of what we usually do. To give you an example, this past week, with the weather being somewhat nice on certain days, we did $200,000. That compares to a $600,000 a week last year. So those volumes are severely bad. Robert, at the top of the Museum of Art and Design, is also suffering. We're on the ninth floor. The museum has had scant visitorship. It relies on tourism. To the extent we rely on events there. There have been none. It's a 150-seat restaurant with social distancing. When we had 25% occupancy allowance, we had 35 seats. So both Robert and Bryant Park have suffered.

Rio Grande in New York is doing well. It has outdoor seating. Clyde's is not doing well. So New York remains the problem for us. But our cash flows, given the unexpected strong revenues in Florida, Las Vegas and Washington now, are really taking up the slack that would have been strong cash flows from New York.

Where our office G&A is down during the pandemic, we let go of certain positions. We're operating more efficiently on a payroll basis. We also have a better lease situation with our office. Our landlord is very generous to us there. We signed a new long-term lease that allowed a certain abatements from our old lease.

In the restaurants, in general, we're more efficient with payroll. Some of that has to do with the fact that we can't even fill certain jobs. But overall, I think the payrolls will continue to remain more efficient than they were in the past. So as volumes continue to extend upwards, I think cash flows and margins will be much better.

The -- we are seeing price inflation in certain commodities we use to our surprise, where we had thought we had no elasticity, especially at Rustic Inn, where shellfish prices have gone literally up 20%. We've been able to raise prices and get customer acceptance.

Rustic has seen record weeks -- a few week. Some of it has to do with price increase, which has been accepted, but it's -- it also has to do with what's going on in Southern Florida in pent-up demand. We've put price increases into about half of our restaurants. We have seen no pushback whatsoever. So that's the situation.

We expect a very strong third quarter. It remains to be seen how lifting of COVID restrictions influence our event business. But if our event business starts to come through, I think we'll do much, much better in New York and that's our situation.

On a balance sheet basis, we've -- as the press release indicated, we've converted some $4 million of the $15 million in PPP money that we applied and received. So far, about $4 million of that has been granted. When we're all done, about $13 million will be forgiven.

Our balance sheet right now looks like about -- with -- if all $13 million is forgiven, our balance sheet will probably have net debt at that time of something like $7 million to $8.5 million of net debt, meaning long-term debt, less cash. That's the best position we've been in a long time. The cash flow is very strong at this point as they should be during this period.

With that, let me take questions and see if I could be helpful.

(Operator Instructions) Our first question comes from the line of Jeffrey Kaminsky with JJK Consulting.

Michael, congratulations on continuing to come through at a difficult time. I've been on these calls for a lot of years now, as you know, and I've generally asked the question specific to some development, whether it'd be a Meadowlands or last year, the PPP situation.

My question today is more big picture. And this has been a transformational year. And I just was wondering, it looks like you closed a few properties. You lost a lease here and there. You've come through or we've come through a situation where outdoor seating is at a premium and maybe events less so.

Do you see going forward, Michael, any redirection or pivot to a different strategy for Ark? Or have you learned anything that might change the direction of the company, whether it'd be more emphasis on bar liquor and less emphasis on events? Just your thoughts on -- you've got plenty of time to think about things, given the trying year we've just come through. So I was curious if there's a strategy that may change going forward.

So the answer is, the strategy changed some time ago, and we pretty much staying the course, where we would be more inclined to buy properties with cash flow as opposed to building properties ourselves and taking that risk. The properties we've bought, 4 of which we own land underneath, another 1 in which -- JB's in Florida in which we are partnering with somebody who bought the land for us in a development. We just think owning the property, if we can, is a big advantage for us.

The -- and that's the situations we're looking for. These one-off restaurants where people are retiring or no longer have an appetite to continue in their business, if they're cash flow positive and if they have a long lease. For instance, Blue Moon has a 26-year lease. We can buy those properties at very attractive prices. It makes far more sense than building out ourselves. So that's the basic strategy.

We think those properties will continue to come up. We are one of the few buyers for those properties. The reason for that is we can offer an all-cash deal, where restaurants are generally bought locally for 30% down in some notes and people who are retiring don't generally want to deal with the notes. So we'll favor somebody that could do an all-cash deal.

We have a lot of confidence that we can buy these things and run them well. Everything that we've purchased so far Rustic, Shuckers, JB's on the Beach, Blue Moon, the 2 properties in Alabama, they're running at probably the best revenues in their history.

We retained management in all of those cases. The chefs have been retained. We have a great experience with them, but we're able to lend some knowledge to them that has helped them become more efficient. So -- and they're all ideally located on the water or in spectacularly important locations. So that's what we're really looking for.

You mentioned Meadowlands. We continue to be highly optimistic that we will get a casino license there. Right now, the Meadowlands post-pandemic -- to the extent with post-pandemic is cash flow positive. Throughout the whole period, we have been cash flow positive because of sports betting. So that was fortunate for us, like, New Jersey legalized sports betting. But the real payoff there will be a casino license, and we consistently think we're closer and closer. But closer and closer in maybe another 2 years. So we have a strategy that we're following. We're not looking to buy 15 restaurants a year. One or 2 good properties come up, we'll buy them and feel very comfortable that we can absorb them without extending our balance sheet.

Our next question comes from the line of Roger Lipton with Lipton Financial Services.

A simple question which is on everybody's mind, and I just thought I would ask. Are you giving any thought yet to the timing of dividend -- reinstituting the dividend?

So we have not had any discussions with the Board regarding that. There would be, I imagine, historically, the Board would like the -- first of all, the Board and I and Anthony are very concerned that our balance sheet remains very strong. Once all the loans of the $13 million to the $15 million that we think will be granted -- are granted, the balance sheet will be in a very strong position.

I think before we decide on a dividend, we would like to see where more -- we would like to be more satisfied that the world is safe. And so I think we're probably 6 months or a year away from knowing that. I mean, just taking a guess, I'm not an epidemiologist. But the -- so I think there will be a waiting period, even if we can afford comfortably to issue a dividend to get back to that.

The only argument against that because, historically, we want to do that. The only strong argument against that is what can we do with the money? I mean, we've had spectacular results behind these properties. The recent acquisition of Blue Moon with something like $1.7 million down and another $1 million in notes over 4 years, I think Blue Moon earns $1 million the first year of 12 months we have it. Now some of that has to do with pent-up demand from the pandemic, and we're seeing that demand flow into the restaurant.

But Rustic, we bought it for $7.5 million, including the land, when it was making $1.5 million. Pre-pandemic, we were making $3.4 million. These returns are outsized. If we can continue to find these things, maybe we don't want to be so aggressive in reinstituting a dividend if we have a better use for the money, we'll see. But we're 6 months to a year away from making that decision, I would think, Roger.

Okay. The -- for where It's worth, you probably -- you may realize. Bloomberg predicts that it might go back. I mean how they put this prediction together, I have no idea. That...

They didn't talk to me.

Yes, they're predicting in December -- in September that -- September 8, it will reach to $0.12. The only thing I would suggest in your contemplation, and you've thought about this is that, while the stock -- the stock doesn't begin to reflect the value of the company in terms of your various properties. So -- and who knows when the stock will more accurately reflect what you've created over the last 30 years or so. So while we're all waiting for the monetization of the various properties, it doesn't hurt. And you could also -- for a compelling deal, you can always borrow $5 million or $10 million, obviously. So that you could still pay a dividend. So -- because interest rates are low and will remain low. So there is that trade-off. But you've thought about all that. I'm just -- I would -- as a shareholder, I would kind of like to get some sort of a cash return while I'm waiting for the stock to do what and what to do. So...

Okay.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Michael Weinstein for closing remarks.

Thank you all for participating. I'll speak to you next quarter, and stay well.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.