Ark Restaurants Corp (ARKR) 2020 Q2 法說會逐字稿

Greetings, and welcome to the Ark Restaurants Second Quarter 2020 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Sonal Shah, General Counsel. Thank you. You may begin.

Thank you, operator. Good afternoon, and thank you for joining us on our conference call for the second fiscal quarter ended March 28, 2020. 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; Vinny Pascal, our Chief Operating Officer; and Anthony Sirica, our Chief Financial Officer.

For those of you who have yet to obtain a copy of our press release, it was issued over the Newswires yesterday and is available on our website. To review the full text of that press release, along with the 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 afternoon 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. I assume you've all seen the earnings release, so let me try to explain our business right now. Whatever we reported in the past is essentially not useful, other than to say that the properties we had were, prior to the pandemic, doing very well. We thought we would have a $16 million EBITDA for the year, the way we were going. These properties were strong properties. They'll be strong again at some point. But given that the pandemic closed us everywhere, we've been slowly opening where we were allowed to open. And fortunately, the first places we opened were in the south, Florida and Alabama. We initially opened 6 restaurants in a short period of time about 5 weeks ago, I guess, and those restaurants are doing quite well. They're obviously down from -- because of social distancing and 50% capacities, their volumes are down from the same time last year. However, because of, in some cases, limiting the menus and certainly, in every case, reconfiguring payroll and schedules, they're operating more efficiently. And in some cases, the cash flow coming from the restaurants is the same as in the prior period last year. So those 6 restaurants were very solid right from the beginning. If there were early losses in any restaurants, they were minor. But as of the last flash cash reports on those 6 restaurants, which was last week, they were all profitable.

About 10 days ago, we opened Las Vegas. The first week, we essentially broke even with cash flow. We haven't seen last week's P&L yet, but I anticipate that there would be some positive cash flow from that. So those southern restaurants in Las Vegas have been better than we anticipated when we opened them up. I mean there was fear in opening them up. We had no idea how they would do. We opened Washington a few days ago, in Sequoia. We haven't opened the Union Station yet. We're -- it's too early to tell how that's doing. We have the advantage of having a lot of outdoor seats. I think we have 307 outdoor seats after social distancing. I think as of -- in the next couple of days, we'll be able to also -- allowed by the city to sit people inside. I don't know how that's going to do.

We opened Bryant Park yesterday in New York. We opened El Rio Grande today in New York. Both of those have outside seats. We're only allowed to sit outside in New York. Clyde's and Robert and Museum of Art and Design will not open until we're -- well, Clyde's, once we're allowed to open inside, we'll open. Robert won't open until probably mid-September because the museum that we're in is closed, and museums in New York are going to be the last phase, and probably none of the museums are going to open until sometime September.

So we have this staged opening that so far is going well, before we count New York. Again, we have no idea what's going to happen in New York. We just have no way to validate anything. To say that this is fraught with potential peril is an understatement. Obviously, we're open. The caseloads in Washington -- excuse me, in Florida, Alabama and in Las Vegas are climbing. I know there's every intent upon government to keep these places open. But if we have cases in our restaurants and it becomes obvious that we're endangering our employees or our customers by remaining open, we're probably going to be faced with a decision that I see every business in the United States faced with. Do you close? Do you close until you can get everybody tested so that you have only people who tested negative in the restaurants? We can control the atmosphere in the restaurants. We can control, for the most part, our employees, and we're certainly following CDC guidelines, plus we're doing more than that. What we can't control is where our customers have been and where our employees have been when they're not working. We sent out notices to all our employees that it's their responsibility to be considerate to their fellow employees and to their customers and wear mask and practice social distancing, avoid crowds when they're not in the restaurants to improve the odds. But obviously, I'm sure all of you are very cognizant that this is not the -- not -- there is no assurance that we can keep virus out of our restaurants. But right now, it's all going well.

We did take PPP money for our restaurants. It was cheap money to take. Honestly, I thought, when we went into this, that we would have enough money to see us through without PPP money. The PPP money was very helpful. One of the things we face in terms of the negative is places like Sequoia, Bryant Park, Robert, do a lot of events. Well, we're not doing events right now. And we had $4 million on deposit for Christmas events, and we're trying to reschedule people and encourage them to keep the deposits for another date. We're somewhat successful, but there are deposits flowing out of here as well. So our cash flow -- or our cash on hand, in part, was bolstered by the float of deposits and by the float of being in business, where customers pay us the day they get served and we pay bills 15 to 30 days later. Those 2 advantages disappeared the minute we closed out, so the PPP money was of great assistance.

That's about all I have to say right now. I'm happy to take questions.

(Operator Instructions) Our first questions come from the line of Anthony Chiarenza.

Can you comment a little bit about how well customers are following the protocols and wearing masks? Because I've had heard stories here in New York that customers come in, they wear their mask and they take them off and then they start walking around all over the place in the restaurant. I know it's difficult for you to enforce, but how have you seen the customer in terms of complying with what they should be doing once they are in the restaurant?

All right. So we're -- personally, we're not traveling to Florida or Alabama or Las Vegas right now, so we're relying on our general managers. Obviously, in the Hard Rock casinos and in New York, New York Hotel & Casino, we're not in control of that, the casinos are in control of it. When you get into our restaurants, we're in control and we're enforcing it. Obviously, people can't drink or eat with mask on. But for the most part, we are being told by our managers that most people are wearing masks.

In Florida, you have a big problem in general with what's going on in Miami. We're not in Miami, we're in Broward County. Palm Beach County is reckless, we're told. One of the problems we have is our restaurant JVs in Deerfield Beach has a restaurant next to it. We're not allowing people to sit at the bar, we're following all the guidelines, social spacing. The restaurant next door has a bar that's 4 people deep. Nobody is wearing mask. There's no social distancing. And that puts us in jeopardy because their property abuts our property. It's -- so we're trying to enforce everything. It's awkward to go to a customer and tell them what proper behavior is, but we're doing it. We're also doing something that most restaurants, I'm told, are not doing. When you come to our restaurants, you have to give us your contact number. So in case we have an incident on a particular -- we can go back to the date you ate there and contact all of those people and say, we've had an incident here, you should be tested.

So we're being very careful. Unfortunately, other people are not. And I know in Miami now, they've been closing places where guidelines are not being followed, but the problem is those restaurants open 2 days later. So it's difficult. It's difficult. But I think, in our places, we are having a lot of success.

Good. That's good to hear. The taking down of the number is a great idea. That's an excellent idea. And I think everybody should do that because that's one of the best ways we can battle this thing is once we identify it, we can identify who have been in contact with people who had the virus and then we can trace it through. I know in New York City, we've had very good success doing that, and the mayor was talking about it just the other day. But…

Right. One of the other things, which is a nuance because you learn every day, we're now querying our staff, does anybody have an immunology problem? We don't want them working. We don't want them endangered. And so what's happened here is staff was on unemployment, we bring them back, we find out that somebody has an immunology problem, we don't want them to risk themselves. Nobody should have the -- because of the economics of their life, to make the decision that they have to go to work with an immunology problem because they need to make a living. So we're going to subsidize those people until they can get back on unemployment. You just got to be so aware of, again, the nuances of the situation. It's hard.

Yes. No, I can totally understand that, and you are in the minority in terms of enforcing and everything else or whatever in terms of the -- even in the initial phases here in New York, the stories that I've heard from different people, whatever, are just revolting. I mean, just people don't care and they just walk around, they take off their mask and they put a tremendous stress on the restaurant owner is what -- you have to fight with your customer or what are you going to do? It's a difficult situation.

Now on the cash flow side, and I know you don't know what's going to happen in New York and everything else, do you think you have enough cash to maintain yourself another 6 months, another year? Assuming things stay, let's say, to some degree of slight negative cash flow, we can't…

So I'm going to make a statement that would -- you have to take it at a period in time as of this date. As of this date, all right? And it could change dramatically, all right? We have enough cash flow coming out of the restaurants that have been operating 5 or 6 weeks to cover our corporate overhead, all right? And that does not include PPP money, all right? That can change rapidly depending upon what happens with the pandemic. We are at risk, but I don't want to sound like we're good guys, the top 4 people -- Anthony, you may chime in, but I think the top 4 people at our -- or the top 5…

Top 5, yes.

At the corporate office were salaried and bonus at $3 million last year. That number went down to $220,000 the minute we closed. Nobody in our business was allowed to make more than $50,000 a year. I mean we cut everybody. And every manager -- I mean we have managers like Paul Gordon in Las Vegas, who makes a lot of money, he went down to $50,000. Every manager -- we don't have a manager in our network that doesn't make less than $100,000 and some -- $100,000 and a fraction. Everybody went down to $50,000. Everybody else went down by 50%. So we were able to crush corporate overhead until we could get these restaurants open. Now we brought everybody back up to what, Anthony, 65%, 70%?

65%. Yes.

65%. Except me, all right? I'm less than 65%. But the restaurants are -- the minute they turn cash flow positive, which was immediately in the south, we brought everybody up from 70% gradually to where they're at 100% of their salary. So these cash flows are real in the sense that they're not being subsidized by people subsidizing us. So we're operating as if there was not a pandemic in terms of the economics of the salaries of the people in the restaurants. So these cash flows are real, and we have room to move them back down again because we're, quite honestly, very fortunate in the culture of the company and the managers who have been with us, every one of these managers, for the most part, except for the recent acquisitions in the last 3 or 4 years, were with us in 9/11, they were with us in 2008. This is the third time they're subsidizing the life of the business by taking salary cuts. They know that their life is tied to the success of this company. And the way their lives are going to get better always is to bet on the company. And by betting on the company, they've got to subsidize it, they were all prepared to do it. We did not hear 1 peep, not one. And as a matter of fact, if we didn't do it, they would have volunteered to do it.

That's great. That's great. You're in the minority, and it's great to hear. And it's great to be a shareholder and you're approaching it from the shareholder perspective, which is wonderful. I commend you.

Thank you. Thank you.

(Operator Instructions) There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Well, thank you for all attending this. We'll keep you advised. So far, things are going well. Again, there are risks out there. I don't know how to assess them, obviously. But so far, we're doing well. And I wish you all well and stay healthy, and we'll speak to you in 3 months. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.