Q3 2020 Ark Restaurants Corp Earnings Call
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Thank you operator, good morning, and thank you for joining us on our conference call for the third.
At quarter end of June 27, 2020, My name is sold all Shaw and I'm General Counsel Ark restaurants with me on the call today, It's Michael Weinstein, our chairman and CEO and Anthony's to recover our Chief Financial Officer.
Vinny Pascal our Chief operating officer.
For those of you have not yet obtained a copy of our press release. It was issued over the newswires yesterday and is available on our website <unk>.
To review the full text of that press release, along with the associated financial tables. Please go to our homepage at Www Dot Ark restaurants Dot com.
Before we begin however, I'd like to read the Safe Harbor statement.
Need to remind everyone that part of our discussion. This morning liquids forward looking statements and up 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 more detailed discussion of the rest that may have a direct bearing on our operating results performance and financial condition.
Now turn the call overcome Michael.
Hi, everybody, so I'm going to call on Anthony first too.
Explain what expenses were incurred in the June quarter.
During.
The absence of any operations at the restaurants by government closure. So Anthony why don't you give us an explanation.
Right. So obviously the June quarter, a bunch of all restaurants were either close for the entire corridor summer still close as well as some as noted in the press release opened up at various times during the quarter show, we have gone through our tiered elds and identified cost.
So situated with.
Payroll and occupancy expenses.
The restaurants from the closure date.
Or the beginning of the quarter, which would be March 20 like through these are the date they opened or through the ended the quarter. If they haven't opened yet and that amounts to about approximately $2.3 million of costs related to payroll rents and inventory write offs and things of that nature.
That we would not have incurred we made the election to keep certain people what the restaurants on the payroll.
That would do salaries, while the properties were close so we would be in a good position to reopen them quickly when we got the all the work from various state and local governments with that we did open a number of properties during the quarter.
You can see in the release.
We opened.
Our restaurants in Florida as well.
The good Shockers and Jbs opened in mid May food courts at Tampa Hollywood opened in early June.
Our operations at the New York, New York Resort and Casino in Vegas opened in lead the second week of Joan.
She call your property in Washington, D.C. opens in early June.
And our Bryant Park, and Rio Grande properties in New York opened in late June on around June 23rd a 24.
Do you Michael.
Yeah, and Alabama open sometime in May as well, Yeah, Alabama opened in mid May as well.
No doubt in the 2.3 million, we have not included any corporate.
<unk> expenses or salaries for the continuing.
Corporate employees, although they reduced levels because you felt those are somewhat fixed.
Correct. So.
The operations of these restaurants.
Some of them one smoothly someone did not go smoothly or two of our restaurants were close for a period of time after they open because they had koby cases.
Its somewhat confusing.
[music].
With the local health departments, what the protocols are they had not been well established a we felt if we had more than one or two called the cases in a restaurant that we had to close then get everybody tested.
Continue testing until we had enough people with negative.
Right.
Results to to reopen.
So shuckers during this period of time without it was close for I think a period of eight or nine days.
Called choice was close for.
Probably five or six days why that process took place.
Well all of these restaurants are subject to.
The virus and what will happen if we experience fires cases.
In any one of them and how we feel it's appropriate to handle those those situations.
Going around the country venue by venue.
Vegas has.
I didn't breakeven to.
Cash flow positive.
And all the week said its operated.
It has recently been affected and you know the sales have.
Decline as California experienced the spiking cases.
Lot of Vegas businesses driving from California.
Tells are also experiencing cases.
So yes, it's is in general a problem or volume at New York, New York, but but so far we managed to be on the whole cash flow positive, Alabama husband cash flow positive despite spike closing Gulf shores, which is the bigger generate.
To recap slow in Alabama, the two that we haven't California in Alabama.
Florida in general has been on the whole cash flow positive jbs has been.
Yeah, so negative from the first day Hi, that's.
Tends to have an older crowd and what the spikes.
In Florida, I think the you know our customer base is more wary.
Then they are another restaurants strangely enough the casinos the too hard rock casinos in Hollywood in Tampa are doing quite well in volume has been building every week you know.
It's sort of goes against what we initially thought we would have thought the casinos.
Not do as well as they're doing we would've thought jbs with its location on the beach in Deerfield Beach in.
Lots of outdoor tables, and spectacular views and you know on restaurant that used to.
And pride pandemic show up $2 million in cash flow at an annual rate, we would've thought that would have done well. It is not and I guess it has to do more with that as I said our customer base.
In Washington, D.C. Sequoia is is doing by you know a decent amount of volume because of its.
600 outdoor seats on the atomic River. So it's been an attraction we have a new menu in there that we put in.
Hi has actually opened that seems to.
Have gotten traction and but again without advance a loud and within door dining.
Oh limited or no without the help of the landlord it it's impossible be cash flow positive.
We think we're getting that help from the landlord, although it's the.
You know.
[laughter] best it'll help us breakeven on cash flow that deal has not been finalized any deal we have with any landlord throughout the country has is sort of on a temporary basis through December because we can't predict with the world's going to be beyond that.
If if we can predict that even to December.
Bryant Park, and Oh real Grand both our restaurants in New York, which have outdoor seating capacity.
We are losing cash flow on both of them.
We want to be open the cash flow loss in Rio Grande is moderate.
The cash flow loss and Bryant Park. Despite the number outdoor seats. We had has has been a significant we want to be open because.
We want to be a good citizen of the park and and the Park is street is very well.
But.
It's it's difficult to open a restaurant of that size went in and full Bloom and has a thousand seats. You just can't opened it with one or two people in the kitchen and a couple of people.
Servicing customers so tables it it takes a lot of payroll to just get it open utility costs, they're high just to get it open.
They cannot make money again, we want to be open because it's the right thing to do for for a landlord.
All in all a there is cash flow prior to corporate overhead misspelled positive cash flow part of corporate overhead.
Hi, corporate overhead I guess I, Anthony could tell me, but we're [laughter], where when when we when the restaurants will close so nobody in the company was allowed to make more than $50000 at an annual rate.
Once we got some cash flow and demonstrate to ourselves.
There would be cash flow from restaurants to help mitigate corporate payroll, we we increased everybody to roughly 65% of what they used to make hum the exceptional making less than that.
The as a percentage.
Weve worked hard on corporate.
Expenses.
Our health insurance cost.
We were able to renew at a lower or rate and ER that'll save a significant money over and over the year.
We switch carriers are a benefit package actually improved the.
The network is.
More robust. So we think we managed to do a good thing at a lower cost. We're just looking at everything we can look at Oh, we will not make money in the December quarter.
You know if anything it will negatively impact.
Amount of cash we have on a balance sheet because we have deposits for people that are planning Christmas parties. At you know that's not going to happen eventually going to be limited to is a small number of people if they're allowed at all.
Indoor seating in New York will be.
The minimis to what our capacities could be a social distancing Oh will limit the number seats. We can have any of our New York restaurants.
We're not opening clients because we have no outdoor seating indoor seating in New York is not allowed the same thing with Robert at the museum of Art and design and the museums close we expect those restaurants to open up in mid September, but again with reduced seating.
Hi, Anthony why didn't you explain the value a lack of value P.P.P. money.
Right.
Right, So we applied for and receive approximately $15 million.
They checked protection program loans under the cares Act.
I would say two thirds of that money came in.
On April Thirtyth or may 1st and the balance of the money came in between mid May.
Right the way the card regs are when you have 24 weeks from the date you received the money to spend the money. So for instance in a situation like Robert clients, where we received the money on maybe first on the restaurants aren't even open yet and we don't even know they'll get opened by the time that's why.
Four weeks expires, so at that point, we have to make the business decision.
If the rules are not changed as to whether we returned the body.
Or keep the money at a 1% two year.
Loan, but that we would have to discuss it so that's what our banks.
Because you know we have certainly when the capacity with them.
I want to you don't maintain so that is the difficulty with with many of these loans where either the restaurants. The properties are open and we cannot spend the money.
There are open the situation like Bryant Park and the the revenues so low that we can't even incurred the payroll to get it above 60%, which is the requirements of forgiveness in order to be able to have them all and forgiven. So got another situation right are we.
Were you know the rents the base rents, which were talking to the landlord about what is the current base rents, we would never be able to spend.
60% of the money on payroll to offset the base rent in order to have them. All forgiven. So we began to help make a business decision on the talk to our bank as to what we would do it responds, whether we turned them or or take them as alone at 1%.
There there are certain restaurants Gulf shores, being one of them, where GDP money will be converted into a grant.
Hi.
Las Vegas will be probably converted it most of it into a grant.
You know there there are a handful where we'll we'll get a grant and and that will.
Help our balance sheet a in the end because those restaurants to cash flow positive they didnt need BP nani to be cash flow positive and were able to spend it. According to the formula that the government laid out. So there will there will be money granted a of the 15 million Anthony take a guess for.
$5 million to $8 million will be great I.
I would say I would say at least seven to eight hopefully more.
Yeah, So that'll help our balance sheet. He is the big problem becomes you know other than the unknown and how the virus will.
The the contained does not contain the over the winter months, that's an unknown and our revenues are you know largely unknown.
In New York because of that I think in the south.
And in Vegas, the governors and not going to close those those facilities in the south, especially you know in in Florida, especially.
[laughter] if they are having going to have any season, which usually begins you know the Christmas week and last on mother's day odd if cases are you know contained.
And people are willing to fly indication in Florida, we should see revenues in Florida increased.
But it's a week to week situation and you know again in New York ER, We only have outdoor seats in Washington, D.C. basically outdoor seats. If it rains one day you know it today. So we have a hurricane like we had last week, which affects northeast you know these revenues are <unk> and cash flows become.
Unpredictable and so you know we hope Florida has the season. We hope you know progress is made on the virus, we're very encouraged by what what happens in the.
The two casinos in Florida, and our business just seems to be increasing every week.
We would expect once you get out of the heat of August in Las Vegas revenues to increase that would be additional cash flow.
But I can assure you with all of these unknowns.
<unk>, where we're staying around.
There there you know a balance sheet is strong enough to withstand this or bank has been very cooperative and or it's not a deteriorating situation in my view, it's going to be an improving situation as we get further and further away from.
Some of these much.
With that I'm happy to answer any questions.
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<unk>.
[noise] [noise] [noise]. It appears there are no questions at this point I'd like to turn the call over to Michael Weinstein for closing comments, Oh excuse me, we had someone jump into the Q.
We do have question from Steve Olson, a private Investor. Please proceed with your question.
Good morning, Thanks for taking my questions.
Could you just run to quickly over the current debt balances cash you know net debt as of the ended June.
Anthony yes, including the P.P.P. loans, we have.
45.5 million of that.
And we have 21 million of cash.
Okay.
I I like to break in here a lot of that debt.
Over roughly $20 million was created by our purchasing.
Jbs on the beach Shuckers and the two restaurants in Alabama, which came with the land and the buildings, you know where our own landlord. There. So that 20 20 million of that is specific.
Almost to the real estate.
We we essentially created.
Rustic Inn for instance, a which is our best one of them of the of the four but Gulf shores is not far behind we bought rustic inn for $7.5 million. When it was earning a million five pre pandemic it was earning 3.5 million.
We believe that given current interest rates on the sale lease back.
We could give up a million dollars of of rent.
And probably.
You know gets 12 $13 million for that property this Mike, but I just something one second.
The total balance on those loans third about 13 million. After you know they've been amortizing for a number of years they've been amortize down dramatically. So so aren't so it because the way we acquired does that that value.
[noise].
Doesn't really show on our balance sheet in a way that's easily understandable.
But we can unlock.
With purchase.
We stop eating <unk> purchase leaseback Sally.
Sale leaseback excuse me.
A significant amount of money.
So that's sort of a fallback plan, we we you know during.
The last couple of months, we've been busy and and not really investigating that like cap rates are very favorable right now.
I'm not the tax benefit that was.
Booked in the quarter well some of that be eligible to be we funded in cash.
For prior taxes paid is that just an adjustment to.
Deferred tax account on the balance sheet no we'll be filing carry back claims.
You know back to I think 14 or 15, I forgot I'm in the years 15, Anthony I think we Miss 14.
Yeah. Thanks.
Well I don't know if we miss the yet but anyway, we'll be filing carryback claims and we expect.
You get refunds, you know somewhere in the range 1 billion I have two and half million dollars.
Okay.
On the Middle land investment [noise] last quarter, the 10-Q referenced that an impairment analysis dawn and it was determined that the fair market value exceeded the carrying value [laughter] no impairment charge was necessary is that analysis done quarterly they did not appear in this quarter that.
Any impairment charge was taken so can you just kind of comment about the metal Lance investment and then kind of relating to that investment.
Sports betting the mobile sports betting was that a onetime fee that joint venture God for future years, well monies becoming into that joint venture I understand you know, we're just an investor in that entity that entity jet additional cash from the mobile sports.
Betting.
All right, so I'm remiss in not or having.
Had any dialogue with you on this call about metal and so.
Thank you for the question and it gives me an opportunity to tell you where we think we are.
We're we're somewhere around on a fully diluted basis, now and 8% holder of of interest in the LLC that is new Meadowlands racetrack and.
We have.
You know in the mid $5 million investment in it.
The the early years, when we had that investment.
We had to pony up some money.
For for.
Our share of the losses that has not been the case in sports betting the sports betting deals were done by Jeff Corral, whose you know the the general partner in this and a in the case a fanduel they paid a 70.
With me in dollar onetime fee and a seven a half million dollar advance of profits or the way the deal works is.
After expenses were a 50%.
Middleman says a 50% partner in the profits.
Hi, Meadowlands immediately became the.
I think the largest a venue in the United States for sports betting.
It certainly does multiples of what all the casinos in Atlantic City are doing in terms of sports betting.
There was also internet betting deals and we get a percentage of the cash flow of that and so that the those defendable deal is ongoing but there was in advance of seven a half million dollars or that will.
I think.
The the a used up in the in the first two years or as the Internet stuff I'm not sure the cash flows there, but but we're continuing partner of that.
The Meadowlands became cash flow positive pre pandemic and then you know Olson there and those sports, but there's still bedding going on and so I think the Netherlands you know.
Probably is you know a little bit above breakeven in terms of cashless.
The situation is that Murphy has stated publicly you know the state is you know in dire Straits and he would like to see a casino in the north the.
The temperature for that will will increase once New York has downstate.
Casinos, there due to come online with license it due to be issued in December 2023, but there has been an interesting development in terms of how we perceive the timeline and that Cuomo has not allowed the upstate casinos to be open and.
The upstate casinos and says listen we got open you, killing us and if you open let US open the covenant that we you gave us when we you know built these things.
That you want to open downstate until December 2023 were willing to allow a that covenant to you know expire and you can give out license is right now as long as you allow us to open.
So if that would have happened the timeline when new Jersey was all of a sudden see populations going to Yonkers, and aqueduct full casino experiences might hasten the time period by which.
As a casino in the north we do not have an exclusive in terms of that the Meadowlands racetrack will be the site, but it's the only site that has presently has gaming in the north or it's the only site that is insulated from neighborhoods.
You know that might objecting have legal opposition to it and it's the only site that's done environmental.
Has all the environmental credentials that it needs and it's the only site that you don't have to build I mean, we can.
Within a month had slot machines.
In the building or so it was designed to be a casino.
And it would be the phase one of the casino that hard rock would be the operator.
There are partnered and so well yeah I'm not that.
Where where we remain calm about it but I think the timeline may have been accelerated.
As to when this thing to become a casino.
<unk> last quarter, the 10-Q disclosed on the investment of about $500000 in three restaurants in the Ohio can you talk a little bit more about you know this project in an opportunity yeah I know Youve got some previously so it seems like it's it's moving along.
It's not moving along so eastern Ohio is one of the of most highly productive.
Malls for lack of a better word or in the country.
There are 52 restaurants in that project.
Many in small, but you do have cheesecake and ER Smith, one lenski, M.P.F. kings et cetera, and and.
The developer came to us and and basically who I've known for many years. It says Michael the these restaurants or the project Easton Town Center is 20 years old.
And he said all of what some of our leases are expiring, we're very unhappy with the quality of the product there's nothing that generates enthusiasm.
In these 52 restaurants.
Leases coming due we don't want to renew them would you help us redevelop conceptually what these restaurants should be.
And we made a deal to start out with three.
That deal a we invested $500000 of which some 200000.
It is.
The responsibility of of the Oh Eastern Township Town center, but we fronted the money.
They have recently sent us a check back for half of it because the projects on on hold.
Until.
You know, we get a better outlook about how Easton town center is doing and by the way, it's doing better than the developer thought it would do during this period, but it's still not back to where it was and quite frankly, we just put everything on whole because we don't want to.
You know infringed upon our cash right now until we get a better outlook or for the company.
With still talk to the developer every other week I think and.
Developers to wants to go ahead.
Eventually, but right now they're on hold as well I mean, they're only collecting something like 40% to 50% of the rents a so he got you know it's hard to imagine it's a big development company, but ER that they're having cash problems you know in terms of developing.
New relationships and I think at this point they don't want to start anything where they have to make a substantial tenant improvement allowance.
So so that's on hold there are other opportunities.
Yeah, I'm, having a meeting Tonight with.
Company that has many projects.
Nationally that have restaurants in them that are not going to reopen.
And they're looking to do something with us too.
Get them tenanted.
What those deals could be at this point I'm not sure, but you know essentially we're not going to be putting up money to you know to to be let's see.
In any space, we prefer to be a buyer like we were in a rustic inn shuckers in Alabama.
And be our own landlord and if we're going to spend money, that's where it is gonna be spent.
But there are opportunities I think where you know developers are in trouble they don't have viable tenancy anymore and in their restaurants.
A lot in my closing.
So there maybe opportunities for us to manage.
Facilities and the other developments, but you know all of that.
No.
Subject to what happens with this virus and <unk>, we're not rushing to expand.
Right.
Hi, Andrew I understand.
That but there might be.
Communities to Opportunistically add some units without incurring additional.
<unk> expenses and using your expertise.
We think so.
We think so.
But there's a risk and you know a you know generally in those deals unless you. Most landlord is going to do something that they're not used to doing which is you know are making investment in working capital losses beyond tenant improvements.
You can lose a lot of money before this this whole turns around so you it's it's difficult for everybody.
We know that.
We know two things that we we believe it's not you know it's not mythology. We believe this deepen deepen our hearts that you know after 911, I said to everybody I made the speech twice after 911 and.
During 2008 2009, another time, we suspended the dividend.
Until we got our affording back I said look we have great assets theyre very productive in the past they'll be productive again, we just got to get through this time this timeline.
And that's what I believe here and so you know not we we've got a D constantly looking to say, what's this balance sheet look like how many how many months or years of runway do we have and we have a lot of runway now with our balance sheet.
And and I'm not going to impair that right now I mean, so any deal we do to expand.
I would have to be a deal that we do not impair that balance sheet or we do a deal where.
You know, we make a commitment that at some time in the future you know when conditions are better.
That will be that would be in a position to do the deal, but but right now you know everything's dangerous honestly everything's dangers <unk>.
<unk> would you calculate the cash burn for the quarter in the in the three to 4 million dollar.
Range is that.
Well the the the four and a half or whatever the cash burn was in the in the current quarter.
Was exacerbated by us just being closed everywhere.
It would it was helped by the fact that nobody in the company was allowed to make more than $50000 thing you know you're talking a buyout in one case, you know for salaries and.
[laughter] <unk>, yeah for salaries at corporate went from.
I'll close with with bonuses went from $3 million $200000.
Our managers someone who make you know.
Or in Vegas, he's in the mid you know use he says he he's in the you know the mid six figures or most of our managers.
Our in the mid to you know.
200000 to everybody was taken down to $50000. Our managers are chefs everybody sacrificed I'm not trying to be.
Person handing out propaganda here, but this company has been good to everybody and everybody recognizes that will do whatever we have to do to make sure. This company.
Retains the assets that it has because they're good assets and they're gonna be productive in the future. We're not going to we're not gonna do anything that this practice.
Alright, Thank you and best of luck I appreciate all the efforts.
Thank you.
Our next question comes from Roger Lipton with Lipton Financial services. Please proceed with your question.
Yeah, Hi, Mike how are you garage yourself or.
All things considered just fine [laughter] gom, yeah. So that most of what I was going to or something that was just answered the previous questioner, but it sounds like the 45 million of debt includes the TPP right. So correct correct, yeah, so seven or eight it had to go away.
You know, presumably right, yes, yeah, right. So so and then and the rest will probably be returned.
Yeah, I think you were trying to rather than hang on a cheap money, 1% money, but you don't need yet, but we have we had bank you know we have a bank to deal with right right right and it's only a two year amortization.
The five years, but the five years with the loans made after June 5th I believe and these banks are not cooperating and changing the paperwork from two to five years currently.
Right right. So I just don't read recognizing there's lot of moving parts here and anything can happen day to day <unk> right now I mean as as we sit here today, what what sort of the monthly cash burn.
There if it is burning.
It's not that much.
Anthony.
Well I'm still waiting to finalize the July piano, but I think it's probably about.
200000 him on site right right. So okay. All right you know as you say you never can tell what next week bearings inside vaccination the vaccine could help a lot and all that and then you know just the you know back when when when the towers were burning you know who would have ever thought that.
[music].
[noise] do towers rebuilt and people would rent space and the type of those [laughter] no [laughter]. So I never say never say never well get to know mayor and this city will come back you know.
And so all right Michael good job under the you know, we're all where all this is this is a strange world well do our best here. So good work.
Thank you so much larger thank you.
There are no further questions at this time at this point I'd like to turn the call back over to Michael Weinstein for closing comments.
All right I hope we got.
The answer is you need a into your hands, but we're always available I'm happy if anybody has questions to give you my cell number 6463 to 29197.
I, if I don't have the answer all Murchison with Anthony and we'll get you the answers you need.
Again, 6463 to 29197 or other than that we'll we'll see you you know.
Probably after the election at this point right.
See what happens okay. Thank you so much.
This concludes todays conference call you may disconnect your lines at this time and we thank you for your participation.