Q1 2021 Ark Restaurants Corp Earnings Call
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Yes.
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Greetings and welcome to Ark restaurants first quarter 'twenty 'twenty one results conference call. At this time, all participants are in a listen only mode.
The answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as the reminder of this conference is being recorded it is now my pleasure to introduce your host.
Oh sure General counsel. Thank you you may begin.
Thank you operator.
Morning, and thank you for joining us on our conference call for the first fiscal quarter end of January 2nd 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 the.
On the Pascal, our Chief operating officer, and Anthony Sirica, our Chief Financial Officer.
For those of you who have not yet obtained a copy of our press release. It was issued over the newswires yesterday and is available on our website to review the full text about pets release, along with the associated financial tables. Please go to of our homepage at Www Dot Ark restaurants Dot com.
Before we begin however, I'd like to read the Safe Harbor statement I.
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 might have a direct bearing on our operating results performance and financial condition I'll now turn the call over to Michael.
Hi, everybody. Thank you for joining us I think the.
The first thing we should do is turn to Anthony and ask them are they just give you an overview of our balance sheet and.
When we expect to turn cash flow positive based upon projections. So Anthony why don't you. Please do that for everybody.
Thanks, Michael Good morning, everyone.
We feel we feel good about where we ended the quarter with our balance sheet more cautiously optimistic going forward.
How things are going to play out at the end of the quarter.
We had $10 8 million of cash that was down approximately 6 million from year end of that was primarily the result of Ark negative EBITDA of the cash portion of the Blue Moon acquisition of $1 9 billion and our debt service of approximately of $1 billion.
We expect to.
And the.
And the quarter. The current quarter was approximately eight to eight and a half million of cash based on the current projection and we believe we'll turn the cash flow positive sometime early to mid third quarter. Obviously this is all depending on the.
Increases in the capacity restrictions and.
Washington, D C and New York and in Vegas, as well as the the weather, which is usually up.
Plays a role in our results in the northeast in particular.
Obviously, the efficacy of the vaccine effort, that's taking place across the country.
From the other items of note we completed the acquisition of Little Moon Fish company as I stated before onto some of the first two.
Approximately $2 $8 million.
$1 8 billion of cash and the million dollar notes of the seller of payable over four years in late December.
There was a favorable IRS I'm sorry Congress.
Past, the inaction that overrode the irs's position.
The deductibility of the P. P. P loan expenses, some of which they are going to be fully deductible and the forgiveness does not have to be recognized as income so pursuant to that we immediately.
Repaired our tax returns for the year ended.
2020, and filed Carryback claims and the amount of two point to a million.
Once those received there'll be additional carry back claims of one 4 million.
As a result of the deductibility of those expenses and changes in the tax law relating to carrying losses back five years instead of three years two.
Two years, one of the rates were much higher so that is recorded on our balance sheet as the receivable.
In addition.
We closed the Gallagher's in Atlantic City.
At the end of the year, our lease was up we were on a month to month there.
Michael will speak about that and Thunder Grill in D C.
Not going to reopen in its current form of.
P. P. P loans are the same as they were.
Eligible for any second draw of loans, because we're a public company and they were excluded.
We've applied for approximately $4 1 million of forgiveness to date.
Those of incentive the SBA, we're waiting to hear back we expect to apply for the balance of the forgiveness.
Between now and so I would say mid may.
And approximately $7 million to $9 million of additional forgiveness of the difference between the loans and the amount being forgiven as the result of our inability to actually spend the money and the required period.
Most of our restaurants are closed or operating at a very limited capacities.
We have a great relationship with our bank I think you saw it in the.
The release, we extended the maturity date of our revolver.
At which point, we will enter discussions with them about terming it out over an extended period.
And our corporate office, we continue continue to work at.
Reduced salaries of 65%, except our CEO he was at 50 per cent.
Those are the highlights the fact you Michael.
Thanks, Anthony I think that's pretty good I'm sure you'll have some questions after I'm done so.
So.
What is interesting is the flow of what's happened to our revenues in the different venues.
Venues in which we operate.
The Florida continues to be very strong for us and what I mean is that.
We were cash flow positive in Florida in all our locations at the moment.
We have with the exception of J B's.
Being cash flow positive since the beginning of the of of when we reopened those prop properties, which were I think.
Roughly around may of the of last year.
The Jbs is now profitable.
One of the things that the hampers, there's a little bit is.
We operate legally.
So what we're faced with in some of our properties in Florida, we're not operating ROE of bars of people are not allowed to sit there are bars, Oh, my virtue Broward County, Palm Beach County regulations.
But independence.
Away from us are operating at bars, and taking the fines. So two of certain extent some of the business that we would have had if we had bars is flowing to people who are neighboring us, especially with J B's were there of restaurants right next door to us and.
On the other side of the Street.
People want us via the bar, we were not offering.
But we have had very good results in Tampa at the Hardrock in Hollywood at the Hardrock Jbs is now doing well shockers is doing well.
Rustic is doing phenomenally well.
Uh huh.
A good indication of how valuable these properties are and how strong their individual brands or is on special occasions. So Valentine's day, we were just packed in on a waiting list and all of our restaurants in Florida.
We acquired a blue Moon fish company, we thought that could be profitable almost immediately and it's turned out to be the case of the cash flows out of Blue Moon.
Are are very strong and.
But please recognize Florida right now is in season so.
We're gratified with the results, but they sort of were expected.
In Alabama, those restaurants continue to do very well, Alabama during season.
Oh slowing of the two restaurants about 90000 of weak it's now out of season, the marginally profitable of <unk>.
Very strong results in relation to you know what what the situation is where again on reduce it seeding there so of.
<unk> is not what it what it is when we're fully open.
But we're very satisfied with the results there.
We were very satisfied with Vegas until they cut back from 50 per cent to 25 per cent and that flipped us from being cash flow positive to being cash flow of negative.
They have just reevaluated and increase back up to <unk> 35 per cent.
Hum our guess is that we will be cash flow positive there again, who of breakeven at least.
A big problems, obviously during the winter had been Washington D C and New York.
Without any indoor.
The capacity in New York.
And we're the only outdoor seating.
Varied the pension upon whether people do not want to sit outside of the cold.
So you know we've been taking a beating the especially of at Bryant Park.
The.
Where the businesses.
It may be five per cent of what it used to be 5% to 10% in terms of revenue and so we stay open we have an obligation of there are at least to stay open.
But the.
It's been brutal for us there.
We're a couple of months away from spring of we were as of the the 12th of February New York City restaurants were allowed the had 25% socially distant seating and the restaurants, we've done that what was gratis gratifying on Valentine's.
Day and.
The.
Over the over the weekend actually was how much business flow back to Robert and Bryant Park and our other restaurants are those restaurants again, losing cash flow.
It's impossible to make money with 25 per cent seating, but we had weightless for.
The.
The Valentine's day, so it just sort of encourage us as the encourages us on how strong. These are brands are and how quick business would flow as.
As capacity increases.
So.
It is sort of back to you know in my own mind to the statement I made.
After 911, a where we were getting killed the of restaurants, where you know doing a meager amount of business in Washington, New York and Las Vegas.
Because of what happened on 911, and you know I said the people leases strong strong restaurants strong brands.
The great assets as business returns, we will do extremely well.
And that happened and I think it's going to happen again.
At least in the northeast once we get into the spring, whether there's capacity increases for indoor the dining or not we will do well, where we have outdoor seats.
And that's especially true of Sequoia Mccoy of during the summer and early fall despite capacity limitations indoors.
Cause the 600 seats of outside the dwell.
Hum.
You know, we were able to cash flow positive.
So.
On the whole.
Very content.
Where we are right now of I don't think we could be doing any better which we're very grateful to everybody works for this company.
Because the.
They're there, they're making do with low.
Less income.
Especially the.
The the corporate office are some of the restaurants, which are non cash flow positive everybody's on reduced income levels as well.
Some of our landlords have been very cooperative.
But I I would think sometime in the June quarter, we turn positive cash flow again.
So with that if if that's the satisfactory explanation of I'd like to talk about.
I guess and he mentioned Thunder Grill at Union station, our lease was up.
Union station is a problem right now of the landlord and I are of a very close Ah they want us to reopen in that spot or perhaps with the different concept, but right now it doesn't pay to talk about it a use of the station as the homeless in Camden.
And.
And you know of.
The restaurant would not do being open would not do well right there right now, especially with reduced capacity.
So we will probably start of negotiation to see if we can come to some lease term in March or April there.
We've closed down in Atlantic City, because of the leases were up and we consider Atlantic City.
Uh huh.
Marginal at best we did well of.
But with new leases, we don't think there's any advantage and the the restaurants.
Acquire.
A lot of.
Money to be put into them because we are we sort of four went maintenance in them.
Meadowlands, we're absolutely convinced at some point there'll be a casino there are.
We think the state's budget and the it.
Yes, the seats are going to help us.
With the state, making the decision to move to.
The two established the casino properties and in the northern part of the state.
We just don't think there's the better sites in the Meadowlands racetrack for that we think that as New York approves Downstate casinos, which we also think it's going to happen very soon it of law.
The light fire under the New Jersey to start to move the legislation to permit it.
Right now Meadowlands is cash flow positive because of the sports betting.
I think with the largest sports betting.
Venue in the United States right now in terms of.
Revenue so.
Hopefully that keeps up once sports betting punish the new New York.
Which they're talking about probably.
The reduces you know the capacity for us in terms of revenue, but we also think that that'll be.
Another reason for our new Jersey to establish the casino in the north.
So all things considered we feel pretty comfortable liked to be cash flow of pauses now, but it's impossible, but I think that's coming very soon.
I will take questions now.
Michael.
Do you want of Jessica.
J P is the transaction, what's going on all of that.
Oh, Yeah, that's a good point so.
When we purchased J B's, we had the right refers to refusal if the landlord who owned the parking lot of across the street with J B's uses and has exclusive use of <unk>.
And the parcel under the restaurants.
We had a writer first refusal on the sale.
The landlord was originally asking $18 million of those two properties.
And that wasn't going to happen and little by Little you know he he started to reduce the price.
And he found the buyer at $11 million, we exercised our right of first refusal because we think the great development sites, but on an economic basis of rent of $600000 of year. So.
If it was appropriate for Ark and to put in an $11 million to own those parcels and find the developer to work with us.
We would've done so.
The.
Honestly, the the 600000 and rent would have been enough to cover the interest and some minor amount of principal.
On the 11 million dollar loans, so it seemed like Oh.
That would have been our worst.
Option, the most positive option.
Would have been to sit there and and own it and and find the developer and make a development deal with somebody who knows how to develop we do not know how.
But we decided that we knew some developers in and it was inappropriate for ought to put up that money. So.
So we arranged.
With.
People with friendly with.
Who are developers in the developed six hotels in the south.
And in south of the.
Beach in Broward County.
To a partner with us.
And.
Essentially they put up all of the money.
And we have a carried interest in the development.
When the properties developed.
Uh huh.
Right.
It's anticipated right now that jbs will stay in place and the development will go.
On the parking lot side of.
Which is the west of the Avon a J B uses on the beach, which is east of day, one a <unk>, which.
Which as you know the coastal highway.
So we think we will be able to derive.
Some extra cash flow from that development in addition to.
Benefiting from.
The more density, which will help jbs revenue side.
So that that's the footnote that's in our Qs that.
That's just.
It was filed.
Alright, again, I hope that that explains it and please ask questions.
Thank you ladies and gentlemen at this time of won't be conducting of your question and answers out of France.
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Yeah.
Yes.
Yeah.
Okay.
Once again, ladies and gentlemen, it is star one to ask a question.
Yes.
Our first question comes from the line of Steve Olsen the private Investor. Please proceed with your question.
Good morning. Thanks.
Thanks for taking my call.
Regarding you know J B's.
You you financed.
100 per cent of the of the purchase price of the of the restaurant.
And you know on the short term basis has some pretty.
And I guess the plan would be and confirmed as you know under normal circumstances, you would expect the cash flow from the from the operations to pay off the debt service over the next five years and I hate to say.
The six year of a balloon payment due at the end of the five years.
You know the volume of the unit I thought the parking lot with critical to maintain you know this you know 10 million plus you know business volume.
How are you thinking about the the impact on the the unit volume.
With with the potential loss of parking or is this a of longer term development.
The development of if you could just kind of comment or help me understand that.
A good question and I sort of addressed it I apologize so when we you're right. The the parking lot is the 121 spaces.
Spaces in that area are very difficult to come by parking is without that parking lot of we would suffer on a revenue basis of.
But so when we bought the restaurants restaurants, essentially we created an easement on the parking lot where the whoever owns the parking lots of the owner of the restaurant or in the parking lot. The with two separate parcels parcel a being the the land on the J B's, possibly being the parking lot.
The lease gave us an easement on the parking lots of the 25 year term.
Where he had to provide 121 spaces or if the subsequent buyer purchase that they would have to provide 121 spaces and if it was the development. They would have to find the 121 spaces.
That we're convenient and we were the sole arbitrator of what was convenient. So now we did the steel with a friend and obviously if they develop.
Those parking spaces is going to disappear for a period of time.
And so there is an equation.
Based upon <unk>.
Our EBITDA that the development will have to reimburse us for any lost EBITDA.
During the time of the parking lot is closed the there is the minimum.
What that they have to give us under any circumstances, regardless of EBITDA.
If he'd be the odd went down to zero you know the year before the.
The development father's day.
They'll have to pay us a minimum of.
But they have to pay us what the EBITDA is.
Up until the up to a maximum.
<unk>.
So for instance, if it's in the years debt.
The demolished.
And start to build on the parking lot space.
If our EBITDA as of me in five and that goes down in the year in which they do it they have to replace the name of five.
So we're protected.
On that and and then yes. It is the long term deal, where we own a piece of the development there.
There are other opportunities that.
We think we can.
You know add additional revenue of by operating some of the functions in the hotel.
The because part of this is going to be 101 of them key hotel we believe.
This is early in the game and it'll take us eight months to really figure out what what.
The development consistent of week. It will consist of a hotel. It will consist of some condominiums that will consist of some retail space.
And.
And we have as the right zoning.
We would like to expand on that as the right zoning, we're meeting with the city shortly to the to show them a plan and see.
What we can maneuver to get so we're eight months away from probably knowing what we're building.
But yes, we are protected with our EBITDA okay. Thank you.
And can you comment on any trends in the event bookings at your locations that typically in normal years host many events.
Oh.
Any trends I'm sorry.
And you know booking of events or is it is it too early or are you are you are getting more calls about.
Hosting events at any of your locations.
Or is it.
Yeah, I can take it through the flow of this.
You know what are the things we were concerned about in terms of of cash flow or or or balance sheet is.
We usually have four of $5 million in deposits for events that are going to take place at Sequoia you know, Brian Parker of Robert those are our three big venues for events.
And we were concerned that everybody was going to ask of the deposits back.
And we were not playing hardball with anybody we were saying look you know or if you want your deposit back you can have it back.
But we will not guaranteed pricing.
Going forward, we don't know how long of the pandemic has done the last and we don't know where pricing will be a year from now.
So if you want to may.
Maintain your deposit will guarantee pricing.
We will stay the same.
If you take your deposit back we're starting all over with the you know of price point of when and if you wanted to do your math.
We had very few cancellations Anthony is.
I write about a million dollars went back.
Yes.
And the staff has done an amazing job of pushing a lot of the events at Bryant Park, and Sequoia or corporate events. So they were pushed off you know our people worked with the with the with the customers to push them off per year weddings, where would the issue that were schedule of those a lot of the refunds were related to weddings.
And from what I understand now we are getting a lot of inquiries on weddings and the smaller events.
But in New York out of D C, but yes, sorry, okay, I'll kind of address that because of it pretty well because my daughter is one of our of event planners. So I hear the site.
Is that every day.
All of how she is doing and.
We're booking an awful lot of weddings in the in Sequoia, which is the big wedding venue book, maybe more than we've ever had.
In terms of corporate events in New York, where we're we're getting calls we have with signing contracts of ever.
Everything is.
Constantly being pushed forward.
There there are events, where you know middle of last year, they pushed them to the end of last year, then they push them to the spring and now the pushing into the fall of.
But our event business when when we open and when we're allowed to have events.
I think it's going to be robust.
Not because of the pent up demand I think is just you know people do get married people do have Barnett says the social events will occur regardless right now.
We've made arrangements with other venues of Gotham for instance, in New York is.
Is the place where.
If you Havent events of 200 people you can do social distancing, we can't do in events. The 200 people are you know at Robert didn't have social distancing. So we're working with.
A couple of other venues.
To to move events in the event, we can do them.
Because of you know our.
Capacity requirements are right now in New York State, we're allowed to do events per 150 people, but it's ridiculous I don't know anybody who wanted to do an event for 150 people given the requirements that everybody has to have the COVID-19 tests with I think 48 hours before the event.
And that has to be a monitor at the event to make sure that the certificates or <unk>.
Presented and then the social distancing you can't have an orchestra of because dancing isn't allowed.
Or maybe you can have an orchestra of but you know you are not a lot of dance is.
It's ridiculous. So we're you know three four of five months away I would take the gas you know again as you know.
We get closer to herd immunity or enough people vaccinated ware.
Our states feel.
Comfortable hoping as singh of completely but we will be busy.
We will be busy.
I hope that answered your question, yes, that's good to hear.
And the final question any update on the thoughts on thoughts on on clients the fee.
Future of that operation.
So.
Honestly you know, we we have been talking to people.
We have a spectacularly supplies and we have oh.
Really the very cooperative landlord a.
We're not paying any rent there right now of minimum rent, we pay a percentage of our sales and sales or had been weak. We were closed until recently, because we don't do outdoor seating of clouds.
Didn't make sense and so now we're at 25% capacity we.
We have an interesting conversation going about.
Reconceptualize the net.
You know I'll have more to say about it and you know.
Maybe a month of.
But right now it's glides us operating as clouds.
It's the restaurants that should work that didn't work.
One of the hard things about.
Been in and of business, where you have a lot of individual brands.
Right.
And the you.
They like the art forms.
<unk> been very successful.
<unk> seen what the public wants and building something that's a couple of slides over the over the years.
I just never understood why clients didn't work I mean, there there are times, we've built restaurants and you do understand why they're not working and you're correct them.
And or not but at least you understand why is it not working we really don't never had a strong understanding of why clients didn't work.
And we tried stuff to you know to make it work.
But it really needs to be.
We conceptualize.
The leases of very strong lease the infrastructure is in great shape.
We should be able to do something to piggy back at least in infrastructure and build something that the debt.
That becomes.
Cash flow positive.
Okay. Thank you very much and best of luck.
Thank you.
There are no further questions in the queue I liked the hand, the call back to management for closing remarks.
Thanks, everybody of being on the call and we'll speak to you.
Yeah.
You know at the end of the next quarter last quarter I I did this and I'll do it again.
Anybody has any follow up questions.
My cell number of 64632291 97.
I'm generally available in the few calls so I'm happy to hear from.
Thanks very much.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. The lines at this time and have a wonderful day.
Thanks, everyone.