Q2 2021 Ark Restaurants Corp Earnings Call

Greetings and welcome to the Ark restaurants second quarter 2021 results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press star zero on your telephone keypad as a reminder of this call for.

This is being recorded I would now like to turn the conference over to your host the Sonal Shah General Counsel. Thank you you may begin.

Okay.

The net.

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2021 my name is sort of and I'm General counsel of Ark restaurants.

With me on the call today.

One of our chairman and CEO.

Yeah.

For those of you who have not yet obtained a copy of our press release. It was issued over the wire yesterday and is available on our website to review the full text of that press release, along with the associated financial tables. Please book tour.

Page at Www Dot Ark restaurants dotcom.

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 <unk>.

Change Commission for a more detailed discussion of the rest of 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 or not with COVID-19, the they're just not anything.

The extreme.

It will get better in the next couple of days.

But but today he was at his doctor's office, taking some tests so he apologizes for not being here I'll.

I'll do the best I can with any financial questions on 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 the very very difficult time.

These restaurants have been up and running for some time now.

But during the the shut down and for a few months into the beginnings of a reopening of most of our.

The key employees had given up anywhere from 50% to 90% of the base pay.

Uh huh.

To remain with us and that was a.

The big help at the enabling us to get these operations opened quickly get the money smoothly.

We are as many companies are complaining trying to find good people to work there is a shortage of raw.

Right now, but we are operating at very very good smoothed low levels and are seeing.

The seen a lot of revenue come into these restaurants.

We're very happy with where we are now a couple of things.

Is that on sort of facile with but Anthony would've been better of explaining it.

The quarter, we showed a negative EBITDA after adjusting for the P. P. P loans the given this.

$495000 that means we we we removed from the EBITDA some $4 million plus of of loan forgiveness. So that's this is truly an operating number.

Does has nothing to do with the P. P. P. Forgiveness. So it was negative for 95 of the quarter, but in the quarter. We had two other adjustments, which we cannot include in the EBITDA, but we increased our.

Staycation pay of accrual of $500000 after discussions with our outside auditors on that.

The noncash item, but it shows as a noncash expense of.

Which reduced EBITDA by inside of map and we also had $700000 and lease adjustments.

Because of the new accounting rules regarding straight lining leases.

So roughly.

Somewhere between a million wanted of me into of additional noncash expenses. If they were added back to E B die of.

You know as an adjusted number we would've been positive some 600 to $650000 of cash flow for the quarter.

What we experienced during the quarter was the very bad January very bad February somewhere.

Towards the middle of the third.

Week in February we started to see a huge pickup.

And revenue.

The Wynn Las Vegas, the Alabama and Florida.

Those restaurants continue to do extremely well.

Florida, usually slows down right. After the mother's day, we it's too early to tell but we're sort of confident that we're not going to see the the usual slow down.

That's typical for southern Florida, it seems to be.

A lot more activities. The first few days post mother's day.

So we're very excited about that.

We're doing well when the weather's, good and Sequoia in Washington D. C. We have 600 outdoor seats.

We've been on the restrictions of <unk> 25 per cent of indoor seating in Washington D. C that will.

We will probably go away in the next couple of weeks. We've also been under a severe restrictions and in New York and Washington D. C. All of it.

And what we're allowed to do it in the bench events of very important to us It Robert and New York.

Ryan Park and the Sequoia.

We are seeing demand for events in Washington, D C and as the restrictions.

Our relaxed we think we'll see significant return of events volume.

But.

We're doing well on Sequoia when the weather, it's nice the weather's right now.

Price right now so so we're seeing some good cash flow numbers, New York is still.

A problem for us of.

Brian Park sits you know in the middle of the city of 6 million square feet of office buildings facing on the last survey done there were only 9% occupied there's very little tourism there is.

No Theater district, all of the which Brian Park relies on heavily.

So our volume is there have literally been on during the early January February before the weather got nice those volumes were probably 10% of what we usually do to.

To give you an example of this past week.

With the weather being somewhat nice on certain days, but we did two.

$200000 that compares to a 600000 dollar week.

Last year, so the those volumes are.

Severely beds.

Robert a at the top of the museum of Art and design is also suffering where.

We're on the ninth floor on.

The museum has had scant.

Visit of ship it.

The revised on tourism to the.

To the extent we rely on.

Events, there that had been on.

Yeah.

Uh huh.

The way, it's 150 seat restaurant with social distancing.

When we had 25% of occupancy allowance, we had 35 seats.

So both Robert and Brian pockets of suffered.

Rio Grande in New York is doing well it has the outdoor seating a crisis.

Is not doing well.

So New York remains the problem for us, but our cash flows given the.

<unk> strong revenues in Florida Las Vegas.

And Washington now.

Or are are really taking up the slack debt.

That would have been strong cash flows from New York.

We're on.

Our offices.

G&A is down during.

Of the pandemic Oh, we let go of certain positions were operating more efficiently on the payroll basis.

We also have a better lease.

Situation with our office all of our landlord was very generous to US there are we signed the new long term leases.

A lot of certain of abatements from our old lease.

All of them 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 of certain jobs, but I 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.

The cash flows the margins will be much better.

On the we are seeing.

Of price price inflation in certain commodities, we use to our surprise.

Apprise, where where we had thought we had no elasticity, especially rusty can wear shellfish price is gone.

Literally up 20%.

We've been able to raise prices and get customer acceptance.

The rustic is seen record weeks a few weeks of some of that has to do with price increase of which.

Which has been accepted but it's it also has to do with what's going on in southern Florida, and 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 the very strong third quarter.

You know it remains to be seen how the lifting of COVID-19 restrictions.

Influence our event business, but if all of our event business.

Starts to come through I think we will do much much better in New York, and and that sort of situation on a balance sheet basis of.

We've as the press release indicated we we've converted some $4 million of the 15 million in P. P. P money.

That we applied in and and received so.

So far about 4 million of that has been granted a.

When we're all done about $13 million will be the given our balance sheet right now looks like about with it.

All 13 million is forgiven or.

Our balance sheet will.

Probably have net debt.

At that time of something like seven to eight and a half million net debt, meaning you know of long term debt.

The less cash on it.

It's the best position, we've been in a long time.

The.

The.

The cash.

The cash flows of very strong at this point as they should be during this period of.

With that.

Let me take questions and see if I could be helpful.

At this time, we'll be conducting a question answer session. If you would.

To ask the question of claims.

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While we pull for questions.

As a reminder, if you would like to ask the question. Please press star one on your child.

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While we poll for questions.

Our first question comes from the line of.

Jeffrey Kaminsky with J J K consulting you May proceed with your question.

Oh, Hi, Michael Good afternoon.

Congratulations on.

Continuing to come through of rather difficult time ive been on these calls from ours.

Generally asked the question specific to some development, whether it would be a matter of lands.

Last year the P. P. P situations. My question today is more a big picture of how this is Barry.

Sure.

Sure.

Just was wondering it.

It looks like you closed a few properties lost the lease here on there you've come through are.

We've come through a situation where.

The <unk> seating yours that of Premier and then maybe less so.

Do you see going forward, Michael any redirection of or pivot to a different strategy from Oracle.

You learned anything that might change the direction of the company, whether it would be more emphasis.

Barb.

Emphasis on the events just your thoughts on that.

Plenty of time to think about things given the triangular we've just come through so I was curious.

If theres a strategy that may change going forward.

So the the answer is the the strategy change some time ago and with pretty much staying the course, where we are would be more inclined to.

To buy properties with cash flow as opposed to building properties ourselves and taking that that risk.

The properties, we bought a <unk>.

Four of which we own the land on the knees another one in which we J B's in in Florida in which we Oh.

On a partnering with somebody who bought the land for us.

The development.

We we just think of owning the property. If we can is the big advantage for us the.

The.

And that's the situations. We're looking for these one off restaurants are where people are retiring or no longer have an appetite.

To continue in that business, if the cash flow positive and in the you.

You know if they have a long leased for.

For instance, Blue Moon has the 26 year lease on.

We we can buy those properties at very attractive prices.

It makes far more sense than 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 are the the reason for that is we can offer on all cash deal where restaurants are generally bought locally for the 30% down in some notes and people who of retire.

Erin don't generally want to deal with the notes of will favor of somebody that could do on 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.

The rustic Shockers jb's on the Beach Blue Moon, the two properties in Alabama.

They're running at probably the best revenues in their history.

We retain management and all of those cases on the chefs.

Have been retained.

We have a great experience with them.

But we were able to lend some knowledge to them that has helped them become more efficient.

So.

And and they're all ideally located on the water or you know and and and spectacularly important locations.

So that's what we're really looking for.

You mentioned metal lands, we continue to be.

Highly optimistic that well.

We will get a casino license there.

But right now of the Meadowlands of.

Post pandemic to the extent with post pandemic is a cash flow positive throughout the whole period, we have been cash flow positive because of the sports betting on.

So that was fortunate for us the new Jersey legalized sports betting.

But but the real payoff there will be of casino license and we consistently think we're closer and closer.

The closer and closer maybe another two years.

So we have.

We have a strategy that we're following.

We're not looking to buy 15 restaurants a year.

The one or two good properties come up of will we will buy them and feel very comfortable that we kind of absorb them without extending our balance sheet.

Thank you.

You're welcome Jeff.

Our next question comes from the line of Roger on lifting with Watson Financial services. You May proceed with your question yes.

Yes, Hi, Michael always nice to talk to you do simple question wishes on everybody's mind and.

And I just thought I would ask.

Are you, giving any thought yet to the timing of the dividend range.

The reinstituting the dividend.

No.

We have not had any discussions with the board.

Regarding that.

Hum.

Is it there there would be I imagine.

Historically, the board would like.

The.

First of all of the borders the.

And I.

And Anthony are very concerned that our balance sheet remain very strong.

Once all the loans of the 13 million of the 15 million that we think will be granted.

Oh of granted the balance sheet will be in very strong position I think before we decide on the dividend Hum.

We would like to see.

Ware.

The more we like to be more satisfied that the world is safe.

And.

So I think were probably you know six.

Six months or a year away from from knowing that I mean, I'm, just taking a guess I'm on the epidemiologists, but the 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 the only argument against that because historically, we want to do that.

The only strong argument against that is Oh, what can we do with the money I mean, we.

We.

We've we've had spectacular results buying these properties.

The the recent acquisition of Blue Moon, with something like a million seven down and another million dollars of notes over four years, I think glu moon earns a million Bucks. The first year of 12 months, we have it now some of that has to do with pent up demand from on the.

Of the pandemic and and we're seeing that demand flow into the restaurants.

But rustic you know we bought it for seven of half million dollars, including the land when it was making of me and in a half a pre pandemic, we were making 3.4 million bucks, but the.

These returns are outsized.

But if we can continue to find these things maybe we don't want to.

The so aggressive.

And reinstituting the dividend if we have a better use of the money.

We'll see but we're where we're six months two year of away from making that decision I would think Roger okay.

It is worth of you'd probably we may realize Bloomberg predicts that.

It might go back I mean, how how they put this prediction together have no idea that debt.

They didn't talk to me.

Yeah. They are predicting in December and September.

Okay.

Eight you will it will it reads through 12 since it's the only.

The thing I would I would suggest in your contemplation of your you know.

You've thought about this is that that wasn't one of the stocks.

The stock doesn't begin to reflect the the.

The.

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.

All of the various properties.

Doesn't hurt.

You can also for a compelling deal you can always borrow five or $10 million obviously.

Because the.

Pay the dividend so because of the streets are low and will remain low. So there is that trade off but you've thrown them on all of that I'm, just I would I as a shareholder I would kind of liked it.

There's some sort of a cash return while I'm waiting for the stock to do it on what to do.

Okay.

Good job of course, thank you.

Thanks, Georgia Okay.

Ladies and gentlemen, we have reached the end of June.

The question answer session I would like to turn this call back over to Mr. Michael Weinstein for closing remarks.

Thank you all for participating and 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.

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