Q3 2021 Ark Restaurants Corp Earnings Call

Yes.

Greetings and welcome to the Ark restaurants third 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. Finally once you require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder.

This conference is being recorded its now my pleasure to introduce Sonal Shah General Counsel. Thank you you may begin.

Thank you operator, good morning, and thank you for joining us on our conference call for the third quarter ended July 3rd 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, Anthony Sirica, our Chief Financial Officer, and Vinny Pascal, our Chief operating officer.

For those 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 of that press release, along with the associated financial tables. Please go to our homepage at 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 upon them, we refer everyone to our filings with the securities.

Exchange Commission for me 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. Thank you for joining us.

I think first I'd like to hand, it over to Anthony to review, our balance sheet, and then I'll make comments about <unk>.

Cash flows and how we're doing in all of our venues.

Yes, I just wanted to hit on a couple of highlights on our balance sheet since last quarter, our cash position is $18 million.

Currently it's probably about $19 million after float. So it's obviously reflective of the great quarter that we had our cash was about $12 million.

The end of the second quarter.

Included in our balance sheet, we had another $3.2 million of P. P. P loans forgiven.

She brings the total to $7.3 million out of $15 million.

Have applications pending.

The other four and a half million dollars.

Which hopefully will be forgiven this quarter.

We also have on our balance sheet receivables for tax Carryback claims that we made.

Given the new requirements that we were able to carry back losses five years that was that was changed last year. So we have about $2.3 million of refunds pending as well as in the other.

One and a half or $2 million of refunds that we still need to apply for because there's an order in which these things need to be done.

Of the PPP loans, we expect approximately one five to $1.9 million.

We will not be forgiven.

As a result of not being able to spend the money within the covered period of those amounts. The majority of them, we will convert to loans at 1% interest rate and pay off over 24 months.

The other significant item on our balance sheet happened subsequent to the quarter, but as reflected in the quarter was that we had won $9.7 million of revolver borrowings that were coming due in may.

We worked with our bank to.

Convert them into term loans, which are payable of 500000 per quarter starting September one.

2021 next month.

Through June.

June 2025, with which point, there's a balloon note on the yen.

So that you know we've been able to.

Alleviate the pressure of having to pay off that revolver.

Everything else on the balance sheet is.

Reflective of.

The quarter that we had receivables are up inventories are down a little bit payables are up a little bit, but all in accordance with <unk>.

<unk> quarter and the increase in sales that we had.

I'll turn it over to Michael Hi.

Like to make.

Our projection that when the tax refunds are received.

The monies that are.

Going to be granted the additional monies.

Our balance sheet at the end of the September quarter, if business continues as we expect.

Our balance sheet will probably reflect cash equal to total long term debt.

It takes a few dollars, but but but it will be very close.

So we're in from a balance sheet point of view, we're in terrific shape.

In terms of cash flow.

I think.

The significance of the quarter just ended.

Is that we were about equivalent to the comparable quarter of 2019 going back two years pre COVID-19.

But in that quarter, and the 2019 quarter cash flow from the New York restaurants was about $2.4 million.

This quarter. The current June quarter that just ended cash flow from New York restaurants was $400000 so that.

That $2 million that is missing had to do with several factors number one our restaurants in New York, especially Robert and Bryant Park.

Rely greatly on office traffic.

For both lunch and dinner offices in New York are empty office buildings.

Events, there were no events of any significance in this current June quarter.

Theater.

Theatre business as close Brian talked draws heavily on theater district, and tourism Theres been no tourism. So the fact that we were profitable at all and in the New York restaurants, as a kind of a good result, given.

Our dependency on those four factors.

So if we if we look back.

To the 2019 quarter.

Normalizing those four factors when and if they become normal tourism.

Theater District office buildings events.

It was a.

Great quarter and what.

Made it a great quarter was our restaurants into South, Florida, Alabama, Las Vegas, we're seeing numbers there that are spectacular in terms of.

Head count's coming into those restaurants.

Vegas is interesting because we're doing record business weekly business compared to comparable weeks in 2019, but Theres No convention business in Vegas. So it's all tourism at this point.

We're also dealing with the handicap of venues.

<unk>.

Being affected by different regulations at different times.

Mask wearing.

It is necessary now again in Vegas.

During the June quarter, some of our restaurants were only allowed to have 50% occupancy.

Hi.

It's messy.

But we.

<unk> and did really well in our management.

And these various venues where.

How to deal with a lot of requirements.

Flexible they did a great job.

There is no shortage of Covid cases.

Our restaurants at various times.

So.

We seem to always have a few people out.

With Covid Fortunately light cases.

But.

Everybody has to work harder because you can't replace them. So the 10 to 14 days that they're out because the labor pool is Harry.

Very diminished right now.

So all in all.

Great quarter, what we're seeing in the current quarter.

July started out.

Just like June.

Really really strong as we got into August.

With the Delta virus.

Seeing a little bit of dampening, it's hard to tell.

Whether that's the delta virus or just seasonality.

We suspect it's a little bit of both.

But the quarter should be a good quarter.

And we are seeing despite the delta Varian.

<unk>.

Significant bookings for events.

In the fall.

Whether that continues given the delta varian or not I think we had.

In terms of the event business some feeling on.

The part of people that that book these events.

That COVID-19 was on the decline and it was a period of time when.

Our office got very busy.

Booking again fall and winter.

Whether that continues now.

Concerned about the Delta very and I don't know, but so far we don't have any cancellations I think there is a wait and see attitude about this in terms of pricing.

We've been up to.

Yes.

Some some increases on our menus.

We've been doing that generally we don't want to scare customers.

Our margins have been.

Compressed a little bit by food cost I tell the story about rustic Inn.

In Fort Lauderdale.

Where our food costs are up 10%.

But one item that used to be a 50% cost item is now in 88% cost side.

King crab legs.

A lot of it has to do to disruptions and distribution.

Some of it has to do with the fisherman that arent out fishing for the supply.

And cramped down, but we've taken the attitude that where our product is part of our brand and king crab legs, and dungeness crab and raw.

<unk>.

The famous for that we probably serve 200 orders a day of those two products.

We don't want to scare off our customer so we're taking the hit.

And our.

Our menus don't even begin to reflect what our costs are in rustic and in some items on all the menus. So there'll be a squeeze in margins, but but the foot traffic coming into our restaurants, all our car traffic has been strong enough and these restaurants remain strong.

Jordan, there really profitable in terms of the cash flow yield.

So I hope that gives you a sense of where we are right now.

If you have any questions. Please ask them now.

Thank you we will now be conducting a question and answer session.

You would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue.

Press Star two if you would like to remove your question from the Q1.

One moment, please while we poll for your questions.

Okay.

Sure.

Thank you.

Our first questions come from the line of Roger Lipton with Lipton Financial services. Please proceed with your questions.

Yes, Hi, Mike.

Excellent quarter come obviously.

Just kind of chime in for a second I see that just in the last couple of days.

J Alexanders reported.

And they have.

They are essentially in comparison in terms of a thin stock has always been to <unk>.

Okay.

They are about to go private.

And they are about to go private.

About seven times their current run rate of EBITDA.

And your stock as you well know.

It is trading at about <unk>.

Two five times your current run rate of EBITDA.

So.

It would seem that you ought to be considering.

Some sort of corporate.

Activity.

They'd be in the form of a stock buyback.

Perhaps reinstating the dividend or even considering going private.

Being public is not generally serve the company, particularly well over the last 30 years because you haven't.

So any other any any corporate stock to the public and so so it would seem that if I were in your shoes, you and your family could get a great deal of apparent liquidity.

As well as our remaining equity participation in the future.

And the current shareholders could be taken out at a very substantial premium to the current price.

So those are my thoughts at the moment.

Yeah.

You want a response or you're just making the speech.

I'm, making a speech, but I would be interested in your thoughts in terms of a response.

The stock is incredibly inexpensive.

So Roger a few things.

Regarding dividends.

I think it's inappropriate.

To be.

Okay.

And then add dividends and certainly I benefit from that as well as everybody else, but any of that dividend at a time when there is still a great amount of uncertainty.

With Covid.

At a time when we're.

Taking the volumes from the SBA and converting them into grants.

Is something.

It doesn't smell right to me about that.

In terms of.

A private transaction or buying back stock.

Obviously, we are aware that the stock is probably does not reflect.

<unk>.

Operating results.

Yes.

Hum.

There are two factors that weigh heavily on it is that would weigh heavily if we were even discussing this which we're not number one is our leases in Las Vegas.

They have 17 months to run.

We are beginning to.

As you know MGM, which owns New York, New York has gone through a significant restructuring of management.

The people that we had constant a constant partnership with because in New York, New York Sn.

Essentially the food and beverage department.

Have all with the exception of one key person they bought less.

They've got they've taken buyouts and so.

So we have a meeting in September beginning in September with them to start to discuss what the relationship will be going forward.

And the.

The fact that they are having a meeting.

With us means.

Means there is some interest at the end of 17 months in having US continue but we don't know what that's going to be structurally so.

There is risk in that.

That is that some of that cash flow or all of it for that matter.

If we go away.

So I think buying back our own stock or having an antibody.

Be aggressive.

At this moment.

Be foolish.

Number one number two.

There's the Meadowlands, which unlike.

The potential negative.

Of.

New York, New York's negotiation.

By the way, we're optimistic about but you have to consider that.

It might be a minus as opposed to a positive.

But the Meadowlands to us is a huge positive.

First of all.

We're probably the largest sports betting facility on the East coast.

As you know from prior conversations.

We cannot taken income.

Unless it's distributed because of among our minority interest in that minority interest of around 8% our partners, our hard rock and Jeff Corral, who is the real estate player in New York.

With the.

Third on the totem pole in terms of ownership.

But the.

Geometry of that investment that we made five years ago.

It can be really significant to our current shareholders.

Some of whom I know have their eye on that.

And our comfortable owning our stock.

Despite the fact that it doesn't reflect current operations.

And cash flow.

So.

The sports betting has been <unk>.

Difficult.

Cash contributors, the meadowlands with paying down debt and for the first time I think this year.

The Meadowlands will make its first distribution that will not be an insignificant number to arc that we're we'll be allowed to report, but more importantly.

<unk>.

As New York.

State starts to play out like the downstate casino licenses, which.

Which theres been a moratorium on because the guys had built upstate how to deal with Cuomo essentially that nothing will happen downstate until 2023, which will give the upstate guys time to recapture some of their capital investment, but you have MGM on the Yonkers, you'll have getting.

Owning.

Uh huh.

And the cats and the Catskills and you also have.

Venetian.

Our board of block of property in Queens.

And there's a lot of lobbying pressure going on to try to get those downstate casinos issued prior to two.

2023, but even if we wait until 2023 once those downstate licenses are issued.

<unk>.

We don't see any way in which you know new Jersey doesn't react and make Meadowlands casino.

And if it were to become a casino I would tell you that our projections.

From just casino operations.

Would dwarf.

Our current EBITDA or percentage would dwarf our current EBITDA. In addition to which we have an exclusive on all food and beverage if it becomes a casino with the exception of a carve out for a hard rock cafe So to me.

I think our current shareholders should have the advantage.

All of that.

And.

You know it.

If we were to do a <unk>.

Private transaction.

I think it would be very hard for us to come up with a number.

That would be fair to our current shareholders or anybody who buys the stock here given that the meadowlands could be.

Just two or three years away.

Think we would become.

Uh huh.

Our company or <unk>.

Myself, where whoever joined in a private transaction, we would be under a great amount of scrutiny, what we knew.

At the time, we did that transaction and if the Meadowlands becomes a casino I think it would be very unfair transaction for us to initiate.

Given that we hear.

Really believe that's going to happen.

That happens or not.

We may be wrong about our belief, but if it were to happen any transaction. We did here would be very unfair to long term shareholders or short term shareholders, who buy the stocks with that in mind. So theres no private transaction that was going to happen here.

Yes.

Mike Thanks for that.

Michael.

Yes.

Yeah.

Thank you. Our next question is coming from the line of Jeffrey Kaminsky with J J K consulting. Please proceed with your questions.

Good morning, Mike.

Congratulations on a terrific quarter and a very challenging environment.

Just I.

I had a couple of questions.

Some stuff that we have discussed in the past but.

The first one being.

A question that I'm not sure you can answer but.

What do you think or what's your assessment of the robust numbers that you delivered last quarter being.

Being a function of pent up demand and everybody going back out versus sustainable.

Business and gross do you is there a way to monitor that.

At some point things will level out that would be my first question.

I'll, let you answer that and then I have another question alright.

Alright, Thanks, Jeffrey I hope you're well.

So.

Obviously, this pent up demand and that.

That.

Sure.

You would have to go.

Area by area of the country, where we are.

In New York, I don't think were getting pent up demand.

The people are back out eating.

As of yesterday now you have to show a passport COVID-19 passport to Eden doors.

No.

Theres a dampening effect.

I would also tell you in New York is even though Manhattan is probably one of the safest places if you go by the number of people vaccinated.

We had people who just don't want to eat inside so Robert which has no outdoor see salaries on the ninth floor of a museum.

Our business has been terrible terrible.

People have been hesitant and those factors I mentioned earlier events tourism theme.

Later.

Occupancy occupancy and office buildings.

Roberts was money every single week, so pent up demand has not helped drive rate and I don't think its help if you go to Brian Park.

All the times outdoors, it's not indoors and if it's a rainy day, we're not doing any business. So I don't think New York is has.

<unk> been helped by by Pent up demand in the residential neighborhoods the upper east side Tribeca. Those those properties is doing well. They are seeing all of that were in the corporate Midtown area, where the buildings are empty. So that's why we're not seeing it in our restaurant.

In Washington, DC I would say the same is true with Sequoia, we have 600 outdoor seats. If the weather is nice bump we're doing great.

But part of pent up demand.

It is not events and.

Sequoia lives largely on events so.

Not there those properties will only improve as as Covid goes away if it does go away.

In Florida, and Alabama, they're nuts, nobody wears masks.

They may be pent up demand I think there is.

So yes, I think we're benefiting from that but I got to also tell you that.

I'll say this.

In terms of everything we own anywhere we have premier locations, we had great reputations, we have great brands. These businesses I remember after 911% in 2001.

With the bank's rollover me, because we were losing a half a million dollars.

<unk> and cash every single day.

Every single week after 911, because at that time, we were in Las Vegas, Washington, DC, and New York and all of them.

Sure.

So again, it's a totally affected by 911 a M.

I said to the banks is a great properties the minute you know.

People start to come back to restaurants, they will fill up well that's what's happened in general, but without a question I think pent up demand and the fact that alternatives are not available movie theaters.

And Florida people have used restaurants.

More and more so just to escape.

Then before I think Thats true in Florida, and Alabama, we're doing the business, we expect to do and.

In the June quarter, and going into the September quarter, because our Alabama properties. This is this season.

No.

<unk>.

Our stupid when I bought those properties I thought they would behave more like Florida.

<unk> more like.

Jersey shore.

Sure then then that Florida. So this is this is this season.

Vegas.

Think as is benefiting.

From people, who want to travel.

Who on who might have gone to Europe, or Mexico or something they are looking for some place to go and Vegas remains a cheap vacation.

But.

The numbers were doing in Vegas, which are embedded in our 2019 comparable numbers are being done.

Most of the quarter the shows weren't open and there are no conventions.

And third part of the quarter.

Vegas was 50% occupancy so the numbers were doing there are staggering.

And I think that will continue.

Occupancy in Alabama, and Florida.

For a period of time during the June quarter, Venice, telling me, we were 50% occupancy as well yes.

But the numbers youre seeing from us in the June quarter were largely created from mid may to the end of June.

That business got really really good.

So so that's the answer to your first question, Yes, I think.

No.

And all of these venues.

Uh huh.

The pure increases that we're seeing above what our expectations were or probably.

You know.

Florida centric.

I can give you reasons why we're doing less business than we should be doing.

E conventions in Vegas.

All of them is sort of where we expect it to be and New York isn't getting any advantage.

Uh huh.

So I.

I think I think.

Part of the sales numbers by the way are also where we did increased menu pricing.

But in rustic for instance.

We've seen good numbers for our food cost are terrible.

We looked at the 'twenty.

19 head counts and we're basically where we were with 2019 head counts now that's interesting also for rustic in particular, because rustic is four seconds away from the cruise ships and there had been no cruise ships.

And we do a significant amount of business when cruise ships are sailing.

But they haven't been selling so I can make.

I'll comment I said it was that would be the same as new York with events.

Tourism losses.

Occupied et cetera.

Back to cruise ships and rustic would do 20% more.

But but we don't have those right now so I think there are a lot of reasons to believe that these sales are real and in many cases will do better as the world gets back to more normal.

Second question Jeffrey.

So your strategy in the last several years.

Making some acquisitions.

Family run mom and pop type.

Restaurants that have good reputations and good business models and their respective community has worked very well.

For Orange.

Given.

A post COVID-19 world or the Covid World that we live in I am assuming that there are a number of operators that have either closed down or are limping through this and have not been in a fortunate position, but I don't think there has been in.

That said.

I'm, assuming the broker the business broker that perhaps shows you some of the properties that you've acquired over the years must be.

Sure we have some vacant properties available or people, who just can't continue to hold on like this.

Or currently in the position to make another acquisition I know you talked about the loans being forgiven from the government.

Are you seeing a decent show of the potential.

Restaurants and are you in a financial position to make a move if something attractive came along.

So we're more liquid than we've ever been.

On our balance sheet so yes.

We don't have to go to banks right now to make acquisitions.

Number one so yes, we are.

Certainly in a position to make them.

I'm sort of.

I had a conversation with the board member of one of our board members the other day.

Our our criteria of what we have.

You want to pay as a multiple of cash flow has always been really really conservative.

We believe that we're trying to eliminate the margin risk.

As best we can so we paid and Blue Moon I think we've probably paid in the two five times or three times cash flow at rustic because we bought the land if you take out the land at rustic or shockers or the Alabama properties.

We probably paid three times those deals don't come along very often but the fact that we could be an all cash buyer for people, who want to get out of the business.

Is what makes us an attractive.

Candidate for them to sell into.

And the fact that there arent all cash buyers around because.

Locally people are used to buying things with 30% down in eight years and notes and when you're talking to somebody who is 92, the non interested in eight years and notes.

And the brands don't want them because they don't extend the brand. So we sort of slip in there with an attractive alternative for people who want to sell what's happened is we got blue Moon in October of last year.

Just before things started to change.

I think if those guys.

Who had become friendly with.

New where our sales and what efficiencies we had put in place and the cash flow. We're getting added they would not be sellers today I don't think it's easy to find sellers right now in the markets that we're interested in because everybody is doing a lot of business. So if you survive to this point.

Right now you should be happy.

There is less competition because a lot of restaurants are closed which is another factor and your first question.

But but.

We're not seeing anything that we're really interested in right now.

But we'll wait we'll find something.

And our franchises on the land underneath the operation so.

But we will find things I'm not concerned about that Dell com.

Alright, Thank you Michael.

Youre welcome.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

There are no further questions at this time I'd like to hand, the call back over to Michael Weinstein for any closing comments.

Well thank you all for.

Joining us Roger and Geoffrey Thank you for your questions we.

We will see you in September I'm sort of curious how this all works out for us.

In the September quarter, with the Delta Varian and what impact that has.

But going forward, we're very very positive about our business and.

We're very we're very proud of the people that work for us and what they have done.

And the sacrifices that he made.

To get us to the point, we're making.

A lot of money again.

Relative to our size.

To get through.

And I'm just.

Thrilled that the cooperation we've had.

Everybody, including.

People that Blue Moon, who.

How to take on new ownership.

Not knowing us very well and implementing.

No.

A new way of doing business public company.

And because we're a public company.

And the standards that they had.

Come up too.

In the middle of all of this.

Scott.

Everybody has done a great job for our shareholders.

Yeah.

That's the reason this company is as strong as it is.

Thank you.

The two in October November December sorry.

Our year end for the year.

Our yearend, okay stay healthy everybody.

Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and have a great day.

Sure.